SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


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

                For the quarterly period ended September 30, 1996

                                       OR

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

                         Commission File Number: 1-14162


                      GLENBOROUGH REALTY TRUST INCORPORATED
             (Exact name of registrant as specified in its charter)

               Maryland                           94-3211970
     (State or other jurisdiction              (I.R.S. Employer
   of incorporation or organization)          Identification No.)

       400 South El Camino Real,
   Suite 1100 San Mateo, California
            (415) 343-9300                        94402-1708
(Address of principal executive offices           (Zip Code)
         and telephone number)

              Securities registered under Section 12(b) of the Act:

                                               Name of Exchange
     Title of each class:                    on which registered:
 Common Stock, $.001 par value              New York Stock Exchange

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


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

As of November 8, 1996,  9,636,709 shares of Common Stock ($.001 par value) were
outstanding.



                                    1 of 135
<PAGE>
                                      INDEX
                      GLENBOROUGH REALTY TRUST INCORPORATED

                                                                       Page No.
PART I   FINANCIAL INFORMATION

Item     1.  Consolidated  Financial  Statements  of  Glenborough  Realty  Trust
         Incorporated  and Combined  Financial  Statements  of GRTI  Predecessor
         Entities  (Unaudited  except  for the  Consolidated  Balance  Sheet  at
         December 31, 1995):

            Consolidated Balance Sheets at September 30, 1996 and
            December 31, 1995                                                 4

            Consolidated and Combined Statements of Operations for the
            nine months ended September 30, 1996 and 1995                     5

            Consolidated and Combined Statements of Operations for the
            three months ended September 30, 1996 and 1995                    6

            Consolidated and Combined Statements of Stockholders' Equity for
            the nine months ended September 30, 1996 and 1995                 7

            Consolidated and Combined Statements of Cash Flows for the nine
            months ended September 30, 1996 and 1995                        8-9

            Notes to Consolidated Financial Statements                    10-15

         Consolidated Financial Statements of Glenborough Hotel Group
         (Unaudited):

            Consolidated Balance Sheet at September 30, 1996                 16

            Consolidated Statements of Income for the three and nine
            months ended September 30, 1996                                  17

            Consolidated Statement of Stockholders' Equity for the nine
            months ended September 30, 1996                                  18

            Consolidated Statement of Cash Flows for the nine months ended
            September 30, 1996                                               19

            Notes to Consolidated Financial Statements                    20-23


                                    2 of 135
<PAGE>
                                      INDEX
                      GLENBOROUGH REALTY TRUST INCORPORATED

                                                                        Page No.
Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations:

            Glenborough Realty Trust Incorporated                         24-31

            Glenborough Hotel Group                                       32-33


PART II              OTHER INFORMATION

Item 1.              Legal Proceedings                                    34-35

Item 6.              Exhibits and Reports on Form 8-K                        36

SIGNATURES                                                                   37

EXHIBIT INDEX                                                                38


                                    3 of 135
<PAGE>

Part I.           FINANCIAL INFORMATION

Item 1.           Financial Statements
<TABLE>
<CAPTION>

                      GLENBOROUGH REALTY TRUST INCORPORATED
                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)
                                   (Unaudited)

                                                                           September 30,         December 31,
                                                                                1996                   1995
                                                                            -------------          -------------
<S>                                                                         <C>                    <C>
ASSETS
     Rental property, net of accumulated depreciation of
       $26,959 and $24,877 in 1996 and 1995, respectively                   $     99,165           $     77,574
     Investments in Associated Companies and Glenborough
       Partners                                                                    6,189                  5,763
     Investments in management contracts and other, net                              355                    484
     Mortgage loans receivable, net of provision for loss of
       $863 in 1996 and 1995                                                       7,213                  7,465
     Cash and cash equivalents                                                       610                  4,587
     Prepaid consolidation costs                                                     ---                  6,082
     Prepaid litigation costs                                                        ---                  1,155
     Other assets                                                                  5,673                  2,630
                                                                            -------------          -------------

         TOTAL ASSETS                                                       $    119,205           $    105,740
                                                                            =============          =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
     Mortgage loans                                                         $     29,542           $     23,685
     Secured bank line                                                            29,002                 10,000
     Investor notes payable                                                          ---                  2,483
     Other liabilities                                                             3,541                  5,982
                                                                            -------------          -------------
       Total liabilities                                                          62,085                 42,150
                                                                            -------------          -------------

Minority interest                                                                  8,285                  7,962

Stockholders' Equity:
     Common stock, 5,788,709 and 5,753,709 shares issued
       and outstanding at September 30, 1996, and
       December 31, 1995, respectively                                                 6                      6
     Additional paid-in capital                                                   56,147                 55,622
     Deferred compensation                                                          (446)                   ---
     Retained earnings (deficit)                                                  (6,872)                   ---
                                                                            -------------          -------------
       Total stockholders' equity                                                 48,835                 55,628
                                                                            -------------          -------------

           TOTAL LIABILITIES AND STOCKHOLDERS'
              EQUITY                                                        $    119,205           $    105,740
                                                                            =============          =============

</TABLE>

           See accompanying notes to consolidated financial statements


                                    4 of 135
<PAGE>
<TABLE>
<CAPTION>
                      GLENBOROUGH REALTY TRUST INCORPORATED
                          AND GRTI PREDECESSOR ENTITIES
               CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
              For the nine months ended September 30, 1996 and 1995
                    (in thousands, except per share amounts)
                                   (Unaudited)

                                                                    Glenborough                   GRTI
                                                                    Realty Trust              Predecessor
                                                                    Incorporated                Entities
                                                                    Consolidated                Combined
                                                                 September 30, 1996        September 30, 1995
<S>                                                                <C>                       <C>
REVENUE
     Rental revenue                                                $     11,281              $     11,712
     Fees and reimbursements, including $199
       and $2,909 from affiliates in 1996 and 1995                          199                    10,838
     Interest and other income                                              623                     2,228
     Equity in earnings of Associated Companies                           1,363                       ---
     Gain on sale of rental property                                        321                       ---
                                                                   -------------             -------------
       Total revenue                                                     13,787                    24,778
                                                                   -------------             -------------

EXPENSES
     Property operating expenses                                          3,244                     4,556
     General and administrative                                             977                    10,899
     Depreciation and amortization                                        2,694                     3,562
     Interest expense                                                     2,546                     1,466
                                                                   -------------             -------------
       Total expenses                                                     9,461                    20,483
                                                                   -------------             -------------

Income from operations before provision for
     income taxes, minority interest and extraordinary items              4,326                     4,295

Provision for income taxes                                                  ---                      (300)
Minority interest                                                          (312)                      ---
                                                                   -------------             -------------
Net income before extraordinary items                                     4,014                     3,995

Loss on debt refinancing                                                   (186)                      ---
Consolidation costs                                                      (6,082)                      ---
Litigation costs                                                         (1,155)                      ---
                                                                   -------------             -------------

Net income (loss)                                                  $     (3,409)             $      3,995
                                                                   =============             =============

Net income per share before extraordinary items                    $      0.70
                                                                   =============

Net loss per share                                                 $     (0.60)
                                                                   =============

Weighted average shares outstanding                                   5,763,742
                                                                   =============
</TABLE>

           See accompanying notes to consolidated financial statements


                                    5 of 135
<PAGE>
<TABLE>
<CAPTION>

                      GLENBOROUGH REALTY TRUST INCORPORATED
                          AND GRTI PREDECESSOR ENTITIES
               CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
             For the three months ended September 30, 1996 and 1995
                    (in thousands, except per share amounts)
                                   (Unaudited)

                                                                        Glenborough                   GRTI
                                                                        Realty Trust              Predecessor
                                                                        Incorporated                Entities
                                                                        Consolidated                Combined
                                                                     September 30, 1996        September 30, 1995
<S>                                                                    <C>                       <C>
 REVENUE
     Rental revenue                                                    $      4,242              $      3,748
     Fees and reimbursements, including $66
       and $642 from affiliates in 1996 and 1995                                 66                     3,665
     Interest and other income                                                  253                       416
     Equity in earnings of Associated Companies                                 394                       ---
     Gain on sale of rental property                                            ---                       ---
                                                                       -------------             -------------
       Total revenue                                                          4,955                     7,829
                                                                       -------------             -------------

EXPENSES
     Property operating expenses                                              1,335                     1,516
     General and administrative                                                 302                     3,669
     Depreciation and amortization                                              935                     1,203
     Interest expense                                                         1,125                       383
                                                                       -------------             -------------
       Total expenses                                                         3,697                     6,771
                                                                       -------------             -------------

Income from operations before provision for
     income taxes, minority interest and extraordinary items
                                                                              1,258                     1,058

Provision for income taxes                                                      ---                       (13)
Minority interest                                                               (69)                      ---
                                                                       -------------             -------------
Net income before extraordinary item                                          1,189                     1,045

Loss on debt refinancing                                                       (186)                      ---
                                                                       -------------             -------------

Net income                                                             $      1,003              $      1,045
                                                                       =============             =============

Net income per share                                                   $      0.17
                                                                       =============

Weighted average shares outstanding                                       5,778,545
                                                                       =============
</TABLE>

           See accompanying notes to consolidated financial statements


                                    6 of 135
<PAGE>
<TABLE>
<CAPTION>
                      GLENBOROUGH REALTY TRUST INCORPORATED
                          AND GRTI PREDECESSOR ENTITIES
          CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
             For the nine months ended September 30, 1996 and 1995
                                 (in thousands)
                                   (Unaudited)

                                                       GRTI Predecessor Entities Combined
                                                                                          Receivable
                                                                           Additional        from         Retained
                                   General       Limited       Common       Paid-in         Stock-        Earnings
                                   Partner      Partners       Stock        Capital         holder       (Deficit)      Total
                                 -------------------------------------------------------------------------------------------------

<S>                              <C>          <C>           <C>          <C>            <C>             <C>          <C>
Balance, December 31, 1994       $    (1,730) $     85,337  $         5  $      6,613   $       (8,763) $      (904) $    80,558

Distributions                            (93)       (9,375)         ---           ---              ---          ---       (9,468)

Redemption of shares                     ---           ---           (2)       (6,613)             ---       (4,002)     (10,617)

Repayment of Stockholder
     advances, net                       ---           ---          ---           ---            8,763          ---        8,763

Net income                                25         2,362          ---           ---              ---        1,608        3,995
                                 -------------------------- ----------------------------------------------------------------------

Balance, September 30, 1995      $    (1,798) $     78,324  $         3  $        ---   $          ---  $    (3,298) $    73,231
                                 ========================== ======================================================================

</TABLE>
<TABLE>
<CAPTION>
                                                                 Glenborough Realty Trust Incorporated

                                                    Common Stock          Additional      Deferred       Retained
                                                               Par         Paid-in         Compen-       Earnings
                                                 Shares        Value         Capital        sation       (Deficit)       Total
                                              ------------- ------------- -------------- -------------- ------------- ------------

<S>                                                  <C>   <C>          <C>            <C>             <C>          <C>
Balance, December 31, 1995                           5,754 $          6 $       55,622 $         ---   $       ---  $    55,628

Issuance of stock to
     directors and officers                             35          ---            525          (446)          ---           79

Dividends                                              ---          ---            ---           ---        (3,463)      (3,463)

Net loss                                               ---          ---            ---           ---        (3,409)      (3,409)
                                              -----------------------------------------------------------------------------------

Balance, September 30, 1996                          5,789 $          6 $       56,147 $        (446)  $    (6,872) $    48,835
                                              ===================================================================================
</TABLE>

           See accompanying notes to consolidated financial statements

                                    7 of 135
<PAGE>
<TABLE>
<CAPTION>

                      GLENBOROUGH REALTY TRUST INCORPORATED
                          AND GRTI PREDECESSOR ENTITIES
               CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
              For the nine months ended September 30, 1996 and 1995
                    (in thousands, except per share amounts)
                                   (Unaudited)

                                                                         Glenborough                   GRTI
                                                                        Realty Trust                Predecessor
                                                                        Incorporated                 Entities
                                                                        Consolidated                 Combined
                                                                     September 30, 1996         September 30, 1995
<S>                                                                    <C>                         <C>
Cash flows from operating activities:
     Net income (loss)                                                 $       (3,409)             $        3,995
     Adjustments to reconcile net income (loss)
       to net cash provided by (used for) operating
       activities:
         Depreciation and amortization                                          2,694                       3,562
         Amortization of loan fees, included in
           interest expense                                                       141                          69
         Gain on sale of rental property                                         (321)                        ---
         Minority interest in income from operations                              312                         ---
         Equity in earnings of Associated
           Companies                                                           (1,363)                        ---
         Loss on debt refinancing                                                 186                         ---
         Consolidation costs                                                    6,082                         ---
         Litigation costs                                                       1,155                         ---
         Changes in certain assets and liabilities, net                        (5,475)                    (17,064)
                                                                       ---------------             ---------------

         Net cash provided by (used for) operating
           activities                                                               2                      (9,438)
                                                                       ---------------             ---------------

Cash flows from investing activities:
     Proceeds from sale of rental property                                      2,882                         ---
     Additions to rental property                                             (26,631)                     (3,189)
     Principal receipts on mortgage loans receivable                              252                      12,184
     Investments in Associated Companies                                         (389)                        ---
     Dividends from Associated Companies                                        1,326                         ---
                                                                       ---------------             ---------------

         Net cash provided by (used for) investing
           activities                                                         (22,560)                      8,995
                                                                       ---------------             ---------------
</TABLE>

                                    continued

           See accompanying notes to consolidated financial statements


                                    8 of 135
<PAGE>
<TABLE>
<CAPTION>

                      GLENBOROUGH REALTY TRUST INCORPORATED
                          AND GRTI PREDECESSOR ENTITIES
         CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS - continued
              For the nine months ended September 30, 1996 and 1995
                    (in thousands, except per share amounts)
                                   (Unaudited)

                                                                         Glenborough                  GRTI
                                                                        Realty Trust              Predecessor
                                                                        Incorporated                Entities
                                                                        Consolidated                Combined
                                                                     September 30, 1996        September 30, 1995
<S>                                                                    <C>                        <C>
Cash flows from financing activities:
     Proceeds from borrowings                                          $       35,122             $         ---
     Repayment of borrowings                                                  (10,263)                   (5,981)
     Payment of investor notes                                                 (2,483)                      ---
     Distributions to minority partners                                          (332)                      ---
     Repayments from Stockholder, net                                             ---                     8,763
     Dividends and distributions                                               (3,463)                   (9,468)
     Redemption of shares                                                         ---                   (10,617)
                                                                       ---------------            --------------

         Net cash provided by (used for) financing
           activities                                                          18,581                   (17,303)
                                                                       ---------------            --------------

Net decrease in cash and cash equivalents                                      (3,977)                  (17,746)

Cash and cash equivalents at beginning of period                                4,587                    23,929
                                                                       ---------------            --------------

Cash and cash equivalents at end of period                             $          610             $       6,183
                                                                       ===============            ==============

Supplemental disclosure of cash flow information:

     Cash paid for interest                                            $        2,070             $       1,397
                                                                       ===============            ==============
</TABLE>

           See accompanying notes to consolidated financial statements


                                    9 of 135
<PAGE>
                      GLENBOROUGH REALTY TRUST INCORPORATED
                          AND GRTI PREDECESSOR ENTITIES

                   Notes to Consolidated Financial Statements

                               September 30, 1996
                                   (Unaudited)

Note 1.           ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Glenborough Realty Trust Incorporated (the "Company" and/or "GLB") was organized
in the State of Maryland on August 26, 1994.  It is the intent of the Company to
qualify as a real estate  investment  trust ("REIT") under the Internal  Revenue
Code of 1986, as amended (the  "Code").  The Company  completed a  consolidation
with certain  public  California  limited  partnerships  and other entities (the
"Consolidation")  engaged  in real  estate  activities  (the  "GRTI  Predecessor
Entities")  through an exchange of assets of the GRTI  Predecessor  Entities for
5,753,709 shares of Common Stock of the Company.  The Consolidation  occurred on
December 31, 1995, and the Company commenced operations on January 1, 1996.

To maintain the Company's  qualification as a REIT, no more than 50% in value of
the outstanding shares of the Company may be owned,  directly or indirectly,  by
five or fewer  individuals  (defined  to  include  certain  entities),  applying
certain  constructive  ownership rules. To help ensure that the Company will not
fail this test, the Company's  Charter provides for certain  restrictions on the
transfer  of  the  Common  Stock  to  prevent  further  concentration  of  stock
ownership.

The  Company,  through  several  subsidiaries,   is  engaged  primarily  in  the
ownership,   operation,   management,   leasing,   acquisition,   expansion  and
development  of  various  income-producing   properties.   The  Company's  major
consolidated subsidiary,  in which it holds a 1% general partner interest and an
84.31% limited partner interest, is Glenborough Properties, L.P. (the "Operating
Partnership"). As of September 30, 1996, the Operating Partnership, directly and
indirectly through various  subsidiaries in which it and the Company own 100% of
the  ownership  interests,  controls a total of 37 real estate  projects and two
notes receivable.  The remaining limited partnership  interests in the Operating
Partnership  are owned 14.37% by GPA,  Ltd., an affiliated  partnership  ("GPA")
which  exchanged  certain  of its  assets  for  an  interest  in  the  Operating
Partnership,  and  0.32% by Robert  Batinovich  (Chairman,  President  and Chief
Executive Officer of the Company).

The  Company  also  holds  100%  of the  non-voting  preferred  stock  of  three
associated companies (the "Associated Companies"):

Glenborough  Corporation  (formerly  known as  Glenborough  Realty  Corporation)
("GC")  is the  general  partner  of six  partnerships  and  provides  asset and
property  management services for these six partnerships and one partnership for
which an affiliate serves as general partner (the "Controlled Partnerships"). It
also provides property  management  services for a limited portfolio of property
owned by unaffiliated third parties.


                                   10 of 135
<PAGE>
Glenborough   Inland   Realty   Corporation    ("GIRC")   provides   partnership
administration,  asset management,  property management and development services
under a long term contract to an additional  group of unaffiliated  partnerships
which include seven public partnerships.

Glenborough Hotel Group ("GHG") leases the four Country Suites By Carlson hotels
owned by the Company and  operates  them for its own account.  It also  operates
three Country Suites By Carlson  hotels,  owned by the Controlled  Partnerships,
and two resort condominium hotels.

The Company's  investments in the  Associated  Companies are accounted for using
the equity method.

Basis of  Presentation  - The  accompanying  financial  statements  present  the
consolidated  financial  position  of the Company as of  September  30, 1996 and
December 31, 1995, the  consolidated  statements of operations and cash flows of
the Company  for the nine  months  ended  September  30,  1996 and the  combined
statements of operations and cash flows of the GRTI Predecessor Entities for the
nine months ended  September  30, 1995, as the  Consolidation  was not effective
until December 31, 1995. All intercompany transactions, receivables and payables
have been eliminated in consolidation and combination.

In the opinion of management,  the accompanying  unaudited financial  statements
contain all  adjustments  (consisting  of only  normal  accruals)  necessary  to
present  fairly the financial  position and results of operations of the Company
as of September 30, 1996 and for the period then ended.

Reclassification  - Certain 1995 balances have been reclassified to conform with
the current year presentation.

Note 2.           REFERENCE TO 1995 AUDITED FINANCIAL STATEMENTS

These  unaudited  financial  statements  should be read in conjunction  with the
Notes to Financial Statements included in the 1995 audited financial statements.

Note 3.           INVESTMENTS IN ASSOCIATED COMPANIES AND GLENBOROUGH
                  PARTNERS

The Company's  investments in the Associated  Companies are accounted for on the
equity method as the Company has  significant  ownership  interests  through its
100%  preferred  stock  ownership  but does not own any  voting  interests.  The
Company records earnings on its investments in the Associated Companies equal to
its cash flow preference,  to the extent of earnings, plus its pro rata share of
remaining earnings, based on cash flow allocation percentages. Dividends

                                   11 of 135
<PAGE>
                      GLENBOROUGH REALTY TRUST INCORPORATED
                          AND GRTI PREDECESSOR ENTITIES

                   Notes to Consolidated Financial Statements

                               September 30, 1996
                                   (Unaudited)

received  from the  Associated  Companies  are  recorded as a  reduction  of the
Company's  investments.  The Company's investment in Glenborough Partners ("GP")
is  accounted  for on the cost method as the Company  holds only a 3.9%  limited
partnership interest.

As of September  30, 1996 and  December  31, 1995 the Company had the  following
investments in the Associated Companies and GP (in thousands):
<TABLE>
<CAPTION>

                                        GC             GIRC            GHG              GP            Total
                                   ------------    -----------     -----------     -----------     -----------

<S>                                <C>              <C>             <C>             <C>             <C>
Investment at December 31, 1995    $      (109)     $    3,919      $    1,368      $      585      $    5,763

Cash contributions                          94              95             200             ---             389

Dividends                                 (454)           (806)            (66)            ---          (1,326)

Equity in earnings                         391             870             102             ---           1,363
                                  ------------     -----------     -----------     -----------     -----------

Investment at September 30, 1996   $       (78)     $    4,078      $    1,604      $      585      $    6,189
                                  ============     ===========     ===========     ===========     ===========
</TABLE>

On October  22,  1996 and  November  7, 1996,  the  boards of  directors  of the
Associated  Companies declared the following  respective dividends to be paid in
the fourth quarter (in thousands):
<TABLE>
<CAPTION>
                                               GC               GIRC               GHG              Total
                                        --------------    --------------    --------------    --------------

<S>                                     <C>               <C>               <C>               <C>
Preferred dividends to the Company      $          4      $           4     $          7      $          15

Additional dividends to the Company              143                399               17                559
                                        --------------    --------------    --------------    --------------

Total dividends to the Company                   147                403               24                574

Dividends to others                                8                 21                6                 35
                                        --------------    --------------    --------------    --------------

Total dividends                         $        155      $         424     $         30      $         609
                                        ==============    ==============    ==============    ==============
</TABLE>


Financial  statements and notes thereto of Glenborough Hotel Group follow Note 8
of the Company's Notes to Consolidated Financial Statements.


                                   12 of 135
<PAGE>
                      GLENBOROUGH REALTY TRUST INCORPORATED
                          AND GRTI PREDECESSOR ENTITIES

                   Notes to Consolidated Financial Statements

                               September 30, 1996
                                   (Unaudited)

Note 4.           STOCK COMPENSATION PLAN

In May 1996, the Company  adopted an employee stock  incentive plan (the "Plan")
to provide  incentives to attract and retain high quality executive officers and
key employees.  The number of shares of Common Stock reserved for issuance under
the Plan is 680,000. As of September 30, 1996, options to purchase approximately
35,000 shares of Common Stock at an average  exercise  price of $15.00 per share
have been  granted  under the Plan.  The market  value of the shares  subject to
options on the date of grant have been recorded as deferred  compensation in the
accompanying  financial  statements and will be charged to earnings ratably over
the vesting periods. To date, no options have been exercised.

Note 5.           LITIGATION SETTLEMENT

Prior to the  completion of the  Consolidation,  two lawsuits were filed in 1995
contesting the fairness of the Consolidation,  one in California State court and
one in federal  court.  The  complaints  in both  actions  alleged,  among other
things,   breaches  by  the  defendants  of  fiduciary   duties  and  inadequate
disclosures. The State court action was settled, and the settlement was approved
by the State  court  despite  objections  by certain  members of the class,  who
subsequently  filed an appeal.  Pursuant to the terms of the  settlement  in the
State court  action,  pending the appeal the Company has paid  one-third  of the
$855,000 settlement amount and the remaining two-thirds is being held in escrow.
In the  federal  action,  the court in  December  of 1995  deferred  all further
proceedings  pending a ruling in the State  court  action.  Following  the State
court  decision  approving  the  settlement,  the  defendants  filed a motion to
dismiss  the  federal  court  action.   Given  the  inherent   uncertainties  of
litigation,  there  can be no  assurance  that the  ultimate  outcomes  of these
actions will be favorable to the Company.

Note 6.           WELLS FARGO SECURED DEBT

On July 15, 1996,  the Company  entered into two new financing  agreements  with
Wells Fargo Bank,  N.A.  ("Wells  Fargo").  The first  financing  agreement (the
"Facility") is a $50,000,000  secured revolving line of credit.  The Facility is
secured by first mortgages on selected Company  properties with full recourse to
the Company and  availability is limited to the borrowing base provided by these
properties.  The Facility has a term of two years, subject to annual extensions.
At the Company's option, the Facility will bear interest at LIBOR plus 2.375% or
at a base rate. The base rate is based on the higher of Wells Fargo's prime rate
plus 0.5% or the Federal Funds Rate plus 1.0%. The second financing  arrangement
(the "Term Loan") is a two-year term loan in the amount of $6,100,000 that bears
interest at the same rate as the Facility and is secured by first mortgage liens
on 10 "QuikTrip" facilities owned by the Company. The initial fundings under the
Facility and the Term Loan  totaled  $28,400,000,  of which the Company  applied
$18,300,000  towards the  acquisition  of the UCT Property,  $9,200,000  for the


                                   13 of 135
<PAGE>
                      GLENBOROUGH REALTY TRUST INCORPORATED
                          AND GRTI PREDECESSOR ENTITIES

                   Notes to Consolidated Financial Statements

                               September 30, 1996
                                   (Unaudited)

repayment of the outstanding amount under the then existing  line-of-credit with
Imperial Bank, and the balance to loan fees and closing costs.  Initial  funding
under the Facility and full  disbursement  of the Term Loan occurred on July 15,
1996.  Through  September 30, 1996,  the Company drew an  additional  $6,700,000
under the Facility to finance the  acquisitions  of the San Antonio  Hotel,  the
shopping center expansion and the Bond Street  Property.  In October 1996, stock
offering  proceeds  (see Note 9 for  further  discussion)  were used to  paydown
$24,000,000 of the Facility, leaving an outstanding balance of $4,600,000.

Note 7.           DECLARATION OF DIVIDENDS

On April 24, 1996, the Company's Board of Directors  declared a dividend for the
first quarter of $0.30 per share or $1,726,000 which was paid on May 13, 1996 to
Stockholders  of record at the close of business on May 6, 1996.  Such  dividend
was made from the  Company's  cash  reserves at March 31, 1996 combined with the
first quarter dividends received from the Associated Companies.

On July 24, 1996, the Company's  Board of Directors  declared a dividend for the
second  quarter of $0.30 per share or  $1,731,000  payable on August 14, 1996 to
Stockholders of record at the close of business on August 5, 1996. Such dividend
was made from the  Company's  cash  reserves at September 30, 1996 combined with
the second quarter dividends received from the Associated Companies.

On October 23, 1996,  the Company's  Board of Directors  declared a dividend for
the third quarter of $0.30 per share or $3,084,000  payable on November 13, 1996
to  Stockholders  of record at the close of business  on November 4, 1996.  Such
dividend  will be made from the  Company's  cash  reserves at September 30, 1996
combined with the third quarter dividends received from the Associated Companies
and funding under the Wells Fargo Facility.

Note 8.           SUBSEQUENT EVENTS

In October 1996, the Company completed an offering of 3,666,000 shares of common
stock (the "October  1996  Offering").  The 3,666,000  shares were sold at a per
share price of $13.875 for total proceeds of $47,814,000 (net of 6% underwriting
fee of  $3,052,000).  This  additional  capital  was  used  to  acquire  the TRP
Properties,  and to repay most of the  outstanding  balance  under the Company's
Facility with Wells Fargo which is now available to fund future acquisitions. In
addition,  approximately  $1,100,000  in other costs were incurred in connection
with the offering.

On October 17, 1996, the Company's Operating Partnership acquired a portfolio of
twelve properties (the "TRP Properties") located in six states. Included are six
industrial,  three office, one retail and two multifamily  properties comprising
1,250,000 square feet. The total purchase price was $41,300,000, which comprised


                                   14 of 135
<PAGE>


                      GLENBOROUGH REALTY TRUST INCORPORATED
                          AND GRTI PREDECESSOR ENTITIES

                   Notes to Consolidated Financial Statements

                               September 30, 1996
                                   (Unaudited)

the cash payoff of  $23,001,000  of mortgage debt, the assumption of $16,300,000
of mortgage  debt,  issuance  of 52,386  Operating  Partnership  Units which are
redeemable for, at the Company's option, cash or stock based on a per Unit value
equal to the market value of the Company's  common stock, and issuance of 85,448
shares of the Company's  common stock. The acquisition was financed in part with
proceeds from the October 1996 Offering.  This  transaction  was structured as a
contribution  of the twelve  properties and the mortgage debt on such properties
by Trust Realty  Partners  ("TRP") to the Operating  Partnership in exchange for
the above  noted  Operating  Partnership  units and  Company  common  stock.  In
addition, Trust Realty Advisors ("TRA"), the then manager of the TRP Properties,
transferred to the Company all of TRA's rights, title and interest in and to the
Management  Agreement  and the  Leasing  Agreement  for the  TRP  Properties  in
exchange for 96,552 shares of the Company's common stock.

On October  22,  1996,  the Company  entered  into a letter of intent to acquire
approximately  $25,000,000  of real estate from a  California-based  real estate
firm.  The  real  estate  portfolio  includes  office,   industrial  and  retail
properties encompassing nearly 400,000 square feet of net rentable area, located
in California,  Arizona and Utah. This  acquisition  will be financed  through a
combination of assumption of debt,  issuance of Operating  Partnership  Units or
Company  common stock and cash.  The Company has completed its due diligence and
expects  to  execute  definitive  documentation  and  close the  transaction  by
mid-November.  However,  there can be no assurance  that these  properties  will
ultimately be acquired by the Company.



                                   15 of 135
<PAGE>


<TABLE>
<CAPTION>
                             GLENBOROUGH HOTEL GROUP
                           CONSOLIDATED BALANCE SHEET
                            As of September 30, 1996
                      (in thousands, except share amounts)
                                   (Unaudited)



ASSETS
<S>                                                         <C>
Rental property and equipment, net of
  accumulated depreciation of $106                          $       175
Investments in management contracts, net                            449
Cash and cash equivalents                                           449
Investment in Atlantic Pacific Assurance
  Company Limited                                                   755
Other assets                                                        522
                                                            ------------
         TOTAL ASSETS                                       $     2,350
                                                            ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Mortgage loan                                             $        67
  Accrued lease expense                                             223
  Other liabilities                                                 427
                                                            ------------

         Total liabilities                                          717
                                                            ------------

Stockholders' Equity:
Common stock, 1,000 shares                                          20
Non-Voting preferred stock, 50 shares                              ---
Additional paid-in capital                                       1,568
Retained earnings                                                   45
                                                            ------------

         Total stockholders' equity                              1,633
                                                            ------------

         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY        $     2,350
                                                            ============
</TABLE>

           See accompanying notes to consolidated financial statements


                                   16 of 135
<PAGE>


<TABLE>
<CAPTION>

                             GLENBOROUGH HOTEL GROUP
                        CONSOLIDATED STATEMENTS OF INCOME
                                 (in thousands)
                                   (Unaudited)


                                                          Three Months                Nine Months
                                                              Ended                      Ended
                                                       September 30, 1996          September 30, 1996
                                                       ------------------          ------------------
REVENUE
<S>                                                       <C>                        <C>
    Room revenue                                          $    1,948                 $      5,532
    Fees and reimbursement                                       280                        1,463
    Other                                                        206                          445
                                                         -------------                -------------

         Total revenue                                         2,434                        7,440
                                                         -------------                -------------

EXPENSES
    Leased Hotel Properties:
      Room expenses                                              476                        1,468
      Lease payments to an affiliate                             575                        1,843
      Sales and marketing to an affiliate                        190                          571
      Property general and administrative expenses               228                          597
      Other operating expenses                                   303                          751

    Managed Hotel Properties:
      Salaries and benefits                                      385                        1,222

Other Expenses:
    General and administrative                                   240                          706
    Depreciation and amortization                                 25                           74
    Interest expense                                               1                            4
                                                         -------------                -------------

         Total expenses                                        2,423                        7,236
                                                         -------------                -------------

Income from operations before provision
   for income taxes                                               11                          204

Provision for income taxes                                       ---                          (76)
                                                          -------------                -------------

Net income          `                                     $       11                 $        128
                                                          =============                =============
</TABLE>

           See accompanying notes to consolidated financial statements


                                   17 of 135
<PAGE>


<TABLE>
<CAPTION>
                             GLENBOROUGH HOTEL GROUP
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                  For the nine months ended September 30, 1996
                          (in thousands, except shares)
                                   (Unaudited)



                                                                                         Addi-tional
                                           Preferred Stock            Common Stock                       Retained
                                                       Par                     Par         Paid-in       Earnings
                                         Shares       Value      Shares       Value        Capital      (Deficit)      Total
                                       -----------  ----------  ----------  -----------  ------------  ------------- -----------

<S>                                            <C>  <C>             <C>     <C>          <C>           <C>           <C>
Balance, December 31, 195                      50   $     ---       1,000   $       20   $     1,368   $       ---   $   1,388

Additional paid-in capital                    ---          ---         ---          ---           200           ---         200

Dividends                                     ---          ---         ---          ---           ---           (83)        (83)

Net income                                    ---          ---         ---          ---           ---           128         128
                                        -----------  ----------  ----------  -----------  ------------  ------------- -----------

Balance, September 30, 1996                    50   $     ---       1,000   $       20   $     1,568   $        45   $   1,633
                                       ===========  ==========  ==========  ===========  ============  ============= ===========

</TABLE>


           See accompanying notes to consolidated financial statements


                                   18 of 135
<PAGE>


<TABLE>
<CAPTION>

                             GLENBOROUGH HOTEL GROUP
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                  For the nine months ended September 30, 1996
                                 (in thousands)
                                   (Unaudited)



Cash flows from operating activities:
<S>                                                                                       <C>
     Net income                                                                           $        128
     Adjustments  to  reconcile  net income to net cash  provided  by  operating
       activities:
         Depreciation and amortization                                                              74
         Changes in certain assets and liabilities                                                 123
                                                                                          -------------

         Net cash provided by operating activities                                                 325
                                                                                          -------------

Cash flows from investing activities:
     Additions to equipment                                                                         (7)
                                                                                          -------------

         Net cash used for investing activities                                                     (7)
                                                                                          -------------

Cash flows from financing activities:
     Capital contributions                                                                         200
     Dividends                                                                                     (83)
     Repayment of borrowings                                                                       (19)
                                                                                          -------------

         Net cash provided by financing activities                                                  98
                                                                                          -------------

     Net increase in cash                                                                          416

     Cash and cash equivalents at beginning of period                                               33
                                                                                          -------------

     Cash and cash equivalents at end of period                                           $        449
                                                                                          =============

Supplemental disclosure of cash flow information:

         Cash paid for interest                                                           $          4
                                                                                          =============
</TABLE>

           See accompanying notes to consolidated financial statements


                                   19 of 135
<PAGE>
                             GLENBOROUGH HOTEL GROUP
                   Notes to Consolidated Financial Statements

                               September 30, 1996
                                   (Unaudited)


Note 1.           ORGANIZATION

Glenborough  Hotel  Group  ("GHG")  was  organized  in the  State of  Nevada  on
September 23, 1991. GHG currently operates hotel properties owned by Glenborough
Realty Trust  Incorporated  ("GLB")  under four separate  percentage  leases and
manages three hotel properties owned by two partnerships  whose managing general
partner is Glenborough Corporation. GLB owns 100% of the 50 shares of non-voting
preferred stock of GHG and three individuals, including one executive officer of
GLB, each own 33 1/3% of the 1,000 shares of voting common stock of GHG.

GHG also  owns  approximately  80% of the  common  stock of Resort  Group,  Inc.
("RGI"). RGI manages homeowners associations and rental pools for two beachfront
resort condominium hotel properties and owns six units at one of the properties.
GHG receives 100% of the earnings of RGI and  consolidates  its operations  with
its own.

GHG also owns 94% of the outstanding  common stock of Atlantic Pacific Holdings,
Ltd., the sole owner of 100% of the common stock of Atlantic  Pacific  Assurance
Company,  Limited ("APAC"),  a Bermuda  corporation formed to underwrite certain
insurable  risks  of  certain  of GLB's  predecessor  partnerships  and  related
entities. APAC no longer underwrites any business and it is expected that it may
be  liquidated in 1997.  GHG accounts for its  investment in APAC using the cost
method due to its anticipated liquidation.

Note 2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of  Presentation  - The  accompanying  financial  statements  present  the
consolidated  financial position of GHG and RGI as of September 30, 1996 and the
consolidated  results of  operations  and cash flows of GHG and RGI for the nine
months ended September 30, 1996. All intercompany transactions,  receivables and
payables have been eliminated in the consolidation.

In the opinion of management,  the accompanying  unaudited financial  statements
contain  all  adjustments  (consisting  only of normal  accruals)  necessary  to
present fairly, the consolidated  financial position and consolidated results of
operations of GHG as of September 30, 1996 and for the period then ended.

Pervasiveness  of  Estimates  -  The  preparation  of  financial  statements  in
conformity with generally accepted accounting  principles 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 results of  operations  during the reporting
period. Actual results could differ from those estimates.



                                   20 of 135
<PAGE>


                             GLENBOROUGH HOTEL GROUP
                   Notes to Consolidated Financial Statements

                               September 30, 1996
                                   (Unaudited)


Rental  Property - Rental  properties  are stated at cost  unless  circumstances
indicate that cost cannot be recovered, in which case, the carrying value of the
property is reduced to estimated fair value.

Depreciation is provided using the straight line method over the useful lives of
the respective assets.

Investments in Management  Contracts - Investments  in management  contracts are
recorded at cost and are amortized on a straight-line basis over the term of the
contracts.

