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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                    FORM 10-Q


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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004

                         COMMISSION FILE NUMBER: 1-13762



                         RECKSON ASSOCIATES REALTY CORP.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


MARYLAND                                                              11-3233650
--------                                                              ----------
(STATE OR OTHER JURISDICTION OF                                    (IRS EMPLOYER
INCORPORATION OR ORGANIZATION)                            IDENTIFICATION NUMBER)

225 BROADHOLLOW ROAD, MELVILLE, NY                                         11747
----------------------------------                                         -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)                               (ZIP CODE)

                                 (631) 694-6900
               (REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
               ---------------------------------------------------

       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) YES [X] NO[ ],  AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO[ ].

   INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
                  DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT).

                                  YES [X] NO[ ].

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

THE  COMPANY  HAS ONE CLASS OF COMMON  STOCK,  PAR VALUE  $.01 PER  SHARE,  WITH
69,941,988 SHARES OUTSTANDING AS OF AUGUST 6, 2004

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<PAGE>


                         RECKSON ASSOCIATES REALTY CORP.
                                QUARTERLY REPORT
                    FOR THE THREE MONTHS ENDED JUNE 30, 2004

                                TABLE OF CONTENTS

  INDEX                                                                     PAGE
--------------------------------------------------------------------------------
  PART I.      FINANCIAL INFORMATION
--------------------------------------------------------------------------------

  Item 1.      Financial Statements

               Consolidated  Balance  Sheets  as of June 30,  2004
               (unaudited) and December 31, 2003 .................             2

               Consolidated  Statements  of  Income  for the three
               and  six  months  ended  June  30,  2004  and  2003
               (unaudited) .......................................             3

               Consolidated  Statements  of Cash Flows for the six
               months ended June 30, 2004 and 2003 (unaudited) ...             4

               Notes  to  the  Consolidated  Financial  Statements
               (unaudited) .......................................             5


  Item 2.      Management's  Discussion  and Analysis of Financial
               Condition and Results of Operations ...............            21

  Item 3.      Quantitative  and  Qualitative   Disclosures  about
               Market Risk .......................................            38

  Item 4.      Controls and Procedures ...........................            39

--------------------------------------------------------------------------------
  PART II.     OTHER INFORMATION
--------------------------------------------------------------------------------

  Item 1.      Legal Proceedings .................................            44

  Item 2.      Changes in  Securities,  Use of Proceeds and Issuer
               Purchases of Equity Securities ....................            44

  Item 3.      Defaults Upon Senior Securities....................            44

  Item 4.      Submission  of  Matters  to a  Vote  of  Securities
               Holders............................................            44

  Item 5.      Other Information..................................            45

  Item 6.      Exhibits and Reports on Form 8/K...................            45

--------------------------------------------------------------------------------
  SIGNATURES
--------------------------------------------------------------------------------

<PAGE>


PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS

                         RECKSON ASSOCIATES REALTY CORP.
                           CONSOLIDATED BALANCE SHEETS
                (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)

                                                         JUNE 30,   DECEMBER 31,
                                                           2004         2003
                                                        ----------  ------------
                                                        (UNAUDITED)
ASSETS:

Commercial real estate properties, at cost:
    Land .............................................  $  384,137   $  378,479
    Building and improvements ........................   2,608,867    2,211,566
Developments in progress:
    Land .............................................      95,600       90,706
    Development costs ................................      28,900       68,127
Furniture, fixtures and equipment ....................      11,625       11,338
                                                        ----------   ----------
                                                         3,129,129    2,760,216
Less accumulated depreciation ........................    (515,961)    (464,382)
                                                        ----------   ----------
Investment in real estate, net of accumulated
  deprecation ........................................   2,613,168    2,295,834

Properties and related assets held for sale, net
  of accumulated depreciation ........................       5,069       52,517
Investments in real estate joint ventures ............       6,462        5,904
Investments in mortgage notes and notes receivable ...      68,433       54,986
Investments in service companies and affiliate
  loans and joint ventures ...........................      70,563       71,614
Cash and cash equivalents ............................      82,670       22,330
Tenant receivables ...................................      11,661       11,929
Deferred rents receivable ............................     122,672      111,962
Prepaid expenses and other assets ....................      82,523       35,371
Contract and land deposits and pre-acquisition costs .          60       20,203
Deferred leasing and loan costs ......................      69,573       64,345
                                                        ----------   ----------

TOTAL ASSETS .........................................  $3,132,854   $2,746,995
                                                        ==========   ==========


LIABILITIES:
Mortgage notes payable ...............................  $  965,561   $  721,635
Unsecured credit facility ............................      90,000      169,000
Senior unsecured notes ...............................     549,132      499,445
Liabilities associated with properties held for sale .         311          881
Accrued expenses and other liabilities ...............     120,498       93,885
Dividends and distributions payable ..................      32,994       28,290
                                                        ----------   ----------
TOTAL LIABILITIES ....................................   1,758,496    1,513,136
                                                        ----------   ----------

Minority partners' interests in consolidated
  partnerships .......................................     223,405      233,070
Preferred unit interest in the operating partnership .      16,581       19,662
Limited partners' minority interest in the operating
  partnership ........................................      46,659       44,518
                                                        ----------   ----------

TOTAL MINORITY INTERESTS .............................     286,645      297,250
                                                        ----------   ----------

Commitments and contingencies ........................        --           --

STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 25,000,000 shares
    authorized
  Series A preferred stock, 8,693,900 and 8,834,500
    shares issued and outstanding, respectively ......        87             88
  Series B preferred stock, 0 and 2,000,000 shares
    issued and outstanding, respectively .............        --             20
Common Stock, $.01 par value, 100,000,000 shares
  authorized 67,256,850 and 58,275,367 shares issued
  and outstanding, respectively ......................         673          583
Retained earnings ....................................       7,412       35,757
Additional paid in capital ...........................   1,142,832      968,653
Accumulated other comprehensive income ...............       5,201         --
Treasury stock, 3,318,600 shares .....................     (68,492)     (68,492)
                                                        ----------   ----------
TOTAL STOCKHOLDERS' EQUITY ...........................   1,087,713      936,609
                                                        ----------   ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...........  $3,132,854   $2,746,995
                                                        ==========   ==========

                (see accompanying notes to financial statements)

                                       2
<PAGE>


                         RECKSON ASSOCIATES REALTY CORP.
                        CONSOLIDATED STATEMENTS OF INCOME
        (UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                          THREE MONTHS ENDED             SIX MONTHS ENDED
                                                                               JUNE 30,                       JUNE 30,
                                                                      ---------------------------   ---------------------------
                                                                          2004           2003           2004           2003
                                                                      ------------   ------------   ------------   ------------
<S>                                                                   <C>            <C>            <C>            <C>
REVENUES:
Property operating revenues:
   Base rents ......................................................  $    109,765   $     94,141   $    220,800   $    188,885
   Tenant escalations and reimbursements ...........................        17,478         13,907         35,593         27,943
                                                                      ------------   ------------   ------------   ------------
Total property operating revenues ..................................       127,243        108,048        256,393        216,828
Interest income on mortgage notes and notes receivable
   (including $539, $1,045, $1,128 and $2,078,
   respectively from related parties) ..............................         1,876          1,539          3,492          3,010
Investment and other income ........................................         1,447          3,349          5,494          9,137
                                                                      ------------   ------------   ------------   ------------
   TOTAL REVENUES ..................................................       130,566        112,936        265,379        228,975
                                                                      ------------   ------------   ------------   ------------
EXPENSES:
Property operating expenses ........................................        50,626         42,438        102,091         85,818
Marketing, general and administrative ..............................         7,374          8,795         14,441         16,364
Interest ...........................................................        24,607         20,145         50,268         40,242
Depreciation and amortization ......................................        29,617         26,983         58,738         55,763
                                                                      ------------   ------------   ------------   ------------
     TOTAL EXPENSES ................................................       112,224         98,361        225,538        198,187
                                                                      ------------   ------------   ------------   ------------
Income before minority interests, preferred dividends and
   distributions, equity  (loss) in earnings of real estate
   joint ventures and discontinued operations ......................        18,342         14,575         39,841         30,788
Minority partners' interests in consolidated partnerships ..........        (4,422)        (4,062)       (10,603)        (8,463)
Distributions to preferred unit holders ............................          (227)          (274)          (500)          (547)
Limited partners' minority interest in the operating partnership ...          (506)          (482)        (1,100)        (1,135)
Equity (loss) in earnings of real estate joint ventures ............           294           (270)           408           (164)
                                                                      ------------   ------------   ------------   ------------
Income before discontinued operations and preferred dividends ......        13,481          9,487         28,046         20,479
Discontinued operations (net of limited partners' and minority
   interests):
   Gain on sales of real estate ....................................         3,639           --            8,841           --
   Income from discontinued operations .............................            95          3,415            552          6,403
                                                                      ------------   ------------   ------------   ------------
Net Income .........................................................        17,215         12,902         37,439         26,882
Dividends to preferred shareholders ................................        (4,172)        (5,317)        (8,432)       (10,634)
                                                                      ------------   ------------   ------------   ------------
Net income allocable to common shareholders ........................  $     13,043   $      7,585   $     29,007   $     16,248
                                                                      ============   ============   ============   ============
Net income allocable to:
   Common shareholders .............................................  $     13,043   $      5,769   $     29,007   $     12,364
   Class B common shareholders .....................................          --            1,816           --            3,884
                                                                      ------------   ------------   ------------   ------------
Total ..............................................................  $     13,043   $      7,585   $     29,007   $     16,248
                                                                      ============   ============   ============   ============
Basic net income per weighted average common share:
   Income from continuing operations ...............................  $        .13   $        .07   $        .30   $        .16
   Discontinued operations .........................................           .06            .05            .15            .10
                                                                      ------------   ------------   ------------   ------------
   Basic net income per common share ...............................  $        .19   $        .12   $        .45   $        .26
                                                                      ============   ============   ============   ============