Cash  Equivalents  - The Company  considers  short-term  investments  (including
certificates  of deposit) with a maturity of three months or less at the time of
investment to be cash equivalents.

Note 3.           RENTAL PROPERTY

Rental  property and equipment of $281,000,  net of accumulated  depreciation of
$106,000 at September 30, 1996 represents the six condominium  hotel units owned
by RGI as well as furniture  and fixtures in GHG's  corporate  offices.  The six
units owned by RGI participate in a resort rental program on an "at will" basis,
whereby there is no fixed term of participation.  Such  participation  generated
approximately $17,000 of cash flow after deductions for capital reserves for the
nine months ended September 30, 1996.

Note 4.           INVESTMENTS IN MANAGEMENT CONTRACTS

Investments  in management  contracts  reflects the  unamortized  portion of the
management  contracts RGI holds with the two beachfront resort condominium hotel
properties  for management of the  homeowners  associations  and the rental pool
programs.

Note 5.           MORTGAGE LOAN

Mortgage  loan of $67,000  represents  the debt  secured by the six  condominium
hotel units  owned by RGI.  Such debt bears  interest at 7%,  payable in monthly
installments  of  principal  and interest  totaling  $2,304 and matures June 30,
1999.

Note 6.           THE PERCENTAGE LEASES

GHG is leasing the four hotels owned by GLB for a term of five years pursuant to
percentage  leases  ("Percentage  Leases")  which  provide for rent equal to the
greater of the Base Rent (as defined in the lease) or a specified  percentage of
rent  (the  "Percentage  Rent").  Each  hotel is  separately  leased to GHG (the
"lessee").  The lessee's  ability to make rent payments will, to a large degree,
depend on its ability to generate  cash flow from the  operations of the hotels.
Each Percentage Lease contains the provisions described below.


                                   21 of 135
<PAGE>


                             GLENBOROUGH HOTEL GROUP
                   Notes to Consolidated Financial Statements

                               September 30, 1996
                                   (Unaudited)


Each  Percentage  Lease has a  non-cancelable  term of five  years,  subject  to
earlier  termination upon the occurrence of certain  contingencies  described in
the Percentage  Lease.  The lessee under the Percentage  Lease has one five-year
renewal option at the then current fair market rent.

During the term of each  Percentage  Lease,  the lessee is  obligated to pay the
greater  of Base  Rent or  Percentage  Rent.  Base Rent is  required  to be paid
monthly  in  advance.   Percentage  Rent  is  calculated  by  multiplying  fixed
percentages  by room  revenues  for  each of the  four  hotels;  the  applicable
percentage changes when revenue exceeds a specified threshold, and the threshold
may be adjusted annually in accordance with changes in the applicable CPI.
Percentage Rent is due quarterly.

The table below sets forth the annual Base Rent and the Percentage Rent formulas
for each of the four hotels.
<TABLE>
<CAPTION>

                           Hotel Lease Rent Provision


                                                                   Rent Incurred
                                                             For the Nine months ended
                                Initial Annual Base Rent         September 30, 1996                 Annual Percentage
           Hotel                                                                                      Rent Formulas
----------------------------    -------------------------    ---------------------------    -----------------------------------

<S>                                    <C>                             <C>                  <C>
Ontario, CA                            $  240,000                      $  297,000           24% of  the  first  $1,575,000  of
                                                                                            room  revenue  plus  40%  of  room
                                                                                            revenue  above  $1,575,000  and 5%
                                                                                            of other revenue

Arlington, TX                             360,000                         558,000           27% of  the  first  $1,600,000  of
                                                                                            room  revenue  plus  42%  of  room
                                                                                            revenue  above  $1,600,000  and 5%
                                                                                            of other revenue

</TABLE>


                                   22 of 135
<PAGE>


                             GLENBOROUGH HOTEL GROUP
                   Notes to Consolidated Financial Statements

                               September 30, 1996
                                   (Unaudited)
<TABLE>
<CAPTION>

                     Hotel Lease Rent Provision (continued)

                                                                   Rent Incurred
                                                             For the Nine months ended
                                Initial Annual Base Rent         September 30, 1996                 Annual Percentage
           Hotel                                                                                      Rent Formulas
----------------------------    -------------------------    ---------------------------    -----------------------------------

<S>                                       <C>                             <C>               <C>
Tucson, AZ                                600,000                         936,000           40% of  the  first  $1,350,000  of
                                                                                            room  revenue  plus  46%  of  room
                                                                                            revenue  above  $1,350,000  and 5%
                                                                                            of other revenue

San Antonio, TX                           312,000                          52,000           33% of  the  first  $1,200,000  of
                                                                                            room  revenue  plus  40%  of  room
                                                                                            revenue  above  $1,200,000  and 5%
                                                                                            of other revenue
</TABLE>

Other than real estate and personal property taxes, casualty insurance,  a fixed
capital  improvement  allowance and  maintenance  of  underground  utilities and
structural elements,  which are the responsibility of GLB, the Percentage Leases
require the Lessees to pay rent,  insurance,  salaries,  utilities and all other
operating costs incurred in the operation of the hotels.

Note 7.           DECLARATION OF DIVIDENDS

On April 23, 1996,  the board of directors  of GHG  declared  dividends  for the
first  quarter  of  $50,000 of which  $39,400  was made to GLB as the  preferred
stockholder and the balance to the holders of GHG's common stock.

On July 23,  1996,  the board of directors  of GHG  declared  dividends  for the
second  quarter  of $33,000 of which  $27,000  was made to GLB as the  preferred
stockholder and the balance to the holders of GHG's common stock.

On October 22, 1996,  the board of directors of GHG declared  dividends  for the
third  quarter  of  $30,000 of which  $24,000  was made to GLB as the  preferred
stockholder and the balance to the holders of GHG's common stock.

                                   23 of 135
<PAGE>


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

GLENBOROUGH REALTY TRUST INCORPORATED AND GRTI PREDECESSOR ENTITIES

Statements  contained in this Item 2,  "Management's  Discussion and Analysis of
Financial Conditions and Results of Operations," and elsewhere in this Quarterly
Report  on Form  10-Q  which are not  historical  facts  may be  forward-looking
statements. Such statements are subject to certain risks and uncertainties which
could cause actual results to differ materially from those projected, including,
but not limited to,  those  risks and  special  considerations  set forth in the
Company's  other  Securities  and  Exchange  Commission  filings.   Readers  are
cautioned not to place undue reliance on these forward-looking  statements which
speak only as of the date  hereof.  The  Company  undertakes  no  obligation  to
publicly release the result of any revision to these forward-looking  statements
which may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.

Background

The Company is a REIT engaged primarily in the ownership, operation, management,
leasing and acquisition of various types of income-producing  properties.  As of
September  30,  1996,  the  Company  owned  and  operated  37   income-producing
properties  (the  "Properties,"  and each a  "Property")  and held two  mortgage
receivables.  In October  1996,  the  Company  acquired 12  properties  (the TRP
Properties,  discussed below), which brings the total owned by the Company to 49
properties,  located  in 17  states.  The  following  indicates  the  number  of
properties, by type, owned by the Company as of September 30, 1996, and upon the
acquisition of the TRP Properties:

                                                       Upon
                                As of              Acquisition
                            September 30,             of TRP
                                1996                Properties
                          ------------------    -------------------

Retail                            19                    20
Industrial                         8                    14
Office                             4                     7
MultiFamily                        1                     3
Hotel                              5                     5
                          ------------------    -------------------

                                  37                    49
                          ==================    ===================

The Company was  incorporated  in the State of Maryland on August 26,  1994.  On
December 31, 1995, the Company completed the Consolidation in which GC and eight
public  limited  partnerships  (the  "Partnerships")  collectively,   the  "GRTI
Predecessor  Entities," merged with and into the Company. The Company (i) issued
shares (the  "Shares") of the $.001 par value Common Stock of the Company to the
Partnerships  in exchange  for the net assets of the  Partnerships;  (ii) merged
with GC, with the Company being the surviving entity; (iii) acquired an interest
in three Associated  Companies that provide asset and property management


                                   24 of 135
<PAGE>


services, as well as other services; and (iv) through the Operating Partnership,
acquired  interests in certain  warehouse  distribution  facilities  from GPA. A
portion  of  the  Company's  operations  are  conducted  through  the  Operating
Partnership,  of which the Company is the sole general  partner and in which the
limited  partner  interests not held by the Company at September  30, 1996,  are
held by GPA and Robert  Batinovich.  The Company operates the assets acquired in
the  Consolidation and intends to invest in  income-producing  property directly
and through joint ventures.  In addition,  the Associated  Companies may acquire
general partner interests in other real estate limited partnerships. The Company
intends  to  qualify  as a REIT  under the  Internal  Revenue  Code of 1986,  as
amended.  The  Common  Stock of the  Company  is  listed  on the New York  Stock
Exchange under the trading symbol "GLB."

The  Company's  principal  business  objectives  are to  achieve  a  stable  and
increasing  source of cash flow available for distribution to  Stockholders.  By
achieving these  objectives,  the Company will seek to raise  Stockholder  value
over time.

Liquidity and Capital Resources

General

Historically  for the  Partnerships,  the  principal  sources of funding for the
acquisition of properties was the sale of limited  partnership  interests in the
Partnerships  and  permanent  financing.  The Company  intends to rely upon cash
generated by operations, permanent debt financing, public debt and equity as its
funding sources for acquisition, expansion and renovation of Properties.

The Company  expects to meet its  short-term  liquidity  requirements  generally
through its initial  working  capital and cash  generated by  operations.  As of
September  30,  1996,  the  Company  had no  material  commitments  for  capital
improvements  other than  certain  expansion-related  improvements  estimated at
approximately  $1,760,000  at the existing  shopping  center in Tampa,  Florida.
Other planned capital improvements consist only of tenant improvements and other
expenditures  necessary  to lease and  maintain  the  Properties  and  furniture
fixtures and building improvements at the Hotel Properties. The Company believes
that its cash  generated by operations has been and will continue to be adequate
to meet both  operating  requirements  and  dividends  in  accordance  with REIT
requirements in both the short-term and the long-term.  However, there can be no
assurance  that the Company's  results of  operations  will not fluctuate in the
future  and at  times  negatively  affect  its  ability  to meet  its  operating
requirements and to declare dividends on a regular basis.

The Company  expects to meet certain of its  long-term  liquidity  requirements,
such  as  scheduled  debt  maturities  and  possible  acquisitions,   through  a
combination  of cash generated by  operations,  long-term  secured and unsecured
borrowings and the issuance of debt and equity securities of the Company.

The Company adopted Statement of Financial  Accounting Standards (SFAS) No. 121,
"Accounting  for  Impairment of Long-Lived  Assets and  Long-Lived  Assets to Be
Disposed Of" in the fourth quarter of 1995. The adoption of SFAS No. 121 did not
have a  material  effect on the  recorded  amounts of the  Company's  long-lived
assets, its financial position or results of operations.


                                   25 of 135
<PAGE>



In April,  July,  October and  November  1996,  the boards of  directors  of the
Associated  Companies  declared and paid dividends in the cumulative  amounts of
$633,000,  $1,272,000  and $113,000 by GC, GIRC and GHG,  respectively.  Of such
dividends,  the  cumulative  amounts  received  by the  Company  were  $601,000,
$1,209,000 and $90,000 from GC, GIRC and GHG, respectively.

On April 24, 1996, the Company's Board of Directors  declared a dividend for the
first quarter of $0.30 per share or $1,726,000 which was paid on May 13, 1996 to
Stockholders  of record at the close of business on May 6, 1996.  Such  dividend
was made from the  Company's  cash  reserves at March 31, 1996 combined with the
first quarter dividends received from the Associated Companies discussed above.

On July 24, 1996, the Company's  Board of Directors  declared a dividend for the
second  quarter of $0.30 per share or  $1,731,000  payable on August 14, 1996 to
Stockholders of record at the close of business on August 5, 1996. Such dividend
was made from the  Company's  cash  reserves at June 30, 1996  combined with the
second quarter dividends received from the Associated Companies discussed above.

On October 23, 1996,  the Company's  Board of Directors  declared a dividend for
the third quarter of $0.30 per share or $3,084,000  payable on November 13, 1996
to  Stockholders  of record at the close of business  on November 4, 1996.  Such
dividend  will be made from the  Company's  cash reserves at September 30, 1996,
combined with the third quarter dividends received from the Associated Companies
discussed above and from funding under the Company's Wells Fargo Facility.

On June 4, 1996, the Company sold the two  self-storage  facilities  held in its
industrial  portfolio.  The sales price for these two facilities was $2,900,000.
The sales  generated a gain of $321,000 and cash  proceeds of  $2,882,000.  From
these proceeds, $790,000 was paid down on the Company's secured bank line.

On July 15, 1996, the Company acquired the 99% limited partner interest, and GRT
Corporation,  a  subsidiary  of the  Company,  acquired  the 1% general  partner
interest,  in UCT Associates,  a limited  partnership in which Robert Batinovich
held a 1% general partner  interest and a 53% limited partner  interest,  Andrew
Batinovich held a 1% general partner interest and GPA held a 45% limited partner
interest.  UCT Associates  owns a 23-story,  275,469 square foot office building
known as University Club Tower (the "UCT Property") in St. Louis,  Missouri. The
Operating  Partnership  issued  23,333  units of  partnership  interests  in the
Operating   Partnership   ("Units")  having  an  initial   redemption  value  of
approximately  $350,000 (based on a $15 per Unit value) and repaid approximately
$18,250,000  of  indebtedness  secured  by the  property,  resulting  in a total
acquisition  value of  $18,600,000.  The  $18,250,000  of debt was paid off with
funds drawn from the Facility with Wells Fargo.

                   On August 1, 1996,  the  Company  acquired a 64-room  limited
service hotel (the "San Antonio Hotel") in San Antonio,  Texas,  for $2,700,000.
GHG assumed management of the hotel and operates it under a lease agreement with
the Company.  The lease is for a term of five years,  commencing August 1, 1996,
at a base annual  rent of  $312,000.  In  addition  to base rent,  the lessee is
obligated to pay percentage rent when revenue exceeds specified thresholds.


                                   26 of 135
<PAGE>



                   On August 2, 1996, the Company expanded an existing  shopping
center in Tampa,  Florida  through a  sale/leaseback  with the  center's  anchor
tenant,  Kash n' Karry Grocery Store,  for a purchase  price of $1,540,000.  The
Company is committed to investing an additional  $1,760,000 in the property upon
completion of certain  expansion-related  improvements  anticipated in mid-1997.
This  acquisition,  along with the  acquisition  of the San Antonio  hotel,  was
financed with $3,800,000 drawn from the Facility with Wells Fargo.

On  September  24,  1996,  the  Company  acquired  the 99%  limited  partnership
interest,  and GRT Corporation  acquired the 1% general partner  interest in GPA
Bond, L.P., a limited partnership in which GC held a 1% general partner interest
and GPA held a 99% limited  partner  interest.  GPA Bond, L.P. owns a two-story,
40,595  square foot  suburban  office  building,  referred to as the Bond Street
Property, in Farmington Hills, Michigan. The Operating Partnership issued 26,067
Units having an initial  redemption value of approximately  $400,000 (based on a
$15 per unit value) in exchange for the interests in GPA Bond,  L.P., and repaid
approximately $2,800,000 of indebtedness secured by the property, resulting in a
total acquisition value of $3,200,000.  The $2,800,000 of debt was paid off with
funds drawn from the Facility with Wells Fargo Bank.

On July 15, 1996,  the Company  entered into the Facility and the Term Loan with
Wells Fargo. The Facility is a $50,000,000 secured revolving line of credit. The
Facility is secured by first mortgages on selected Company  properties with full
recourse  to the  Company  and  availability  is limited to the  borrowing  base
provided by these properties.  The Facility has a term of two years,  subject to
annual  extensions.  At the Company's option, the Facility will bear interest at
LIBOR  plus  2.375% or at a base  rate.  The base rate is based on the higher of
Wells Fargo's prime rate plus 0.5% or the Federal Funds Rate plus 1.0%. The Term
Loan is a two-year term loan in the amount of $6,100,000  that bears interest at
the same rate as the  Facility  and is  secured  by first  mortgage  liens on 10
"QuikTrip"  facilities  owned by the  Company.  The initial  fundings  under the
Facility and the Term Loan  totaled  $28,400,000,  of which the Company  applied
$18,300,000  towards the  acquisition  of the UCT Property,  $9,200,000  for the
repayment of the outstanding amount under the then existing  line-of-credit with
Imperial Bank, and the balance to loan fees and closing costs.  Initial  funding
under the Facility and full  disbursement  of the Term Loan occurred on July 15,
1996.  Through  September 30, 1996,  the Company drew an  additional  $6,700,000
under the Facility to finance the  acquisitions  of the San Antonio  Hotel,  the
shopping center expansion and the Bond Street  Property.  In October 1996, stock
offering  proceeds  (see  below for  further  discussion)  were used to  paydown
$24,000,000 of the Facility, leaving an outstanding balance of $4,600,000.

In October  1996,  the Company  completed the October 1996 Offering of 3,666,000
shares of Common Stock.  The 3,666,000  shares were sold at a per share price of
$13.875  for  total  proceeds  of  $47,814,000  (net of 6%  underwriting  fee of
$3,052,000).  This additional capital was used to acquire the TRP Properties and
to repay most of the outstanding balance under the Company's Facility with Wells
Fargo  which  is  now  available  to  fund  future  acquisitions.  In  addition,
approximately  $1,100,000 in other costs were  incurred in  connection  with the
offering.

On October 17, 1996, the Company's Operating Partnership acquired a portfolio of
twelve properties (the "TRP Properties") located in six states. Included are six
industrial,  three office, one retail and two multifamily  properties comprising
1,250,000 square feet. The total purchase price was $41,300,000, which comprised


                                   27 of 135
<PAGE>



the cash payoff of  $23,001,000  of mortgage debt, the assumption of $16,300,000
of mortgage  debt,  issuance  of 52,386  Operating  Partnership  Units which are
redeemable for, at the Company's option, cash or stock based on a per Unit value
equal to the market value of the Company's  common stock, and issuance of 85,448
shares of the Company's  common stock. The acquisition was financed in part with
proceeds from the October 1996 Offering.  This  transaction  was structured as a
contribution  of the twelve  properties and the mortgage debt on such properties
by Trust Realty  Partners  ("TRP") to the Operating  Partnership in exchange for
the above  noted  Operating  Partnership  units and  Company  common  stock.  In
addition, Trust Realty Advisors ("TRA"), the then manager of the TRP Properties,
transferred to the Company all of TRA's rights, title and interest in and to the
Management  Agreement  and the  Leasing  Agreement  for the  TRP  Properties  in
exchange for 96,552 shares of the Company's common stock.

On October  22,  1996,  the Company  entered  into a letter of intent to acquire
approximately  $25,000,000  of real estate from a  California-based  real estate
firm.  The  real  estate  portfolio  includes  office,   industrial  and  retail
properties encompassing nearly 400,000 square feet of net rentable area, located
in California,  Arizona and Utah. This  acquisition  will be financed  through a
combination of assumption of debt,  issuance of Operating  Partnership  Units or
Company  common stock and cash.  The Company has completed its due diligence and
expects  to  execute  definitive  documentation  and  close the  transaction  by
mid-November.  However,  there can be no assurance  that these  properties  will
ultimately be acquired by the Company.

Results of Operations

Certain  components of the Company's results of operations are not comparable to
those of the GRTI Predecessor Entities. The primary reason for the difference is
the segregation in 1996 of the operations  (management fees and  reimbursements,
as well as related  expenses)  of the  Associated  Companies,  all of which were
combined in the GRTI Predecessor Entities 1995 financial  statements.  Effective
January 1, 1996,  the Company  owns 100% of the  preferred  stock in each of the
Associated  Companies  and accounts for its interests  under the equity  method.
Also  contributing  to  the  comparability  difference  is  the  change  in  the
operational  structure of the three (not  including  the San Antonio hotel which
was acquired in 1996) hotel  properties (the  "Hotels").  The Hotels were wholly
owned by the GRTI Predecessor Entities and thereby, the operations of the Hotels
were included in the  financial  statements  of the GRTI  Predecessor  Entities.
Under the current structure, the Company owns the Hotels but leases them to GHG.
The Company  includes only the related lease  payments  received from GHG in its
statement of operations. The decrease in fees and reimbursements of $10,639,000,
or 98%, from  $10,838,000  in 1995 to $199,000 in 1996, the decrease in property
operating expenses of $1,312,000,  or 29%, from $4,556,000 in 1995 to $3,244,000
in 1996, and the decrease of $9,922,000,  or 91%, in general and  administrative
expenses,  including salaries,  from $10,899,000 in 1995 to $977,000 in 1996 are
the primary components affected by these changes in structure.


                                   28 of 135
<PAGE>


Set  forth  below  are the  average  occupancies  at the  Company's  properties,
summarized by property type, at September 30:

                                 1996                      1995
                          --------------------       -----------------
         Retail                   93.8%                     94.7%
         Industrial              100.0%                     99.4%
         Office                   91.7%                     97.3%
         Multifamily              92.0%                     93.0%
         Hotel                    73.0%                     69.4%

The 1995 office occupancy does not include the UCT and Bond Street Properties as
such  properties  were acquired in 1996. The UCT and Bond Street  Properties had
average occupancies in 1996 of 88% and 95%, respectively.

Interest and other income decreased $1,605,000,  or 72%, to $623,000 in the nine
months ended September 30, 1996 from $2,228,000 in 1995. This decrease  resulted
primarily from the 1995 short-term  investment of funds generated from the early
repayment  of a note  receivable  in April of 1995 and the  early  repayment  in
January  and June of 1995 of three of the four notes  received  from the sale of
the Laurel Cranford  buildings.  Additionally,  in 1996, cash balances have been
used to prepay the investor notes payable,  pay declared dividends and pay costs
associated with the Consolidation.

Gain on sale of  rental  property  of  $321,000  during  the nine  months  ended
September  30, 1996 resulted  from the sale of the two  self-storage  facilities
held in the Company's industrial portfolio, as previously discussed.

Depreciation and amortization expense decreased $868,000,  or 24%, to $2,694,000
at September 30, 1996,  from  $3,562,000 at September 30, 1995. The decrease was
due  primarily to certain of the  Company's  fixed  assets and deferred  leasing
commissions becoming fully depreciated and amortized in 1995.

Interest  expense  increased  $1,080,000,  or  74%,  in the  nine  months  ended
September 30, 1996 to $2,546,000  from  $1,466,000  during the nine months ended
September  30,  1995.  The  increase is  primarily  the result of an increase in
average  borrowings  during 1996 compared to 1995 which were used to finance the
1996 acquisitions previously discussed.

Extraordinary  loss on debt refinancing of $186,000 during the nine months ended
September 30, 1996 resulted from the write-off of unamortized loan fees when the
$10,000,000 Imperial Bank line-of-credit was paid-off with proceeds from the new
Wells Fargo Facility.

Funds From Operations

The Company  believes  that Funds From  Operations  ("FFO") is a measure of cash
flow which,  when  considered in  conjunction  with other  measures of operating
performance,  affects  the value of equity  REITs such as the  Company.  FFO, as
defined by the National Association of Real Estate Investment Trusts ("NAREIT"),
means net income  (computed in accordance  with GAAP)  excluding  gains (losses)
from  debt   restructuring   and  sales  of  property,   plus  depreciation  and
amortization,  and after adjustments for  unconsolidated  partnerships and joint
ventures.


                                   29 of 135
<PAGE>



FFO is not necessarily  indicative of cash flow available to fund cash needs and
is not the same as cash flow from  operations as defined by GAAP, and should not
be  considered  as an  alternative  to net income  (loss) as an indicator of the
Company's  operating  performance,  or as an  alternative  to  cash  flows  from
operating,  investing  and  financing  activities  as a measure of  liquidity or
ability to make distributions. Management generally considers FFO to be a useful
financial  performance   measurement  because  it  provides  investors  with  an
additional  basis to evaluate  the  performance  of a REIT.  FFO as disclosed by
other REITs may not be comparable to the Company's calculation of FFO.

In February 1995,  NAREIT  established  new guidelines for  calculating FFO that
clarify previous  guidelines.  The primary change from the old definition to the
new  definition is the treatment of  amortization  of deferred  financing  fees.
Under the new  definition,  the  amortization  of deferred  financing fees is no
longer  added back to net income in  calculating  FFO.  The new  guidelines  are
effective beginning in 1996.

Beginning with the first quarter of 1996,  the Company  calculates its FFO based
upon the new NAREIT definition and, accordingly,  does not add back amortization
of deferred  financing fees and costs.  The change does not affect the Company's
Funds  Available for  Distribution  ("FAD").  FAD  represents FFO plus recurring
principal  receipts  from mortgage  loans less  reserves for lease  commissions,
capital  expenditures  (excluding  property  acquisitions)  and  debt  principal
amortization.  FAD should not be  considered an  alternative  to net income as a
measure of the Company's  financial  performance  or to cash flow from operating
activities  (computed  in  accordance  with GAAP) as a measure of the  Company's
liquidity,  nor is it necessarily indicative of sufficient cash flow to fund all
of the Company's needs.

The following table sets forth the Company's  calculation of FFO, based upon the
new NAREIT definition, and FAD for the three months ended March 31, June 30, and
September 30, 1996 (dollars in thousands):

<TABLE>
<CAPTION>

                                                          March 31,          June 30,          September 30,
                                                             1996              1996                 1996
                                                         -------------     -------------      -------------

<S>                                                      <C>              <C>                <C>
Net income before provisions for income taxes,
    minority interest and extraordinary items            $      1,354     $       1,714      $      1,258
Depreciation and amortization                                     897               862               935
Gain on sale of rental property                                   ---               321               ---
Adjustment to reflect FFO of Associated
    Companies (1)                                                 284               311(1)            251
                                                         -------------     -------------      -------------

FFO                                                      $      2,535      $      2,566       $      2,444
                                                         =============     =============      =============
</TABLE>



                                   30 of 135
<PAGE>


<TABLE>
<CAPTION>

                                                          March 31,          June 30,          September 30,
                                                             1996              1996                 1996
                                                         -------------     -------------      -------------

<S>                                                      <C>               <C>                <C>
FFO (from above)                                         $      2,535      $      2,566       $      2,444

Amortization of deferred financing fees                            36                36                 69
Principal receipts on mortgage loans                               14                 5                  3
Capital Reserve                                                  (185)             (106)               229
Capital expenditures                                              (54)             (133               (477)
Principal amortization reserve                                    (86)             (125)              (210)
                                                         -------------     -------------      -------------

FAD                                                      $      2,260      $      2,243       $      2,058
                                                         =============     =============      =============

FFO per share                                            $      0.40       $      0.41        $      0.39
                                                         =============     =============      =============

FAD per share                                            $      0.36       $      0.36        $      0.32
                                                         =============     =============      =============

Dividends per share                                      $      0.30       $      0.30        $      0.30
                                                         =============     =============      =============

Fully converted weighted average shares outstanding
                                                           6,296,042         6,303,542          6,342,206
                                                         =============     =============      =============
<FN>

(1)  Reflects  the  adjustments  to  FFO  required  to  reflect  the  FFO of the
Associated Companies allocable to the Company. The Company's  investments in the
Associated Companies are accounted for using the equity method of accounting.
</FN>
</TABLE>


                                   31 of 135
<PAGE>
GLENBOROUGH HOTEL GROUP

Background

Glenborough  Hotel  Group  ("GHG")  was  organized  in the  State of  Nevada  on
September 23, 1991. GHG currently operates hotel properties owned by Glenborough
Realty Trust  Incorporated  ("GLB")  under four separate  percentage  leases and
manages three hotel properties owned by two partnerships  whose managing general
partner is Glenborough Corporation. GLB owns 100% of the 50 shares of non-voting
preferred stock of GHG and three individuals, including one executive officer of
GLB, each own 33 1/3% of the 1,000 shares of voting common stock of GHG.

GHG also  owns  approximately  80% of the  common  stock of Resort  Group,  Inc.
("RGI"). RGI manages homeowners associations and rental pools for two beachfront
resort  condominium  hotel  properties  and owns six rental  units at one of the
properties.  GHG  receives  100% of the earnings of RGI and  consolidates  their
operations with its own.

GHG also owns 94% of the outstanding  common stock of Atlantic Pacific Holdings,
Ltd., the sole owner of 100% of the common stock of Atlantic  Pacific  Assurance
Company,  Limited (APAC). APAC was formed to underwrite certain insurable risks,
however, it no longer underwrites any business and it is expected that it may be
liquidated  in 1997.  GHG  accounts  for its  investment  in APAC using the cost
method due to its anticipated liquidation.

Liquidity and Capital Resources

GHG's primary  source of funding is the cash  generated by the operations of the
four hotels  leased from GLB and fees  received  for (i)  managing  three hotels
owned by two  partnerships  and (ii) managing the  homeowners  associations  and
rental pools for the resort condominium hotel properties as discussed above.

As of September 30, 1996, GHG has no plans for major capital  improvements.  Any
capital  expenditures  associated  with the six  condominium  units owned by RGI
would be  performed  by the rental pool and be deducted  from the rental  checks
received monthly.

On April 23, 1996,  the board of directors  of GHG  declared  dividends  for the
first  quarter  of  $50,000 of which  $39,400  was made to GLB as the  preferred
stockholder and the balance to the holders of GHG's common stock.

On July 23,  1996,  the board of directors  of GHG  declared  dividends  for the
second  quarter  of $33,000 of which  $27,000  was made to GLB as the  preferred
stockholder and the balance to the holders of GHG's common stock.

On October 22, 1996,  the board of directors of GHG declared  dividends  for the
third  quarter  of  $22,000 of which  $18,000  was made to GLB as the  preferred
stockholder and the balance to the holders of GHG's common stock.


                                   32 of 135
<PAGE>


Results of Operations

Room revenue of $1,948,000  and  $5,532,000  for the three and nine months ended
September  30, 1996,  respectively,  represents  the revenue  earned on the four
hotels leased from GLB.

Fee  revenue of $280,000  and  $1,463,000  for the three and nine  months  ended
September 30, 1996, respectively,  represents the fees earned for managing three
hotels and two resort condominium hotels.

The  primary  expenses  associated  with the leased  hotels are room  expense of
$476,000  and   $1,468,000,   respectively,   lease  payments  of  $575,000  and
$1,843,000,   respectively,  sales  and  marketing  of  $190,000  and  $571,000,
respectively   and  other   operating   expenses  of  $303,000   and   $751,000,
respectively, for the three and nine months ended September 30, 1996.

The only direct expenses incurred in connection with the management of the three
hotels and two resort  condominium hotel properties are salaries and benefits of
$385,000  and  $1,222,000,  respectively,  for the three and nine  months  ended
September 30, 1996.

General and administrative costs of $240,000 and $706,000 for the three and nine
months ended  September 30, 1996,  respectively,  represent  the overhead  costs
associated with administering the business of GHG.


                                   33 of 135
<PAGE>


PART 2.  OTHER INFORMATION


Item 1.           Legal Proceedings

Blumberg.  On February  21,  1995,  a class  action  complaint  was filed in the
Superior  Court of the  State  of  California  in and for San  Mateo  County  in
connection  with the  Consolidation.  The plaintiff is Anthony E.  Blumberg,  an
Investor  in  Equitec  B, on behalf of himself  and all  others  (the  "Blumberg
Action")  similarly   situated.   The  defendants  are  GC  (formerly  known  as
Glenborough Realty Corporation),  Glenborough Realty Corporation ("GRC"), Robert
Batinovich, the Partnerships and the Company.

The complaint  alleged  breaches by the  defendants of their  fiduciary duty and
duty of good  faith and fair  dealing  to  investors  in the  Partnerships.  The
complaint  sought  injunctive  relief and  compensatory  damages.  The complaint
alleged that the valuation of GC was excessive and was done without appraisal of
GC's business or assets.  The complaint  further  alleged that the interest rate
for the Notes to be issued to  investors in lieu of shares of Common  Stock,  if
they so  elected  was too low for the risk  involved  and that the  Notes  would
likely sell,  if at all, at a  substantial  discount  from their face value (the
Company,  as it had the option to, paid in full the amounts due plus interest in
lieu of issuing Notes).

On October 9, 1995 the parties  entered  into an agreement to settle the action.
The defendants,  in entering into the settlement agreement,  did not acknowledge
any fault, liability or wrongdoing of any kind and continue to deny all material
allegations  asserted in the litigation.  Pursuant to the settlement  agreement,
the  defendants  will be released from all claims,  known or unknown,  that have
been,  could have been,  or in the future might be asserted,  relating to, among
other  things,  the  Consolidation,  the  acquisition  of the  Company's  shares
pursuant  to  the  Consolidation,  any  misrepresentation  or  omission  in  the
Registration  Statement on Form S-4,  filed by the Company on September 1, 1994,
as  amended,   or  the   prospectus   contained   therein   ("Prospectus/Consent
Solicitation  Statement"),  or the subject matter of the lawsuit. In return, the
defendants agreed to the following:  (a) the inclusion of additional or expanded
disclosure  in the  Prospectus/  Consent  Solicitation  Statement,  and  (b) the
placement of certain  restrictions on the sale of the stock by certain  insiders
and the granting of stock options to certain insiders following  consummation of
the Consolidation.  Plaintiff's counsel indicated that it would request that the
court award it $850,000 in attorneys'  fees,  costs and  expenses.  In addition,
plaintiffs'  counsel indicated it would request the court for an award of $5,000
payable to Anthony  E.  Blumberg  as the class  representative.  The  defendants
agreed not to oppose such requests.

On October 11, 1995,  the court  certified the class for purposes of settlement,
and set a hearing on December 21, 1995, to determine  whether it should  approve
the  settlement  and  class  counsel's  application  for  fees.  A notice of the
proposed  settlement was distributed to the members of the class on November 15,
1995. The notice specified that, in order to be heard at the hearing,  any class
member  objecting to the proposed  settlement must, by December 15, 1995, file a
notice of intent to appear,  and a detailed  statement  of the grounds for their
objection.


                                   34 of 135
<PAGE>


 A number of objections were received from class members.  The
objections  reiterated  the  claims  in the  original  Blumberg  complaint,  and
asserted that the settlement  agreement did not adequately  compensate the class
for releasing those claims. One of the objections was filed by the same law firm
that brought the BEJ Action described below.

The hearing originally  scheduled for December 21, 1995 was continued to January
17,  1996.  At the hearing on January 17, the court heard the  arguments  of the
objectors  seeking to overturn the  settlement,  as well as the arguments of the
plaintiffs  and the defendants in defense of the  settlement.  The court granted
all parties a period of time in which to file additional  pleadings.  On June 4,
1996, the court granted  approval of the  settlement,  finding it  fundamentally
fair,  adequate and  reasonable  to the  respective  parties to the  settlement.
However,  the objectors  have given notice that they intend to appeal the June 4
decision.

BEJ Equity  Partners.  On  December 1, 1995,  a second  class  action  complaint
relating  to the  Consolidation  was  filed in  Federal  District  Court for the
Northern  District of California  (the "BEJ  Action").  The  plaintiffs  are BEJ
Equity Partners,  J/B Investment  Partners,  Jesse B. Small and Sean O'Reilly as
custodian  f/b/o  Jordan  K.  O'Reilly,  who as a  group  held  limited  partner
interests in the California  limited  partnerships  known as Outlook  Properties
Fund IV,  Glenborough All Suites Hotels,  L.P.,  Glenborough  Pension Investors,
Equitec Income Real Estate  Investors-Equity  Fund 4, Equitec Income Real Estate
Investors C and Equitec Mortgage  Investors Fund IV, on behalf of themselves and
all others  similarly  situated.  The defendants are GRC, GC, the Company,  GPA,
Ltd.,  Robert  Batinovich and Andrew  Batinovich.  The Partnerships are named as
nominal defendants.

This action  alleges the same  disclosure  violations  and breaches of fiduciary
duty as were alleged in the Blumberg  Action.  The complaint  sought  injunctive
relief, which was denied at a hearing on December 22, 1995. At that hearing, the
court  also  deferred  all  further  proceedings  in this case  until  after the
scheduled January 17 hearing in the Blumberg Action. Following the trial court's
approval of the  settlement  and entry of judgment in the Blumberg  Action,  the
Company and the other defendants were required to file a responsive  pleading in
the BEJ Action, and filed a motion to dismiss on July 1, 1996.

It is  management's  position  that the BEJ Action,  and the  objections  to the
settlement of the Blumberg Action,  are without merit, and management intends to
pursue  a  vigorous  defense  in  both  matters.  However,  given  the  inherent
uncertainties of litigation, there can be no assurance that the ultimate outcome
in these two legal proceedings will be in the Company's favor.


                                   35 of 135
<PAGE>


Item 6.           Exhibits and Reports on Form 8-K

         (a)      Exhibits:

                  The Exhibit Index attached  hereto is hereby  incorporated  by
                  reference to this Item.

         (b)      Reports on Form 8-K:

                  On July 26,  1996,  the Company  filed a report on Form 8-K to
                  make available additional ownership and operation  information
                  concerning the Company and the properties  owned or managed by
                  it  as of  June  30,  1996,  in  the  form  of a  Supplemental
                  Information package.

                  On July 30,  1996,  and  August 8,  1996,  the  Company  filed
                  reports on Form 8-K and Form 8-K/A, respectively,  to document
                  the  acquisition of the UCT Property and the two new financing
                  agreements with Wells Fargo Bank.

                  On October 28, 1996, the Company filed a report on Form 8-K to
                  make available additional ownership and operation  information
                  concerning the Company and the properties  owned or managed by
                  it as of  September  30, 1996,  in the form of a  Supplemental
                  Information package.

                  On November 1, 1996, the Company filed a report on Form 8-K to
                  document the acquisition of the TRP Properties.