   Class B common - income from continuing operations ..............  $       --     $        .10   $       --     $        .24
   Discontinued operations .........................................          --              .08           --              .15
                                                                      ------------   ------------   ------------   ------------
   Basic net income per Class B common share .......................  $       --     $        .18   $       --     $        .39
                                                                      ============   ============   ============   ============

Basic weighted average common shares outstanding:
   Common stock ....................................................    66,892,096     48,000,995     64,127,596     48,100,418
   Class B common stock ............................................          --        9,915,313           --        9,915,313

Diluted net income per weighted average common share:
   Common share ....................................................  $        .19   $        .12   $        .45   $        .26
                                                                      ============   ============   ============   ============
   Class B common share ............................................  $       --     $        .13   $       --     $        .28
                                                                      ============   ============   ============   ============

Diluted weighted average common shares outstanding:
   Common stock ....................................................    67,326,754     48,118,172     64,522,390     48,218,598
   Class B common stock ............................................          --        9,915,313           --        9,915,313
</TABLE>

                (see accompanying notes to financial statements)

                                       3
<PAGE>


                         RECKSON ASSOCIATES REALTY CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                          (UNAUDITED AND IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                             SIX MONTHS ENDED
                                                                                                  JUNE 30,
                                                                                        ---------------------------
                                                                                            2004           2003
                                                                                        ------------   ------------
<S>                                                                                     <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME ...........................................................................  $     37,439   $     26,882
Adjustments to reconcile net income to net cash provided by operating activities:
      Gain on sales of real estate ...................................................       (11,330)            --
      Depreciation and amortization (including discontinued operations) ..............        59,069         61,887
      Minority partners' interests in consolidated partnerships ......................        13,136          9,025
      Limited partners' minority interest in the operating partnership ...............         1,637          1,870
      (Equity) loss in earnings of real estate joint ventures ........................          (408)           164
Changes in operating assets and liabilities:
      Tenant receivables .............................................................           278          6,326
      Prepaid expenses and other assets ..............................................        (8,674)        (6,710)
      Deferred rents receivable ......................................................        (8,983)        (9,207)
      Accrued expenses and other liabilities .........................................        (5,452)        (9,057)
                                                                                        ------------   ------------
      Net cash provided by operating activities ......................................        76,712         81,180
                                                                                        ------------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Additions to developments in progress ..........................................       (12,977)        (9,732)
      Purchase of commercial real estate .............................................       (72,691)        (6,505)
      Additions to commercial real estate properties .................................       (17,802)       (25,149)
      Additions to furniture, fixtures and equipment .................................          (288)            (94)
      Payment of leasing costs .......................................................        (8,677)        (8,765)
      Distributions (contributions) from investments in real estate joint ventures ...          (150)           243
      Additions to mortgage notes and notes receivable ...............................       (15,619)            --
      Repayments of mortgage notes and notes receivable ..............................         2,691             --
      Proceeds from sales of real estate .............................................        57,056             --
                                                                                        ------------   ------------
      Net cash used in investing activities ..........................................       (68,457)       (50,002)
                                                                                        ------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Proceeds from issuance of common stock net of issuance costs ...................       149,490           --
      Proceeds from options exercised ................................................        27,205           --
      Repurchases of common stock ....................................................          --           (4,538)
      Principal payments on secured borrowings .......................................        (6,074)        (5,878)
      Payment of loan and equity issuance costs ......................................        (2,635)           (29)
      Proceeds from issuance of senior unsecured notes ...............................       150,000           --
      Repayment of senior unsecured notes ............................................      (100,000)          --
      Proceeds from unsecured credit facility ........................................        90,000         55,000
      Repayment of unsecured credit facility .........................................      (169,000)          --
      Distributions to minority partners in consolidated partnerships ................       (22,800)       (11,507)
      Distributions to limited partners in the operating partnership .................        (2,278)        (6,177)
      Distributions to preferred unit holders ........................................          (538)          (547)
      Dividends to common shareholders ...............................................       (52,635)       (53,699)
      Dividends to preferred shareholders ............................................        (9,208)       (10,634)
                                                                                        ------------   ------------
      Net cash provided by (used in) financing activities ............................        51,527        (38,009)
                                                                                        ------------   ------------

      Net increase (decrease) in cash and cash equivalents ...........................        59,782         (6,831)
      Cash and cash equivalents at beginning of period ...............................        22,888         30,827
                                                                                        ------------   ------------
      Cash and cash equivalents at end of period .....................................  $     82,670   $     23,996
                                                                                        ============   ============
</TABLE>

                (see accompanying notes to financial statements)

                                       4
<PAGE>


                         RECKSON ASSOCIATES REALTY CORP.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2004
                                   (UNAUDITED)

1.   ORGANIZATION AND FORMATION OF THE COMPANY

Reckson Associates Realty Corp. (the "Company") is a self-administered  and self
managed  real  estate  investment  trust  ("REIT")  engaged  in  the  ownership,
management,  operation,  leasing  and  development  of  commercial  real  estate
properties,  principally office and to a lesser extent industrial  buildings and
also owns land for future development  (collectively,  the "Properties") located
in the New York City tri-state area (the "Tri-State Area").

The Company was  incorporated  in Maryland in September  1994. In June 1995, the
Company   completed  an  initial  public  offering  (the  "IPO")  and  commenced
operations.

The Company became the sole general  partner of Reckson  Operating  Partnership,
L.P. (the "Operating Partnership") by contributing  substantially all of the net
proceeds of the IPO in exchange for an approximate 73% interest in the Operating
Partnership.  At June  30,  2004,  the  Company's  ownership  percentage  in the
Operating  Partnership was approximately  94.8%. All Properties  acquired by the
Company are held by or through the Operating  Partnership.  In conjunction  with
the  IPO,  the  Operating  Partnership  executed  various  option  and  purchase
agreements whereby it issued common units of limited partnership interest in the
Operating  Partnership ("OP Units") to certain continuing  investors in exchange
for (i)  interests  in  certain  property  partnerships,  (ii)  fee  simple  and
leasehold  interests in properties  and  development  land,  (iii) certain other
business  assets  and (iv) 100% of the  non-voting  preferred  stock of  Reckson
Management Group, Inc. and Reckson Construction Group, Inc.