                                   36 of 135
<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.

                                        GLENBOROUGH REALTY TRUST INCORPORATED



                                    By: Glenborough Realty Trust Incorporated,




      Date:  January 17, 1997          /s/ Andrew Batinovich
                                       ---------------------
                                       Andrew Batinovich
                                       Director, Executive Vice President,
                                       Chief Operating Officer
                                       and Chief Financial Officer
                                       (Principal Financial Officer)



      Date:  January 17, 1997          /s/ Terri Garnick
                                       -----------------
                                       Terri Garnick
                                       Senior Vice President,
                                       Chief Accounting Officer,
                                       Treasurer
                                       (Principal Accounting Officer)




                                   37 of 135
<PAGE>


<TABLE>
<CAPTION>



                                              EXHIBIT INDEX

                                                                                           Sequentially
     Exhibit                                                                              Numbered Page
     Number                                   Exhibit Title
------------------    --------------------------------------------------------------     -----------------

<S>                   <C>                                                                      <C>
     10.01            Agreement for Contribution of Partnership  Interests  related
                      to the acquisition of the Bond Street Property.                          39

     10.02            Second  Amendment to First Amended and Restated  Agreement of
                      Limited Partnership of Glenborough Properties, L.P.
                                                                                               69

     10.03            Second  Amendment to Agreement of Limited  Partnership of GPA
                      Bond, a California Limited Partnership.
                                                                                               74

     10.04            Lease  Agreement  between  Glenborough  Properties,  L.P. and
                      Glenborough Hotel Group for Country Suites - San Antonio.
                                                                                               77

</TABLE>


                                   38 of 135
<PAGE>


               AGREEMENT FOR CONTRIBUTION OF PARTNERSHIP INTERESTS


                  THIS  AGREEMENT  FOR  CONTRIBUTION  OF  PARTNERSHIP  INTERESTS
("Agreement")  is  dated  as  of   __________________,   1996,  by  and  between
GLENBOROUGH CORPORATION, a California corporation ("Glenborough"),  GPA, LTD., a
California  limited  partnership  ("GPA";  GPA and Glenborough are  collectively
referred to as the "Transferors" and individually as each or any  "Transferor"),
GLENBOROUGH PROPERTIES, L.P., a California limited partnership ("GPLP"), and GRT
Corp., a Georgia corporation ("GRT").

                                    RECITALS

                  A. GPLP is a  California  limited  partnership  whose  general
partner  is  GLENBOROUGH  REALTY  TRUST  INCORPORATED,  a  Maryland  corporation
("GRTI"), whose stock is publicly traded on the New York Stock Exchange.

                  B.  GPA  owns a 99%  limited  partnership  interest  (the  "LP
Interest")  in  GPA  BOND,  LP,  a  California  limited  partnership   ("BOND").
Glenborough owns a 1% general partnership  interest (the "GP Interest") in BOND.
The GP Interest and the LP Interest shall  hereinafter be collectively  referred
to as the "Partnership Interests".

                  C. Glenborough  desires to transfer to GRT, and GRT desires to
acquire from  Glenborough,  the GP  Interest,  upon the terms and subject to the
conditions set forth in this Agreement. GPA desires to transfer to GPLP, and GPA
desires to acquire from GPA, the LP Interest,  upon the terms and subject to the
conditions set forth in this Agreement.

                  NOW, THEREFORE,  in consideration of the premises,  the mutual
representations, warranties, covenants and agreements hereinafter contained, and
other good and valuable  consideration  the receipt and sufficiency of which are
hereby  acknowledged,  and  intending to be legally  bound,  the parties  hereto
hereby agree as follows:


                   1. Contribution  of  Partnership  Interests . Subject to and
upon the terms and conditions  hereinafter set forth and the representations and
warranties contained herein:

                      (a)  Glenborough  hereby  agrees  to  contribute  to  GRT,
                      without consideration,  the GP Interest, free and clear of
                      any  and all  liens,  encumbrances,  liabilities,  claims,
                      charges,   and   restrictions   of  any  kind  or   nature
                      whatsoever; and

                      (b) GPA hereby agrees to transfer to GPLP the LP Interest,
                      in exchange for the Units,  as hereinafter  defined,  free
                      and clear of any and all liens, encumbrances, liabilities,
                      claims,  charges,  and  restrictions of any kind or nature
                      whatsoever.

                   2. Issuance of Units. At the Closing (as defined in Paragraph
3 below),  GPLP shall issue to GPA Twenty Nine  Thousand  Three  Hundred  Thirty
Three  (29,333)  Limited

                                   39 of 135
<PAGE>
Partnership  Units,  as that term is defined in that certain  First  Amended and
Restated  Agreement  of Limited  Partnership  of GPLP,  dated as of December 31,
1995,  as amended by that  Amendment to First  Amended and Restated  Partnership
Agreement of Glenborough  Properties,  L.P.,  dated as of July 12, 1996 ("GPLP's
Partnership  Agreement").  The Units shall  include a  redemption  option as set
forth in GPLP's Partnership Agreement. If the Units are redeemed for GRTI Stock,
the Holder  shall have certain  registration  rights for a period of one year as
well  as  certain  other  rights,  all as  more  particularly  described  in the
Registration  Rights Agreement  attached hereto as Exhibit A (the  "Registration
Rights Agreement"). On the Closing Date, GPA shall execute and deliver, and GPLP
shall cause GRTI, so to execute and deliver, the Registration Rights Agreement.

                   3. Title to the Partnership Interests.  At the closing of the
transfer  contemplated  hereafter  (the  "Closing"),  GPA  shall  convey  the LP
Interest to GPLP by a duly executed  assignment of partnership  interests in the
form attached hereto as Exhibit B, and Glenborough shall convey to GRT Corp. the
GP Interest by a duly executed  assignment of partnership  interests in the form
attached hereto as Exhibit C (collectively, the "Assignments").

                   4.  Conditions  to  Closing.  The  following  conditions  are
precedent to GPLP's obligation to issue the Units (the "Conditions Precedent"):

                   (a)  The   representations   and  warranties  of  Transferors
contained herein shall be true and correct as of the Closing Date as though made
at and as of the Closing Date, and  Transferors'  covenants under this Agreement
shall be satisfied as of the Closing Date (to the extent such  covenants  are to
be  satisfied  as of the  Closing  Date),  and GPLP shall have  received  at the
Closing a  certificate  dated as of the Closing  Date and  executed on behalf of
Transferors by executive  officers of  Transferors or of the respective  general
partners of Transferors, as applicable,  certifying as to the fulfillment of the
conditions set forth in this Subparagraph 4(a).

                   (b) At the Closing,  Transferors  shall  transfer to GPLP the
Partnership  Interests  free and clear of any defects,  liens,  encumbrances  or
claims of any kind.

                   (c) Security Union Title Insurance  Company ("Title Company")
shall be  committed  to issue at Closing  for the Real  Property  (as defined in
Subparagraph  6(h)(i) below)  endorsements (i) dating down the Title Policy,  as
hereinafter  defined,  to the Closing,  (ii)  permitting the  continuance of the
policy  coverage issued to the original  partnership (a "Fairways  Endorsement")
and  (iii)  such  other   endorsements   reasonably   requested   by  GPLP  (the
"Endorsements")  to BOND's  extended  coverage  American Land Title  Association
Policy of Owner's  Title  Insurance ,  attached  hereto in the form of Exhibit D
(the "Title Policy"), showing title to the Real Property vested in BOND, subject
only to (i) the lien of a first mortgage to be given by BOND to Wells Fargo Bank
contemporaneously  with the Closing  securing GPLP's  obligations  under certain
promissory  notes (the "Wells Fargo Loan"),  and (ii) exception Nos. 9-13 and 16
("Permitted Exceptions") on the Title Policy.

                   (d)  The  physical   condition  of  the  Real   Property  and
Improvements (as such terms are defined in Subparagraph  6(h)(i) below) shall be
substantially the same on the

                                   40 of 135
<PAGE>
day of Closing as on the Effective  Date,  reasonable  wear and tear and loss by
casualty excepted (subject to the provisions of Paragraph 9 below).

                   The  Conditions  Precedent  contained in  Subparagraphs  4(a)
through  (e)  are  intended  solely  for  the  benefit  of  GPLP.  If any of the
Conditions  Precedent  is not  satisfied,  GPLP shall have the right in its sole
discretion  either to waive in writing the Condition  Precedent and proceed with
the purchase or terminate this Agreement.

              5.    Closing.

                   (a) The Closing  hereunder  shall be held and delivery of all
items  to be made at the  Closing  shall  be made at the  offices  of GPLP on or
before  _________________,  1996 (the "Closing Date").  In the event the Closing
does not occur on or before the Closing  Date,  each party  shall  return to the
other party all items which were provided hereunder.  Any such return shall not,
however,  relieve  either  party of any  liability  it may have for its wrongful
failure to close.

                   (b) At or before the Closing,  Transferors  shall  deliver to
GPLP the following:

                        (i)     a duly executed Registration Rights Agreement;

                        (ii)    the duly executed Assignments;

                        (iii)   originals   of  the   Leases   (as   defined  in
               Subparagraph 6(k)(i) below);

                        (iv)originals  of the building  permits and certificates
               of occupancy for the Improvements and all  tenant-occupied  space
               included  within the  Improvements  not  previously  delivered to
               GPLP;

                        (v)an  original,  duly executed  Assignment  and Consent
               Regarding  Transfer  of  Partnership  Interests  in the  form  of
               Exhibit E hereto;

                        (vi)an  original,  duly  executed  Second  Amendment  to
               Limited  Partnership  Agreement  of GPA  BOND,  LP, a  California
               limited partnership in the form of Exhibit F herein;

                        (vii)closing  statement in form and content satisfactory
               to GPLP and Transferors;

                        (viii)any other  instruments,  records or correspondence
               called for hereunder which have not previously been delivered.

GPLP may waive compliance on Transferor's  part under any of the foregoing items
by an instrument in writing.

                                   41 of 135
<PAGE>

                    (c)  At  or  before  the  Closing,  GPLP  shall  deliver  to
Transferors the following:

                        (i)a closing statement in form and content  satisfactory
               to GPLP and Transferors; and

                        (ii) a duly executed Registration Rights Agreement.

                    (d)  Transferors  and GPLP  shall  each  provide  such other
instruments as are reasonably  required to close and consummate the transactions
described herein in accordance with the terms hereof.

                    (e) With respect to the Property the  following  adjustments
shall be made, and the following procedures shall be followed:

                        (i)  the  amount  by  which  the  outstanding  principal
               balance plus accrued but unpaid interest on any loans encumbering
               the Property is greater or less than  $2,710,000 at Closing shall
               be reflected  by a decrease or  increase,  as the case may be, in
               the  number of Units  issued to GPA,  at an agreed  upon value of
               Fifteen Dollars ($15) per unit.

                        (ii)GPLP  shall have the right to  collect  and keep all
               rents or  other  amounts  payable  under  the  Leases  that  were
               delinquent  as of the  Closing  Date and that  relate to a period
               prior to the Closing without payment thereof to Transferor.

                        (iii)All costs associated with the transaction  shall be
               charged  against  the  GPLP  (except  for   Transferors'   legal,
               accounting  or other  professional  fees),  including  all  title
               insurance premiums,  all escrow charges,  any transfer taxes, all
               costs of GPLP's engineering and environmental  analyses,  and all
               survey costs.

                        (iv)The  obligations of Transferors  and GPLP under this
               Paragraph 5 shall survive the Closing.


               6.        Transferor's Representations and Warranties.Each of the
Transferors, jointly and severally, represents and warrants to GPLP as follows:

                    (a)Organization  and Standing.  GPA is a limited partnership
duly  organized,  validly  existing and in good  standing  under the laws of the
State of  California.  BOND is a limited  partnership  duly  organized,  validly
existing and in good  standing  under the laws of the State of  California  with
full power and authority to own, lease and operate its properties and assets and
to carry on its business and activities as currently conducted (the "Business").

                                   42 of 135
<PAGE>

                    (b) Capacity and Authority.  Each  Transferor has full power
and  authority to execute and deliver this  Agreement  and to perform all of the
terms and conditions hereof to be performed by the Transferor, and to consummate
the transactions  contemplated hereby. This Agreement has been duly executed and
delivered  by  each of the  Transferors  and is the  legal,  valid  and  binding
obligation of each of the  Transferors  and is  enforceable  against each of the
Transferors in accordance with its terms,  except as the enforcement thereof may
be limited by applicable bankruptcy, insolvency,  reorganization,  moratorium or
similar  laws  affecting  the  rights  of  creditors  generally  and by  general
equitable  principles  (whether or not such  enforceability  is  considered in a
proceeding at law or in equity).  None of the  Transferors  or BOND is presently
subject to any bankruptcy,  insolvency,  reorganization,  moratorium, or similar
proceeding.

                    (c) No Violation. Neither the execution and delivery of this
Agreement, the consummation of the transactions  contemplated by this Agreement,
nor the  compliance  with the terms and  conditions  hereof  will (i) violate or
conflict,  in any material  respect,  with any  provision of BOND's  Partnership
Agreement or any statute, regulation, rule, injunction, judgment, order, decree,
ruling,  charge or other restrictions of any government,  governmental agency or
court to which either of the Transferors and/or BOND is subject,  or (ii) result
in any  material  breach or the  termination  of any lease,  agreement  or other
instrument or obligation to which either of the  Transferors  or BOND is a party
or by which any of the  properties or assets of the  Transferors  or BOND may be
subject,  or  cause a lien or  other  encumbrance  to  attach  to any of  BOND's
properties.  Neither  the  Transferors  nor BOND is a party to any  contract  or
subject to any other legal  restriction that would prevent or restrict  complete
fulfillment  by the  Transferors  of all of the  terms  and  conditions  of this
Agreement or compliance with any of the obligations under it.

                    (d) Title to Partnership  Interests.  All of the Partnership
Interests are currently  owned and as of the Closing will be owned  beneficially
by the  Transferors as set forth in Recital B hereto.  The  Transferors  own the
Partnership  Interests  free and  clear  of all  liens,  charges,  encumbrances,
claims,  rights of others,  mortgages,  pledges or security  interests,  and the
Partnership  Interests are not subject to any agreements or understandings among
any persons with respect to the voting or transfer thereof. The Transferors each
have full legal right to sell,  assign,  and transfer the Partnership  Interests
and, upon  delivery of the  Assignment  pursuant to the terms  hereof,  good and
marketable  title to the  Partnership  Interests  free and  clear of any  liens,
charges,  encumbrances,  pledges, security interests, taxes, claims or rights of
others of any nature whatsoever shall vest in GPLP.

                    (e) Subsidiaries and Affiliates.  BOND does not own, control
or hold with the power to vote,  directly or  indirectly,  any shares or capital
stock or beneficial interest in any corporation,  partnership, limited liability
company, association, joint venture or other entity.

                    (f) Required  Consents.  All material consents required from
any  governmental  authority or third party in connection with the execution and
delivery of this Agreement by the applicable  Transferor or the  consummation by
the applicable Transferor of the transactions contemplated hereby have been made
or obtained or shall have been made or  obtained by the Closing  Date.  Complete
and correct copies of all such consents shall be delivered to GPLP.

                                   43 of 135
<PAGE>

                    (g)  Absence  of  Undisclosed  Liabilities.  Except  for the
liabilities (i) the "Lease and Contract  Liabilities" (as hereinafter  defined),
and (ii) the  liabilities  incurred  since the date of BOND's  latest  financial
statements in the ordinary  course of business  (the items  described in (i) and
(ii) are collectively referred to as the "Closing Date Liabilities"),  as of the
date  hereof  BOND has,  and as of the  Closing  Date BOND will  have,  no known
liabilities,  obligations,  debts, contracts or other commitments of any kind or
nature whatsoever, whether accrued, fixed, absolute, conditional,  determined or
determinable,  and whether or not required under generally  accepted  accounting
principles to be accrued or disclosed in a balance sheet of BOND, existing as of
the date hereof or on the Closing Date or arising out of, or resulting  from any
transaction  entered into prior to or at the Closing Date. As of the date hereof
there is, and as of the Closing Date there will be, no existing fact, condition,
situation or circumstance known to Transferors that would result in any material
liability or  obligation  of BOND other than the Closing Date  Liabilities.  For
purposes of this Agreement, the term "Lease and Contract Liabilities" shall mean
the  liabilities and obligations of BOND under the Leases and Contracts (as such
terms are  hereinafter  defined),  but only to the extent such  liabilities  and
obligations  are required to be performed and  satisfied  after the Closing Date
and excluding (y) liabilities and obligations  arising as a result of any breach
of, or default or failure to perform under,  any Lease or Contract by BOND prior
to the Closing Date, and (z) liabilities and obligations  arising as a result of
any breach of, or default or failure to perform  under any Lease or  Contract by
BOND on or after the  Closing  Date,  which  breach,  default  or failure is the
result of  Transferors'  failure to perform  any of its  obligations  under this
Agreement.

                    (h) Real Property.

                         (i) BOND has, and at the Closing  Date will have,  good
         and  indefeasible  fee simple title to the real  property  described on
         Schedule (6)(h)(i) attached hereto (the "Real Property"),  subject only
         to the  Permitted  Exceptions.  The Real  Property,  together  with all
         buildings, improvements and fixtures owned by BOND and located or to be
         located  thereon (the  "Improvements")  are referred to collectively as
         the "Property."

                         (ii)  There  are  no   adverse  or  other   parties  in
         possession  of the  Property,  or any  part  thereof,  except  BOND and
         tenants under the Leases. No party has been granted any license, lease,
         or other right relating to the use or possession of the Property or any
         part thereof, except tenants under the Leases.

                         (iii)  Except  as  disclosed  to  GPLP,  there  are  no
         material defects with respect to the Real Property,  including, without
         limitation,  no material  defects in the  structural  and  load-bearing
         components  of the  Property,  the  roof(s),  the parking  lot(s),  the
         plumbing,  heating,  air  conditioning  and  electrical and life safety
         systems, and all such items are in good operating condition and repair.
         For the  purpose of this  Subparagraph  6(h)(iii),  the term  "material
         defects"  shall mean defects  which in the  aggregate  for the Property
         would cost more than $50,000 to repair.

                         (iv)Except  as  disclosed  to  GPLP,  to  the  best  of
         Transferors'  knowledge,  the use and  operation  of the Property is in
         compliance with all applicable restrictive  covenants,  building codes,
         environmental, zoning and land use laws, and other applicable

                                   44 of 135
<PAGE>

          local, state and federal laws and regulations (collectively, "Laws").

                         (v)  Except  as  disclosed   to  GPLP,   there  are  no
         condemnation,   environmental,  zoning  or  other  land-use  regulation
         proceedings,   either  instituted  or,  to  the  best  of  Transferors'
         knowledge,  planned to be instituted,  which would detrimentally affect
         the use,  operation  or value of any of the  Property,  nor has  either
         Transferor  or  Company  received  notice  of  any  special  assessment
         proceedings  affecting  any of the Property.  Transferors  shall notify
         GPLP  promptly  of any  such  proceedings  of which  either  Transferor
         becomes aware.

                         (vi) All water,  sewer, gas, electric,  telephone,  and
         drainage  facilities and all other utilities  required by law or by the
         normal use and  operation of the Property are installed to the property
         lines of the Property, and are connected pursuant to valid permits, and
         are adequate to service the Property and to permit  compliance with all
         Laws.

                         (vii)  Company  has  obtained  all  licenses,  permits,
         variances,  approvals,  authorizations,  easements  and  rights of way,
         including   proof  of  dedication,   required  from  all   governmental
         authorities  having  jurisdiction  over the  Property  or from  private
         parties for the intended  use,  operation and occupancy of the Property
         and to insure  vehicular and pedestrian  ingress to and egress from the
         Property.

                         (viii)Except   as  disclosed  to  GPLP,   there  is  no
         litigation   pending  or,  to  the  best  of  Transferors'   knowledge,
         threatened, against either Transferor or any basis therefor that arises
         out of the ownership of the Property or that might detrimentally affect
         the  value  or the  use or  operation  of any of the  Property  for its
         intended  purpose  or the  ability  of  Transferors  to  perform  their
         obligations  under  this  Agreement.   Transferors  shall  notify  GPLP
         promptly of any such  litigation  of which  either  Transferor  becomes
         aware.

                         (ix)Except as disclosed to GPLP, at the time of Closing
         there will be no outstanding  written or oral contracts made by Company
         for any improvements to the Property which have not been fully paid for
         and  Transferors  shall  cause  to be  discharged  all  mechanics'  and
         materialmen's  liens  arising from any labor or materials  furnished to
         the Property prior to the time of Closing.

                         (x) As of the Closing  Date,  Company has completed (i)
         all  original  building  construction  on the Real  Property,  (ii) all
         punch-list items with respect to any tenant improvements constructed by
         Company as landlord  under the Leases,  and (iii) all on- and  off-site
         development  obligations  of BOND in  connection  with  any of the Real
         Property.

                         (xi)Transferors  know of no facts nor have  Transferors
         failed to  disclose  any fact which would  prevent  BOND from using and
         operating  the  Property  after  Closing  in the  manner  in which  the
         Property is intended to be operated.

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<PAGE>

                         (xii)  Other  than the  rights of  Tenants,  as tenants
         only,  under the Leases,  there are no purchase  contracts,  options or
         other agreements of any kind, written or oral,  recorded or unrecorded,
         whereby any person or entity other than BOND will have acquired or will
         have any basis to assert  any  right,  title or  interest,  or right to
         possession,  use,  enjoyment  or  proceeds of all or any portion of the
         Property.  None of the Leases contain any rights of first offer,  first
         refusal or purchase options.


                    (i) Leased  Personal  Property.  Transferors  will make,  or
cause to be made  available  to GPLP true,  correct and  complete  copies of all
leases and subleases for each item of personal  property  leased or subleased to
BOND (the "Leased Personal  Property").  All such Leased Personal Property is in
BOND's actual  possession  and is in such  condition  that,  upon return of such
property in its present  condition to its owner,  BOND will not be liable in any
amount  to such  owner on  account  of the  condition  of such  Leased  Personal
Property.

                    (j)  Title to and  Condition  of  Assets.  BOND has good and
indefeasible  title to the Property,  including,  without  limitation,  the Real
Property and the Improvements, any personal property owned by Company ("Personal
Property")  and all other  assets  and  properties,  whether  real or  personal,
tangible  or  intangible,  which  it  owns  (collectively  referred  to  as  the
"Assets"). All Assets are owned free and clear of all mortgages, liens, pledges,
claims, charges, restrictions,  easements, encumbrances or security interests of
any kind or nature whatsoever (collectively, the "Liens"), other than the Loans.
Except in connection  with the Loans,  no financing  statement under the Uniform
Commercial  Code or  similar  law  naming  BOND as debtor  has been filed in any
jurisdiction and is still in effect,  and BOND is not a party to or bound by any
agreement  or  arrangement  authorizing  any  party to file  any such  financing
statement. Upon the Closing, BOND will have good, valid, complete and marketable
title to the Assets free and clear of all Liens except for the Loans.

                    (k) Leases.

                         (i)  Attached  hereto as Exhibit G is a list (the "Rent
         Roll")  of each  lease or  agreement  for the use or  occupancy  of the
         Property (collectively, the "Leases") as of the date of this Agreement.
         Said Rent Roll is complete in all material respects and all information
         therein  is  accurate  as of its  date,  and  there  are no  Leases  or
         tenancies  with respect to the  Property or any part thereof  except as
         therein  set forth.  Except as  disclosed  on the Rent Roll,  no rental
         under any Lease has been  collected  in advance of the  current  month.
         BOND is the owner of the entire lessor's interest in and to each of the
         Leases  and none of the Leases or the  rentals  or other  sums  payable
         thereunder  has  been  assigned  or  otherwise  encumbered,  except  in
         connection with the Loans.

                         (ii) Each of the Leases, including, without limitation,
         any guaranties  thereof,  is an enforceable  Lease and is in full force
         and  effect  according  to the terms set forth  therein,  except as the
         enforcement   thereof   may  be  limited  by   applicable   bankruptcy,
         insolvency,  reorganization,  moratorium, or similar laws affecting the
         rights of creditors  generally,  and by general  equitable  principles.
         Except as disclosed  to GPLP,  (i) no Tenant under any of the Leases is
         greater than forty-five (45) days delinquent in the

                                   46 of 135
<PAGE>

         payment of its rental and other sums due,  (ii) no Tenant has abandoned
         or otherwise  vacated the Property in violation of any Lease,  (iii) no
         Tenant or  guarantor  has filed a  voluntary  petition  in  bankruptcy,
         insolvency  or  similar  proceedings,   has  been  the  subject  of  an
         involuntary bankruptcy petition, or otherwise been adjudged bankrupt or
         insolvent in any  proceedings  filed  against such tenant or guarantor;
         (iv) no trustee or receiver has been  appointed for any Tenant;  (v) no
         written  notice has been  provided to any tenant  notifying  the Tenant
         that it is in  default  under  the  Lease  which  default  has not been
         remedied by such Tenant; and (vi) no Tenant, to Transferors' knowledge,
         is  otherwise in default  under any of the Leases.  Except as otherwise
         provided in the Lease,  each Tenant is legally required to pay all sums
         and perform all obligations set forth in its respective Lease,  without
         concessions,   abatements,   offsets  or  other  basis  for  relief  or
         adjustment,    subject   to    applicable    bankruptcy,    insolvency,
         reorganization,  moratorium,  or similar laws  affecting  the rights of
         creditors generally, and by general equitable principles.

                         (iii)  To  the  best  of  Transferors'   knowledge,  no
         material  event of default on behalf of BOND,  as lessor,  exists under
         any Lease and no event or  condition  exists  that,  upon the giving of
         notice or lapse of time,  or both,  would  constitute a default by BOND
         under any  Lease.  No Tenant has given  notice to BOND of any  offsets,
         defenses or claims  available  against rent or other charges payable by
         such Tenant or other  performance or obligations  otherwise due from it
         under any Lease, except as specifically set forth in the Rent Roll.

                         (iv) No  guarantor  of any Lease has been  released  or
         discharged,  voluntarily or involuntarily, from any obligation under or
         in connection with any Lease or any transaction related thereto.

                         (v)No Tenant or any other party has given notice of any
         claim (other than for customary refund at the expiration of a Lease) to
         all or any part of any security  deposit.  The Rent Roll sets forth all
         security deposits held by BOND.

                         (vi)Except as shown on the Rent Roll,  Company has paid
         in full any of  landlord's  leasing  costs or  obligations,  including,
         without  limitation,  any costs incurred by Company in connection  with
         any tenant improvements.

                         (vii)No  Tenant has indicated to Company  either orally
         or in writing its intent to terminate its Leases prior to expiration of
         the term of such Lease.

                         (viii) Except as disclosed to GPLP, (A) no brokerage or
         similar fee is due or unpaid by Company with respect to the Leases, and
         (B) no  brokerage  or  similar  fee shall be due or  payable  after the
         Closing in connection with the Leases pursuant to any agreement entered
         into by Company or either  Transferor or of which either  Transferor or
         Company has knowledge.

                    (l) Permits and Licenses.  BOND owns or has rights under all
material  government and  non-government  licenses and permits  required for the
lawful  conduct of the  Business  and BOND's use and  ownership  of the Property
(collectively, the "Licenses").

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BOND owns or has rights under all Licenses.  At the Closing Date, BOND will have
all such Licenses and the Licenses shall, in all material  respects,  be in full
force and effect. The consummation of the transactions  contemplated hereby will
not result in any revocation, cancellation or suspension of any of the Licenses.
No  actions  or  proceedings  to revoke  any  Licenses  are  pending  or, to the
knowledge  of the  Transferors,  threatened.  BOND has not taken  any  action or
knowingly failed to take any action which would materially  impair,  limit or in
any way affect any of BOND's  right to conduct  its  Business  and  operate  the
Property.  To the best of  Transferors'  knowledge,  there  is no basis  for any
action, suit, proceeding,  hearing,  investigation,  charge, complaint, claim or
demand  which would have the result of  challenging  the  legality,  validity or
enforceability  of any of the Licenses.  BOND is, in all material  respects,  in
compliance  with all of the  Licenses.  No  registration,  filing,  application,
notice,  transfer,  consent,  approval,  order,  qualification,  waiver or other
action of any kind will be required as a result of the transactions contemplated
herein to avoid (i) the loss of any License, (ii) a violation, breach or default
under or the  termination  of any License,  or (iii) the creation of any Lien on
any Asset pursuant to the terms of any License and/or any law, regulation, order
or other  requirement or any contract or agreement binding upon BOND or to which
any Asset may be subject.

                    (m)  Taxes.  BOND has  timely  filed or  caused to be timely
filed all  federal,  state and local tax returns and  informational  filings for
taxes, and all such tax returns and  informational  filings are, in all material
respects, proper, complete and accurate. Copies of all available tax returns and
informational  filings  of BOND  existing  as of the  Effective  Date  have been
provided to GPLP and any subsequent tax returns and informational  filings shall
be delivered to GPLP as they become available. BOND has withheld and/or paid all
taxes which have become due  pursuant to BOND's tax returns and all other taxes,
assessments and other governmental charges which have become due and are imposed
by law upon BOND or any of its  Assets  which  are due on or after  the  Closing
Date,  which  relate  to  periods  prior to the  Closing  Date.  Neither  of the
Transferors  nor BOND have  received  and  neither of the  Transferors  have any
knowledge of any notice of deficiency or assessment with respect to BOND and its
Assets or any basis for any of the foregoing, from any taxing authorities. There
is no  litigation,  governmental  or other  proceeding  (formal or  informal) or
investigation pending or, to the best of Transferors' knowledge, threatened with
respect to any such federal,  state or local income or other taxes,  tax returns
or  informational  filings  of BOND.  There are not in  effect  any  waivers  or
extensions of statutes of limitations with respect to taxes payable by BOND.

                    (n) BOND Loans. Except for such loans and advances that will
be paid in full on or before the Closing Date and the Wells Fargo Loan, BOND has
no  outstanding  loans or other  advances to any other  party.  Neither BOND nor
either Transferor has defaulted on any loan or other obligation  entered into in
connection with the Property or the Business.

                    (o)  Compliance  with  Laws.  BOND is, and all of the Assets
are, in all material  respects,  in compliance with all applicable laws, orders,
rules,  Licenses,  codes, rulings,  decrees,  regulations,  ordinances and other
requirements of all federal,  state and local  governmental,  administrative and
judicial  authorities  and  agencies.  No  action,  suit,  proceeding,  hearing,
investigation,  charge,  complaint,  claim,  demand or notice  has been filed or
commenced.

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                    (p)  Contracts.  With  respect  to  all  service  contracts,
construction   contracts  for  work  in  progress,  any  warranties  thereunder,
management  contracts,  reciprocal easement  agreements,  operating  agreements,
maintenance  agreements,  franchise agreements and other similar agreements (the
"Contracts").  With respect to each of the Contracts, (i) the Contract is legal,
valid,  binding,  enforceable in accordance with its terms and in full force and
effect,  except as may be  limited  by  bankruptcy,  reorganization,  fraudulent
conveyance,  insolvency  or similar laws of general  application  relating to or
affecting the enforcement of creditor's rights and subject to general principles
of equity, (ii) the Contract will not be adversely affected by the occurrence of
the Closing and will be legal,  valid,  binding,  enforceable in accordance with
its  terms  and in full  force  and  effect on  identical  terms  following  the
consummation  of the sale of the  Partnership  Interests,  (iii) no party to the
Contract  is in  breach  or  default  under  any  obligation  thereunder  or any
provisions  thereof which would have material  adverse  affect upon BOND, and no
event has  occurred  which,  with notice or lapse of time,  would  constitute  a
breach or default, or permit any termination under the Contract which would have
a material  adverse  affect  upon  BOND,  (iv) no event has  occurred  under the
Contract which would permit the creation of any Lien upon, or the restriction of
the  right  to the use of,  any  Asset  and (v) no  party  to any  Contract  has
repudiated any material provision of the Contract.

                    (q)  Loan  Documents.  With  respect  to all  notes or other
evidence of indebtedness,  loan agreements,  mortgages, guaranty agreements, and
any  and  all  other  documents   entered  into  by  BOND  and  all  amendments,
modifications  and supplements  thereto  (collectively  the "Loan Documents") in
connection  with any Loans to BOND and all matters in connection with the Loans,
(i) each Loan Document is legal, valid, binding,  enforceable in accordance with
its terms and in full force and effect,  except as may be limited by bankruptcy,
reorganization,  fraudulent  conveyance,  insolvency  or similar laws of general
application  relating to or affecting the  enforcement of creditor's  rights and
subject to general  principles  of equity,  (ii) each Loan  Document will not be
adversely  affected by the  occurrence of the Closing and will be legal,  valid,
binding,  enforceable in accordance  with its terms and in full force and effect
on identical  terms  following the  consummation  of the sale of the Partnership
Interests, (iii) no party to the Loan Document is in breach or default under any
obligation  thereunder  or any  provisions  thereof  which  would have  material
adverse affect upon BOND, and no event has occurred which,  with notice or lapse
of time,  would  constitute  a breach or  default,  or permit  any  termination,
modification  or  acceleration  under  the Loan  Documents  which  would  have a
material  adverse  affect upon BOND,  (iv) no event has occurred  under the Loan
Document which would permit the creation of any Lien upon, or the restriction of
the right to the use of,  any Asset  and (v) no party to the Loan  Document  has
repudiated any material provision of the Loan Document.

                    (r) Insurance.  Copies of all insurance  policies of BOND by
which BOND and any of its Assets are now covered or have been covered during the
last three (3) years will be  provided to the GPLP.  Transferors  agree to cause
BOND to  maintain  the  existing  policies  (which  are  presently  in force) or
comparable  coverage in full force and effect at all times from the date of this
Agreement  through and including the Closing Date.  None of the  Transferors  or
BOND have  received  any  notice  from any  insurance  carrier  of its intent to
discontinue any such insurance  coverage or have any reason to believe that such
carrier intends to discontinue any such insurance coverage.  Except as set forth
in Schedule 6(r), during the last

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three years,  there has been no material casualty affecting BOND or loss, damage
or  destruction  to  any  of  its  properties,  whether  or  not  covered  by or
compensated under any insurance policy of BOND.

                    (s)  Orders  and  Litigation.  No court or  governmental  or
regulatory authority of competent jurisdiction has enacted, issued, promulgated,
enforced or entered any statute, rule, regulation,  judgment, decree, injunction
or other order (whether temporary,  preliminary or permanent) which is in effect
and  prohibits   consummation  by  Transferors  or  BOND  of  the   transactions
contemplated  by this  Agreement.  Except as disclosed to GPLP,  BOND is neither
subject to any outstanding injunction, judgment, order, decree, ruling or charge
nor a party, or, to the best of Transferors' knowledge,  threatened to be made a
party, to any action,  suit,  proceeding,  hearing or  investigation  of, in, or
before any court or  quasi-judicial  or  administrative  agency of any  federal,
state or local  jurisdiction  or before  any  arbitrator,  and there is no basis
known to the Transferors for any such action.

                    (t)  Employees.  BOND  does  not now and has  never  had any
employees.

                    (u)  Environmental  Matters.  Transferors  have delivered to
GPLP all  environmental  reports and  investigations  relating  to the  Property
and/or the Prior  Properties (as herein  defined) which are available to Company
or Transferors or in Company's or Transferors'  possession  (the  "Environmental
Reports"). Except as set forth in the Environmental Reports:

                         (i) BOND's prior uses of the Property have at all times
         during BOND's lease,  ownership or use thereof complied in all material
         respects  with,  and neither has BOND nor, to the best of  Transferors'
         knowledge,  any other person in connection  with the ownership,  lease,
         occupancy,  use,  maintenance,  or  operation  of the  Property and the
         conduct of the Business  violated,  in any material  respect,  any then
         applicable federal, state, county or local statutes, laws, regulations,
         rules,  ordinances,  codes,  licenses or permits relating in any way to
         the protection of the environment,  including,  without limitation, the
         Clean Air Act, the Federal  Water  Pollution  Control Act of 1972,  the
         Resource   Conservation   and  Recovery  Act  of  1976  ("RCRA"),   the
         Comprehensive Environmental Response, Compensation and Liability Act of
         1980  ("CERCLA"),   and  the  Toxic  Substances  Control  Act  and  any
         amendments  or   extensions  of  the  foregoing  and  the   regulations
         promulgated thereunder (collectively, the "Environmental Laws"). BOND's
         existing use of the Property  complies with and BOND is not  currently,
         in any material respect, in violation of any current Environmental Laws
         in connection with the ownership,  lease, occupancy,  use, maintenance,
         or operation of the  Property and the conduct of the  Business.  During
         the time  BOND has  owned,  leased or used the  Property,  BOND has not
         received  any  written  notification  from  the  Federal  Environmental
         Protection  Agency, or the  environmental  protection agency or similar
         agency of any of the States,  that a permit is required by BOND for any
         reason  whatsoever,   including,   without   limitation,   the  use  or
         maintenance of any  improvement or facility on the Property and, to the
         Transferors'  knowledge,  no such  permit  has been  required.  Neither
         Company, nor to the best of Transferors' knowledge, any third party

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<PAGE>

         has  installed,  used  or  removed  any  storage  tank  on,  from or in
         connection  with  the  Property  except  in full  compliance  with  all
         Environmental Laws, and to the best of Transferors' knowledge there are
         no storage tanks or wells (whether  existing or abandoned)  located on,
         under or about the Property and to the best of  Transferors'  knowledge
         no storage tank has been  installed on, used on or removed from or used
         in connection with the Property in violation of any Environmental Laws.
         To the best of Transferors' knowledge, the Property does not consist of
         any building  materials  that contain  Hazardous  Materials.  No claim,
         action,   suit  or  proceeding  is  pending  or,  to  the  Transferors'
         knowledge,   threatened   against  BOND,  before  any  court  or  other
         governmental  authority or arbitration tribunal,  relating to Hazardous
         Materials,  pollution or the  environment,  and there is no outstanding
         judgment, order, writ, injunction, decree or award against or affecting
         BOND or the Property  with respect to the same.  There is not presently
         occurring,  nor to the Transferors' knowledge,  has there ever been any
         "release"  of any  Hazardous  Materials  onto or from the  Property  in
         violation  of  an  Environmental  Law.  To  the  best  of  Transferors'
         knowledge,  there has never been, nor is there presently occurring, any
         "release" of any  "hazardous  substance"  from any location  where BOND
         transported,   treated,   disposed   of  or   arranged  or  caused  the
         transportation,   treatment  or  disposal  of  Hazardous  Materials  in
         violation of an Environmental Law. BOND has utilized, stored, delivered
         for disposal, disposed of and transported all wastes, whether hazardous
         or not, in material  compliance with the then applicable  laws,  rules,
         regulations  and  ordinances  and the  common law and so as not to give
         rise to any  reporting,  remediation or clean-up  obligation  under any
         currently  applicable law, rule,  regulation or ordinance or the common
         law. The provisions of this  Subparagraph  6(u) shall also apply to the
         real property of, and actions taken by, each person  controlled by BOND
         during  all  periods  in which  such  person  was  controlled  by BOND;
         provided,  however,  that for purposes of this Subparagraph  6(u), BOND
         shall not be deemed to be in  control  of any  Tenant of the  Property.
         BOND has not received  any written  notice from any  government  agency
         advising it that it is responsible for response costs with respect to a
         release,  a threatened  release or clean up of chemical produced by, or
         resulting  from, any business,  commercial,  or industrial  activities,
         operations,  or  processes,  including,  but not limited to,  Hazardous
         Materials,  and has not received any written information requests under
         CERCLA from any government agency. As used herein, "release" shall have
         the same meaning as defined in CERCLA.