2.   BASIS OF PRESENTATION

The  accompanying  consolidated  financial  statements  include the consolidated
financial  position of the Company,  the Operating  Partnership  and the Service
Companies  (as  defined  below) at June 30, 2004 and  December  31, 2003 and the
results of their operations for the three and six months ended June 30, 2004 and
2003, respectively, and, their cash flows for the six months ended June 30, 2004
and 2003,  respectively.  The Operating  Partnership's  investments  in majority
owned  and   controlled   real  estate  joint  ventures  are  reflected  in  the
accompanying  financial  statements on a consolidated basis with a reduction for
the minority partners' interest.  The Operating Partnership also invests in real
estate joint  ventures where it may own less than a controlling  interest.  Such
investments are reflected in the  accompanying  financial  statements  under the
equity method of accounting.  The Service  Companies  which provide  management,
development  and  construction   services  to  the  Company  and  the  Operating
Partnership are Reckson  Management Group,  Inc., RANY Management  Group,  Inc.,
Reckson  Construction Group New York, Inc., Reckson Construction Group, Inc. and
Reckson   Construction  &  Development  LLC  (the  "Service   Companies").   All
significant  intercompany  balances and transactions have been eliminated in the
consolidated financial statements.

Reckson  Construction Group, Inc., Reckson Construction Group New York, Inc. and
Reckson Construction & Development LLC use the  percentage-of-completion  method
for recording  amounts earned on their  contracts.  This method records  amounts
earned as revenue in the  proportion  that actual costs incurred to date bear to
the estimate of total costs at contract completion.

Minority  partners'  interests  in  consolidated  partnerships  represent  a 49%
non-affiliated  interest in RT Tri-State LLC, owner of a seven property suburban
office portfolio, a 40% non-affiliated interest in Omni Partners, L.P., owner of
a 579,000 square foot suburban office property and a 49% non-affiliated interest
in  Metropolitan  919 Third Avenue,  LLC,  owner of the property  located at 919
Third Avenue, New York, NY. Limited partners' minority interest in the Operating
Partnership  was  approximately  5.2%  and  10.5% at June  30,  2004  and  2003,
respectively.

The Company  follows the guidance  provided for under the  Financing  Accounting
Standards Board ("FASB") Statement No. 66, "Accounting for Sales of Real Estate"
("Statement  No.  66"),  which  provides  guidance on sales  contracts  that are
accompanied  by  agreements  which require the seller to develop the property in
the future.  Under  Statement No. 66 profit is  recognized  and allocated to the
sale of the land and the later  development or construction work on the basis of
estimated costs of each activity;  the same rate of profit is attributed to each
activity. As a result, profits are recognized and reflected over the improvement
period on the basis of costs incurred  (including land) as a percentage of total
costs  estimated to be incurred.  The Company uses the  percentage of completion
method, as the future costs of development and profit are reliably estimated.

                                       5
<PAGE>


The accompanying  interim unaudited  financial  statements have been prepared by
the Company's management pursuant to the rules and regulations of the Securities
and Exchange  Commission.  Certain  information and footnote disclosure normally
included in the  financial  statements  prepared in accordance  with  accounting
principles  generally  accepted  in the  United  States  ("GAAP")  may have been
condensed or omitted pursuant to such rules and regulations, although management
believes that the disclosures are adequate to not make the information presented
misleading.  The unaudited financial  statements as of June 30, 2004 and for the
three and six month periods ended June 30, 2004 and 2003 include, in the opinion
of management,  all  adjustments,  consisting of normal  recurring  adjustments,
necessary to present  fairly the financial  information  set forth  herein.  The
results of operations for the interim periods are not necessarily  indicative of
the results  that may be expected for the year ending  December 31, 2004.  These
financial  statements  should be read in conjunction with the Company's  audited
financial  statements and the notes thereto  included in the Company's Form 10-K
for the year ended December 31, 2003.

The Company  intends to continue to qualify as a REIT under Sections 856 through
860 of the Internal  Revenue Code of 1986, as amended (the  "Code").  As a REIT,
the Company will not generally be subject to corporate  Federal  income taxes as
long as it satisfies  certain  technical  requirements  of the Code  relating to
composition of its income and assets and requirements  relating to distributions
of taxable income to shareholders.