                    (v)  Intellectual   Property.   BOND  does  not  utilize  or
otherwise  conduct any business under any trademark,  service mark or tradename.
BOND has not been charged  with,  nor, to the knowledge of  Transferors,  has it
infringed,  or, is it threatened to be charged with infringement of, any patent,
proprietary  rights or trade  secrets of others in the conduct of its  Business,
and, to the date hereof, BOND has not, to Transferors'  knowledge,  received any
notice of conflict with or violation of the asserted  rights in  intangibles  or
trade secrets of others.

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                    (w) Brokers' Fees.  Neither the Transferors nor BOND has any
liability or obligation to pay any fees or commissions to any broker,  finder or
agent with respect to the transactions contemplated by this Agreement.

                    (x)  Accuracy  of   Information.   Neither   Transferor  has
knowledge of any events,  transactions or other facts which, either individually
or in the aggregate might  reasonably give rise to  circumstances  or conditions
which might have a material  adverse  affect on the general  affairs,  business,
prospects, financial position, results of operations or net worth of BOND.

                    (y) No  Indemnification  Liabilities.  There are no existing
liabilities that require BOND to indemnify its partners for acts or omissions by
such  persons  acting  on  behalf  of BOND or  existing  agreements  to  provide
indemnification for such liabilities.

                    (z) No Foreign  Persons.  Neither  Transferor  is a "foreign
person" within the meaning of Section 1445(f)(3) of the Code.

                    (aa) Investment Representations.

                         (i)(A)  Each  Transferor  is  acquiring  the  Units for
         investment for its own account, not as a nominee or agent, and not with
         a view to the sale in connection with a public distribution of any part
         thereof;  and (B) each Transferor has no present  intention of selling,
         granting a  participation  in or otherwise  distributing,  and does not
         have any  contract,  undertaking,  agreement  or  arrangement  with any
         natural person, corporation,  partnership,  association or other entity
         ("Person") to sell,  transfer or grant a participation  to such person,
         or to any third person, with respect to any of the Units.

                         (ii)Each Transferor  understands that the Units are not
         registered under the Securities Act of 1933, as amended,  and the rules
         and regulations  promulgated  thereunder (the "Securities  Act") on the
         ground that the sale and the issuance of the Units  hereunder is exempt
         from  registration  under the  Securities  Act pursuant to Section 4(2)
         thereof and regulations issued thereunder, and that the GPLP's reliance
         on such  exemption is predicated on  Transferors'  representations  set
         forth herein.

                         (iii)Each  Transferor  represents that it either (A) is
         both an  "accredited  investor" as that term is defined in Regulation D
         promulgated under the Securities Act and a purchaser  excluded from the
         count  of  investors   under   Section   25102(f)  of  the   California
         Corporations  code;  or (B)  alone or  together  with its  professional
         advisor,  has such  knowledge and  experience in financial and business
         matters  as to be  capable  of  evaluating  the  merits  and  risks  of
         investment in the GPLP and has the capacity to protect its own interest
         in  connection  with  the  transactions   contemplated   hereby.   Each
         Transferor   further   represents  that,   during  the  course  of  the
         transaction  and prior to its  purchase of shares of the Units,  it had
         access to, the  opportunity  to ask questions  of, and receive  answers
         from,  representatives  of the GPLP concerning the terms and conditions
         of the offering and to obtain additional information (to the extent the
         GPLP possessed such information or could acquire it without

                                   52 of 135
<PAGE>

         unreasonable effort or expense) necessary to verify the accuracy of any
         information furnished to it or to which it had access.

                         (iv)  Each  Transferor  has  relied  solely  on its own
         investigations  in making a decision  to  purchase  the Units,  and has
         received  no  representation  or  warranty  from  GPLP,  or  any of its
         affiliates,  employees  or  agents,  other than those set forth in this
         Agreement.

                         (v) Each Transferor  understands that the Units may not
         be sold,  transferred  or  otherwise  disposed of without  registration
         under the  Securities  Act or pursuant to an exemption  therefrom,  and
         that in the absence of an effective registration statement covering the
         Units or an available  exemption from registration under the Securities
         Act,  the  Units  must  be  held  indefinitely.   In  particular,  each
         Transferor is aware that the Units may not be sold pursuant to Rule 144
         promulgated  under the  Securities  Act unless all of the conditions of
         that Rule are met. Each Transferor  represents  that, in the absence of
         an effective  registration  statement covering the Units, it will sell,
         transfer or otherwise  dispose of the Units only in a manner consistent
         with its  representations  set forth herein and then only in accordance
         with the provisions of this Agreement,  GPLP's  Partnership  Agreement,
         and applicable laws and regulations.

                         (vi)Each Transferor agrees that, except as specifically
         contemplated  hereunder, in no event will it transfer or dispose of any
         of the Units other than pursuant to an effective registration statement
         under the Securities Act, unless and until (i) there is compliance with
         all requirements  contained in other sections of this Agreement and the
         GPLP's partnership  agreement;  (ii) the Transferor shall have notified
         GPLP of the proposed  disposition  and shall have furnished GPLP with a
         statement of the  circumstances  surrounding the disposition;  (iii) if
         requested  by  GPLP,  at  the  expense  of  such  Transferor,   or  its
         transferee,  it shall have  furnished  to GPLP an  opinion of  counsel,
         reasonably  satisfactory  to GPLP, to the effect that such transfer may
         be consummated without  registration under the Securities Act; and (iv)
         the  transferee  executes and delivers an  assumption  of the terms and
         conditions  of this  Agreement  and the  GPLP's  Partnership  Agreement
         satisfactory to GPLP.


         7.  Representations  and Warranties of GPLP. GPLP hereby represents and
warrants  to  Transferors  as  follows:  GPLP is a duly  organized  and  validly
existing  limited  partnership  under the laws of the State of California;  this
Agreement  and all  documents  executed  by GPLP  which are to be  delivered  to
Transferors  at  the  Closing  are  or at the  time  of  Closing  will  be  duly
authorized,  executed and  delivered by GPLP,  and are or at the Closing will be
legal,  valid and  binding  obligations  of GPLP,  and do not and at the time of
Closing will not violate any  provisions of any  agreement or judicial  order to
which GPLP is subject.

         8. Indemnification.

                    (a) Each party hereby  agrees to  indemnify  the other party
and defend and hold it harmless  from and  against any and all claims,  demands,
liabilities, costs, expenses,

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penalties, damages and losses, including,  without limitation,  attorneys' fees,
resulting from any misrepresentation or breach of warranty or breach of covenant
made by such party in this Agreement or in any document, certificate, or Exhibit
given  or  delivered  to  the  other  pursuant  to or in  connection  with  this
Agreement.

                    (b)  Transferors  agree  on a joint  and  several  basis  to
indemnify  GPLP and BOND and  defend  and hold GPLP and BOND  harmless  from and
against any and all claims, demands,  liabilities,  costs, expenses,  penalties,
damages and losses,  including,  without  limitation,  attorneys' fees, asserted
against,  incurred or suffered by GPLP or BOND  resulting from or arising out of
any  transaction  entered  into,  any state of facts  existing,  or any personal
injury or property  damage  occurring  in, on or about the  Property or relating
thereto,  before the Closing  Date,  from any cause  whatsoever  other than as a
consequence  of the  acts  or  omissions  of  GPLP,  its  agents,  employees  or
contractors.

                    (c) GPLP and BOND agree to indemnify  Transferors and defend
and hold Transferors  harmless from any claims,  losses,  demands,  liabilities,
costs, expenses,  penalties,  damages and losses, including, without limitation,
attorneys' fees, asserted against, incurred or suffered by Transferors resulting
from or  arising  out of any  transaction  entered  into,  any  state  of  facts
existing,  or any personal injury or property  damage  occurring in, on or about
the  Property  or  relating  thereto,  after the  Closing  Date,  from any cause
whatsoever  other  than as a  consequence  of the acts or  omissions  of  either
Transferor, or their respective agents, employees or contractors.

                    (d) Transferors agree on a joint and several basis to and do
hereby  indemnify,  defend and hold harmless GPLP, its shareholders and BOND and
the  respective  agents,   contractors,   employees,   shareholders,   trustees,
investment advisors, and representatives of each of GPLP, its shareholders,  and
BOND and each of their  successors  and  assigns,  from and  against any and all
liabilities,  claims,  demands,  suits,  administrative  proceedings,  causes of
action,  costs,  damages,  personal  injuries and property  damages,  losses and
expenses,  both known and  unknown,  present  and  future,  at law or in equity,
arising  out of or  related  in any way to any  active or  inactive  underground
storage  tanks  at the  Property  ("USTs")  or  the  presence  of any  hazardous
substances in or about the Property or any portion thereof  existing on or prior
to the Closing Date. This indemnification includes,  without limitation, (i) any
and all remedial costs (including,  without limitation,  all costs, expenses and
fees incurred in connection with any corrective action,  preventative  measures,
or any response, removal, transport,  disposal, clean-up,  abatement,  treatment
and monitoring actions relating to hazardous substances,  including,  regulatory
costs,  penalties,  fines,  legal  fees  and  disbursements  and  the  costs  of
environmental contractors and consultants) associated with any USTs or hazardous
substances,  (ii) to the  maximum  extent  allowed  by  law,  all  fines  and/or
penalties that may be imposed in connection with any USTs,  (iii) defense of any
claim made by any individual or entity (including any government or governmental
agency or  entity)  concerning  any of the  foregoing,  which  defense  shall be
conducted  by counsel and with the  assistance  of  environmental  advisors  and
consultants,  in all cases  subject to the prior written  approval of GPLP,  and
(iv)  reasonable  attorneys'  fees and costs  and  environmental  advisors'  and
consultants' fees incurred by GPLP and BOND with respect to enforcing its rights
under this indemnification provision.

                                   54 of 135
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                    (e) The indemnification provisions of this Paragraph 8 shall
survive  beyond the Closing,  or, if the Closing does not occur pursuant to this
Agreement, beyond any termination of this Agreement.

         9. Risk of Loss.

                    (a) Minor Loss. GPLP shall be bound to transfer the Units in
exchange for the Partnership Interests as required by the terms hereof,  without
regard to the  occurrence or effect of any damage to the Property or destruction
of any  improvements  thereon or  condemnation  of any portion of the  Property,
provided that:  (a) the cost to repair any such damage or  destruction  does not
exceed five  percent  (5%) of the fair market  value of the  Property or, in the
case of a partial  condemnation,  the value of the portion of the Property taken
does not exceed five percent (5%) of the fair market value of the Property;  (b)
upon the Closing,  there shall be a credit  reducing the number of Units (at $15
per  Unit)  to be  transferred  by GPLP  hereunder  equal to the  amount  of any
insurance  proceeds or  condemnation  awards  collected by the  Transferors as a
result of any such damage or  destruction  or  condemnation,  plus  seventy-five
percent  (75%) of the  amount of any  insurance  deductible;  (c)  insurance  or
condemnation  proceeds  available  to BOND are  sufficient  to cover the cost of
restoration;  and (d) the  insurance  carrier  has  admitted  liability  for the
payment of such costs.  If the proceeds or awards have not been  collected as of
the Closing,  then  Transferors'  right,  title and interest to such proceeds or
awards shall be assigned to GPLP.

                    (b)  Major  Loss.  If the  cost to  repair  such  damage  or
destruction  to the Property  exceeds  fifteen  percent (15%) of the fair market
value of the  Property  or,  in the case of  condemnation,  if the  value of the
Property  taken  exceeds  fifteen  percent (15%) of the fair market value of the
Property,  then GPLP may,  at its option to be  exercised  by written  notice to
Transferors  within  twenty  (20)  days of  Transferors'  notice  to GPLP of the
occurrence of the damage or  destruction  or the  commencement  of  condemnation
proceedings,  either (a) elect to terminate this Agreement,  in which event each
party shall have no further right,  liability or obligation to the other, except
as set forth  herein by express  reference  in a paragraph  or  provision  which
provides  that such  paragraph or provision  shall survive  termination  of this
Agreement,  or (b) consummate the purchase of all of the Property as required by
the terms hereof,  subject to the credits  against the Units provided  below. If
GPLP elects to proceed with the purchase of all of the Property,  then, upon the
Closing,  GPLP shall be given a credit  reducing the number of Units (at $15 per
Unit) to be transferred  by GPLP hereunder  equal to the amount of any insurance
proceeds or condemnation  awards collected by the Transferors as a result of any
such damage or destruction or condemnation,  plus seventy-five  percent (75%) of
the amount of any insurance deductible.  If the proceeds or awards have not been
collected as of the Closing, then Transferors' right, title and interest to such
proceeds or awards shall be assigned to GPLP. If GPLP fails to give  Transferors
notice  within such 20-day  period,  then GPLP will be deemed to have elected to
terminate this Agreement.

         10.  Inspections.  Prior to the Closing Date,  Transferors shall afford
authorized  representatives  of  GPLP  reasonable  access  to the  Property  for
purposes of satisfying GPLP with respect to the representations,  warranties and
covenants of Transferors  contained  herein and with

                                   55 of 135
<PAGE>

respect to  satisfaction  of any Conditions  Precedent to the Closing  contained
herein,  including,  without  limitation,  the drilling of test wells on and the
taking of soil borings from the  Property.  GPLP hereby  agrees to indemnify and
hold  Transferors  harmless  from any damage or injury to  persons  or  property
caused  by  GPLP  or its  authorized  representatives  during  their  entry  and
investigations  prior to the Closing. In the event this Agreement is terminated,
GPLP shall restore the Property to  substantially  the condition in which it was
found.  This  indemnity  shall survive the  termination of this Agreement or the
Closing, as applicable.

         11. Actions Prior to Closing. Subject to the provisions of Paragraph 12
below,  from and after the  Effective  Date and until the Closing Date, or until
this Agreement shall be terminated as herein provided, Transferors shall not and
shall not otherwise cause BOND to (i) merge with or into,  consolidate  with, or
sell its  assets to any other  corporation  or  person,  or enter into any other
transaction  not in the  ordinary  course of the Business  consistent  with past
practice,  (ii)  incur any  liability  or  obligation,  make any  commitment  or
disbursement,  acquire or dispose of any property or asset, make any contract or
agreement or engage in any  transaction,  except in the  ordinary  course of the
Business  consistent with past practice,  (iii) subject any of its properties or
assets  to a Lien,  (iv)  hire any  employee(s),  or enter  into any  employment
agreement,  engage in any activity,  enter into any  transaction or fail to take
any action  which  would be  inconsistent  with any of the  representations  and
warranties  as set  forth  in  this  Agreement  as if such  representations  and
warranties  were made at a time  subsequent to such activity or transaction  and
all  references to the date of this Agreement were deemed to be such later time,
(v) amend BOND's Partnership Agreement, or (vii) waive any material right.

         12.  Leases  And  Other  Agreements;  Capital  Improvements  Except  as
otherwise  contemplated  or permitted  by this  Agreement or approved by GPLP in
writing,  from the Effective  Date to the Closing Date,  Transferors  will cause
BOND to operate, maintain, repair and lease the Property in a prudent manner, in
the ordinary  course,  on an  arm's-length  basis and consistent with their past
practices (and without limiting the foregoing,  Transferors shall cause BOND, in
the ordinary course, negotiate with prospective tenants and enter into leases of
the  Property,  enforce  leases  in all  material  respects,  pay all  costs and
expenses of the Property,  including,  without  limitation,  debt service,  real
estate taxes and assessments, maintain insurance and pay and perform obligations
under  the Loan  Documents)  and  will not  dispose  of or  encumber  any of the
Property, except for dispositions of personal property in the ordinary course of
business.  Without the written consent of GPLP,  which consent GPLP may grant or
deny in its sole and absolute  discretion,  Transferors shall not enter into any
contract  or lease  with a term of more  than  one (1)  year  and  consideration
payable or to be received of more than Fifty Thousand Dollars ($50,000).

         13.  Cooperation.  Transferors and GPLP shall cooperate and do all acts
as may be  reasonably  required  or  requested  by the other with  regard to the
fulfillment of any Condition  Precedent or the  consummation of the transactions
contemplated  hereby  including  execution  of any  documents,  applications  or
permits.  Transferors hereby  irrevocably  authorize GPLP and its agents to make
all inquiries of any third party, including any governmental  authority, as GPLP
may reasonably require to complete its due diligence.

                                   56 of 135
<PAGE>

         14. Miscellaneous.

                    (a)  Notices.  Any notice,  consent or approval  required or
permitted  to be given  under this  Agreement  shall be in writing  and shall be
deemed to have been given upon (i) hand  delivery,  (ii) one (1) day after being
deposited with Federal Express or another reliable  overnight courier service or
transmitted by facsimile  telecopy,  or (iii) two (2) days after being deposited
in the United States mail, registered or certified mail, postage prepaid, return
receipt required, and addressed as follows:

          If to Transferors:   GPA, Ltd.
                               400 South El Camino Real
                               San Mateo, CA 94402-1708
                               Att'n: Andrew Batinovich
                               Telephone: (415) 343-9300
                               Fax No.: (415) 343-9690

                               Glenborough Corporation
                               400 South El Camino Real
                               San Mateo, CA 94402-1708
                               Telephone: (415) 343-9300
                               Attn:  Robert Batinovich
                               Fax No.: (415) 343-9690

          If to GPLP:          Glenborough Properties, L.P.
                               400 South El Camino Real
                               San Mateo, California 94402-1708
                               Att'n:  Frank E. Austin
                               Telephone:  (415) 343-9300
                               Fax:  (415) 343-9690


          With a copy to:      Morrison & Foerster LLP
                               755 Page Mill Road
                               Palo Alto, CA 94304-1018
                               Att'n:  William L. Myers
                               Telephone:  (415) 813-5770
                               Fax :  (415) 494-0792

or such other  address as either  party may from time to time specify in writing
to the other.

                    (b) Brokers and Finders.  Neither  party has had any contact
or dealings regarding the Property,  or any communication in connection with the
subject  matter of this  transaction,  through any real  estate  broker or other
person who can claim a right to a commission or finder's fee in connection  with
the sale  contemplated  herein.  In the event  that any  other  broker or finder
perfects a claim for a commission  or finder's fee based upon any such  contact,
dealings or communication, the party through whom the broker or finder makes its
claim

                                   57 of 135
<PAGE>
shall be  responsible  for said  commission or fee and shall  indemnify and hold
harmless  the other party from and against all  liabilities,  losses,  costs and
expenses (including  reasonable attorneys' fees) arising in connection with such
claim for a commission  or finder's  fee. The  provisions  of this  Subparagraph
shall survive the Closing.

                    (c) Successors and Assigns.  This Agreement shall be binding
upon,  and inure to the  benefit  of, the  parties  hereto and their  respective
successors,  heirs,  administrators and assigns. GPLP shall have the right, with
notice to Transferors  (but without the necessity of Transferors'  consent),  to
assign its right,  title and  interest in and to this  Agreement  to one or more
assignees  at any time before the  Closing  Date,  and in such event,  the party
originally designated as GPLP shall be relieved of any and all obligations under
this Agreement and any other  instruments  executed  pursuant  hereto,  and such
assignee(s) shall be substituted in its place and will assume all obligations of
GPLP  hereunder.  Transferors  shall not have the  right to assign  any of their
respective interest in this Agreement.

                    (d) Amendments.  Except as otherwise  provided herein,  this
Agreement  may be amended or modified only by a written  instrument  executed by
Transferors and GPLP.

                    (e)  Continuation  and  Survival  of   Representations   and
Warranties,  Etc. All  representations  and warranties by the respective parties
contained  herein or made in writing  pursuant to this Agreement are intended to
and shall remain true and correct as of the time of Closing,  shall be deemed to
be material,  and, together with all conditions,  covenants and indemnities made
by the respective  parties  contained herein or made in writing pursuant to this
Agreement  (except as  otherwise  expressly  limited or expanded by the terms of
this Agreement),  shall survive the execution and delivery of this Agreement and
the Closing,  or, to the extent the context requires,  beyond any termination of
this Agreement.

                    (f) Governing Law. This  Agreement  shall be governed by and
construed in accordance with the laws of the State of California.

                    (g)  Merger  of Prior  Agreements.  This  Agreement  and the
Exhibits  hereto  constitute  the  entire  agreement  between  the  parties  and
supersede all prior agreements and  understandings  between the parties relating
to the subject matter hereof.

                    (h) Enforcement. If either party hereto fails to perform any
of its  obligations  under this  Agreement  or if a dispute  arises  between the
parties hereto concerning the meaning or interpretation of any provision of this
Agreement, then the defaulting party or the party not prevailing in such dispute
shall pay any and all costs and expenses  incurred by the other party on account
of such  default  and/or in  enforcing  or  establishing  its rights  hereunder,
including,   without   limitation,   court   costs  and   attorneys'   fees  and
disbursements.  Any such attorneys'  fees and other expenses  incurred by either
party in  enforcing  a  judgment  in its favor  under  this  Agreement  shall be
recoverable separately from and in addition to any other amount included in such
judgment,  and such  attorneys' fees obligation is intended to be severable from
the other provisions of this Agreement and to survive and not be merged into any
such judgment.

                                   58 of 135
<PAGE>

                    (i)  Time of the  Essence.  Time is of the  essence  of this
Agreement.

                    (j) Severability. If any provision of this Agreement, or the
application  thereof to any person,  place, or circumstance,  shall be held by a
court of  competent  jurisdiction  to be  invalid,  unenforceable  or void,  the
remainder of this  Agreement and such  provisions  as applied to other  persons,
places and circumstances shall remain in full force and effect.

                    (k) Marketing.  Transferors  agree not to market or show the
Property or market the Partnership Interests to any other prospective purchasers
during the term of this Agreement.

                    (l)  Effective  Date.  As used herein,  the term  "Effective
Date"  shall mean the first date on which both  Transferors  and GPLP shall have
executed this Agreement.

                    (m)  Joint and  Several.  The  representations,  warranties,
covenants and obligations of Transferors and GPLP are joint and several.

                    (n)   Confidentiality.   GPLP  and  Transferors  shall  each
maintain as confidential any and all material or information about the other or,
in the case of GPLP and its  agents,  employees,  consultants  and  contractors,
about the Property,  and shall not disclose such information to any third party,
except,  in the case of information  about the Property and BOND, to Transferors
or GPLP's  lender  or  prospective  lenders,  underwriters  and  their  counsel,
insurance  and  reinsurance  firms,  attorneys,   environmental  assessment  and
remediation service firms and consultants, as may be reasonably required for the
consummation of the  transaction  contemplated  hereunder  and/or as required by
law.

                                   59 of 135
<PAGE>

                    IN WITNESS  WHEREOF,  the parties  hereto have executed this
Agreement as of the date first above written.


                     GPLP:


                             GLENBOROUGH PROPERTIES, L.P.
                             a California limited partnership


Dated:                             By:  Glenborough Realty Trust Incorporated,
                                   a Maryland corporation, its general partner


                                                        By:
                                                        Its:


                     Transferors:

                             GPA:    GPA, LTD., a California limited partnership

Dated:                             By: Glenborough Corporation,
                                   a California corporation, its general partner

                                                        By:
                                                        Its:




                             Glenborough:GLENBOROUGH CORPORATION,
                                                  a California corporation


                                                        By:
                                                        Its:




                                   60 of 135
<PAGE>




                                         GRT CORP., a Georgia corporation



                                                        By:
                                                        Its:




                                   61 of 135
<PAGE>






                                LIST OF EXHIBITS


Exhibit A  -   Registration Rights Agreement
Exhibit B  -   Assignment of Partnership Interests
Exhibit C  -   Assignment of Partnership Interests
Exhibit D  -   Title Policy
Exhibit E  -   Agreement and Consent Regarding Transfer of Partnership Interests
Exhibit F  -   Second Amendment to Limited Partnership Agreement of GPA Bond,
               LP, on California Limited Partnership
Exhibit G  -   Rent Roll






                                   62 of 135
<PAGE>




                                LIST OF SCHEDULE


Schedule 6(h)(i)  -  Real Property







                                   63 of 135
<PAGE>

                                    EXHIBIT B

                       ASSIGNMENT OF PARTNERSHIP INTERESTS



                  THIS  ASSIGNMENT   dated  as  of  ___________  __,  1996  (the
"Assignment"),  is entered into by and between GPA,  LTD., a California  limited
partnership ("Assignor") and GLENBOROUGH PROPERTIES,  L.P., a California limited
partnership (the "Assignee").

                              W I T N E S S E T H :

                  WHEREAS,  Assignor and  Assignee,  among other  parties,  have
entered into that certain  Agreement For  Contribution of Partnership  Interests
dated as of July __,  1996  (the  "Contribution  Agreement")  pursuant  to which
Assignor  agreed to  contribute  to Assignee its LP Interest in GPA BOND,  LP, a
California limited partnership ("BOND"); and

                  WHEREAS,  Assignor  desires  to  assign  the  LP  Interest  to
Assignee, and Assignee desires to accept the assignment thereof;

                  NOW,   THEREFORE,   in   consideration  of  the  promises  and
conditions contained herein, the parties hereby agree as follows:

                   1.  Effective  as of the  Closing  Date (as  defined  below),
Assignor hereby assigns to Assignee the LP Interest;  it being the intent of the
parties that upon completion of such assignment,  Assignee shall own one-hundred
percent (100%) of the LP Interest.

                   2.  This   Assignment   is  made   subject   to  all  of  the
representations,   warranties,   covenants  and  indemnities  contained  in  the
Contribution Agreement to the extent they survive the Closing Date.

                   3.  Assignor,  on behalf of Assignor and its  successors  and
assigns,  waives the right to recover from, and forever releases and discharges,
BOND from any and all  demands,  claims,  legal or  administrative  proceedings,
losses,  liabilities,  damages,  penalties,  fines, liens,  judgments,  costs or
expenses whatsoever (including, without limitation,  attorneys' fees and costs),
whether  direct or  indirect,  known or unknown,  foreseen or  unforeseen,  that
either or both of the Assignors,  or their respective successors or assigns, may
have against  BOND whether  pursuant to  applicable  law, or BOND's  partnership
agreement or otherwise, and whether arising out of any right to indemnity, right
of  contribution,  or otherwise,  where such claim results from or arises out of
any  transaction  entered  into,  any state of facts  existing,  or any personal
injury or property  damage  occurring  whether  in, on or about the  Property or
elsewhere, before the Closing Date.

                                   64 of 135
<PAGE>

                   4. Assignor  gives Assignee the right to become a Substituted
Limited  Partner (as that term is defined in that  certain  Limited  Partnership
Agreement of GPA BOND,  LP,  dated as of December  22, 1994,  as amended by that
certain First Amendment to the Agreement of Limited Partnership of GPA BOND, LP,
dated as of April 10, 1995 (the "Bond Partnership  Agreement")) in its place and
agrees to pay all costs and  expenses  incurred by BOND in  connection  with the
assignment,  including any filing,  recording, and legal fees and costs, and the
costs,  if any, of  complying  with any state or federal  rules or  regulations.
Assignor  agrees  to hold its  Partnership  Interests  (as  defined  in the Bond
Partnership  Agreement) as a Limited Partner (as defined in the Bond Partnership
Agreement) subject to the terms and conditions of the Bond Partnership Agreement
and assumes all obligations under the Bond Partnership  Agreement  pertaining to
the interest that is assigned.

                   5.  In  the  event  of any  litigation  arising  out of  this
Assignment, the losing party shall pay the prevailing party's costs and expenses
of such litigation, including, without limitation, reasonable attorneys' fees.

                   6.This  Assignment  shall  be  binding  on and  inure  to the
benefit of the parties hereto, their successors in interest and assigns.

                   7. This  Assignment  shall be  governed by and  construed  in
accordance with the laws of the State of California.

                   8. For the purposes of this  Assignment,  the "Closing  Date"
shall be the date of the Closing.

                   9. All  initially  capitalized  terms not  otherwise  defined
herein shall have the meaning set forth in the Contribution Agreement.


                   IN WITNESS  WHEREOF,  the parties  hereto have  executed this
Agreement as of the date first above written.

                                     Assignor:


                                          GPA:  GPA LTD.,
                        a California limited partnership

                                   By:  Glenborough Corporation,
                                   a California corporation, its general partner


                                                      By:
                                                      Its:


                                   65 of 135
<PAGE>

                                     Assignee:

                                          GLENBOROUGH PROPERTIES, L.P.,
                                          a California limited partnership

                                     By:  Glenborough Realty Trust Incorporated,
                                     a Maryland corporation, its general partner


                                                      By:
                                                      Its:





                                   66 of 135
<PAGE>

                                    EXHIBIT C


                       ASSIGNMENT OF PARTNERSHIP INTERESTS


                  THIS  ASSIGNMENT   dated  as  of  ___________  __,  1996  (the
"Assignment"),  is  entered  into  by and  between  GLENBOROUGH  CORPORATION,  a
California  corporation  ("Assignor"),  and GRT  Corp.,  a  Georgia  corporation
("Assignee").

                              W I T N E S S E T H :

                  WHEREAS,  Assignor and  Assignee,  among other  parties,  have
entered into that certain  Agreement for  Contribution of Partnership  Interests
dated as of July __,  1996  (the  "Contribution  Agreement")  pursuant  to which
Assignor  agreed to  transfer to  Assignee  its GP  Interest in GPA BOND,  LP, a
California limited partnership ("BOND") ; and

                  WHEREAS,  Assignor  desires  to  assign  the  GP  Interest  to
Assignee, and Assignee desires to accept the assignment thereof;

                  NOW,   THEREFORE,   in   consideration  of  the  promises  and
conditions contained herein, the parties hereby agree as follows:

                   1.Effective  as of  the  Closing  Date  (as  defined  below),
Assignor hereby assigns to Assignee the GP Interest,  it being the intent of the
parties  that  upon  completion  of  such  assignments,  Assignee  shall  own  a
one-hundred percent (100%) of the GP Interest.

                   2.  This   Assignment   is  made   subject   to  all  of  the
representations,   warranties,   covenants  and  indemnities  contained  in  the
Contribution Agreement to the extent they survive the Closing Date.

                   3.  Assignor,  on behalf of Assignor and its  successors  and
assigns,  waives its right to recover from, and forever releases and discharges,
BOND from any and all  demands,  claims,  legal or  administrative  proceedings,
losses,  liabilities,  damages,  penalties,  fines, liens,  judgments,  costs or
expenses whatsoever (including, without limitation,  attorneys' fees and costs),
whether  direct or  indirect,  known or unknown,  foreseen or  unforeseen,  that
either or both of the Assignors,  or their respective successors or assigns, may
have against  BOND whether  pursuant to  applicable  law, or BOND's  partnership
agreement or otherwise, and whether arising out of any right to indemnity, right
of  contribution,  or otherwise,  where such claim results from or arises out of
any  transaction  entered  into,  any state of facts  existing,  or any personal
injury or property  damage  occurring  whether  in, on or about the  Property or
elsewhere, before the Closing Date.

                   4.  In  the  event  of any  litigation  arising  out of  this
Assignment, the losing party shall pay the prevailing party's costs and expenses
of such litigation, including, without limitation, reasonable attorneys' fees.

                                   67 of 135
<PAGE>

                   5.  This  Assignment  shall be  binding  on and  inure to the
benefit of the parties hereto, their successors in interest and assigns.

                   6. This  Assignment  shall be  governed by and  construed  in
accordance with the laws of the State of California.

                   7.For the purposes of this  Assignment,  the  "Closing  Date"
shall be the date of the Closing (as defined in the Contribution Agreement).

                   8. All initially  capitalized  terms not otherwise defined in
this Agreement shall have the meaning set forth in the Contribution Agreement.


                   IN WITNESS  WHEREOF,  the parties  hereto have  executed this
Agreement as of the date first above written.


                                     Assignor:


                                                GLENBOROUGH CORPORATION,
                        a California limited partnership




                                                         By:
                                                         Its:


                                     Assignee:

                                                  GRT CORP.,
                                                  a Georgia corporation

                                                         By:
                                                         Its:

                                   68 of 135
<PAGE>

                               SECOND AMENDMENT TO
                           FIRST AMENDED AND RESTATED
                       AGREEMENT OF LIMITED PARTNERSHIP OF
                          GLENBOROUGH PROPERTIES, L.P.


         THIS SECOND  AMENDMENT TO THE FIRST  AMENDED AND RESTATED  AGREEMENT OF
LIMITED  PARTNERSHIP,  dated as of ____ ___, 1996 (the "Amendment"),  is entered
into by and among  Glenborough  Realty  Trust  Incorporated  ("Glenborough"),  a
Maryland corporation, as the General Partner and the Persons whose names are set
forth on Exhibit A as attached hereto, as the Limited Partners.

                                    RECITALS

         WHEREAS,  the General Partner and the Initial Limited Partner  executed
that certain Limited Partnership Agreement of Glenborough Properties,  L.P. (the
"Original  Agreement"),  dated as of August 23,  1995,  and the General  Partner
caused the  Partnership to file a Certificate  of Limited  Partnership on August
23,  1995,  thereby  causing the  Partnership  to be formed for the purposes set
forth in the Original Agreement; and

         WHEREAS,  the  Original  Agreement  was  amended  and  restated by that
certain  First  Amended  and  Restated  Agreement  of  Limited   Partnership  of
Glenborough Properties,  L.P., dated as of December 31, 1995, as further amended
by that  certain  Amendment to First  Amended and Restated  Agreement of Limited
Partnership  of  Glenborough  Properties,  L.P.,  dated as of July 12, 1996 (the
"Agreement"); and

         WHEREAS,  GPA, Ltd., a California limited partnership  ("GPA"), and the
Partnership,  among other parties,  have entered into that certain Agreement for
Contribution of Partnership  Interests,  dated as of July __, 1996,  pursuant to
which (i) GPA has  agreed  to  contribute  to the  Partnership  its 99%  limited
partnership  interest,  in GPA BOND, LP, a California limited  partnership ("GPA
BOND"), in exchange for the issuance of 29,333 Partnership Units to GPA; and

         WHEREAS,  the General Partner and the Limited  Partners desire to amend
the  Agreement to reflect the issuance of additional  Partnership  Units to GPA,
which is an existing Limited Partner.

         NOW,  THEREFORE,  in  consideration  of the mutual  covenants set forth
herein,  and  for  other  good  and  valuable   consideration  the  receipt  and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree to
amend the Agreement as follows:

                                    AGREEMENT

          1. Capitalized  terms used but not  specifically  defined herein shall
have the meanings ascribed to such terms in the Agreement.

                                   69 of 135
<PAGE>

          2.  Exhibit A to the  Agreement  is hereby  amended in its entirety by
Exhibit A attached hereto.

          3. Except as specifically  amended as set forth herein,  the Agreement
shall remain in full force and effect.

                      [The next page is the signature page]





                                   70 of 135
<PAGE>
         IN WITNESS  WHEREOF,  the parties  hereto have executed this  Agreement
under seal as of the date first written above.

                   GENERAL PARTNER:

                   GLENBOROUGH REALTY TRUST INCORPORATED, a Maryland corporation


                   By:

                   Title:

                   [CORPORATE SEAL]



                   LIMITED PARTNERS:

                   By:      GLENBOROUGH REALTY TRUST INCORPORATED,
                            a Maryland corporation, as Attorney-in-Fact
                            for the Limited Partners


                   By:

                   Title:





                                   71 of 135
<PAGE>



<TABLE>
<CAPTION>

                                    EXHIBIT A

                                       to
                        AGREEMENT OF LIMITED PARTNERSHIP
                                       of
                          GLENBOROUGH PROPERTIES, L.P.