The Company  considers highly liquid  investments with maturity of six months or
less when  purchased  to be cash  equivalents.  Cash  balances  at June 30, 2004
include  approximately  $46.5  million of the  remaining  net proceeds  received
during the six month  period  ended June 30, 2004  relating  to property  sales,
issuance of the Company's  equity (see Note 7) and the  Operating  Partnership's
January 2004 issuance of senior unsecured notes (see Note 4).

Certain prior period  amounts have been  reclassified  to conform to the current
period presentation.

In  October  2001,  the FASB  issued  Statement  No.  144,  "Accounting  for the
Impairment  or  Disposal  of  Long-Lived  Assets".  Statement  No. 144  provides
accounting guidance for financial accounting and reporting for the impairment or
disposal of long-lived assets.  Statement No. 144 supersedes  Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of". It also  supersedes the accounting and reporting  provisions of
Accounting   Principles   Board  Opinion  No.  30,   Reporting  the  Results  of
Operations--Reporting  the Effects of  Disposal of a Segment of a Business,  and
Extraordinary,  Unusual  and  Infrequently  Occurring  Events  and  Transactions
related  to the  disposal  of a  segment  of a  business.  The  Company  adopted
Statement  No. 144 on January 1, 2002.  The adoption of this  statement  did not
have a material effect on the results of operations or the financial position of
the Company.  The  adoption of Statement  No. 144 does not have an impact on net
income  allocable  to common  shareholders.  Statement  No. 144 only impacts the
presentation of the results of operations and gain on sales of depreciable  real
estate  assets  for those  properties  sold or held for sale  during  the period
within the consolidated statements of income.

On July 1, 2001 and January 1, 2002, the Company adopted FASB Statement  No.141,
"Business  Combinations"  and  FASB  Statement  No.  142,  "Goodwill  and  Other
Intangibles",  respectively.  As part of the  acquisition of real estate assets,
the fair value of the real estate acquired is allocated to the acquired tangible
assets,  consisting of land, building and building improvements,  and identified
intangible  assets and liabilities,  consisting of the value of above-market and
below-market  leases,  other  value of  in-place  leases,  and  value of  tenant
relationships,  based in each case on their fair  values.  The Company  assesses
fair value based on estimated  cash flow  projections  that utilize  appropriate
discount and capitalization rates and available market information. Estimates of
future  cash flows are based on a number of  factors  including  the  historical
operating results, known trends, and market/economic  conditions that may affect
the property.  If the Company incorrectly estimates the values at acquisition or
the  undiscounted  cash flows,  initial  allocation of purchase price and future
impairment charges may be different.

Effective  January 1, 2002 the Company has elected to follow FASB  Statement No.
123,  "Accounting for Stock Based  Compensation".  Statement No.123 requires the
use of option  valuation  models which determine the fair value of the option on
the date of the grant.  All future employee stock option grants will be expensed
over the  options'  vesting  periods  based on the fair value at the date of the
grant in accordance  with  Statement No. 123. To determine the fair value of the
stock options  granted,  the Company uses a Black-Scholes  option pricing model.
Prior to the adoption of Statement  No. 123, the Company had applied  Accounting
Principles  Board Opinion No. 25 and related  interpretations  in accounting for
its stock  option  plans and  reported  pro forma  disclosures  in its Form 10-K
filings by estimating the fair value of options  issued and the related  expense
in accordance with Statement No. 123.

In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation--Transition  and Disclosure"  ("Statement No. 148").  Statement No.
148 amends Statement No. 123 to provide alternative methods of transition for an
entity that voluntarily  adopts the fair value  recognition  method of recording
stock option expense. Statement No. 148 also amends the disclosure provisions of
Statement 123 and APB Opinion No. 28. "Interim  Financial  Reporting" to require
disclosure in the summary of significant  accounting  policies of the effects of
an entity's  accounting  policy with  respect to stock  options on reported  net
income and earnings per share in annual and interim financial statements.