                                                                                                Agreed
                                                                                               Value of
Name and Address                         Cash         Contributed           Total             Percentage           Partnership
of Partner                           Contribution       Property        Contribution         Contribution             Units

General Partner

<S>                                        <C>      <C>                 <C>                         <C>                <C>
Glenborough Realty                         -        $      600,450      $      600,450              .99274%            40,030
Trust Incorporated
400 South El Camino Real
San Mateo, CA  94404-1708

Limited Partners

Glenborough Realty                         -            50,958,735          50,958,735            84.25136%         3,397,249
Trust Incorporated
400 South El Camino Real
San Mateo, CA  94404-1708

GPA, Ltd.                                  -             8,734,085           8,734,085            14.44027%           582,272
c/o Glenborough Realty Corp.
Trust Incorporated
400 South El Camino Real
San Mateo, CA  94404-1708

Robert Batinovich                          -               190,905             190,905              .31563%            12,727
400 South El Camino Real
San Mateo, CA  94404-1708
                                   ----------         -------------       -------------        -------------        -----------
Total                                      -          $ 60,484,175        $ 60,484,175           100.00000%         4,032,278
</TABLE>



                                   72 of 135
<PAGE>


                                    EXHIBIT D

                          VALUE OF CONTRIBUTED PROPERTY

Underlying Property                   704(c) Value                  Agreed Value


                                   73 of 135
<PAGE>

                               SECOND AMENDMENT TO
                        LIMITED PARTNERSHIP AGREEMENT OF
                 GPA BOND, LP, A CALIFORNIA LIMITED PARTNERSHIP


         THIS SECOND AMENDMENT TO THE LIMITED PARTNERSHIP AGREEMENT OF GPA BOND,
LP,  A  CALIFORNIA  LIMITED  PARTNERSHIP,  dated  as  of  ____  ___,  1996  (the
"Amendment"), is entered into by and among Glenborough Corporation, a California
corporation formerly known as Glenborough Realty Corporation ("Glenborough"), as
the General  Partner  and the Persons  whose names are set forth on Exhibit A as
attached hereto, as the Limited Partners.

                                    RECITALS

         Glenborough,  as General  Partner,  and GPA Ltd., a California  limited
partnership,  formerly known as GOCO Realty Fund I ("GPA"),  as Limited Partner,
executed  that  certain  Limited  Partnership  Agreement  of GPA  BOND,  LP (the
"Original Agreement"), dated as of December 22, 1994; and

         WHEREAS,  the  Original  Agreement  was amended by that  certain  First
Amendment to the Agreement of Limited  Partnership  of GPA BOND, LP, dated as of
April  10,  1995  (the  "First  Amendment";  the First  Amendment  and  Original
Agreement shall hereinafter be collectively referred to as the "Agreement"); and

         WHEREAS,   Glenborough,   GPA  and  Glenborough  Properties,   L.P.,  a
California limited partnership ("GPLP"),  among other parties, have entered into
that certain  Agreement for Contribution of Partnership  Interests,  dated as of
____ __, 1996 (the "Contribution  Agreement"),  pursuant to which GPA has agreed
to contribute to GPLP its limited  partnership  interests in the partnership and
Glenborough has agreed to transfer its partnership  interests as General Partner
to GRT Corp., a Georgia corporation ("GRT"); and

         WHEREAS,  GRT has become the new General Partner, and GPLP has become a
Substituted  Limited Partner, of GPA BOND, LP, under the terms of the Agreement,
in the manner set forth in that certain Agreement and Consent Regarding Transfer
of  Partnership  Interests,  dated as of _______,  1996,  between and among GRT,
GPLP, Glenborough and GPA;

         WHEREAS,  GRT, as the new General Partner, and GPLP, as the Substituted
Limited Partner, desire to amend the Agreement in certain respects.

         NOW,  THEREFORE,  in  consideration  of the mutual  covenants set forth
herein,  and  for  other  good  and  valuable   consideration  the  receipt  and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree to
amend the Agreement as follows:

                                    AGREEMENT

         1. All initially  capitalized  terms not otherwise defined herein shall
have the meaning set forth in the Agreement.

                                   74 of 135
<PAGE>

         2. The  first  sentence  of  Section  13.2 of the  Agreement  is hereby
deleted in its entirety.

         3.  Subsections (B) and (C) of Section 11.1 of the Agreement are hereby
deleted and the following Subsection 11.1(B) is inserted in their place:

             "(B) No Partner may transfer all or any portion of its  Partnership
             Interests (or beneficial interest therein).  Any purported transfer
             of any Partnership Interests shall be null and void."

         4. Except as  specifically  amended as set forth herein,  the Agreement
shall remain in full force and effect.

                      [The next page is the signature page]





                                   75 of 135
<PAGE>

                  IN WITNESS  WHEREOF,  the parties  hereto have  executed  this
Agreement under seal as of the date first written above.





                     GENERAL PARTNER:

                     GRT CORPORATION, a Georgia corporation


                           By:________________________

                           Title:________________________



                     LIMITED PARTNER:
                     GLENBOROUGH PROPERTIES, L.P., a California
                     limited partnership

                           By: GLENBOROUGH REALTY TRUST
                           INCORPORATED, General Partner



                           By:_______________________

                           Title:_______________________





                                   76 of 135
<PAGE>

                          LEASE AGREEMENT (SAN ANTONIO)

         THIS LEASE AGREEMENT  (hereinafter called "Lease"),  made as of the 1st
day of August, 1996, by and between GLENBOROUGH  PROPERTIES,  L.P., a California
limited partnership  (hereinafter called "Lessor"), and GLENBOROUGH HOTEL GROUP,
a Nevada corporation (hereinafter called "Lessee"), provides as follows.

                              W I T N E S S E T H:

         Contemporaneously  with  the  execution  hereof,  Lessor  acquired  the
"Leased Property" (as hereinafter defined).

         In  furtherance  of the  consummation  of such series of  transactions,
Lessor and Lessee wish to enter into this Lease.

         NOW,  THEREFORE,  Lessor,  in  consideration  of the payment of rent by
Lessee to Lessor,  the covenants and  agreements to be performed by Lessee,  and
upon the terms and  conditions  hereinafter  stated,  does hereby rent and lease
unto  Lessee,  and lessee  does hereby  rent and lease from  Lessor,  the Leased
Property.


                                    ARTICLE I

         1.1      Leased Property.  The Leased Property is comprised of
Lessor's interest in the following:

                  (a)      the parcel of property described in Exhibit "A"
attached hereto and by reference incorporated herein (the "Land");

                  (b) all buildings,  structures and other improvements of every
kind including, but not limited to, alleyways and connecting tunnels, sidewalks,
utility  pipes,  conduits and lines  (on-site and  off-site),  parking areas and
roadways  appurtenant to such buildings and structures  presently  situated upon
the Land (collectively, the "Leased Improvements");

                  (c)      all easements, rights and appurtenances relating to
the Land and the Leased Improvements;

                  (d) all  equipment,  machinery,  fixtures,  and other items of
property  required  or  incidental  to the use of the Leased  Improvements  as a
hotel,  including all components thereof, now and hereafter  permanently affixed
to or incorporated into the Leased  Improvements,  including without limitation,
all  furnaces,  boilers,  heaters,  electrical  equipment,   heating,  plumbing,
lighting,  ventilating,  refrigerating,  incineration,  air and water  pollution
control, waste disposal, air-cooling and air-conditioning systems and apparatus,
sprinkler systems and fire and theft protection  equipment,  all of which to the
greatest  extent  permitted  by law are hereby  deemed by the parties  hereto to
constitute real estate,



                                   77 of 135
<PAGE>

together with all replacements, modifications, alterations and
additions thereto (collectively, the "Fixtures");

                  (e) all  furniture  and  furnishings  and all  other  items of
personal  property  (excluding  Inventory and personal property owned by Lessee)
located  on,  and  used  in  connection   with,  the  operation  of  the  Leased
Improvements  as  a  hotel,  together  with  all  replacements,   modifications,
alterations and additions thereto; and

                  (f)      all existing leases of space within the Leased
Property (including any security deposits or collateral held by
Lessor pursuant thereto).

THE LEASED PROPERTY IS DEMISED IN ITS PRESENT CONDITION  WITHOUT  REPRESENTATION
OR  WARRANTY  (EXPRESSED  OR  IMPLIED)  BY LESSOR  AND  SUBJECT TO THE RIGHTS OF
PARTIES  IN  POSSESSION,  AND TO THE  EXISTING  STATE  OF  TITLE  INCLUDING  ALL
COVENANTS,  CONDITIONS,  RESTRICTIONS,  EASEMENTS  AND OTHER  MATTERS  OF RECORD
INCLUDING ALL APPLICABLE LEGAL REQUIREMENTS,  THE LIEN OF FINANCING INSTRUMENTS,
MORTGAGES,  DEEDS OF TRUST AND SECURITY DEEDS, AND INCLUDING OTHER MATTERS WHICH
WOULD BE DISCLOSED BY ANY  INSPECTION  OF THE LEASED  PROPERTY OR BY AN ACCURATE
SURVEY THEREOF.

         1.2 Term. The term of the Lease (the "Term") shall commence on the date
hereof (the  "Commencement  Date") and shall end on the fifth anniversary of the
last day of the month in which  the  Commencement  Date  occurs,  unless  sooner
terminated in accordance with the provisions hereof.

         1.3  Option to Extend Term.  Lessor hereby grants to Lessee an
option to extend the Term for five (5) years ("Option Period") on
the following terms and conditions:

                  (a) Lessee must give Lessor  notice in writing of its exercise
of the  option to extend the Term not less than two  hundred  ten (210) days nor
more than two hundred  seventy (270) days before the date the Term would end but
for said exercise.

                  (b) All terms and  conditions of this Lease shall apply during
the Option  Period,  except that the Base Rent and the  Percentage  Rent for the
Option Period shall be determined as provided in Subparagraph (c)

                  (c) The Base  Rent  and the  Percentage  Rent  for the  Option
Period shall be the then Fair Market Rent for the Leased Property determined, as
hereinafter   provided,  as  of  the  commencement  of  the  Option  Period.  In
determining the Fair Market Rent, the parties (or any appraisers)  shall provide
for both a base rent and a percentage  rent in a manner  comparable  to the Base
Rent  and  Percentage  Rent  during  the  initial  five  years of the  Term.  In
determining  the Fair Market Rent, the parties (or any  appraisers)  may provide
that the Base Rent be subject to periodic increases



                                   78 of 135
<PAGE>

based upon the Consumer  Price Index or such other  adjustments  if such parties
(or any appraisers)  shall  determine that as of the  commencement of the Option
Period,  five-year  leases at such time for comparable  properties would provide
for adjustments during the term thereof for increase in the Consumer Price Index
or other adjustments;  provided,  however, if such adjustments are provided for,
they  shall  only  provide  for  increases  and in no  event  shall  any rent be
decreased from the amount  previously  paid. In determining the Fair Market Rent
for the Leased Property, the parties (or any appraisers) shall take into account
that the respective obligations of Lessor and Lessee,  including,  but not being
limited to, payment of taxes,  maintenance  and insurance,  will remain the same
during  the  option  period.  If the  parties  are unable to agree upon the Fair
Market Rent for the Leased Property at least one hundred eighty (180) days prior
to the  commencement  of the Option  Period,  then the Fair Market Rent shall be
determined by appraisal conducted pursuant to Article XXXIII consistent with the
provisions of this Subparagraph (c).

         (d) Notwithstanding any provision herein to the contrary, the Base Rent
and the Percentage Rent during the Option Period shall not be less than the Base
Rent and the  Percentage  Rent  payable  during the first five years of the Term
following the Commencement Date. If the Option to Extend is exercised,  wherever
reference  is made to the Term,  it shall  include  the  Option  Period.  If the
appraisal  process  has not been  completed  by the  commencement  of the Option
Period, the Base Rent and Percentage Rent payable at the end of the initial five
years of the Term shall  continue  during the Option  Period until the Base Rent
and Percentage  Rent for the Option Period has been  determined and on the first
day of the first calendar month following such determination,  Lessee shall pay,
in addition to any payments then due, any additional amount that may be required
since the  commencement  of the Option Period as a consequence  of any change in
the Base Rent  and/or  Percentage  Rent,  unless  the first day for  payment  of
Percentage  Rent since the  commencement of the Option Period is not yet due, in
which event  Percentage  Rent shall be calculated  from the  commencement of the
Option Period and shall be due on such first payment date.

                                   ARTICLE II

         Definitions.  For all  purposes  of this  Lease,  except  as  otherwise
expressly  provided or unless the  context  other wise  requires,  (a) the terms
defined in this Article  have the meanings  assigned to them in this Article and
include  the  plural  as well as the  singular,  (b) all  accounting  terms  not
otherwise  defined herein have the meanings  assigned to them in accordance with
generally accepted accounting principles as are at the time applicable,  (c) all
references  in  this  Lease  to  designated  "Articles,"  "Sections"  and  other
subdivisions are to the designated Articles,  Sections and other subdivisions of
this Lease and (d) the words "herein,"  "hereof" and "hereunder" and other words
of similar import refer to



                                   79 of 135
<PAGE>

this Lease as a whole and not to any particular Article, Section of
other subdivision:

         Additional Charges:  As defined in Section 3.3.

         Affiliate: As used in this Lease the term "Affiliate" of a person shall
mean (a) any person that,  directly or indirectly,  controls or is controlled by
or is under common  control  with such  person,  (b) any other person that owns,
beneficially,  directly or indirectly,  five percent or more of the  outstanding
capital stock,  shares or equity  interests of such person,  or (c) any officer,
director, employee, partner or trustee of such person or any person controlling,
controlled by or under common control with such person  (excluding  trustees and
persons serving in similar capacities who are not otherwise an Affiliate of such
person). The term "person" means and includes individuals, corporations, general
and limited  partnerships,  stock  companies or  associations,  joint  ventures,
associations,  companies,  trusts, banks, trust companies, land trusts, business
trusts,   or  other  entities  and   governments   and  agencies  and  political
subdivisions thereof, For the purposes of this definition,  "control" (including
the correlative  meanings of the terms "controlled by" and "under common control
with"), as used with respect to any person, shall mean the possession,  directly
or  indirectly,  of the power to direct or cause the direction of the management
and  policies  of such  person,  through  the  ownership  of voting  securities,
partnership interests or other equity interests.

         Award:  As Defined in Section 15.1(c).

         Base Rate: The rate of interest announced  publicly by Citibank,  N.A.,
in New York,  New York,  from time to time, as such bank's base rate, If no such
rate is  announced or becomes  discontinued,  then such other rate as Lessor may
reasonably designate.

         Base Rent:  As defined in Article III.

         Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday this
is not a day on which  national  banks in the City of New York,  New York, or in
the municipality wherein the Leased Property is located are closed.

         CERCLA:  The Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.

         Code:  The Internal Revenue Code of 1986, as amended.

         Commencement Date:  As defined in Section 1.2 of the Lease.

         Condemnation, Condemnor:  As defined in Section 15.1.

         Consolidated Financials:  For any fiscal year or other




                                   80 of 135
<PAGE>

accounting  period for Lessee and its consolidated  subsidiaries,  statements of
earnings  and retained  earnings  and of changes in financial  position for such
period and for the period from the  beginning of the  respective  fiscal year to
the end of such  period  and the  related  balance  sheet  as at the end of such
period,  together with the notes thereto,  all in reasonable  detail and setting
forth in comparative form the corresponding figures for the corresponding period
in the  proceeding  fiscal  year,  and  prepared in  accordance  with  generally
accepted  accounting  principles  and audited by  independent  certified  public
accountants acceptable to Lessor in its sole discretion.

         Consolidated Net Worth:  At any time, the sum of the following
for Lessee and any consolidated subsidiaries, on a consolidated
basis determined in accordance with generally accepted accounting
principles;

         (a)  The amount of capital or stated capital (after deducting
the cost of any share held in its treasury), plus

         (b) the amount of capital  surplus and  retained  earnings  (or, in the
case of a  capital  or  retained  earnings  deficit,  minus  the  amount of such
deficit), minus

         (c) the sum of the following  (without  duplication of deductions  with
respect to items already deducted in arriving at surplus and retained earnings):
(1)  unamortized  debt  discount and  expense;  and (2) any write-up in the book
value of assets  resulting  from a  revaluation  thereof  subsequent to the most
recent  Consolidated  Financials  prior  to the  date  thereof,  except  any net
write-up in value of foreign  currency in  accordance  with  generally  accepted
accounting principles.

         CPI: The Consumer Price Index of the Bureau of Labor  Statistics of the
United States  Department  of Labor for all Urban  Consumers - U.S. City Average
All Items. In the event the compilation  and/or  publication of the CPI shall be
transferred to any other governmental department or bureau or agency or shall be
otherwise  changed or  discontinued,  then the index most nearly the same as the
CPI shall be used to make such  calculation.  In the event  that  Sublessor  and
Sublessee  cannot  agree on such  alternative  index,  then the matter  shall be
submitted for decision to the American  Arbitration  Association in Los Angeles,
California,  in  accordance  with the then  rules  of said  association  and the
decision of the arbitrators  shall be binding upon the parties.  The cost of the
Arbitration shall be paid equally by Lessor and Lessee.

         Date of Taking:  As defined in Section 15.1(b).

         Encumbrance:  As defined in Section XXXIV.

         Environmental Authority:  Any department, agency or other body



                                   81 of 135
<PAGE>

or  component of any  Government  that  exercises  any form of  jurisdiction  or
authority under any Environmental Law.

         Environmental  Authorization:  Any license,  permit,  order,  approval,
consent,   notice,   registration,   filing  or  other  form  of  permission  or
authorization required under any Environmental Law.

         Environmental  Laws: All applicable  federal,  state, local and foreign
laws and regulations relating to pollution of the environment (including without
limitation, ambient air, surface water, ground water, land surface or subsurface
stratus),   including  without  limitation  laws  and  regulations  relating  to
emissions, discharges, Releases or threatened Releases of Hazardous Materials or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal,  transport or handling of Hazardous Materials.  Environmental
Laws include but are not limited to CERCLA, FIFRA, RCRA, SARA and TSCA.

         Environmental Liabilities: Any and all obligations to pay the amount of
any judgment or settlement, the cost of complying with any settlement, judgement
or order for  injunctive or other  equitable  relief,  the cost of compliance or
corrective  action  in  response  to any  notice,  demand  or  request  from  an
Environmental  Authority,  the amount of any civil penalty or criminal fine, and
any court costs and reasonable  amount for attorney's  fees,  fees for witnesses
and experts, and costs of investigation and preparation for defense of any claim
or any Proceeding,  regardless of whether such Proceeding is threatened, pending
or completed,  that may be or have been against or imposed upon Lessor,  Lessee,
any  Predecessor,  the Leased  Property or any property used therein and arising
out of:

         (a)  Failure of Lessee, Lessor, any Predecessor or the Leased
Property to comply at any time with all Environmental Laws;

         (b)  Presence of any Hazardous Materials on, in, under, at or
in any way affecting the Leased Property;

         (c)  A Release at any time of any Hazardous Materials on, in
at, under or in any way affecting the Leased Property;

         (d)   Identification  of  Lessee,   Lessor  or  any  Predecessor  as  a
potentially responsible part under CERCLA or under any Environmental Law similar
to CERCLA;

         (e) Presence at any time of any above-ground and/or underground storage
tanks, as defined in RCRA or in any applicable  Environmental  Law on, in, at or
under the Leased Property or any adjacent site of facility; or

         (f)  Any and all claims for injury or damage to persons or
property arising out of exposure to Hazardous Materials originating



                                   82 of 135
<PAGE>

or located at the Leased Property, or resulting from operation
thereof or any adjoining property.

         Event of Default:  As defined in Section 16.1.

         Facility:  The hotel and/or other facility offering lodging
and other services or amenities being operated or proposed to be
operated on the Leased Property.

         Fair Market Rent: The fair market rent of the Leased Property means the
rental which a willing tenant not compelled to rent would pay a willing landlord
not  compelled  to  lease  for the use and  occupancy  of such  Leased  Property
pursuant to the Lease for the term in question,  (a) assuming that Lessee is not
in default  thereunder  and (b)  determined  in  accordance  with the  appraisal
procedures  set  forth in  Article  XXXIII or in such  other  manner as shall be
mutually acceptable to Lessor and Lessee.

         Fair Market Value:  The fair market value of the Leased Property and/or
the  Inventory  means an  amount  equal to the price  that a  willing  buyer not
compelled  to buy would  pay a willing  seller  not  compelled  to sell for such
Leased Property and/or Inventory,  (a) assuming the same is unencumbered by this
Lease,  (b) determined in accordance with the appraisal  procedures set forth in
Article XXXIII or in such other manner as shall be mutually acceptable to Lessor
and Lessee, (c) assuming,  in the case of the Leased Property,  that such seller
must pay customary closing costs and title premiums, and (d) taking into account
the positive or negative effect on the value of the Leased Property attributable
to the interest rate,  amortization schedule,  maturity date, prepayment penalty
and other  terms and  conditions  of any  encumbrances  that is  assumed  by the
transferee.  In addition,  in determining  the Fair Market Value with respect to
damaged or destroyed  Leased  Property such value shall be determined as if such
Leased Property had not been so damaged or destroyed.

         FF&E  Allowance:   The  quarterly  furniture,   fixture  and  equipment
allowance  set forth on Exhibit B hereto,  as  adjusted  pursuant to Article XL,
which Lessor shall make available to Lessee pursuant to Article XL.

         FIERA:  The Federal Insecticide, Fungicide, and Rodenticide
Act, as amended.

         Fiscal Year:  The 12-month period from January 1 to December
31.

         Fixtures:  As defined in Section 1.1.

         Franchise Agreement:  Any Franchise Agreement with a national
franchisor (such as Country Suites by Carlson) under which the
Facility is operated.



                                   83 of 135
<PAGE>

         Government:  The  United  State of  America,  any  state,  district  or
territory  thereof,  any  foreign  nation,  any  state,  district,   department,
territory or other political division thereof,  or any political  subdivision of
any of the foregoing.

         Hazardous Materials:  All chemicals, pollutants, contaminants,
wastes and toxic substances, including without limitation:

         (a)  Solid or hazardous waste, as defined in RCRA or in any
Environmental Law;

         (b)  Hazardous substances, as defined in CERCLA or in any
Environmental Law;

         (c) Toxic substances, as defined in TSCA or in any
Environmental Law;

         (d)  Insecticides, fungicides, or rodenticides, as defined in
FIFRA or in any Environmental Law; and

         (e)   Gasoline   or  any  other   petroleum   product   or   byproduct,
polychlorinated biphenols, asbestos and urea formaldehyde.

         Impositions:  Collectively,  all taxes (including,  without limitation,
all ad valorem,  sales and use, single  business,  gross  receipts,  transaction
privilege,  rent or  similar  taxes as the same  relate to or are  imposed  upon
Lessee  or  its  business  conducted  upon  the  Leased  Property),  assessments
(including,  without  limitation,  all  assessments  for public  improvements or
benefit,  whether or not  commenced  or  completed  prior to the date hereof and
whether or not to be completed within the Term,  ground rents,  water,  sewer or
other rents and charges, excises, tax inspection, authorization and similar fees
and all other  governmental  charges,  in each case whether  general or special,
ordinary or  extraordinary,  or foreseen or  unforeseen,  of every  character in
respect of the  Leased  Property  or the  business  conducted  thereon by Lessee
(including  all interest and penalties  thereon caused by any failure in payment
by  Lessee),  which at any time  prior to,  during or with  respect  to the Term
hereof may be  assessed  or imposed on or with  respect to or be a lien upon (a)
Lessor's interest in the Leased Property,  (b) the Leased Property,  or any part
thereof or any rent therefrom or any estate,  right,  title or interest therein,
or (c) any  occupancy,  operation,  use or  possession  of,  or sales  from,  or
activity conducted on or in connection with the Leased Property,  or the leasing
or use of the Leased Property or any part thereof by Lessee.  Nothing  contained
in this  definition of  Impositions  shall be construed to require Lessee to pay
(1) any tax based on net income (whether denominated as a franchise or a capital
stock or other  tax)  imposed  on  Lessor or any  other  person,  or (2) any net
revenue tax of Lessor or any other  person,  or (3) any tax imposed with respect
to the sale,  exchange or other  disposition by Lessor of any Leased Property or
the proceeds thereof, or (4) any single



                                   84 of 135
<PAGE>

business,  gross receipts  (other than a tax on any rent received by Lessor from
Lessee),  transaction  privilege  or similar  taxes as the same relate to or are
imposed upon Lessor, except to the extent that any tax, assessment,  tax levy or
charge that Lessee is obligated  to pay  pursuant to the first  sentence of this
definition  and that is in effect at any time  during the Term hereof is totally
or partially repealed,  and a tax,  assessment,  tax levy or charge set forth in
clause (1) or (2) is levied, assessed or imposed expressly in lieu thereof.

         Indemnified Party:  Either of a Lessee Indemnified Party or a
Lessor Indemnified Party.

         Indemnifying Party:  Any party obligated to indemnify an
Indemnified Party pursuant to Sections 83. or 22.1.

         Insurance Requirements:  All terms of any insurance policy
required by this Lease and all requirements of the issuer of any
such policy.

         Inventory:   All  "Inventories  of  Merchandise"  and  "Inventories  of
Supplies"  as defined in the Uniform  System of Accounts for Hotels (8th Revised
Edition,  1986) as published by the Hotel Association of New York City, Inc., as
same may hereafter be revised.

         Land:  As defined in Article I.

         Lease:  This Lease.

         Leased Improvements: Leased Property:  Each as defined in
Article I.

         Legal Requirements:  All federal,  state,  county,  municipal and other
governmental statutes, laws, rules, orders, regulations,  ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the maintenance,
construction,  use or  alteration  thereof  (whether  by Lessee  or  otherwise),
whether or not hereafter enacted and in force,  including (a) all laws, rules or
regulations  pertaining to the environment,  occupational  health and safety and
public health,  safety or welfare,  and (b) any laws,  rules or regulations that
may (1)  require  repairs,  modifications  or  alterations  in or to the  Leased
Property or (2) in any way adversely affect the use and enjoyment  thereof;  and
all permits,  licenses and authorizations  and regulations  relating thereto and
all  covenants,  agreements,  restrictions  and  encumbrances  contained  in any
instruments,  either  of  record or known to  Lessee  (other  than  encumbrances
created by Lessor without the consent of Lessee), at any time in force affecting
the Leased Property.

         Lending Institution:  Any insurance company, credit company,
federally insured commercial or savings bank, national banking



                                   85 of 135
<PAGE>

association,  savings  and  loan  association,  employees  welfare,  pension  or
retirement fund or system, corporate profit sharing or pension trust, college or
university, or real estate investment trust, including any corporation qualified
to be treated for federal tax purposes as a real estate  investment  trust, such
trust having a net worth of at lease $10,000,000.

         Lessee:  The Lessee designated on this Lease and its
respective permitted successors and assigns.

         Lessee  Indemnified  Party:  Lessee, any Affiliate of Lessee, any other
Person against whom any claim for indemnification may be asserted hereunder as a
result of a direct or indirect  ownership  interest  (including a  stockholder's
interest) in Lessee, the officers,  directors,  stockholders,  employees, agents
and  representatives  of  Lessee  and  any  corporate  stockholder,   agent,  or
representative of Lessee,  and the respective heirs,  personal  representatives,
successors  and assigns of any such officer,  director,  stockholder,  employee,
agent or representative.

         Lessor:  The Lessor designated on this Lease and its
respective successors and assigns.

         Lessor  Indemnified  Party:  Lessor, any Affiliate of Lessor, any other
Person against whom any claim for indemnification may be asserted hereunder as a
result of a direct or indirect ownership interest  (including a stockholder's or
partnership  interest)  in  Lessor,  the  officers,   directors,   stockholders,
employees,  agents and  representatives of the general partner of Lessor and any
partner,  agent, or representative of Lessor, and the respective heirs, personal
representatives,  successors and assigns of any such officer, director, partner,
stockholder, employee, agent or representative.

         Minimum Price:  The sum of (a) the equity in the Leased Property at the
time of  acquisition  of the  Leased  Property  by Lessor  (i.e.  based upon the
appraised  value thereof as  established  by Robert A. Stanger & Co., Inc. as of
June 30, 1994,  if the Leased  Property was acquired by Lessor from  Glenborough
Realty Trust  Incorporated as part of the original  capitalization of Lessor, or
that  portion of the  purchase  price of the Leased  Property  paid by Lessor is
cash) plus (b) other capital expenditures on the Leased Property by Lessor after
the date  hereof  plus (c) the  unpaid  principal  balance  of all  encumbrances
against the Leased  Property  at the time of purchase of the Leased  Property by
Lessee,  less  (x) all  proceeds  received  by  Lessor  from  any  financing  or
refinancing  of the Leased  Property after the date hereof (after payment of any
debt  refinanced and net of any costs and expenses  incurred in connection  with
such  financing or  refinancing,  including,  without  limitation,  loan points,
commitment  fees and  commissions  and legal fees) and (y) the net amount (after
deduction of all reasonable  legal fees and other costs and expenses,  including
without



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limitation expert witness fees,  incurred by Lessor in connection with obtaining
any such  proceeds or award) of all  insurance  proceeds  received by Lessor and
awards  received by Lessor from any partial  Taking of the Leased  Property that
are not applied to restoration.

         Notice:  A notice given pursuant to Article XXXII.

         Officer's  Certificate:  A  certificate  of Lessee  signed by the chief
financial  officer  or  another  officer  authorized  so to sign by the board of
directors or by-laws of Lessee, or any other person whose power and authority to
act has been authorized by delegation in writing by any such officer.

         Option Period:  As defined in Section 1.3.

         Other  Revenues:  Shall mean gross  revenues  from the operation of the
Leased Property,  including parking;  telephone;  laundry;  incidental services;
food and beverage sales; or otherwise, and whether such revenues are received or
accrue  from  operations  conducted  by Lessee  or any  permitted  sublessee  or
licensee of Lessee, but excluding the following:

         (a)  Revenues from the rental of guest rooms (whether to
individuals, groups or transients);

         (b) The amount of all credit,  rebates or refunds to customers,  guests
or patrons relating to the services and other items including in the computation
of Other Revenues;

         (c)  All sales taxes or any other taxes imposed on the
services and other items included in the computation of Other
Revenues; and

         (d) All gratuities collected from customers, guests or patrons and paid
to employees  which  relate to the  services  and other items  included in Other
Revenues.

         Overdue  Rate:  On any date,  a rate equal to the Base Rate plus 5% per
annum,  but in no event  greater  that the  maximum  rate then  permitted  under
applicable law.

         Payment Date:  Any due date for the payment of any installment
of Base Rent.

         Percentage Rent:  As defined in Section 3.1(b), 3.1(c).

         Person:  Any Government, natural person, corporation,
partnership or other legal entity.

         Predecessor:   Any  Person   whose   liabilities   arising   under  any
Environmental  Law have or may have been  retained or assumed by Lessee,  either
contractually or by operation of law, relating to the Leased Property.



                                   87 of 135
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         Primary Intended Use:  As defined in Section 7.2(b).

         Proceeding:  Any judicial action, suit or proceeding (whether
civil or criminal), any administrative proceeding (whether formal
or informal), any investigation by a governmental authority or

entity  (including  a grand  jury),  and any  arbitration,  mediation  or  other
non-judicial process for dispute resolution.

         RCRA:  The Resource Conservation and Recovery Act, as amended.

         Real Estate Taxes: All real estate taxes, including general and special
assessments,  if any,  which are  imposed  upon the Land,  and any  improvements
thereon.

         Rejectable Offer Price:  An amount equal to the greater of (a)
the Fair Market Value, determined as of the applicable purchase
date, or (b) the Minimum Price.

         Release:  A "Release" as defined in CERCLA or in any Environmental Law,
unless such Release has been properly authorized and permitted in writing by all
applicable  Environmental  Authorities or is allowed by such  Environmental  Law
without authorizations or permits.

         Rent:  Collectively, the Base Rent, Percentage Rent, and
Additional Charges.

         Room  Revenues:  Shall mean gross  revenues  from the  operation of the
Leased Property from the rental of guest rooms,  whether to individuals,  groups
or  transients,  whether such  revenues  are received or accrue from  operations
conducted  by Lessee or any  permitted  sublessee  or  licensee  of Lessee,  but
excluding the following:

         (a)  The amount of all credit, rebates or refunds to
customers, guests or patrons;

         (b)  All sales taxes or any other taxes imposed on the rental
of guest rooms; and

         (c) All gratuities collected from customers, guests or patrons and paid
to employees which relate to the rental of guest rooms.

         SARA:  The Superfund Amendments and Reauthorization Act of
1986, as amended.

         State:  The State or Commonwealth of the United States in
which the Leased Property is located.

         Subsidiaries:  Corporations in which Lessee owns, directly or
indirectly, more than 50% of the voting stock or control, as
applicable (individually, a "Subsidiary").



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         Taking: A taking or voluntary  conveyance during the Term hereof of all
or part of the  Leased  Property,  or any  interest  therein  or right  accruing
thereto or use thereof,  as the result of, or in settlement of, any condemnation
or other eminent domain proceeding  affecting the Leased Property whether or not
the same shall have actually been commenced.

         Term:  As defined in Section 1.2.

         TSCA:  The Toxic Substances Control Act, as amended.

         Unavoidable  Delays:  Delays due to strikes,  lock-outs,  labor unrest,
inability  to  procure  materials,  power  failure,  acts of  God,  governmental
restrictions, enemy action, civil commotion, fire, unavoidable casualty or other
causes beyond the control of the party  responsible for performing an obligation
hereunder,  provided  that lack of funds shall not be deemed a cause  beyond the
control  of  either  party  hereto  unless  such  lack of funds is caused by the
failure of the other party hereto to perform any obligations of such party under
this Lease or any guaranty of this Lease.

         Uneconomic  for its Primary  Intended  Use: A state or condition of the
Facility such that, in the good faith judgment of Lessee,  reasonably  exercised
and  evidenced by the  resolution  of the board of directors or other  governing
body of Lessee,  the Facility  cannot be operated on a commercially  practicable
basis for its Primary  Intended Use,  taking into account,  among other relevant
factors,  the number of usable rooms and  projected  revenues,  such that Lessee
intends to, and shall,  complete  the  cessation of  operations  from the Leased
Facility.

         Uniform  System:  Shall mean the Uniform  System of Accounts for Hotels
(8th Revised  Edition,  1986) as published by the Hotel  Association of New York
City, Inc., as same may hereafter be revised.

         Unsuitable  for its Primary  Intended  Use: A state or condition of the
Facility such that, in the good faith judgment of Lessee,  reasonably  exercised
and  evidenced by the  resolution  of the board of directors or other  governing
body of  Lessee,  due to  casualty  damage  or loss  through  Condemnation,  the
Facility  cannot  function  as  a  integrated  hotel  facility  consistent  with
standards applicable to a well maintained and operated hotel.

                                   ARTICLE III

         3.1 Rent.  Lessee  will pay to Lessor  in  lawful  money of the  United
States of America  which  shall be legal  tender  for the  payment of public and
private debts, in immediately  available funds, at Lessor's address set forth in
Article XXXII hereof or at such other place or to such other  Person,  as Lessor
from time to time may designate in a Notice, all Base Rent, Percentage Rent and



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Additional Charges, during the Term, as follows:

         (a) Base  Rent:  The  annual  sum set forth on Exhibit B hereto for the
Leased Property,  payable in advance in equal, consecutive monthly installments,
on or before the first day of each  calendar  month of the Term  ("Base  Rent");
provided however, that the first and last monthly payments of Base Rent shall be
pro rated as to any partial month (subject to adjustment as provided in Sections
5.2, 14.5, 15.3, 15.5, and 15.6); and

         (b) Percentage  Rent:  For each Fiscal Year during the Term  commencing
with the Fiscal Year ending December 31, 1996,  Tenant shall pay percentage rent
("Percentage Rent") quarterly in an amount calculated by the following formulas:

                  (i) Percentage Rent from Room Revenues:

                                    The Percentage  Rent  applicable to the Room
                                    Revenues of the Leased Property as set forth
                                    on Exhibit B hereto

                                    less

                                    an amount equal to the Base Rent paid yearto
                                    date for the applicable Fiscal Year

                                    less

                                    an amount equal to Percentage Rent from Room
                                   Revenues paid year to date for the applicable
                                    Fiscal Year

                                    equals

                                    Percentage  Rent from Room  Revenues for the
                                    applicable quarter.

                  (ii) Percentage Rent from Other Revenues:

                                    5% of Other Revenues.

         (c) Officer's Certificates. Additionally an Officer's Certificate shall
be delivered to Lessor quarterly,  together with such quarterly  Percentage Rent
payment,  setting  forth the  calculation  of such rent payment for such quarter
within 45 days after each of the first  three  quarters  of each Fiscal Year (or
part  thereof)  in the  Term.  Such  quarterly  payments  shall  be based on the
formulas  set forth in Section  3.1(b).  There shall be no reduction in the Base
Rent regardless of the result of the Revenue computations.

         In addition, on or before March 31 each year, commencing with


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March  31,  1997,  Lessee  shall  deliver  to Lessor  an  Officer's  Certificate
reasonably  acceptable  to Lessor  setting forth the  computation  of the actual
Percentage  Rent that  accrued for each quarter of the Fiscal Year that ended on
the immediately  preceding  December 31 and shall pay to Lessor Percentage Rent,
if due  and  payable,  for the  last  quarter  of the  applicable  Fiscal  Year.
Additionally,  if the annual Percentage Rent due and payable for any Fiscal Year
(as shown in the applicable  Officer's  Certificate) exceeds the amount actually
paid as  Percentage  Rent by Lessee  for such year,  Lessee  also shall pay such
excess to Lessor at the time such  certificate  is delivered.  If the Percentage
Rent actually due and payable for such Fiscal Year is shown by such  certificate
to be less than the amount  actually paid as Percentage  Rent for the applicable
Fiscal Year,  Lessor,  at its option,  shall  reimburse such amount to Lessee or
credit  such  amount  against  the next  month's  Base Rent and,  to the  extent
necessary,  the next quarter's  Percentage  Rent  payments,  which credits shall
continue until the amount due Lessee has been paid or otherwise discharged.  Any
interest  payable  to  Lessor  shall be deemed  to be and  shall be  payable  as
Additional Charges.

         The obligation to pay  Percentage  Rent shall survive the expiration or
earlier termination of the Term, and final  reconciliation,  taking into account
among other relevant  adjustments,  any adjustments which are accrued after such
expiration or  termination  date but which  related to  Percentage  Rent accrued
prior to such  termination  date,  and Lessee's  good faith best estimate of the
amount of any unresolved  contractual  allowances,  shall be made not later than
two years after such  expiration or  termination  date,  but Lessee shall advise
Lessor within 60 days after such expiration or termination date of Lessee's best
estimate  at that  time of the  approximate  amount of such  adjustments,  which
estimate shall not be binding on Lessee or have any legal effect whatsoever.

         (c)  Adjustments for Changes in CPI: The threshold set forth on Exhibit
B  hereto  which  is used to  determine  when  there  will  be a  change  in the
percentage that is used to calculate Percentage Rent from Room Revenues shall be
adjusted annually as of the first day of each Fiscal Year commencing  January 1,
1997,  for any increase,  but not because of any  decrease,  in the CPI from the
beginning of the previous Fiscal Year.

         3.2 Confirmation of Percentage Rent. Lessee shall utilize,  or cause to
be utilized, an accounting system for the Leased Property in accordance with its
usual  and  customary  practices,  and in  accordance  with  generally  accepted
accounting  principles and the Uniform System,  that will accurately  record all
data necessary to compute Percentage Rent, and Lessee shall retain, for at least
four years after the  expiration of each Fiscal Year (and in any event until the
reconciliation  described in Section 3.1(c) for such Fiscal Year has been made),
reasonably adequate records conforming



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to such accounting system showing all data necessary to compute  Percentage Rent
for the  applicable  Fiscal Years.  Lessor,  at its expense  (except as provided
hereinbelow),  shall  have the  right  from time to time by its  accountants  or
representatives  to audit the information that formed the basis for the data set
forth in any  Officer's  Certificate  provided  under  Section  3.1(c)  and,  in
connection  with  such  audits,  to  examine  all  Lessee's  records  (including
supporting data and sales and excise tax returns)  reasonably required to verify
Percentage Rent, subject to any prohibitions or limitations on disclosure of any
such data under Legal Requirements.  If any such audit discloses a deficiency in
the payment of Percentage Rent, and either Lessee agrees with the result of such
audit or the  matter  is  otherwise  determined  or  compromised,  Lessee  shall
forthwith  pay to Lessor the  amount of the  deficiency,  as  finally  agreed or
determined,  together  with interest at the Overdue Rate from the date when said
payment should have been made to the date of payment thereof; provided, however,
that as to any  audit  that is  commenced  more  than two  years  after the date
Percentage  Rent for any  Fiscal  Year is  reported  by  Lessee to  Lessor,  the
deficiency,  if any, with respect to such Percentage Rent shall bear interest at
the Overdue Rate only from the date such  determination  of  deficiency  is made
unless such deficiency is the result of gross  negligence or willful  misconduct
on the part of Lessee,  is which case  interest at the Overdue  Rate will accrue
from the date such payment should have been made to the date of payment thereof.
If any such audit  discloses that the  Percentage  Rent actually due from Lessee
for any Fiscal Year  exceed  those  reported  by Lessee by more than 3%,  Lessee
shall pay the cost of such audit and  examination.  Any proprietary  information
obtained by Lessor  pursuant to the  provisions of this Section shall be treated
as  confidential,   except  that  such  information  may  be  used,  subject  to
appropriate  confidentiality  safeguards,  in any litigation between the parties
and except  further that Lessor may disclose  such  information  to  prospective
lenders.  The obligations of Lessee  contained in this Section shall survive the
expiration or earlier termination of this Lease.

         3.3  Additional  Charges.  In addition to the Base Rent and  Percentage
Rent,  (a) Lessee  also will pay and  discharge  as and when due and payable all
other amounts,  liabilities,  obligations and Impositions that Lessee assumes or
agrees to pay under this Lease,  and (b) in the event of any failure on the part
of Lessee to pay any of those items  referred  to in clause (a) of this  Section
3.3, Lessee also will promptly pay and discharge every fine,  penalty,  interest
and cost that may be added for  non-payment  or late  payment of such items (the
items  referred to in clauses (a) and (b) of this  Section 3.3 being  additional
rent  hereunder and being  referred to herein  collectively  as the  "Additional
Charges"),  and Lessor shall have all legal,  equitable and contractual  rights,
powers and remedies provided either in this Lease or by statutes or otherwise in
the case of non-payment of the Additional  Charges as in the case of non-payment
of the Base Rent. If any installment of Base Rent,



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Percentage Rent or Additional  Charges (but only as to those Additional  Charges
that are payable  directly to Lessor) shall not be paid within fifteen  calendar
days  after the due  date,  Lessee  will pay  Lessor on  demand,  as  Additional
Charges,  a late charge (to the extent  permitted  by law) equal to five percent
(5%) of such overdue amount together with interest  computed at the Overdue Rate
on such overdue amount from the due date to the date of payment thereof.  To the
extent  that  Lessee  pays any  Additional  Charges  to Lessor  pursuant  to any
requirement  of this Lease,  Lessee shall be relieved of its  obligation  to pay
such  Additional  Charges to the entity to which they would otherwise be due and
Lessor shall pay same from monies received from Lessee.


         3.4 Net  Lease  Provision.  The Rent  shall be paid  absolutely  net to
Lessor,  so that  this  Lease  shall  yield to  Lessor  the full  amount  of the
installments of Base Rent, Percentage Rent and Additional Charges throughout the
Term,  all as more  fully  set  forth in  Article  V, but  subject  to any other
provisions of this Lease that  expressly  provide for adjustment or abatement of
Rent or other charges or expressly  provide that certain expenses or maintenance
shall be paid or performed by Lessor.

                                   ARTICLE IV

         4.1  Payment  of  Impositions.  Subject  to  Article  XII  relating  to
permitted contents, Lessee will pay, or cause to be paid, all Impositions (other
than Real Estate Taxes, which shall be paid by Lessor) before any fine, penalty,
interest or cost may be added for non-payment, such payments to be made directly
to the taxing or other authorities where feasible,  and will promptly furnish to
Lessor copies of official receipts or other  satisfactory  proof evidencing such
payments. Lessee's obligation to pay such Impositions shall be deemed absolutely
fixed upon the date such  Impositions  become a lien upon the Leased Property or
any part  thereof.  If any such  Imposition  may, at the option of the taxpayer,
lawfully be paid in  installments  (whether or not interest  shall accrue on the
unpaid  balance of such  Imposition),  Lessee may exercise the option to pay the
same (and any accrued  interest  on the unpaid  balance of such  Imposition)  in
installments  and in such  event,  shall pay such  installments  during the Term
hereof  (subject to Lessee's  right to contest  pursuant  to the  provisions  of
Article XII) as the same respectively  become due and before any fine,  penalty,
premium,  further interest or cost may be added thereto. Lessor, at its expense,
shall, to the extent  required or permitted by applicable law,  prepare and file
all tax returns in respect of Lessor's  net income,  gross  receipts,  sales and
use, single business,  transaction privilege, rent, ad valorem, franchise taxes,
Real Estate Taxes and taxes on its capital  stock,  and Lessee,  at its expense,
shall,  to the extent  required or permitted by applicable  laws and regulations
prepare and file all other tax returns and reports in respect of any  Imposition
as may be required



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by  governmental  authorities.  If any  refund  shall  be due  from  any  taxing
authority in respect of any  Imposition  paid by Lessee,  the same shall be paid
over to or  retained  by  Lessee  if no Event of  Default  shall  have  occurred
hereunder and be  continuing.  If an Event of Default shall have occurred and be
continuing,  any such refund  shall be paid over to or  retained by Lessor.  Any
such funds  retained  by Lessor  due to an Event of Default  shall be applied as
provided in Article  XVI.  Lessor and Lessee  shall,  upon request of the other,
provide such data as is maintained by the party to whom the request is made with
respect to the Leased  Property  as may be  necessary  to prepare  any  required
returns and reports. Lessee shall file all personal property tax returns in such
jurisdictions  where it is legally required to so file. Lessor, to the extent it
possesses  the same,  and  Lessee,  to the extent it  possesses  the same,  will
provide  the other  party,  upon  request,  with cost and  depreciation  records
necessary  for  filing  returns  for any  property  so  classified  as  personal
property.  Where  Lessor is  legally  required  to file  personal  property  tax
returns,  Lessor  shall  provide  Lessee  with copies of  assessment  notices in
sufficient time for Lessee to file a protest. Lessee may, upon notice to Lessor,
at Lessee's option and at Lessee's sole expense,  protect,  appeal, or institute
such other proceedings (in it's or Lessor's name) as Lessee may deem appropriate
to effect a reduction of real estate or personal property  assessments for those
Impositions to be paid by Lessee,  and Lessor, at Lessee's expense as aforesaid,
shall fully  cooperate  with Lessee in such  protest,  appeal,  or other action.
Lessee  hereby agrees to indemnify,  defend,  and hold harmless  Lessor from and
against any claims,  obligations,  and liabilities against or incurred by Lessor
in connection  with such  cooperation.  Billings for  reimbursement  of personal
property  taxes by  Lessee to Lessor  shall be  accompanied  by copies of a bill
therefor and payments thereof which identify the personal  property with respect
to which such payments are made. Lessor,  however,  reserves the right to affect
any such  protest,  appeal or other  action and,  upon  notice to Lessee,  shall
control any such activity, which shall then go forward at Lessor's sole expense.
Upon such notice,  Lessee, at Lessor's expense,  shall cooperate fully with such
activities.

         4.2 Notice of Impositions. Lessor shall give prompt Notice to Lessee of
all  Impositions  payable by Lessee  hereunder  of which  Lessor at any time has
knowledge,  provided that  Lessor's  failure to give any such Notice shall in no
way diminish Lessee's  obligations  hereunder to pay such Impositions,  but such
failure shall obviate any default  hereunder for a reasonable  time after Lessee
receives Notice of any Imposition  which it is obligated to pay during the first
taxing period applicable thereto.

         4.3 Adjustment of  Impositions.  Impositions  imposed in respect of the
tax-fiscal  period  during  which  the Term  terminates  shall be  adjusted  and
prorated  between Lessor and Lessee,  whether or not such  Imposition is imposed
before or after such  termination,  and Lessee's  obligation to pay its prorated
share thereof after



                                   94 of 135
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termination shall survive such termination.

         4.4 Utility  Charges.  Lessee will be solely  responsible for obtaining
and maintaining utility services to the Leased Property and will pay or cause to
be paid all charges for electricity,  gas, oil, water, sewer and other utilities
used in the Leased Property during the Term.

         4.5      Insurance Premiums.  Lessee will pay or cause to be paid
all premiums for the insurance coverages required to be maintained
by it under Article XIII.

                                    ARTICLE V

         5.1 No Termination,  Abatement,  etc. Except as otherwise  specifically
provided in this Lease,  and except for loss of  Franchise  Agreement  solely by
reason of any action or inaction by Lessor,  Lessee,  to the extent permitted by
law,  shall  remain bound by this Lease in  accordance  with its terms and shall
neither  take any  action  without  the  written  consent  of Lessor to  modify,
surrender  or  terminate  the same,  nor seek nor be entitled to any  abatement,
deduction,  deferment or reduction of the Rent, or setoff  against the Rent, nor
shall  the  obligations  of lessee be  otherwise  affected  by reason of (a) any
damage to, or destruction  of, any Leased  Property or any portion  thereof from
whatever cause for any Taking of the Leased Property or any portion thereof, (b)
the lawful or unlawful  prohibition of, or restriction upon, Lessee's use of the
Leased Property,  or any portion thereof,  or the interference  with such use by
any Person,  corporation,  partnership or other entity, or by reason of eviction
by paramount  title, (c) any claim which Lessee has or might have against Lessor
by reason of any default or breach of any warranty by Lessor under this Lease or
any other agreement between Lessor and Lessee, or to which Lessor and Lessee are
parties,   (d)  any   bankruptcy,   insolvency,   reorganization,   composition,
readjustment, liquidation, dissolution, winding up or other proceeding affecting
Lessor or any  assignee  or  transferee  of Lessor,  or (e) for any other  cause
whether  similar or dissimilar to any of the foregoing other than a discharge of
Lessee from any such obligations as a matter of law. Lessee hereby  specifically
waives all rights,  arising  from any  occurrence  whatsoever,  which may now or
hereafter be conferred upon it by law to (1) modify, surrender or terminate this
Lease or quit or surrender the Leased  Property or any portion  thereof,  or (2)
entitle Lessee to any abatement,  reduction, suspension or deferment of the Rent
or other sums  payable by Lessee  hereunder,  except as  otherwise  specifically
provided in this Lease.  The  obligations of Lessee  hereunder shall be separate
and independent covenants and agreements and the Rent and all other sums payable
by Lessee  hereunder  shall  continue  to be payable  in all  events  unless the
obligations  to pay  the  same  shall  be  terminated  pursuant  to the  express
provisions of the Lease or by  termination of this Lease other than by reason of
an Event of Default.



                                   95 of 135
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         5.2 Abatement Procedures. In the event of a partial Taking as described
in  Section  15.5,  the Lease  shall not  terminate,  but the Base Rent shall be
abated in the manner and to the extent that is fair,  just and equitable to both
Lessee and Lessor, taking into consideration,  among other relevant factors, the
number of usable rooms, the amount of square footage,  or the revenues  affected
by such partial Taking. If Lessor and Lessee are unable to agree upon the amount
of such abatement  within 30 days after such partial  Taking,  the matter may be
submitted by either party to a court of competent jurisdiction for resolution.

                                   ARTICLE VI

         6.1  Ownership of the Leased  Property.  Lessee  acknowledges  that the
Leased  Property is the property of Lessor and that Lessee has only the right to
the possession  and use of the Leased  Property upon the terms and conditions of
this Lease.

         6.2  Lessee's  Personal  Property.  Lessee will  acquire  and  maintain
throughout the Term such Inventory as is required to operate the Leased Property
in the manner  contemplated  by this  Lease.  Lessee may (and shall as  provided
hereinbelow), at its expense, install, affix or assemble or place on any parcels
of the Land or in any of the Leased Improvements, any items of personal property
(including Inventory) owned by Lessee.  Lessee, at the commencement of the Term,
and from time to time thereafter,  shall provide Lessor with an accurate list of
all such  items of  Lessee's  personal  property  (collectively,  the  "Lessee's
Personal  Property").  Lessee may, subject to the first sentence of this Section
6.2 and the conditions set forth below, remove any of Lessee's Personal Property
set forth on such list at any time during the Term or upon the expiration or any
prior  termination of the Term. All of Lessee's  Personal  Property,  other than
Inventory,  not removed by Lessee within ten days  following  the  expiration or
earlier termination of the Term shall be considered  abandoned by Lessee and may
be  appropriated,  sold,  destroyed or otherwise  disposed of by Lessor  without
first giving Notice thereof to Lessee, without any payment to Lessee and without
any  obligation to account  therefor.  Lessee will, at its expense,  restore the
Leased Property to the condition required by Section 9.1(d), including repair of
all damage to the Leased  Property  caused by the removal of  Lessee's  Personal
Property,  whether effected by Lessee or Lessor.  Upon the expiration or earlier
termination of the Term,  Lessee shall sell and Lessor,  or its designee,  shall
have the option to purchase all Inventory on hand at the Leased  Property at the
time of such  expiration or termination  for a sale price equal to the lesser of
Lessee's actual cost of such Inventory,  as evidenced by invoices,  receipts, or
other  reasonable  documentation,  or the then Fair Market  Value  thereof.  The
option  provided for herein shall be exercised by written notice to Lessee which
Lessor  shall  give  on or  before  the  date  of  such  expiration  or  earlier
termination. Lessee


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<PAGE>


may make such financing  arrangements,  title  retention  agreements,  leases or
other agreements with respect to the Lessee's  Personal  Property as it sees fit
provided  that Lessee  first  advises  Lessor of any such  arrangement  and such
arrangement expressly provides that in the event of Lessee's default thereunder,
Lessor (or its designee) may assume  Lessee's  obligations and rights under such
arrangement.

         6.3 Lessor's Lien. To the fullest extent  permitted by applicable  law,
Lessor is granted a lien and security interest on all Lessee's personal property
now or  hereinafter  placed in or upon the  Leased  Property,  and such lien and
security  interest shall remain attached to such Lease's personal property until
payment  in full of all Rent and  satisfaction  of all of  Lessee's  obligations
hereunder;  provided,  however,  Lessor shall  subordinate its lien and security
interest to that of any  non-Affiliate  of Lessee which  finances  such Lessee's
personal  property  or any  non-Affiliate  conditional  seller of such  Lessee's
personal  property,  the  terms  and  conditions  of  such  subordination  to be
satisfactory to Lessor in the exercise of reasonable  discretion.  Lessee shall,
upon the request of Lessor, execute such financing statements or other documents
or instruments  reasonably  requested by Lessor to perfect the lien and security
interests herein granted.

                                   ARTICLE VII

         7.1 Condition of the Leased Property.  Lessee acknowledges  receipt and
delivery of possession of the Leased Property. Lessee has examined and otherwise
has knowledge of the condition of the Leased  Property and has found the same to
be  satisfactory  for its  purposes  hereunder.  Lessee is  leasing  the  Leased
Property  "as is" in its present  condition.  Lessee  waives any claim or action
against Lessor in respect of the condition of the Leased Property.  LESSOR MAKES
NO WARRANTY  OR  REPRESENTATION,  EXPRESS OR  IMPLIED,  IN RESPECT OF THE LEASED
PROPERTY,  OR ANY PART  THEREOF,  EITHER AS TO ITS  FITNESS  FOR USE,  DESIGN OR
CONDITION FOR ANY PARTICULAR  USE OR PURPOSE OR OTHERWISE,  AS TO THE QUALITY OF
THE MATERIAL OR WORKMANSHIP THEREIN,  LATENT OR PATENT, IT BEING AGREED THAT ALL
SUCH  RISKS  ARE TO BE BORNE BY  LESSEE.  LESSEE  ACKNOWLEDGES  THAT THE  LEASED
PROPERTY  HAS BEEN  INSPECTED  BY LESSEE AND IS  SATISFACTORY  TO IT.  Provided,
however,  to the extent permitted by law, Lessor hereby assigns to Lessee all of
Lessor's  rights to proceed  against any  predecessor in title other than Lessee
(or an Affiliate of Lease which conveyed the Property to Lessor) for breaches of
warranties  or  representations  or for latent  defects in the Leased  Property.
Lessor shall fully  cooperate with Lessee in the  prosecution of any such claim,
in Lessor's or Lessee's  name,  all at Lessee's  sole cost and  expense.  Lessee
hereby agrees to indemnify, defend and hold harmless Lessor from and against any
claims,  obligations and liabilities against or incurred by Lessor in connection
with such cooperation.



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<PAGE>

         7.2      Use of the Leased Property.

                  (a)  Lessee  covenants  that  it  will  proceed  with  all due
diligence  and will  exercise  its best  effort to obtain  and to  maintain  all
approvals  needed to use and operate the Leased  Property and the Facility under
applicable local, state and federal law.

                  (b) Lessee  shall use or cause to be used the Leased  Property
only as a hotel  facility,  and  for  such  other  uses as may be  necessary  or
incidental  to such use or such other use as  otherwise  approved by Lessor (the
"Primary Intended Use"). Lessee shall not use the Leased Property or any portion
thereof  for any other use without the prior  written  consent of Lessor,  which
consent may be granted,  denied or conditioned in Lessor's sole  discretion.  No
use shall be made or  permitted to be made of the Leased  Property,  and no acts
shall be done,  which will cause the cancellation or increase the premium of any
insurance  policy  covering  the Leased  Property  or any part  thereof  (unless
another adequate policy  satisfactory to Lessor is available and Lessee pays any
premium  increase),  nor shall Lessee sell or permit to be kept, used or sold in
or about the Leased  Property any article which may be prohibited by law or fire
underwriter's  regulations.  Lessee shall, at its sole cost,  comply with all of
the  requirements  pertaining  to the Leased  Property of any  insurance  board,
association, organization or company necessary for the maintenance of insurance,
as herein provided, covering the Leased Property and Lessee's Personal Property.

                  (c) Subject to the  provisions  of Articles  XIV,  XV, XXI and
XXII,  Lessee  covenants  and agrees  that  during the Term it will (1)  operate
continuously the Lease Property as a hotel facility,  (2) keep in full force and
effect and comply with all the  provision of the  Franchise  Agreement,  (3) not
terminate or amend the Franchise  Agreement  without the consent of Lessor,  (4)
maintain appropriate  certifications and licenses for such use and (5) will seek
to  maximize  the gross  revenues  generated  therefrom  consistent  with  sound
business practices.

                  (d)  Lessee  shall not  commit or suffer to be  committed  any
waste on the Leased  Property,  or in the  Facility,  nor shall  Lessee cause or
permit any nuisance thereon.

                  (e) Lessee shall neither suffer nor permit the Leased Property
or any portion  thereof,  or Lessee's  Personal  Property,  to be used in such a
manner as (1) might reasonably tend to impair Lessor's (or Lessee's, as the case
may be) title  thereto or to any portion  thereof,  or (2) may  reasonably  make
possible a claim or claims of adverse usage or adverse possession by the public,
as such, or of implied  dedication of the Lease Property or any portion thereof,
except as necessary in the ordinary and prudent operation of the Facility on the
Leased Property.



                                   98 of 135
<PAGE>

                  (f) Neither  Lessee or an Affiliate of Lessee shall operate or
manage any hotel or motel that is within the  greater of (i) a 10 mile radius of
the Leased Property or (ii) the area  surrounding the Leased Property defined as
the Protected Area in the Franchise  Agreement other than pursuant to this Lease
or another  lease,  agreement  or  arrangement  with Lessor or an  Affiliate  of
Lessor.

         7.3 Lessor to Grant Easements,  etc. Lessor will, from time to time, so
long as no Event of Default has  occurred and is  continuing,  at the request of
Lessee and at Lessee's  cost and expense (but subject to the approval of Lessor,
which  approval  shall  not be  unreasonably  withheld  or  delayed),  (a) grant
easements and other rights in the nature of easements with respect to the Leased
Property to third parties, (b) release existing easements or other rights in the
nature of  easements  which are for the  benefit  of the  Leased  Property,  (c)
dedicate  or  transfer  unimproved  portions  of the Leased  Property  for road,
highway or other  public  purposes,  (d)  execute  petitions  to have the Leased
Property annexed to any municipal  corporation or utility district,  (e) execute
amendments to any covenants and  restrictions  affecting the Leased Property and
(f) execute and deliver to any person any  instrument  appropriate to confirm or
effect such grants, releases,  dedications,  transfers, petitions and amendments
(to the extent of its interests in the Leased Property),  but only upon delivery
to  Lessor of an  Officer's  Certificate  stating  that  such  grant,  releases,
dedication,  transfer,  petition or amendment is not  detrimental  to the proper
conduct of the business of Lessee on the Leased Property and does not materially
reduce the value of the Leased Property.

                                  ARTICLE VIII

         8.1 Compliance with Legal and Insurance  Requirements,  etc. Subject to
Section 8.3(b) below and Article XII relating to permitted contests,  Lessee, at
its expense, will promptly (a) comply with all applicable Legal Requirements and
Insurance Requirements in respect of the use, operation, maintenance, repair and
restoration of the Leased  Property,  and (b) procure,  maintain and comply with
appropriate licenses and other authorizations  required by any use of the Leased
Property  and Lessee's  Personal  Property  than being made,  and for the proper
erection, installation,  operation and maintenance of the Leased Property or any
part thereof.

         8.2 Legal  Requirement  Covenants.  Subject  to Section  8.3(b)  below,
Lessee  covenants  and agrees that the Leased  Property  and  Lessee's  Personal
Property shall not be used for any unlawful  purpose,  and that Lessee shall not
permit or suffer to exist any  unlawful  use of the Leased  Property  by others.
Lessee  shall  acquire and maintain all  appropriate  licenses,  certifications,
permits ad other authorizations and approvals needed to operate the



                                   99 of 135
<PAGE>

Leased  Property in its customary  manner for the Primary  Intended Use, and any
other lawful use conducted on the Leased  Property as may be permitted from time
to time hereunder.  Lessee further covenants and agrees that Lessee's use of the
Leased Property and maintenance,  alteration, and operation of the same, and all
parts thereof, shall at all times conform to all Legal Requirements,  unless the
same are finally determined by a court of competent  jurisdiction to be unlawful
(and  Lessee  shall cause all such  subtenants,  invitees or others to so comply
with all Legal Requirements).  Lessee may, however, upon prior Notice to Lessor,
contest  the  legality or  applicability  of any such Legal  Requirement  or any
license or certification decision if Lessee maintains such action in good faith,
with due  diligence,  without  prejudice to Lessor's  rights  hereunder,  and at
Lessee's sole expense. If by the terms of any such Legal Requirement  compliance
therewith  pending the persecution of any such proceeding may legally be delayed
without the incurrence of any lien, charges or liability of any kind against the
Facility or Lessee's leasehold interest therein and without subjecting Lessee or
Lessor to any liability,  civil or criminal, for failure so to comply therewith,
Lessee may delay  compliance  therewith  until the final  determination  of such
proceeding. If any lien, charge or civil or criminal liability would be incurred
by reason of any such delay,  Lessee,  on the prior  written  consent of Lessor,
which consent shall not be unreasonably  withheld,  may  nonetheless  contest as
aforesaid  any delay as  aforesaid  provided  that such delay  would not subject
Lessor to criminal  liability and Lessee both (a)  furnishes to Lessor  security
reasonably  satisfactory  to Lessor against any loss or injury by reason of such
contest or delay and (b)  prosecutes  the contest with due diligence and in good
faith.

         8.3      Environmental Covenants.  Lessor and Lessee (in addition
to, and not in diminution of, Lessee's covenants and undertakings
in Sections 8.1 and 8.2 hereof) covenant and agree as follows:

                  (a) At all times hereafter until such time as all liabilities,
duties  or  obligations  of  Lessee to the  Lessor  under  the  Lease  have been
satisfied  in full,  Lessee  shall  fully  comply  with all  Environmental  Laws
applicable to the Leased Property and the operations  thereon.  Lessee agrees to
give Lessor prompt written notice of (1) all Environmental Liabilities;  (2) all
pending,  threatened  or  anticipated  Proceedings,  and all  notices,  demands,
requests or investigations,  relating to any Environmental Liability or relating
to  the  issuance,  revocation  or  change  in any  Environmental  Authorization
required  for  operation  of the Leased  Property;  (3) all Releases at, on, in,
under or in any way  affecting  the Leased  Property,  or any  Release  known by
Lessee at, on, in or under any property adjacent to the Leased Property; and (4)
all facts,  events or conditions that could reasonably lead to the occurrence of
any of the above-referenced matters.

                  (b)      Lessor hereby agrees to defend, indemnify and save


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<PAGE>

harmless  any and all Lessee  Indemnified  Parties  from and against any and all
Environmental Liabilities other than Environmental Liabilities which were caused
by the acts or grossly negligent failures to act of Lessee.

                  (c)  Lessee  hereby  agrees  to  defend,  indemnify  and  save
harmless  any and all Lessor  Indemnified  Parties  from and against any and all
Environmental  Liabilities  caused by the acts or grossly negligent  failures to
act of Lessee.

                  (d) If any Proceeding is brought against any Indemnified Party
in respect of an Environmental  Liability with respect to which such Indemnified
Party  may  claim  indemnification  under  either  Section  8.3(b)  or (c),  the
Indemnifying  Party,  upon request,  shall at its sole expense resist and defend
such  Proceeding,  or cause the same to be  resisted  and  defended  by  counsel
designated  by the  Indemnified  Party and approved by the  Indemnifying  Party,
which approval shall not be unreasonably withheld;  provided, however, that such
approval  shall not be required in the case of defense by counsel  designated by
any insurance company undertaking such defense pursuant to any applicable policy
of insurance.  Each  Indemnified  Party shall have the right to employ  separate
counsel in any such  Proceeding and to participate in the defense  thereof,  but
the fees and  expenses  of such  counsel  will be at the  sole  expense  of such
Indemnified  Party  unless such  counsel has been  approved by the  Indemnifying
Party, which approval shall not be unreasonably withheld. The Indemnifying Party
shall not be liable for any settlement of any such  Proceeding  made without its
consent,  which  shall not be  unreasonably  withheld,  but if settled  with the
consent of the  Indemnifying  Party,  or if settled  without its consent (if its
consent shall be unreasonably withheld),  or if there be a final,  nonappealable
judgment for an adversary party in any such Proceeding,  the Indemnifying  Party
shall indemnify and hold harmless the  Indemnified  Parties from and against any
liabilities incurred by such Indemnified Parties by reason of such settlement or
judgment.

                  (f) The indemnification rights and obligations provided for in
this  Article  VIII  shall be in  addition  to any  indemnification  rights  and
obligations provided for elsewhere in this Lease.

                  (g) The indemnification rights and obligations provided for in
this Article VIII shall survive the termination of this Agreement.

                  For  purposes of this  Section  8.3, all amounts for which any
Indemnified  Party seeks  information  shall be  computed  net of (a) any actual
income tax  benefit  resulting  therefrom  to such  Indemnified  Party,  (b) any
insurance  proceeds  received (net of tax effects) wit respect thereto,  and (c)
any amounts  recovered  (net of tax  effects)  from any third  parties  based on
claims the Indemnified



                                   101 of 135
<PAGE>

Party has  against  such  third  parties  which  reduce the  damages  that would
otherwise be sustained; provided that in all cases, the timing of the receipt of
realization  of  insurance  proceeds or income tax benefits or  recoveries  from
third parties shall be taken into account in determining the amount of reduction
of damages.  Each  Indemnified  Party  agrees to use its  reasonable  efforts to
pursue,  or assign to Lessee or Lessor, as the case may be, any claims or rights
it may have against any third party which would materially  reduce the amount of
damages otherwise incurred by such Indemnified Party.

                  Notwithstanding  anything to the  contrary  contained  in this
Agreement,  if Lessor  shall  become  entitled to the  possession  of the Leased
Property by virtue of the termination of the Lease or repossession of the Leased
Property, then Lessor may assign its indemnification rights under Section 8.3 of
this  Agreement  (but not any other rights  hereunder) to any Person to whom the
Lessor  subsequently  transfers  the Leased  Property,  subject to the following
conditions  and  limitations,  each of which shall be deemed to be  incorporated
into the terms of such  assignment,  whether  or not  specifically  referred  to
therein:

                           (1) The  indemnification  rights  referred to in this
                  section  may  be  assigned  only  if  a  known   Environmental
                  Liability  then exists or if a Proceeding  is then pending or,
                  to the  knowledge of Lessee or Lessor,  then  threatened  with
                  respect to the Leased Property;

                           (2)   Such indemnification rights shall be limited to
                  Environmental Liabilities relating to or specifically
                  affecting the Leased Property; and

                           (3) Any  assignment  of such  indemnification  rights
                  shall be limited to the immediate  transferee  of Lessor,  and
                  shall  not  extend  to any  such  transferee's  successors  or
                  assigns.


                                   ARTICLE IX

         9.1 Maintenance and Repair. (a) Lessee, at its sole expense,  will keep
the Leased Property and all private  roadways,  sidewalks and curbs  appurtenant
thereto  that are under  Lessee's  control,  including  windows and plate glass,
parking  lots,  mechanical,   electrical  and  plumbing  systems  and  equipment
(including  conduit and ductware),  and non-load bearing interior walls, in good
order and repair, except for ordinary wear and tear (whether or not the need for
such repairs  occurred as a result of Lessee's  use, any prior use, the elements
or the age of the Leased  Property,  or any portions  thereof),  and,  except as
otherwise provided in Section 9.1(b), Article XIV or Article XV, with reasonable
promptness, make all necessary and appropriate repairs,



                                   102 of 135
<PAGE>

replacements,  and  improvements  thereto  of  every  kind and  nature,  whether
interior or exterior ordinary or extraordinary, foreseen or unforseen or arising
by reason of a condition  existing prior to the commencement of the Term of this
Lease (concealed or otherwise),  or required by any  governmental  agency having
jurisdiction over the Leased Property,  except as to the structural  elements of
the Leased Improvements. Lessee, however, shall be permitted to prosecute claims
against  Lessor's  predecessor  in title  for  breach of any  representation  or
warranty or for any latent  defects in the Leased  Property to be  maintained by
Lessee unless Lessor is already  diligently  pursuing such a claim.  All repairs
shall, to the extent reasonably achievable, be at least equivalent in quality to
the original work.  Lessee will not take or omit to take any action,  the taking
or omission  of which might  materially  impair the value or the  usefulness  of
there Leased Property or any part thereof for its Primary Intended Use.

                  (b) Notwithstanding  Lessee's obligations under Section 9.1(a)
above, unless caused by Lessee's negligence or willful misconduct or that of its
employees  or agents,  Lessor shall be required to bear the cost of painting (or
repainting)  the exterior of the Leased Property and maintaining any underground
utilities and the structural elements of the Leased Improvements,  including the
roof of the  Facility  (but  excluding  windows and plate glass,  parking  lots,
mechanical, electrical and plumbing systems and equipment, including conduit and
ductware,  and non-load  bearing  walls).  Except as set forth in the  preceding
sentence and in Article XL, Lessor shall not under any circumstances be required
to build or  rebuild  any  improvement  on the Leased  Property,  or to make any
repairs,  replacements,  alterations,  restoration  or renewals of any nature or
description to the Leased Property, whether ordinary or extraordinary,  foreseen
or unforeseen,  or to make any expenditure  whatsoever with respect thereto,  in
connection  with this  Lease,  or to  maintain  the Leased  Property in any way.
Lessee hereby waives,  to the extent permitted by law, the right to make repairs
at the  expenses  of  Lessor  pursuant  to any law in  effect at the time of the
execution  of this Lease or  hereafter  enacted.  Lessor shall have the right to
give, record and post, as appropriate,  notices of  nonresponsibility  under any
mechanic's lien laws now or hereafter existing.

                  (c) Nothing  contained in this Lease and no action or inaction
by  Lessor  shall be  construed  as (1)  constituting  the  request  of  Lessor,
expressed or implied, to any contractor,  subcontractor, laborer, materialman or
vendor to or for the  performance  of any labor or services or the furnishing of
any  materials or other  property for the  construction,  alteration,  addition,
repair or  demolition of or to the Leased  Property or any part thereof,  or (2)
giving  Lessee any right,  power or  permission  to  contract  for or permit the
performance of any labor or services or the furnishing of any materials or other
property in such fashion as would permit the making of any claim against  Lessor
in



                                   103 of 135
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respect  thereof or to make any agreement that may create,  or in any way be the
basis for any right, title, interest,  lien, claim or other encumbrance upon the
estate of Lessor in the Leased Property, or any portion thereof.

                  (d) Lessee will,  upon the expiration or prior  termination of
the Term, vacate and surrender the Leased Property to Lessor in the condition in
which the  Leased  Property  was  originally  received  from  Lessor,  except as
repaired, rebuilt, restored, altered or added to as permitted or required by the
provisions  of this Lease and except for ordinary  wear and tear (subject to the
obligation  of Lessee to maintain the Leased  Property in good order and repair,
as would a prudent  owner,  during the entire Term of the  Lease),  or damage by
casualty or  Condemnation  (subject to the  obligations  of Lessee to restore or
repair as set forth in the Lease).

         9.2   Encroachments,   Restrictions,   Etc.   If  any  of  the   Leased
Improvements,  at any time,  materially  encroach upon any  property,  street or
right-of-way  adjacent  to the Leased  Property,  or violate the  agreements  or
conditions  contained  in any lawful  restrictive  covenant  or other  agreement
affecting  the Leased  Property,  or any part  thereof,  or impair the rights of
others  under any  easement  or  right-of-way  to which the Leased  Property  is
subject, then promptly upon the request of Lessor or at the behest of any person
affected by an such encroachment,  violation or impairment, Lessee shall, at its
expense,  subject to its right to contest  the  existence  of any  encroachment,
violation  or  impairment  and in such case,  in the event of an  adverse  final
determination,  either (a) obtain valid and effective  waivers or settlements of
all claims,  liabilities  and  damages  resulting  from each such  encroachment,
violation or  impairment,  whether the same shall affect Lessor or Lessee or (b)
make such changes in the Leased  Improvements,  and take such other  action,  as
Lessee in the good faith exercise of its judgment deems  reasonably  practicable
to remove such encroachment, and to end such violation or impairment, including,
if necessary, the alteration of any of the Leased Improvements, and in any event
take all such  actions as may be  necessary  in order to be able to continue the
operation of the Leased  Improvements for the Primary Intended Use substantially
in the manner and to the extent the Leased  Improvements  were operated prior to
the assertion of such violation, impairment or encroachment. Any such alteration
shall be made in  conformity  with the  applicable  requirements  of  Article X.
Lessee's obligations under this Section 9.2 shall be in addition to and shall in
no way  discharge or diminish any  obligation of any insurer under any policy of
title or other insurance held by Lessor.

                                    ARTICLE X

         10.1     Alterations.  Subject to the provisions hereinafter
provided for Lessor's consent, Lessee shall have the right to make



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additions,  modifications  or  improvements  to the Leased Property from time to
time as Lessee,  in its  discretion,  may deem to be desirable for its permitted
uses and purposes,  provided that such action will not  significantly  alter the
character  or  purposes or  significantly  detract  from the value or  operating
efficiency  thereof  and will not  significantly  impair  the  revenue-producing
capability of the Leased Property or adversely  affect the ability of the Lessee
to  comply  with the  provisions  of this  Lease.  The  cost of such  additions,
modifications  or  improvements  to the Leased Property shall be paid by Lessee,
and all such additions, modifications and improvements shall, without payment by
Lessor  at any  time,  be  included  under  the  terms  of this  Lease  and upon
expiration  or earlier  termination  of this Lease  shall pass to and become the
property of Lessor.

         Notwithstanding  the  foregoing,  Lessee shall not make any  additions,
modifications  or  improvements to the Leased  Property  without  Lessor's prior
written  consent if any such  addition,  modification  or  improvement  involves
puncturing,  relocating  or removing the roof or any existing  walls or the cost
thereof exceeds $10,000.  If Lessor's consent is required,  Lessee shall present
to Lessor,  in written  form,  detailed  plans for any such  proposed  addition,
modification  or  improvement,  together with cost estimates and the name of the
contractor who will perform the work and the name of the architect,  if any. All
consents by Lessor shall be deemed  conditioned upon: (i) Lessee's acquiring all
applicable permits required by governmental authorities;  (ii) the furnishing of
copies of such permits,  together with a copy of the plans and specifications to
Lessor prior to  commencement of work thereon and (iii) the compliance by Lessee
of all conditions of said permits in a prompt and expeditious manner. Lessor, at
its option,  may require  that a lien and  completion  bond be  furnished  in an
amount equal to 1-1/2 times the  estimated  cost of the work.  Lessee shall pay,
when due, all claims for labor or materials furnished or alleged to be furnished
to or for Lessee at or for use on the Leased  Property,  which claims are or may
be secured by any mechanics' or  materialmen's  lien against the Leased Property
or any interest therein.  Lessee shall give Lessor not less than ten days notice
prior to the  commencement  of any work in, on, or about the Leased Property and
Lessor shall have the right to post notices of  non-responsibility  in or on the
Leased Property, as provided by law.

         10.2 Salvage. All materials which are scrapped or removed in connection
with the making of repairs  required  by Articles IX or X shall be or become the
property of Lessor or Lessee depending on which party is paying for or providing
the financing for such work; provided,  however, Lessee shall not be entitled to
retain any salvaged  materials to the extent the value thereof  exceeds the cost
of any repairs or replacements made by Lessee.

         10.3     Joint Use Agreements.          If Lessee constructs additional




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improvements  that are  connected  to the Leased  Property or share  maintenance
facilities,  HVAC, electrical,  plumbing or other systems, utilities, parking or
other   amenities,   the  parties   shall   enter  into  a  mutually   agreeable
cross-easement or joint use agreement to make available  necessary  services and
facilities in connection with such additional  improvements,  to protect each of
their  respective  interests  in the  properties  affected,  and to provide  for
separate ownership, use, and/or financing of such improvements.


                                   ARTICLE XI

         Liens.  Subject to the  provision  of Article XII relating to permitted
contests,  Lessee will not directly or indirectly  create or allow to remain and
will promptly discharge at its expense any lien, encumbrance,  attachment, title
retention  agreement or claim upon the Leased Property or any attachment,  levy,
claim or encumbrance in respect of the Rent,  not including,  however,  (a) this
Lease,  (b) the  matters,  if any,  included as  exceptions  in the title policy
insuring Lessor's interest in the Leased Property,  (c) restrictions,  liens and
other  encumbrances which are consented to in writing by Lessor or any easements
granted  pursuant to the provisions of Section 7.3 of this Lease,  (d) liens for
those taxes upon  Lessor  which  Lessee is not  required  to pay  hereunder  (e)
subleases permitted by Article XXV hereof, (f) liens for Impositions or for sums
resulting from noncompliance with Legal Requirements so long as (1) the same are
not yet  payable or are payable  without the  addition of any fine or penalty or
(2) such liens are in the process of being  contested  as  permitted  by Article
XII, (g) liens of  mechanics,  laborers,  materialmen,  suppliers or vendors for
sums either  disputed or not yet due provided  that (1) the payment of such sums
shall not be  postponed  under any related  contract for more than 60 days after
the  completion of the action giving rise to such lien and such reserve or other
appropriate  provisions  as  shall  be  required  by law or  generally  accepted
accounting principles shall have been made therefor or (2) any such liens are in
the process of being  contested as permitted by Article XII hereof,  and (h) any
liens  which are the  responsibility  of Lessor  pursuant to the  provisions  of
Article XXXIV of this Lease.

                                   ARTICLE XII

         Permitted  Contests.  Lessee shall have the right to contest the amount
or validity of any  Imposition to be paid by Lessee or any Legal  Requirement or
Insurance  Requirement or any lien,  attachment,  levy,  encumbrance,  charge or
claim  ("Claims") not otherwise  permitted by Article XI, by  appropriate  legal
proceedings  in good faith and with due diligence  (but this shall not be deemed
or construed in any way to relieve,  modify or extend Lessee's  covenants to pay
or its  covenants  to cause to be paid any such  charges  at the time and in the
manner as in this Article provided),



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on condition,  however, that such legal proceedings shall not operate to relieve
Lessee from its  obligations  hereunder and shall not cause the sale or risk the
loss of the Leased Property,  or any part thereof,  or cause Lessor or Lessee to
be in default under any mortgage, deed of trust or security deed encumbering the
Leased  Property or any  interest  therein.  Upon the request of Lessor,  Lessee
shall either (a) provide a bond or other  assurance  reasonably  satisfactory to
Lessor that all Claim which may be assessed against the Leased Property together
with interest and penalties, if any, thereon will be paid, or (b) deposit within
the time otherwise  required for payment with a bank or trust company as trustee
upon terms  reasonably  satisfactory  to Lessor,  as security for the payment of
such  Claims,  money in an  amount  sufficient  to pay the same,  together  with
interest and  penalties in connection  therewith,  as to all Claims which may be
assessed against or become a Claim on the Leased Property,  or any part thereof,
in said legal proceedings.  Lessee shall furnish Lessor and any lender of Lessor
with  reasonable  evidence of such deposit within five days of the same.  Lessor
agrees  to join in any such  proceedings  if the  same be  required  to  legally
prosecute such contest of the validity of such Claims;  provided  however,  that
Lessor shall not thereby be subjected  to any  liability  for the payment of any
costs or expenses in  connection  with any  proceedings  brought by Lessee;  and
Lessee  covenants to indemnify and save  harmless  Lessor form any such costs or
expenses.  Lessee shall be entitled to any refund of any Claims and such charges
and  penalties  or  interest  thereon  which have been paid by Lessee or paid by
Lessor and for which Lessor has been fully reimbursed.  In the event that Lessee
fails to pay any Claims when due or to provide the security  thereof as provided
in this  paragraph and to diligently  prosecute any contest of the same,  Lessor
may, upon ten days advance Notice to Lessee,  pay such charges together with any
interest  and  penalties  and the same  shall be  payable by Lessee to Lessor as
Additional  Charges  at the  next  Payment  Date  provided  for in  this  Lease.
Provided,  however,  that should Lessor reasonably  determine that the giving of
such Notice  would risk loss to the Leased  Property or cause  damage to Lessor,
then Lessor  shall give such  Notice as is  practical  under the  circumstances.
Lessor  reserves  the right to  contest  any of the  Claims as its  expense  not
pursued by Lessee.  Lessor and Lessee  agree to cooperate  in  coordinating  the
contest of any claims.

                                  ARTICLE XIII

         13.1  General  Insurance  Requirements.  During the Term of this Lease,
Lessor,  as  hereinafter  provided in  subparagraph  (a) below,  and Lessee,  as
hereinafter  provided  in  subparagraph  (b)  below,  shall at all time keep the
Leased Property insured with the kinds and amounts of insurance described below.
This insurance shall be written by companies  authorized to use insurance in the
State.  The policies must name Lessor as the insured or as an  additional  named
insured,  as the case may be.  Losses  shall be  payable  to Lessor or Lessee as
provided in this Lease. Any loss adjustment shall



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require the written consent of Lessor and Lessee,  each acting reasonably and in
good faith.  Evidence of insurance shall be deposited with Lessor.  The policies
on the Leased Property, including the Leased Improvements, Fixtures and Lessee's
Personal Property, shall include:

                  (a)  Lessor shall obtain the following insurance and pay
all premiums associated therewith:

                           (1)      Building insurance on the "Special From"
(formerly "All Risk" form)(including  earthquake and flood in reasonable amounts
as  determined  by  Lessor)  in an  amount  not less  than 100% of the then full
replacement cost thereof (as defined in Section 13.2) or such other amount which
is acceptable to Lessor,  and personal property  insurance on the "Special Form"
in the full amount of the replacement cost thereof;

                           (2)      Insurance for loss or damage (direct and
indirect)  from steam boilers,  pressure  vessels or similar  apparatus,  now or
hereafter  installed in the Facility,  in the minimum amount of $5,000,000 or in
such greater amounts as are then customary or as may be reasonably  requested by
Lessor from time to time;

                           (3)   Loss of income insurance on the "Special Form",
in the  amount of one year Base  Rent for the  benefit  of  Lessor,  and  unless
otherwise  agreed by the parties,  without  duplication,  business  interruption
insurance  on the "Special  Form" in the amount of one year's gross  revenues of
the  Facility  for the  benefit  of Lessor  and  Lessee  to the  extent of their
respective interests in such revenues;

                           (4)      Insurance covering such other hazards and in
such amounts as may be customary  for  comparable  properties in the area of the
Leased  Property and is available from insurance  companies,  insurance pools or
other  appropriate  companies  authorized  to do  business in the State at rates
which are  economically  practicable  in relation to the risks covered as may be
reasonably requested by Lessor;

                  (b)  Lessee shall obtain the following insurance and,
except as hereinafter provided, pay all premiums associated
therewith;

                           (1)      Commercial general liability insurance, with
amounts not less than $10,000,000 covering each of the following: bodily injury,
death,  or property damage  liability per  occurrence,  personal and advertising
injury,  general aggregate,  products and completed operations,  with respect to
Lessor,  and "all risk legal  liability"  (including  liquor law or "dram  shop"
liability) with respect to Lessor and Lessee;




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                           (2)     Fidelity bonds with limits and deductibles as
may be  reasonably  requested  by Lessor,  covering  Lessee's  employees  in job
classifications  normally bonded under prudent hotel management practices in the
United States or otherwise required by law;

                           (3)    Workmen's compensation insurance to the extent
necessary to protect Lessor and the Leased Property against
Lessee's workman's compensation claims;

                           (4)      Vehicle liability insurance for owned, non-
owned, and hired vehicles, in the amount of $1,000,000;

                           (5)     Such other insurance as Lessor may reasonably
request for facilities such as the Leased Property and the
operation thereof; and

                  Lessee shall keep in force the foregoing  insurance  coverages
at its expense and any other "casualty" coverages required by Lessor.

         13.2 Replacement  Cost. The term "full replacement cost" as used herein
shall  mean  the  actual  replacement  cost  of the  Leased  Property  requiring
replacement  from  time to time  including  an  increased  cost of  construction
endorsement,  if available,  and the cost of debris removal. In the event either
party believes that full replacement cost (the  then-replacement  cost less such
exclusions)  has  increased or  decreased at any time during the Lease Term,  it
shall have the right to have such full replacement cost re-determined.

         13.3  Worker's  Compensation.  Lessee,  at its sole cost,  shall at all
times maintain adequate worker's compensation insurance coverage for all persons
employed by Lessee on the Leased Property.  Such worker's compensation insurance
shall be in accordance  with the  requirements  of applicable  local,  state and
federal law.


         13.4 Waiver of Subrogation. All insurance policies carried by Lessor or
Lessee  covering the Leased  Property,  the  Fixtures,  the  Facility,  Lessee's
Personal  Property and Worker's  Compensation,  including,  without  limitation,
contents,  fire and  casualty  insurance,  shall  expressly  waive  any right of
subrogation  on the party of the insurer  against the other  party.  The parties
hereto agree that their  policies will include such waiver clause or endorsement
so long as the same are obtainable  without extra cost, and in the event of such
an extra charge the other party,  at its election,  may pay the same,  but shall
not be obligated to do so.

         13.5 Form Satisfactory,  etc. All of the policies of insurance referred
to in this  Article  XIII shall be written in a form,  with  deductibles  and by
insurance companies satisfactory to Lessor.



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Subject to the right to  reimbursement  or credit specified in Section 13.1 (b),
Lessor and Lessee,  in a timely  manner,  shall pay all of the  premiums for the
insurance  coverage  provided for in this Article XIII in the manner provided in
Section 13.1 (a) and Section 13.1 (b), and the party  responsible  for obtaining
such insurance shall deliver such policies or certificates  thereof to the other
party prior to their effective date (and, with respect to any renewal policy, 30
days prior to the  expiration of the existing  policy),  and in the event of the
failure of the party  responsible  for  obtaining  any such  insurance  coverage
either to effect  such  insurance  as herein  called for or to pay the  premiums
therefor, or to deliver such policies or certificates thereof to the other party
at the times  required,  such other party shall be  entitled,  but shall have no
obligation,  to affect such  insurance  and pay the premiums  therefor,  and the
party responsible for obtaining any such insurance coverage shall reimburse such
other  party  for any  premium  or  premiums  paid by such  other  party for the
coverages  required  under  Sections  13.1(a) and 13.1(b)  upon  written  demand
therefor. Lessee's failure to repay the same within 30 days after Notice of such
failure from Lessor shall  constitute an Event of Default  within the meaning of
Section  16.1(a).  Each insurer  mentioned in this Article XIII shall agree,  by
endorsement to the policy or policies issued by it, or by independent instrument
furnished to Lessor and Lessee,  that it will give to Lessor and Lessee 30 days'
written  notice  before the policy or policies in question  shall be  materially
altered, allowed to expire or canceled.

         13.6  Increase in Limits.  If either Lessor or Lessee at any time deems
the limits of the personal  injury or property  damage  under the  comprehensive
public liability  insurance then carried to be either excessive or insufficient,
Lessor  or  Lessee  shall  endeavor  in good  faith to agree on the  proper  and
reasonable  limits for such  insurance  to be carried and such  insurance  shall
thereunder  be  carried  with the limits  thus  agreed on until  further  change
pursuant to the provisions of this Section.

         13.7 Blanket Policy.  Notwithstanding anything to be contrary contained
in this  Article  XIII,  Lessor or Lessee may bring the  insurance  provided for
herein to be  obtained  by  Lessor or  Lessee,  as the case may be,  within  the
coverage of a so called  blanket  policy or policies  of  insurance  carried and
maintained by Lessor or Lessee, as the case may be; provided,  however, that the
coverage  afforded by such policy or policies  will not be reduced or diminished
or otherwise be  different  form that which would exist under a separate  policy
meeting  all  other  requirements  of this  Lease by  reason  of the use of such
blanket policy of insurance,  and provided further that the requirements of this
Article XIII are otherwise satisfied.

         13.8 No Separate Insurance. Lessee shall not on Lessee's own initiative
or pursuant to the request or requirement of any third party,  take out separate
insurance concurrent in form or



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contributing  in the event of loss  with that  required  in this  Article  to be
furnished,  or increase the amount of any then existing insurance by securing an
additional policy or additional  policies,  unless all parties have an insurable
interest in the subject matter of the insurance,  including in all cases Lessor,
are included therein as additional insureds,  and the loss is payable under such
additional  separate  insurance  in the same manner as losses are payable  under
this Lease.  Lessee shall immediately notify Lessor that Lessee has obtained any
such separate  insurance or of the  increasing of any of the amounts of the then
existing insurance.

                                   ARTICLE XIV

         14.1 Insurance Proceeds. Subject to the provisions of Section 14.6, all
proceeds payable by reason of any loss or damage to the Leased Property,  or any
portion thereof,  and insured under any policy of insurance  required by Article
XIII of this  Lease  shall be paid to  Lessor  and held in trust by Lessor in an
interest-bearing   account,  shall  be  made  available,   if  applicable,   for
reconstruction or repair, as the case may be, of any damage to or destruction of
the Leased Property, or any portion thereof,  and, if applicable,  shall be paid
out by Lessor from time to time for the reasonable costs of such  reconstruction
or repair upon  satisfaction  of reasonable  terms and  conditions  specified by
Lessor.  Any excess proceeds of insurance  remaining after the completion of the
restoration or reconstruction of the Leased Property shall be paid to Lessee. If
neither  Lessor nor Lessee is required or elects to repair and restore,  and the
Lease is terminated without purchase by Lessee as described in Section 14.2, all
such insurance  proceeds shall be retained by Lessor. All salvage resulting from
any risk covered by insurance shall belong to Lessor.

         14.2     Reconstruction in the Event of Damage or Destruction
                  Covered by Insurance.

                  (a) Except as provided in Section 14.6, if during the Term the
Leased  Property  is totally or  partially  destroyed  by a risk  covered by the
insurance  described  in  Article  XIII and the  Facility  thereby  is  rendered
Unsuitable  for its Primary  Intended  Use,  Lessee shall,  at Lessee's  option,
within 30 days after the  occurrence of such event notify Lessor that Lessee has
elected to either (1) restore the Facility to  substantially  the same condition
as existed  immediately  before  the  damage or  destruction  and  otherwise  in
accordance  with the terms of the  Lease,  or (2) offer to  acquire  the  Leased
Property from Lessor for a purchase price equal to the Rejectable Offer Price of
the Leased Property.  If Lessee elects to restore the Facility, it shall proceed
to do so in a prompt and diligent  manner and the  insurance  proceeds  shall be
paid  out by  Lessor  from  time  to  time  for  the  reasonable  costs  of such
restoration upon satisfaction of reasonable terms and conditions, and any excess
proceeds remaining after such



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restoration  shall be paid to Lessor.  If Lessee  offers to acquire title to the
Leased  Property and such offer is accepted by Lessor,  Lessee shall receive the
insurance  proceeds.  If Lessee offers to acquire title to the Leased  Property,
Lessor shall have a period of 60 days to accept  Lessee's  offer to purchase the
Leased  Property.  If Lessor does not accept the Lessee's offer, the Lease shall
terminate  five days  after the  expiration  of said 60 day period (or five days
after such earlier date as Lessor shall notify  Lessee that it has rejected such
offer with respect to the Leased Property) without further  liability  hereunder
and Lessor shall be entitled to retain all insurance proceeds.

                  (b) Except as provided in Section 14.6, if during the Term the
Leased  Property  is  partially  destroyed  by a risk  covered by the  insurance
described in Article XIII, but the Facility is not thereby  rendered  Unsuitable
for its Primary Use,  Lessee shall  restore in a prompt and diligent  manner the
Facility to substantially the same condition as existed  immediately  before the
damage or destruction  and otherwise in accordance  with the terms of the Lease.
Such damage or destruction  shall not terminate this Lease;  provided,  however,
that if Lessee cannot within a reasonable time obtain all government  approvals,
including building permits, licenses and conditional use permits, after diligent
efforts to do so, to perform all  required  repair and  restoration  work and to
operate the Facility  for its Primary  Intended  Use in  substantially  the same
manner as existed  immediately prior to such damage or destruction and otherwise
in  accordance  with the terms of the Lease,  Lessee may offer to  purchase  the
Leased Property for a purchase price equal to the Rejectable  Offer Price of the
Leased  Property  determined  without regard to such damage or  destruction.  If
Lessee  makes  such offer and Lessor  does not  accept  the same,  Lessee  shall
withdraw  such offer,  in which event this Lease shall  remain in full force and
effect  and  Lessee  shall  immediately  proceed  to  restore  the  Facility  to
substantially  the same condition as existed  immediately  before such damage or
destruction  and otherwise in accordance  with the terms of the Lease. If Lessee
restores the Facility,  the insurance  proceeds shall be paid out by Lessor form
time to time for the reasonable costs of such  restoration upon  satisfaction of
reasonable  terms and conditions  specified by Lessor,  and any excess  proceeds
remaining after such restoration shall be paid to Lessor.

                  (c) If the  cost of the  repair  or  restoration  exceeds  the
amount of proceeds received by Lessor from the insurance  required under Article
XIII,  Lessee shall be  obligated to  contribute  any excess  amounts  needed to
restore the Facility prior to commencing work thereon.  Such difference shall be
paid by Lessee to Lessor to be held in trust,  together with any other insurance
proceeds, for application to the cost of repair and restoration.

                  (d)      If Lessor accepts Lessee's offer to purchase the
Leased Property under this Article, this Lease shall terminate as



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to the Leased  Property  upon  payment of the purchase  price,  and Lessor shall
remit to Lessee all insurance  proceeds  pertaining to the Leased Property being
held in trust by Lessor.

         14.3.  Reconstruction in the Event of Damages or
                Destruction  Not  Covered by  Insurance.  Except as  provided in
Section 14.6, if during the Term the Facility is totally or materially destroyed
by a risk not covered by the insurance described in Article XIII, whether or not
such  damages or  destruction  renders the Facility  Unsuitable  for its Primary
Intended Use, Lessee at its option,  within 30 days after the occurrence of such
event,  shall  notify  Lessor  that Lessee has elected to either (a) restore the
Facility to substantially  the same condition it was in immediately  before such
damage or destruction  and such damage or  destruction  shall not terminate this
Lease which Lessee shall proceed to do in a prompt and diligent  manner,  or (b)
terminate  this Lease with  respect to the Leased  Property,  in which event the
Lease shall  terminate five days after the date of such notice  without  further
penalty hereunder.  If such damage or destruction is not material,  Lessee shall
restore the Facility to substantially the same condition as existed  immediately
before the damage or destruction  and otherwise in accordance  with the terms of
the Lease, which Lessee shall proceed to do in a prompt and diligent manner.

         14.4 Lessee's Property. All insurance proceeds payable by reason of any
loss of or damage to any of Lessee's  Personal Property shall be paid to Lessee;
provided  however,  no such  payments  shall  diminish  or reduce the  insurance
payments otherwise payable to or for the benefit of Lessor hereunder.

         14.5  Abatement  of Rent.  Any damage or  destruction  due to  casualty
notwithstanding,  this Lease shall  remain in full force and effect and Lessee's
obligation to make rental payments and to pay all other charges required by this
Lease shall remain  unabated  during the first six months of any period required
for the  applicable  repair  and  restoration.  Thereafter  Base  Rent  shall be
equitably abated.

         14.6 Damage Near End of Term. Notwithstanding any provisions of Section
14.2 or 14.3  appearing  to the  contrary,  if damage to or  destruction  of the
Facility  renders it unsuitable  for its Primary  Intended Use occurs during the
last 12 months of the Term,  the Lessee  shall have the right to  terminate  the
Lease by giving  written notice to Lessor within 30 days after the occurrence of
such event, whereupon all secured Rent shall be paid immediately, and this Lease
shall automatically terminate five days after the date of such notice.

         14.7 Waiver.  Lessee hereby waives any statutory  rights of termination
that ma arise by reason of any damage or destruction of the Facility that Lessor
is obligated to restore or may restore



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under any of the provisions of this Lease.

                                   ARTICLE XV

         15.1     Definitions.

                  (a)  "Condemnation"  means a  Taking  resulting  from  (a) the
exercise of any governmental  power,  whether by legal proceedings or otherwise,
by a Condemnor, and (2) a voluntary sale or transfer by Lessor to any Condemnor,
either under threat of condemnation or while legal proceeds for condemnation are
pending.

                  (b)      "Date of Taking" means the date the Condemnor has
the right to possession of the property being condemned.

                  (c)      "Award" means all compensation, sums or anything of
value awarded, paid or received on a total or partial Condemnation.

                  (d)      "Condemnor" means any public or quasi-public
authority, or private corporation or individual, having the power
of Condemnation.

         15.2 Parties' Rights and  Obligations.  If during the Term there is any
Condemnation  of all or any part of the Leased  Property or any interest in this
Lease,  the rights and  obligations  of Lessor and Lessee shall be determined by
this Article XV.

         15.3  Total  Taking.  If  title to the fee of the  whole of the  Leased
Property is condemned by any  Condemnor,  subject to the  provisions  of Section
15.7,  this  Lease  shall  cease  and  terminate  as the Date of  Taking  by the
Condemnor.  If title to the fee of less than the whole of the Leased Property is
so taken or condemned, which nevertheless renders the Leased Property Unsuitable
or Uneconomic  for its Primary  Intended Use,  Lessee and Lessor shall each have
the option,  by notice to the other, at any time prior to the Date of Taking, to
terminate  this Lease as of the Date of Taking.  Upon such date,  if such Notice
has been given,  this Lease shall thereupon cease and terminate.  All Base Rent,
Percentage Rent and Additional Charges paid or payable by Lessee hereunder shall
be  apportioned  as of the Date of Taking,  and Lessee shall promptly pay Lessor
such amounts.  In the event of any such  termination,  the provisions of Section
15.7 shall apply.

         15.4  Allocation  of Award.  The total  Award made with  respect to the
Leased Property or for loss of rent, or for Lessor's loss of business beyond the
Term, shall be solely the property of and payable to Lessor.  Any Award made for
loss of business  during the remaining  Term, if any, for the taking of Lessee's
Personal Property,  or for removal and relocation expenses of Lessee in any such
proceedings  shall  be the  sole  property  of and  payable  to  Lessee.  In any
Condemnation  proceedings  Lessor  and  Lessee  shall  each  seek  its  Award in
conformity herewith, at its respective



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expense; provided, however, Lessee shall not initiate, prosecute or acquiesce in
any proceedings that may result in a diminution of any Award payable to Lessor.

         15.5  Partial  Taking.  If title to less than the  whole of the  Leased
Property is condemned, and the Leased Property is not Unsuitable for its Primary
Intended Use, and not Uneconomic  for its Primary  Intended Use, or if Lessee or
Lessor is entitled  but neither  elects to  terminate  this Lease as provided in
Section 15.3, Lessee at its cost shall with all reasonable  dispatch restore the
untaken  portion of any Leased  Improvements  so that such  Leased  Improvements
constitute  a complete  architectural  unit of the same  general  character  and
condition (as nearly as may be possible under the  circumstances)  as the Leased
Improvements  existing  immediately  prior  to the  Condemnation.  Lessor  shall
contribute  to the  cost of  restoration  that  part of its  Award  specifically
allocated to such restoration, if any, together with severance and other damages
awarded for the taken Leased Improvements; provided, however, that the amount of
such contribution shall not exceed such cost.

         15.6 Temporary  Taking. If the whole or any part of the Leased Property
or of Lessee's  interest  under this Lease is condemned by any Condemnor for its
temporary use or occupancy, the Lease shall not terminate by reason thereof, and
Lessee shall  continue to pay, in the manner and at the terms herein  specified,
the full amount of Base Rent and Additional Charges.  In addition,  Lessee shall
pay Percentage  Rent at a rate equal to the average  Percentage  Rent during the
last three  preceding  Fiscal  Years (or if three  Fiscal  Years  shall not have
elapsed,  the average  during the preceding  Fiscal  Years).  Except only to the
extend that Lessee may be prevented  from so doing  pursuant to the terms of the
order of the Condemnor,  Lessee shall continue to perform and observe all of the
other terms,  covenants,  conditions and  obligations  hereof on the part of the
Lessee to be  performed  and  observed,  as  though  such  Condemnation  had not
occurred.  In the event of any  Condemnation  as in this Section 15.6 described,
the entire amount of any Award made for such Condemnation  allocable to the Term
of this Lease, whether paid by way of damages, rent or otherwise,  shall be paid
to Lessee.  Lessee  covenants  that upon the  termination  of any such period of
temporary  use or  occupancy it will,  at its sole cost and expense  (subject to
Lessor's contribution as set forth below),  promptly restore the Leased Property
as nearly as may be  reasonably  possible to the condition in which the same was
immediately prior to such  Condemnation,  unless such period of temporary use or
occupancy  extends beyond the expiration of the Term, in which case Lessee shall
not be required to make such restoration.  If restoration is required hereunder,
Lessor  shall  contribute  to the cost of such  restoration  that portion of its
entire Award that is specifically  allocated to such restoration in the judgment
or order of the court,  if any,  and Lessee shall fund the balance of such costs
in advance of restoration in a manner reasonably satisfactory to Lessor.



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         Notwithstanding  the foregoing,  if the temporary taking is to be for a
period  of more  than 30 days  pursuant  to the  terms  of the  order  providing
therefor,  Lessee, upon 30 days prior written notice to Lessor given at any time
on or after  the  Date of  Taking  by the  Condemnor  in  connection  with  such
temporary  taking,  may terminate this Lease if the temporary taking renders the
hotel Uneconomic or Unsuitable for its Primary Intended Purpose.

         15.7 Lessee's  Offer.  In the event of the termination of this Lease as
provided in Section  15.3,  Lessee  shall  offer to acquire the Leased  Property
without regard to such taking and, if accepted,  Lessee shall receive the entire
Award. If Lessor does not accept Lessee's offer to purchase the Leased Property,
Lessee  shall  withdraw  its offer to purchase  the Leased  Property  and, if so
withdrawn,  Lessee may terminate  the Lease with respect to the Leased  Property
without further liability  hereunder,  except for payment of Rent as provided in
the  penultimate  sentence of Section 15.3 or for matters which by their express
terms survive  termination of this Lease, and Lessor shall be entitled to retain
the Award except as provided in Section 15.4.

                                   ARTICLE XVI

         16.1  Events of Default.  If any one or more of the following
events individually, an "Event of Default") occurs:

                  (a) if Lessee  fails to make payment of the Base Rent when the
same  becomes  due and  payable  for a period of ten days  after  receipt by the
Lessee of Notice form the Lessor thereof;

                  (b) if Lessee fails to make payment of annual  Percentage Rent
when the same becomes due and payable and such condition  continues for a period
of 90 days after the end of the applicable Fiscal Year;

                  (c) if Lessee  fails to  observe or  perform  any other  term,
covenant  or  condition  of this  Lease and such  failure is not cured by Lessee
within a period of 30 days after  receipt by the Lessee of Notice  thereof  from
Lessor,  unless such failure  cannot with due diligence be cured within a period
of 30 days,  in which  case it shall not be deemed an Event of Default if Lessee
proceeds  promptly  and with due  diligence  to cure the failure and  diligently
completes  the curing  thereof  provided,  however,  in no event shall such cure
period extend beyond 90 days after such Notice; or

                  (d) if the  Lessee  shall  file a petition  in  bankruptcy  or
reorganization  for an arrangement  pursuant to any federal or state  bankruptcy
law or any similar  federal or state law, or shall be  adjudicated a bankrupt or
shall make an assignment  for the benefit of creditors or shall admit in writing
its inability to pay its debts generally as they become due, or if a petition or
answer proposing the adjudication of the Lessee as a bankrupt or its




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reorganization  pursuant to any federal or state  bankruptcy  law or any similar
federal  or  state  law  shall be filed in any  court  and the  Lessee  shall be
adjudicated a bankrupt and such  adjudication  shall not be vacated or set aside
or stayed within 60 days after the entry of an order in respect thereof, or if a
receiver  of the Lessee or the whole or  substantially  all of the assets of the
Lessee shall be appointed in any proceeding brought by the Lessee or if any such
receiver,  trustee or liquidator  shall be appointed in any  proceeding  brought
against  the Lessee  and shall not be  vacated or set aside or stayed  within 60
days after such anointment; or

                  (e)  if  Lessee  is  liquidated   or   dissolved,   or  begins
proceedings toward such liquidation or dissolution,  or, in any manner,  permits
the sale or divestiture of substantially all of its assets; or

                  (f) if the estate or interest of Lessee in the Leased Property
or any part  thereof is  voluntarily  or  involuntarily  transferred,  assigned,
conveyed, levied upon or attached in any proceeding (unless Lessee is contesting
such lien or attachment in good faith in accordance with Article XII hereof); or

                  (g) if, except as a result of damage,  destruction  or partial
or complete  Condemnation,  Lessee  voluntarily  causes operations on the Leased
Property for a period in excess of 30 days; or

                  (h) if an event of default has been declared by the franchisor
under the  Franchise  Agreement  with  respect  to the  Facility  on the  Leased
Property as a result of any action or failure to act by the Lessee or any Person
with whom the Lessee contracts for management services at the Facility;

                  then,  and in any such event,  Lessor may exercise one or more
remedies  available  to it  herein  or at law or in  equity,  including  but not
limited to its right to terminate  the Lease by giving  Lessee not less than ten
days' Notice of such termination.

                  If litigation is commenced with respect to any alleged default
under this Lease,  the prevailing  party in such  litigation  shall receive,  in
addition to its damages  incurred,  such sum as the court shall determine as its
reasonable  attorneys'  fees, and all costs and expenses  incurred in connection
therewith.

                  No Event of Default (other than a failure to make a payment of
money)  shall be deemed to exist  under  clause  (c)  during any time the curing
thereof is prevented by an Unavoidable  Delay,  provided that upon the cessation
of such  Unavoidable  Delay,  Lessee  remedies  such default or Event of Default
without further delay.

         16.2     Surrender.  If an Event of Default occurs (and the event



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giving  rise to such Event of Default  has not been  cured  within the  curative
period relating thereto as set forth in Section 16.1) and is continuing, whether
or not this Lease has been terminated pursuant to Section 16.1, Lessee shall, if
requested  by Lessor  so to do,  immediately  surrender  to  Lessor  the  Leased
Property  including,  without  limitation,  any and all books,  records,  files,
licenses,  permits and keys relating  thereto,  and quit the same and lessor may
enter upon and  repossess  the Leased  Property  by  reasonable  force,  summary
proceedings, ejectment or otherwise, and may remove Lessee and all other persons
and any and all personal property from the Leased Property, subject to rights of
any hotel guests and to any requirement of law. Lessee hereby waives any and all
requirements  of  applicable  laws for service of notice to re-enter  the Leased
Property.  Lessor  shall be under no  obligation  to, but may if it so  chooses,
relet the Leased Property or otherwise mitigate Lessor's damages.

         16.3  Damages.  Neither  (a) the  termination  of this  Lease,  (b) the
repossession  of the  Leased  Property,  (c) the  failure of Lessor to relet the
Leased  Property,  nor (d) the  reletting of all or any portion  thereof,  shall
relieve Lessee of its liability and  obligations  hereunder,  all of which shall
survive any such  termination,  repossession  or reletting.  In the event of any
such termination,  Lessee shall forthwith pay to Lessor all Rent due and payable
with  respect  to the  Leased  Property  to  and  including  the  date  of  such
termination.

                  Lessee shall forthwith pay to Lessor,  at Lessor's option,  as
and for liquidated and agreed current damages for Lessee's default, either:

                  (1) Without termination of Lessee's right to possession of the
Lease  Property,  each  installment  of Rent and other sums payable by Lessee to
Lessor under the Lease as the same becomes due and payable, which Rent and other
sums shall bear interest at the Overdue Rate, and Lessor may enforce,  by action
or otherwise, any other term or covenant of this Lease; or

                  (2)      the sum of:
                           (A)      the unpaid Rent which had been earned at the
                  time of termination, repossession or reletting, and

                           (B)  the   worth   at  the   time   of   termination,
                  repossession  or  reletting  of the amount by which the unpaid
                  Rent  for  the   balance   of  the  Term  after  the  time  of
                  termination,  repossession or reletting, exceeds the amount of
                  such  rental  loss  that  Lessee  proves  could be  reasonably
                  avoided, and

                           (C) any other amount  necessary to compensate  Lessor
                  for all the detriment  proximately  caused by Lessee's failure
                  to perform its obligations under this Lease or



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                  which in the  ordinary  course of  things,  would be likely to
                  result  therefrom.  The  worth  at the  time  of  termination,
                  repossession  or  reletting  of  the  amount  referred  to  in
                  subparagraph (B) is computed by discounting such amount at the
                  discount  rate of the Federal  Reserve Bank of New York at the
                  time of award plus 1%.

Percentage  Rent for the  purposes of this  Section 16.3 shall be a sum equal to
(i) the  average of the  annual  amounts  of the  Percentage  Rent for the three
Fiscal Years  immediately  preceding  the Fiscal Year in which the  termination,
re-entry or  repossession  takes place,  or (ii) if three Fiscal Years shall not
have elapsed,  the average of the  Percentage  Rent during the preceding  Fiscal
Years during which the Lease was in effect,  or (iii) if one Fiscal Year has not
elapsed,  the  amount  derived  by  annualizing  the  Percentage  Rent  from the
effective date of this Lease.

         16.4  Waiver.  If this Lease is  terminated  pursuant to Section  16.1,
Lessee  waives,  to the extent  permitted by applicable  law, (a) any right to a
trial by jury in the event of summary  proceedings  to enforce the  remedies set
forth in this  Article  XVI, and (b) the benefit of any laws now or hereafter in
force  exempting  property from liability for rent or for debt and Lessor waives
any right to  "pierce  the  corporate  vail" of Lessee  other than to the extent
funds shall have been  inappropriately  paid any Affiliate of Lessee following a
default resulting in an Event of Default.

         16.5 Application of Funds. Any payments received by Lessor under any of
the provisions of this Lease during the existence or continuance of any Event of
Default  shall be applied to Lessee's  obligations  in the order that Lessor may
determine or as may be prescribed by the laws of the State.

                                  ARTICLE XVII

         Lessor's  Right to Cure Lessee's  Default.  If Lessee fails to make any
payment or to perform any act required to be made or performed  under this Lease
including, without limitation,  Lessee's failure to comply with the terms of any
Franchise Agreement, and fails to cure the same within the relevant time periods
provided in Section 16.1, Lessor, without waiving or releasing any obligation of
Lessee,  and without  waiving or releasing any  obligation or default,  may (but
shall be under no  obligation  to) at any time  thereafter  make such payment or
perform  such act for the account and at the expense of Lessee,  and may, to the
extent  permitted by law,  enter upon the Leased  Property for such purpose and,
subject to section 16.4,  take all such action thereon as, in Lessor's  opinion,
may be  necessary  or  appropriate  therefor.  No such entry  shall be deemed an
eviction  of  Lessee.  All sums so paid by Lessor  and all  costs  and  expenses
(including, without limitation, reasonable attorneys' fees and expenses, in each
case to the extent



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permitted  by law) so  incurred,  together  with a late  charge  thereon (to the
extent permitted by law) at the Overdue Rate from the date on which such sums or
expenses  are paid or incurred by Lessors,  shall be paid by Lessee to Lessor on
demand. The obligations of Lessee and rights of Lessor contained in this Article
shall survive the expiration or earlier termination of this Lease.

                                  ARTICLE XVIII

         Provisions  Relating  to  Purchase  of the Leased  Property.  If Lessee
purchases the Leased  Property from Lessor  pursuant to any of the terms of this
Lease,  Lessor shall, upon receipt from Lessee of the applicable purchase price,
together  with full  payment of any unpaid Rent due and payable  with respect to
any period  ending on or before the date of the  purchase,  deliver to Lessee an
appropriate  limited or special warranty deed or other conveyance  conveying the
entire interest of Lessor in and to the Leased Property to Lessee free and clear
of all encumbrances other than (a) those that Lessee has agreed hereunder to pay
or  discharge,  (b) those  mortgage  liens,  if any,  that  Lessee has agreed in
writing to accept and to take title subject to, (c) those liens and encumbrances
subject to which the Leased Property was conveyed to Lessor,  (d)  encumbrances,
easements,  licenses  or rights of way  required  to be  imposed  on the  Leased
Property  under  Section  7.3,  and (e) any other  encumbrances  permitted to be
imposed on the Leased  Property  under the  provisions of Section XXXIV that are
assumable at no cost to Lessee or to which Lessee may take subject  without cost
to Lessee. The difference between the applicable purchase price and the total of
the encumbrances assumed or taken subject tot shall be paid in cash to Lessor or
as Lessor may direct. in federal or other immediately available funds, except as
otherwise mutually agreed by Lessor and Lessee. All expenses of such conveyance,
including,  without limitation the cost of title examination or title insurance,
if desired by Lessee,  Lessee's attorneys' fees incurred in connection with such
conveyance and release,  and transfer taxes and recording fees, shall be paid by
Lessee. Lessor shall pay its attorney's fees.

                                   ARTICLE XIX

         19.1 Personal Property Limitation.  Anything contained in this Lease to
the contrary notwithstanding, the average of the adjusted tax bases of the items
of  personal  property  that are  leased to the  Lessee  under this Lease at the
beginning  and at the end of any Fiscal Year shall not exceed 15% of the average
of the aggregate  adjusted tax bases of the Leased Property at the beginning and
at the end of such Fiscal Year. This Section 19.1 is intended to ensure that the
Rent  qualifies  as "rents  from real  property,"  within the meaning of Section
856(d) of the Code, or any similar or successor provisions thereto, and shall be
interpreted in a manner consistent with such intent.




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         19.2 Sublease Rent Limitation.  Anything contained in this Lease to the
contrary  notwithstanding,  Lessee  shall not sublet the Leased  Property on any
basis  such that the  rental  to be paid by the  sublessee  thereunder  would be
based,  in whole or in part, on either (a) the income or profits  derived by the
business  activities  of the  sublessee,  or (b) any other formula such that any
portion of the Rent would fail to qualify as "rents from real  property"  within
the meaning of Section 856(d) of the Code, or any similar or successor provision
thereto.

         19.3 Sublease Tenant  Limitation.  Anything  contained in this Lease to
the contrary  notwithstanding,  Lessee shall not sublease the Leased Property to
any Person in which  Glenborough  Realty Trust  Incorporated  owns,  directly or
indirectly,  a 10% or more interest,  within the meaning of Section 856(d)(2)(B)
of the Code, or any similar or successor provisions thereto.

         19.4 Lessee Ownership  Limitation.  Anything contained in this Lease to
the contrary notwithstanding, neither Lessee or an Affiliate of the Lessee shall
acquire,  directly or indirectly,  a 10% or more interest in Glenborough  Realty
Trust Incorporated,  within the meaning of Section  856(d)(2)(B) of the Code, or
any similar or successor provision thereto.

         19.5 Lessee Officer and Employee Limitation. Anything contained in this
Lease to the contrary notwithstanding, except with the prior written approval of
Glenborough Realty Trust Incorporated,  none of the officers or employees of the
Lessee (or any Person who  furnishes  or renders  services to the tenants of the
Leased Property, or manages or operates the Lease Property) shall be officers or
employees to Glenborough  Realty Trust Incorporated (or any Person who serves as
an advisor of Glenborough Realty Trust Incorporated).  In addition,  if a Person
serves as both (a) a director  of the Lessee  (or any  Person who  furnishes  or
renders services to the tenants of the Leased  Property,  or manages or operates
the Leased Property) and (b) a director and officer (or employee) of Glenborough
Realty Trust Incorporated (or any Person who serves as an advisor of Glenborough
Realty Trust  Incorporated)  that Person shall not receive any  compensation for
serving as a director  of the  Lessee  (or any Person who  furnishes  or renders
services  to the  tenants of the Leased  Property,  or manages or  operates  the
Leased Property).

         19.6 Payments to Affiliates  of Lessee.  During the term,  Lessee shall
not pay any fees to any Affiliate of Lessee in connection with the Facility.


                                   ARTICLE XX

         Holding Over.  If Lessee for any reason remains in possession
of the Leased Property after the expiration or earlier termination



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of the Term,  such  possession  shall be as a tenant at sufferance  during which
time  Lessee  shall pay as rental  each  month  two times the  aggregate  of (a)
one-twelfth of the aggregate Base Rent and Percentage  Rent payable with respect
to the last Fiscal Year of the Term, (b) all Additional  Charges accruing during
the  applicable  month and (c) all other sums,  if any,  payable by Lessee under
this Lease with respect to the Leased Property. During such period, Lessee shall
be obligated to perform and observe all of the terms,  covenants and  conditions
of this Lease,  but shall have no rights  hereunder other than the right, to the
extent given by law to tenancies of  sufferance,  to continue its  occupancy and
use of the Leased  Property.  Nothing  contained  herein  shall  constitute  the
consent,  express or implied,  of Lessor to the holding over of Lessee after the
expiration or earlier termination of this Lease.


                                   ARTICLE XXI

         Risk of Loss.  During the Term,  the risk of loss or of decrease in the
enjoyment and beneficial use of the Leased Property in consequence of the damage
or destruction thereof by fire, the elements,  casualties, theft, riots, wars or
otherwise, or in consequence of foreclosure,  attachments,  levies or executions
(other than those  caused by Lessor and those  claiming  from,  through to under
Lessor) is assumed by Lessee,  and, in the absence of gross negligence,  willful
misconduct or breach of this Lease by Lessor  pursuant to Section  34.3,  Lessor
shall in no event be answerable or  accountable  therefor,  nor shall any of the
events  mentioned in this Section entitle Lessee to any abatement of Rent except
as specifically provided in this Lease.


                                  ARTICLE XXII

         22.1  Indemnification.  Notwithstanding the existence of any insurance,
and without regard to the policy limits of any such insurance or self-insurance,
but subject to Section 16.4 and Article VIII,  Lessee will  protect,  indemnify,
hold harmless and defend Lessor from and against all  liabilities,  obligations,
claims,  damages,  penalties,  causes of action,  costs and expenses (including,
without  limitation,  reasonable  attorneys'  fees and expenses),  to the extent
permitted  by law,  imposed  upon or  incurred  by or  asserted  against  Lessor
Indemnified  Parties  by  reason  of:  (a) any  accident,  injury to or death of
persons  or loss of or  damage to  property  occurring  on or about  the  Leased
Property or adjoining  sidewalks,  including without limitation any claims under
liquor liability,  "dram shop" or similar laws, (b) any past,  present or future
use, misuse, non-use, condition, management,  maintenance or repair by Lessee or
any of its agents,  employees  or  invitees  of the Leased  Property or Lessee's
Personal  Property  or any  litigation,  proceeding  or  claim  by  governmental
entities or other third parties to which a Lessor Indemnified Party is made a



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party  or  participant  related  to  such  use,  misuse,   non-use,   condition,
management,  maintenance,  or repair  thereof  by  Lessee  or any of its  agents
employees  or  invitees,  including  any failure of Lessee or any of its agents,
employees or invitees to perform any obligations  under this Lease or imposed by
applicable  law (other than arising out of  Condemnation  proceedings),  (c) any
Impositions  that are the  obligations  of  Lessee  pursuant  to the  applicable
provisions  of this  Lese,  (d) any  failure on the part of Lessee to perform or
comply with any of the terms of this Lease, and (e) the  non-performance  of any
of the terms and provisions of any and all existing and future  subleases of the
Leased Property to be performed by the landlord thereunder.

         Lessor shall  indemnify,  save harmless and defend  Lessee  Indemnified
Parties  from  and  against  all  liabilities,   obligations,  claims,  damages,
penalties,  causes of action,  costs and expenses imposed upon or incurred by or
asserted  against  Lessee  Indemnified  Parties  as a  result  of (a) the  gross
negligence or willful misconduct of Lessor arising in connection with this Lease
or (b) any  failure on the pat of Lessor to  perform  or comply  with any of the
terms of this Lease.

         Any amounts  that become  payable by an  Indemnifying  Party under this
Section shall be paid within ten days after liability therefor on the pat of the
Indemnifying  Party is determined by litigation or otherwise,  and if not timely
paid,  shall bear a late charge (to the extent  permitted by law) at the Overdue
Rate from the date of such determination to the date of Payment. An Indemnifying
Party, at its expenses,  shall contest, resist and defend any such claim, action
or  proceeding  asserted  or  instituted  against  the  Indemnified  Party.  The
Indemnified Party, at its expense,  shall be entitled to participate in any such
claim,  action, or proceeding,  and the Indemnifying Party may not compromise or
otherwise  dispose of the same  without  the consent of the  Indemnified  Party,
which may not be  unreasonably  withheld.  Nothing  herein shall be construed as
indemnifying a Lessor  Indemnified  Party against its own grossly negligent acts
or omissions or wilful misconduct.

         Lessee's or Lessor's  liability for a breach of the  provisions of this
Article shall survive any termination of this Lease.

                                  ARTICLE XXIII

         23.1 Subletting and Assignment. Subject to the provision of Article XIX
and  Section  23.2 and any other  express  conditions  or  limitation  set forth
herein,  Lessee may, but only with the consent of Lessor,  (a) assign this Lease
or sublet all or any part of the Leased  Property to an Affiliate of Lessee,  or
(b) sublet any retail or restaurant  portion of the Leased  Improvements  in the
normal course of the Primary  Intended Use;  provided that any subletting  shall
not individually as to any one such subletting, or in the aggregate,  materially
diminish the actual or potential Percentage



                                   123 of 135
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Rent payable under this Lease.  In the case of subletting,  the sublessee  shall
comply with the  provisions of Section 23.2,  and in the case of an  assignment,
the  assignee  shall  assume in writing and agree to keep and perform all of the
terms of this Lease on the part of Lessee to be kept and performed and shall be,
and  become,  jointly  and  severally  liable  with  Lessee for the  performance
thereof.  Notwithstanding the above, Lessee may assign the Lease to an Affiliate
without  the  consent  of Lessor;  provided  that any such  assignee  assumes in
writing and agrees to keep and perform all of the terms of the Lease on the part
of Lessee to be kept and performed and shall be and become jointly and severally
liable with Lessee for the performance  thereof. In case of either an assignment
or subletting made during the Term,  Lessee shall remain  primarily  liable,  as
principal rather than as surety,  for the prompt payment of the Rent and for the
performance  and  observance  of all  of  the  covenants  and  conditions  to be
performed by Lessee hereunder. An original counterpart of each such sublease and
assignment  and  assumption,  duly  executed  by Lessee  and such  sublessee  or
assignee,  as the case may be, in form and  substance  satisfactory  to  Lessor,
shall be delivered promptly to Lessor.

         23.2 Attornment.  Lessee shall insert in each sublease  permitted under
Section  23.1  provisions  to the effect  that (a) such  sublease is subject and
subordinate  to all of the terms and  provisions of this Lease and to the rights
of Lessor hereunder,, (b) if this Lease terminates before the expiration of such
sublease,  the sublessee  thereunder will, at Lessor's option,  attorn to Lessor
and waive any right the  sublessee  may have to  terminate  the  sublease  or to
surrender  possession  thereunder as a result of the  termination of this Lease,
and (c) if the  sublessee  receives a written  Notice  from  Lessor or  Lessor's
assignees,  if any,  stating that an uncured Event of Default  exists under this
Lease,  the sublessee shall  thereafter be obligated to pay all rentals accruing
under said sublease  directly to the party giving such Notice,  or as such party
may  direct.  All  rentals  received  from the  sublessee  by Lessor or Lessor's
assignees,  if any, as the case may be,  shall be  credited  against the amounts
owing by Lessee under this Lease.


                                  ARTICLE XXIV

                  Officer's Certificates; Financial Statements;
                  Lessor's Estoppel Certificates and Covenants.

         (a) At any time and from time to time upon not less than 20 days Notice
by Lessor,  Lessee will  furnish to Lessor an Officer's  Certificate  certifying
that this Lease is  unmodified  and in full force and effect (or that this Lease
is in full force and effect as modified  and setting  forth the  modifications),
the date to which the Rent has been paid, whether to the knowledge of Lessee any
existing default or Event of Default exists thereunder by Lessor or Lessee,  and
such other information as may be reasonably requested



                                   124 of 135
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by Lessor. Any such certificate furnished pursuant to this Section may be relied
upon by Lessor, any lender and any prospective purchaser of the Leased Property.

                  (b)      Lessee will furnish the following statements to
Lessor:

                                    (1)   with   reasonable   promptness,   such
                           information  respecting  the financial  condition and
                           affairs  of  Lessee   including   audited   financial
                           statements prepared by the sums certified independent
                           accounting  firm that prepares the returns for Lessor
                           or such other  accounting  firm as may be approved by
                           Lessor, as Lessor may reasonably request from time to
                           time; and

                                    (2) the most recent Consolidated  Financials
                           of Lessee  within 45 days after  each  quarter of any
                           Fiscal Year (or, in the case of the final  quarter in
                           any Fiscal Year, the most recent audited Consolidated
                           Financials of Lessee within 90 days); and

                                    (3) on or about the 15th day of each  month,
                           a detailed  profit and loss  statement for the Leased
                           Property for the preceding month, a balance sheet for
                           the Leased  Property  as of the end of the  preceding
                           month, and a detailed  accounting of revenues for the
                           Leased Property for the preceding month, each in form
                           acceptable to Lessor.

                  (c) At any time and from  time to time  upon not less  than 20
days notice by Lessee, Lessor will furnish to Lessee or to any person designated
by Lessee an estoppel  certificate  certifying that this Lease is unmodified and
in full  force and  effect  (or that this  Lease is in full  force and effect as
modified and setting forth the  modifications),  the date to which Rent has been
paid,  whether to the knowledge of Lessor there is any existing default or Event
of Default on Lessee's  part  hereunder,  and such other  information  as may be
reasonably requested by Lessee.

                  (d) Lessee  covenants  that during the Term it will maintain a
ratio of recourse  debt-to-Consolidated  Net Worth of 50% or less,  exclusive of
capitalized leases.


                                   ARTICLE XXV

         Lessor's  Right  to  Inspect.   Lessee  shall  permit  Lessor  and  its
authorized  representatives  as frequently as reasonably  requested by Lessor to
inspect the Leased Property and Lessee's accounts and records pertaining thereto
and make copies thereof, during usual



                                   125 of 135
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business  hours upon  reasonable  advance  notice,  subject only to any business
confidentiality requirements reasonably requested by Lessee.

                                  ARTICLE XXVI

         No Waiver.  No  failure  by Lessor or Lessee to insist  upon the strict
performance  of any term  hereof  or to  exercise  any  right,  power or  remedy
consequent upon a breach  thereof,  and no acceptance of full or partial payment
of Rent during the continuance of any such breach,  shall constitute a waiver of
any such breach or of any such term.  To the extent  permitted by law, no waiver
of any breach  shall  affect or alter this Lease,  which shall  continue in full
force and effect with respect to any other then existing or subsequent breach.

                                  ARTICLE XXVII

         Remedies  Cumulative.  To the  extent  permitted  by law,  each  legal,
equitable  or  contractual  right,  power and  remedy of Lessor or Lessee now or
hereafter  provided  either in this Lease or by statute  or  otherwise  shall be
cumulative and  concurrent and shall be in addition to every other right,  power
and remedy and the  exercise or beginning of the exercise by Lessor or Lessee of
any one or more of such  rights,  powers and  remedies  shall not  preclude  the
simultaneous  or  subsequent  exercise by Lessor or Lessee of any or all of such
other rights, powers and remedies.


                                 ARTICLE XXVIII

         Acceptance of Surrender. No surrender to Lessor of this Lease or of the
Leased Property or any part thereof, or of any interest therein,  shall be valid
or  effective  unless  agreed to and accepted in writing by Lessor and no act by
Lessor  or any  representative  or agent of  Lessor,  other  than such a written
acceptance by Lessor, shall constitute an acceptance of any such surrender.


                                  ARTICLE XXIX

         No Merger of Title.  There  shall be no merger of this  Lease or of the
leasehold  estate  created  hereby by reason of the fact that the same person or
entity may acquire,  own or hold  directly or  indirectly  (a) this Lease or the
leasehold  estate created hereby or any interest in this Lease or such leasehold
estate and (b) the fee estate in the Leased Property.


                                  ARTICLE XXX

         Conveyance by Lessor.  If Lessor or any successor owner of the



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Leased  Property  conveys the Lease Property in accordance with the terms hereof
other than as security for a debt,  and the grantee or  transferee  of the Lease
Property  expressly  assumes  all  obligations  of Lessor  hereunder  arising or
accruing from and after the date of such conveyance or transfer,  Lessor or such
successor owner, as the case may be, shall thereupon be released from all future
liabilities  and obligations of Lessor under this Lease arising or accruing from
and  after  the date of such  conveyance  or  other  transfer  as to the  Leased
Property and all such future  liabilities  and  obligations  shall  thereupon be
binding upon the new owner.


                                  ARTICLE XXXI

         Quiet  Enjoyment.  So long as Lessee pays all Rent as the same  becomes
due  and  complies  with  all of the  terms  of  this  Lease  and  performs  its
obligations hereunder, in each case within the applicable grace periods, if any,
Lessee shall  peaceably and quietly have,  hold and enjoy the Lease Property for
the Term hereof,  free of any claim or other action by Lessor or anyone claiming
by, through or under Lessor,  but subject to all liens and encumbrances  subject
to which the Leased  Property was conveyed to Lessor  hereafter  consented to by
Lessee or provided for herein.  Notwithstanding the foregoing, Lessee shall have
the right by  separate  and  independent  action to pursue any claim it may have
against  Lessor  as a result  of  breach  by  Lessor  of the  covenant  of quiet
enjoyment contained in this Section.


                                  ARTICLE XXXII

         Notices. All notices, demands,  requests,  consents approvals and other
communications  ("Notice"  or  "Notices")  hereunder  shall  be in  writing  and
personally  served or mailed (by  registered or certified  mail,  return receipt
requested  and  postage  prepaid),  addressed  to Lessor in care of  Glenborough
Realty Trust Incorporated,  at its principal office,  Attention:  President, and
addressed  to Lessee as set forth in this  Lease,  or to such  other  address or
addresses as either party may hereafter  designate.  Personally delivered Notice
shall be effective  upon receipt,  and Notice given by mail shall be complete at
the time of deposit in the U.S. Mail system, but any prescribed period of Notice
and any right or duty to do any act or make any responses  within any prescribed
period or on a date certain after the service of such Notice given by mail shall
be extended five days.


                                 ARTICLE XXXIII

         Appraisers.  If it becomes necessary to determine the Fair
Market Value or Fair Market Rent of the Leased Property for any
purpose of this Lease, the party required or permitted to give



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Notice of such required  determination shall include in the Notice the name of a
person selected to act as appraiser on its behalf.  Within 10 days after Notice,
Lessor (or Lessee,  as the case may be) shall by Notice to Lessee (or Lessor, as
the case may be)  appoint  a second  person  as  appraiser  on its  behalf.  The
appraisers  thus  appointed,  each of  whom  must be a  member  of the  American
Institute of Real Estate Appraisers (or any successor organization thereto) with
at least five years experience in the State  appraising  property similar to the
Leased Property,  shall,  within 45 days after the date of the Notice appointing
the first  appraiser,  proceed to appraise the Leased  Property to determine the
Fair Market Value or Fair Market Rent  thereof as of the  relevant  date (giving
effect to the impact,  if any, of inflation  from the date of their  decision to
relevant date); provided, however, that if only one appraiser shall have been so
appointed,  then the  determination of such appraiser shall be final and binding
upon the parties. To the extent consistent with sound appraisal practice as then
existing at the time of any such  appraisal  such  appraisal  shall be made on a
basis  consistent  with the basis on which the Leased Property was appraised for
purposes of  determining  its Fair Market Value at the time the Leased  Property
was acquired by Lessor.  If two  appraisers  are appointed and if the difference
between  the  amounts  so  determined  does not  exceed 5% of the lesser of such
amounts, then the Fair Market Value or Fair Market Rent shall be an amount equal
to 50% of the sum of the amounts so determined.  If the  difference  between the
amounts so determined  exceeds 5% of the lesser of such  amounts,  then such two
appraiser shall have 20 days to appoint a third appraiser.  If no such appraiser
shall have been appointed  within such 20 days or within 90 days of the original
request for determination of Fair Market Value or Fair Market Rent, whichever is
earlier,  either Lessor or Lessee may apply to any court having  jurisdiction to
have  such  appointment  made by such  court.  Any  appraiser  appointed  by the
original  appraisers  or by such court shall be instructed to determine the Fair
Market  Value or Fair  Market  Rent  within 45 days  after  appointment  of such
appraiser. The determination of the appraiser which differs most in the terms of
dollar  amount  from the  determinations  of the other two  appraisers  shall be
excluded,  and 50% of the sum of the remaining two determinations shall be final
and binding  upon Lessor and Lessee as the Fair Market Value or Fair Market Rent
of the Leased  Property,  as the case may be. This provision for  determining by
appraisal  shall be  specifically  enforceable  to the  extent  such  remedy  is
available under applicable law, and any  determination  hereunder shall be final
and binding upon the parties  except as otherwise  provided by  applicable  law.
Lessor  and  Lessee  shall  each  pay the  fees and  expenses  of the  appraiser
appointed  by it and each shall pay  one-half  of the fees and  expenses  of the
third  appraiser  and  one-half  of all other  costs and  expenses  incurred  in
connection with each appraisal.




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                                  ARTICLE XXXIV

         34.1 Lessor May Grant Liens. Without the consent of Lessee, Lessor may,
subject to the terms and conditions  set forth below in this Section 34.1,  from
time to time,  directly or  indirectly,  create or otherwise  cause to exist any
lien,  encumbrance or title retention agreement  ("Encumbrance") upon the Leased
Property,  or any  portion  thereof or interest  therein,  whether to secure any
borrowing or other means of financing or refinancing. Any such Encumbrance shall
(a)  contain  the  right to  prepay  (whether  or not  subject  to a  prepayment
penalty);  (b)  provide  that it is subject  to the rights of Lessee  under this
Lease,  (c) contain the Agreement by the holer of the  Encumbrance  that it will
(1) give  Lessee  the same  notice,  if any,  given to Lessor of any  default or
acceleration  of any obligation  underlying any such  Encumbrance or any sale in
foreclosure  under  Encumbrance,  (2) permit  Lessee to cure any such default on
Lessor's  behalf  within  any  applicable  cure  period,  and  Lessee  shall  be
reimbursed  by Lessor for any and all costs  incurred  in  effecting  such cure,
including  without  limitation  out-of-pocket  costs incurred to affect any such
cure (including  reasonable  attorneys' fees) and (3) permit Lessee to appear by
its  representative  and to bid at any sale in foreclosure  made with respect to
any such encumbrance.  Upon the request of Lessor, Lessee shall subordinate this
Lease to the lien of a new  mortgage on the Leased  Property,  on the  condition
that the proposed  mortgagee  executes a non-disturbance  agreement  recognizing
this Lease, and agreeing,  for itself and its successors and assigns,  to comply
with the provisions of this Article XXXIV.

         34.2 Lessee's Right to Cure. Subject to the provisions of Section 34.3,
if Lessor breaches any covenant to be performed by it under this Lease,  Lessee,
after  Notice to and  demand  upon  Lessor,  without  waiving or  releasing  any
obligation hereunder, and in addition to all other remedies available to Lessee,
may (but  shall be under no  obligation  at any time  thereafter  to) make  such
payment or perform  such act for the account  and at the expense of Lessor.  All
sums  so  paid  by  Lessee  and  all  costs  and  expenses  (including,  without
limitation,  reasonable  attorneys'  fees) so incurred,  together  with interest
thereon at the  Overdue  Rate from the date on which such sums or  expenses  are
paid or incurred by Lessee,  be paid by Lessor to Lessee on demand or, following
entry of a final,  nonappealable  judgment  against Lessor for such sums, may be
offset by Lessee against the Base Rent payments next accruing or coming due. The
rights  of  Lessee  hereunder  to cure and to  secure  payment  from  Lessor  in
accordance  with this Section 34.2 shall survive the  termination  of this Lease
with respect to the Leased Property.

         34.3  Breach by  Lessor.  It shall be a breach of this  Lease if Lessor
fails to observe or perform any term, covenant or condition of this Lease on its
part to be performed  and such failure  continues  for a period of 30 days after
Notice  thereof from Lessee,  unless such failure  cannot with due  diligence be
cured within a



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period of 30 days, in which case such failure shall not be deemed to continue if
Lessor,  within such 30 day period,  proceeds promptly and with due diligence to
cure the failure and diligently  completes the curing  thereof.  The time within
which  Lessor  shall be obligated to cure and such failure also shall be subject
to extension of time due to the occurrence of any  Unavoidable  Delay. If Lessor
fails to cure any such breach  within the grace period  described  above and the
amount of damage,  as determined by entry of a final  nonappealable  judgment as
provided in Section 34.2 above, exceeds the Base Rent payable for the balance of
the Term, and the amount of such judgment is not paid within 60 days of the date
as of  which  it  becomes  final,  Lessee,  without  waiving  or  releasing  any
obligations hereunder, and in addition to all other remedies available to Lessee
at law or in equity, may purchase the Leased Property from Lessor for a purchase
price  equal to the then Fair Market  Value.  If Lessee  elects to purchase  the
Leased  Property  it shall  deliver  a Notice  thereof  to Lessor  specifying  a
settlement  date to occur not less than 90 days  subsequent  to the date of such
Notice in which it shall  purchase  the Leased  Property,  and the same shall be
thereupon conveyed in accordance with the provisions of Article XVIII.


                                  ARTICLE XXXV

         35.1  Miscellaneous.  Anything  contained in this Lease to the contrary
notwithstanding,  all  claims  against,  and  liabilities  of,  Lessee or Lessor
arising  prior to any date of  termination  of this  Lease  shall  survive  such
termination.  If any term or provision of this Lease or any application  thereof
is  invalid  or  unenforceable,  the  remainder  of this  Lease  and  any  other
application  of such term or provisions  shall not be affected  thereby.  If any
late charges or any interest  rate  provided for in any  provision of this Lease
are based upon a rate in excess of the maximum rate permitted by applicable law,
the parties  agree that such charges  shall be fixed at the maximum  permissible
rate.  Neither  this  Lease or any  provision  hereof  may be  changed,  waived,
discharged or  terminated  except by a written  instrument  in  recordable  form
signed by Lessor and Lessee. All the terms and provisions of this Lease shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors  and  assigns.  The  headings  in this Lease are for  convenience  of
reference only and shall not limit or otherwise affect the meaning hereof.  This
Lease shall be  governed by and  construed  in  accordance  with the laws of the
State, but not including its conflict of laws rules.

         35.2 Transfer of Licenses.  Upon the expiration or earlier  termination
of the Term,  Lessee  shall use its best  efforts  (i) to  transfer to Lessor or
Lessor's  nominee  all  licenses,   operating  permits  and  other  governmental
authorizations  and all  contracts,  including  contracts with  governmental  or
quasi-governmental  entities,  that may be  necessary  for the  operation of the
Facility



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<PAGE>

(collectively,  "Licenses"),  or (ii) if such  transfer is  prohibited by law or
Lessor  otherwise  elects,  to  cooperate  with  Lessor or  Lessor's  nominee in
connection with the processing by Lessor or Lessor's nominee of any applications
for, all Licenses;  provided, in either case, that the costs and expenses of any
such transfer or the processing of any such application  shall be paid by Lessor
or Lessor's nominee.

         35.3  Waiver of  Presentment,  etc..  Lessee  waives all  presentments,
demands for payment and for performance,  notices of  nonperformance,  protests,
notices of protest,  notices of dishonor,  and notices of acceptance  and waives
all  notices of the  existence,  creation,  or  incurring  of new or  additional
obligations, except as expressly granted herein.


                                  ARTICLE XXXVI

         Lessor's  Option to Purchase  Assets of Lessee.  Effective  on not less
than 90 days  prior  Notice  given  at any  time  within  180  days  before  the
expiration of the Term, but not later than 90 days prior to such expiration,  or
upon  such  shorter  Notice  period  as shall be  appropriate  if this  Lease is
terminated  prior to its  expiration  date,  Lessor  shall  have the  option  to
purchase  all (but not less than  all) of the  assets of  Lessee,  tangible  and
intangible,  relating to the Leased  Property  (other than this  Lease),  at the
expiration or  termination  of this Lease for an amount  (payable in cash on the
expiration  date of this  Lease)  equal  to the fair  market  value  thereof  as
appraised in conformity with Article XXXIII, except that the appraisers need not
be members of the American Institute of Real Estate Appraisers, but rather shall
be appraisers  having at least ten years  experience in valuing  similar assets.
Notwithstanding  any such  purchase,  Lessor shall obtain no rights to any trade
name or logo used in connection with the Franchise unless separate  agreement as
to such use is reached with the applicable franchisor.


                                 ARTICLE XXXVII

         Lessor's  Option to Terminate  Lease. In the event Lessor enters into a
bona fide contract to sell the Leased  Property to a  non-Affiliate,  Lessor may
terminate  the Lease by giving not less than 30 days  prior  Notice to Lessee of
Lessor's  election to terminate the Lease  effective upon the closing under such
contract.  Effective upon such closing,  this Lease shall terminate and be of no
further fore and effect except as to any obligations of the parties  existing as
of such date that survive  termination of this Lease.  As  compensation  for the
early  termination  of its Leasehold  estate under this Article  XXXVII,  Lessor
shall  within 90 days of such  closing  either (a) pay to Lessee the fair market
value of Lessee's leasehold estate hereunder as of the closing of the sale




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of the Leased  Property  or (b) offer to lease to Lessee one or more  substitute
hotel facilities pursuant to one or more leases that would create for the Lessee
leasehold  estates that have an aggregate  fair market value of no less then the
fair  market  value of the  original  leasehold  estate,  both  such  values  as
determined as of the closing of the sale of the Leased Property. The fair market
value of Lessee's  leasehold  estate  shall  exclude any  unexercised  option to
extend the term, whether or not the option is then exercisable. If Lessor elects
and  complies  with the option  described  in (b) above,  regardless  of whether
Lessee entered into the lease(s) described therein, Lessor shall have no further
obligations to Lessee with respect to compensation for the early  termination of
this  Lease.  In the event  Lessor  and Lessee are unable to agree upon the fair
market  value  of an  original  or  replacement  leasehold  estate,  it shall be
determined  by  appraisal  using the  appraisal  procedure  set forth in Article
XXXIII.

         For this purpose of this  Section,  fair market value of the  leasehold
estate means,  as applicable,  an amount equal to the price that a willing buyer
not  compelled  to buy would  pay a willing  seller  not  compelled  to sell for
Lessee's leasehold estate under this Lease or an offered  replacement  leasehold
estate.


                                 ARTICLE XXXVIII

         Compliance  with  Franchise  Agreement.   To  the  extent  any  of  the
provisions of the Franchise Agreement impose a greater obligation on Lessee than
the  corresponding  provisions  of the Lease,  then Lessee shall be obligated to
comply with the  provisions of the Franchise  Agreement,  it being the intent of
the parties  hereto that Lessee comply in every  respect with the  provisions of
the Franchise Agreement so as to avoid any default thereunder.


                                  ARTICLE XXXIX

         Furniture Fixture and Equipment Allowance. Lessor shall be obligated to
pay Lessee for each quarter in any Fiscal Year during the Term,  an amount equal
to the quarterly FF&E Allowance set forth on Exhibit B hereto. For the first and
last quarter of the term, the FF&E Allowance shall be prorated as to any partial
quarter.  The FF&E Allowance  shall be adjusted  annually as of the first day of
each Fiscal Year, commencing January 1, 1997, for any increase,  but not because
of any decrease,  in the CPI,  from the  beginning of the previous  Fiscal Year.
Upon written request by Lessee to Lessor stating the specific use to be made and
the reasonable approval thereof by Lessor, such funds shall be made available by
Lessor for use by Lessee for replacement or refurbishing of furniture,  fixtures
and equipment that  constitute  Leased  Property in connection  with the Primary
Intended  Use;  provided,  however,  that no amounts made  available  under this
Article shall be used to



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purchase  property  (other than "real  property"  within the meaning of Treasury
Regulations  Section  1.856-3(d)),  to the extent  that doing so would cause the
Lessor to recognize  income other than "rents from real  property" as defined in
Section 856(d) of the Code.  Lessor's  obligation  shall be cumulative,  but not
compounded,  and any amounts  that have  accrued  hereunder  shall be payable in
future  periods for such uses and in  accordance  with the  procedure  set forth
herein.  Lessee  shall have no  interest  in any  accrued  obligation  of Lessor
hereunder after the termination of this Lease.

                                   ARTICLE XL

         Subordination.  This Lease and the rights and  interests of the parties
hereunder  shall  be and  become  subject  and  subordinate  to the  lien of any
mortgage,  deed of trust  or  other  encumbrance  (together  with  any  interest
thereon,  advances made thereunder and any conditions,  renewals,  extensions or
replacements  thereof), now or hereafter placed, charged or enforced against the
Leased  Property  are a part,  or any  portion or  portions  thereof.  It is the
intention of the parties that this  provision  shall be self-  executing  and no
further instrument shall be required to effect such subordination. Lessee agrees
to execute any and all  documents and other  agreements  requested by any lender
which may be requested to evidence the foregoing.

         IN WITNESS WHEREOF,  the parties have executed this Lease by their duly
authorized officers as of the date first above written.

                             "LESSOR"

                             GLENBOROUGH PROPERTIES, L.P., a
                             California limited partnership.
                             By:  Glenborough Realty Trust Incorporated
                             Its:  General Partner



                             By: ____________________________
                             Title:  ________________________

                             "LESSEE"

                             GLENBOROUGH HOTEL GROUP



                             By: ____________________________
                             Title: _________________________





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<PAGE>

                                    EXHIBIT A


                   The Land, as Defined in Section 1.1 of the
                    Attached Lease Agreement is described as
                                    follows:




         That certain real property  commonly known as Country Suites by Carlson
(formerly Shoney's Inn), 8600 Jones Matlsberger Road, San Antonio,  Texas 78232,
which is more particularly described as follows:


         Lot 21, Block 1, New City Block 8673,  Crownhill Acres Subdivision,  an
         addition to the City of San Antonio,  Bexar County,  Texas according to
         the map or plat thereof,  recorded in, Volume 9527,  Page 180, Deed and
         Plat Records of Bexar County, Texas.









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<PAGE>

                                    EXHIBIT B


         The rent  payment  for the  Leased  Property  equals the sum of (i) the
         greater of the Base Rent or the Percentage Rent from Room Revenues plus
         (ii) the Percentage Rent from Other Revenues.

         Calculation of Base Rent and Percentage Rent from Room
         Revenues:

                  The annual  Base Rent will be  $312,000  vs.  Percentage  Rent
                  equal to 33% of the first $1,200,000 in Room Revenues plus 40%
                  of the Room Revenues over $1,200,000.

         The  quarterly  FF&E  Allowance is $10,500,  effective  August 1. 1997.
         Pursuant to Article  XXXIX,  this amount will be adjusted for increases
         in the  CPI for the  calendar  year  1996,  so that  when it goes  into
         effect, this amount will have been adjusted for any increase in the CPI
         during the entire calendar year 1996.

         THE THRESHOLD FOR THE CALCULATION OF PERCENTAGE RENT FROM ROOM REVENUES
         HAS BEEN  ADJUSTED FOR INCREASES IN THE CPI FOR THE CALENDAR YEAR 1995.
         THE FIRST  ADJUSTMENT WILL BE MADE RETROACTIVE TO JANUARY 1, 1997, WHEN
         THE CPI IS AVAILABLE THROUGH DECEMBER, 1996. AS OF JANUARY 1, 1997, THE
         THRESHOLD  WILL BE  ADJUSTED  FOR ANY  INCREASE  IN THE CPI  DURING THE
         ENTIRE  CALENDAR YEAR 1996, AND NOT JUST FROM THE  COMMENCEMENT  OF THE
         LEASE.



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