                                       6
<PAGE>


The  following  table sets forth the  Company's  pro forma  information  for its
common  stockholders for the three and six month periods ended June 30, 2004 and
2003 (in thousands except earnings per share data):

<TABLE>
<CAPTION>
                                                      -----------------------------------------------------
                                                          THREE MONTHS ENDED           SIX MONTHS ENDED
                                                               JUNE 30,                    JUNE 30,
                                                      -------------------------   -------------------------
                                                          2004          2003          2004          2003
                                                      -----------   -----------   -----------   -----------
<S>                                                   <C>           <C>           <C>           <C>
Net income as reported .............................  $    13,043   $     5,769   $    29,007   $    12,364
Add: Stock option expense included in net income ...            1             1             3             3
Less: Stock option expense determined under
   fair value recognition method for all awards ....         (104)          (54)         (196)         (144)
                                                      -----------   -----------   -----------   -----------
Pro forma net income ...............................  $    12,940   $     5,716   $    28,814   $    12,223
                                                      ===========   ===========   ===========   ===========

Net income per share as reported:
   Basic ...........................................  $       .19   $       .12   $       .45   $       .26
                                                      ===========   ===========   ===========   ===========
   Diluted .........................................  $       .19   $       .12   $       .45   $       .26
                                                      ===========   ===========   ===========   ===========

Pro forma net income per share:
   Basic ...........................................  $       .19   $       .12   $       .45   $       .25
                                                      ===========   ===========   ===========   ===========
   Diluted .........................................  $       .19   $       .12   $       .45   $       .25
                                                      ===========   ===========   ===========   ===========
</TABLE>

The fair value for those  options  was  estimated  at the date of grant  using a
Black-Scholes   option   pricing  model  with  the  following   weighted-average
assumptions:

<TABLE>
<CAPTION>
                                                      -----------------------------------------------------
                                                          THREE MONTHS ENDED              SIX MONTHS
                                                               JUNE 30,                 ENDED JUNE 30
                                                      -------------------------   -------------------------
                                                          2004          2003          2004          2003
                                                      -----------   -----------   -----------   -----------
<S>                                                          <C>           <C>        <C>           <C>
Risk free interest rate ............................         3.00%         3.00%      3.00%         3.00%
Dividend yield .....................................         7.07%         7.39%      7.07%         7.39%
Volatility factor of the expected market price
   of the Company's common stock ...................         .200          .196       .200          .196
Weighted average expected option life (in years) ...          4.0           5.3        4.0           5.3
</TABLE>


For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options' vesting period.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure  Requirements for Guarantees,  Including  Indirect  Guarantees of
Indebtedness  of Others" ("FIN 45").  FIN 45  significantly  changes the current
practice in the accounting  for, and disclosure of,  guarantees.  Guarantees and
indemnification  agreements meeting the characteristics  described in FIN 45 are
required to be  initially  recorded as a  liability  at fair value.  FIN 45 also
requires a guarantor to make  significant  new  disclosures  for  virtually  all
guarantees even if the likelihood of the guarantor  having to make payment under
the guarantee is remote. The disclosure requirements within FIN 45 are effective
for financial statements for annual or interim periods ending after December 15,
2002. The initial recognition and initial measurement  provisions are applicable
on a prospective basis to guarantees issued or modified after December 31, 2002.
The  Company   adopted  FIN  45  on  January  1,  2003.  The  adoption  of  this
interpretation  did not have a material  effect on the results of  operations or
the financial position of the Company.

In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable Interest  Entities" ("FIN 46"), which explains how to identify variable
interest  entities  ("VIEs")  and how to  assess  whether  to  consolidate  such
entities.  The initial  determination  of whether an entity  qualifies  as a VIE
shall be made as of the date at which a  primary  beneficiary  becomes  involved
with the  entity  and  reconsidered  as of the date of a  triggering  event,  as
defined.  The provisions of this  interpretation  are immediately  effective for
VIEs formed after  January 31, 2003.  In December  2003 the FASB issued FIN 46R,
deferring  the  effective  date  until the  period  ending  March  31,  2004 for
interests  held by public  companies  in VIEs created  before  February 1, 2003,
which were non-special purpose entities.  The Company adopted FIN 46R during the
period ended March 31, 2004.  The Company has determined  that its  consolidated
and  unconsolidated  subsidiaries do not represent VIEs requiring  consolidation
pursuant  to such  interpretation.  The  Company  will  continue  to monitor any
changes  in   circumstances   relating  to  certain  of  its   consolidated  and
unconsolidated  joint  ventures  which could result in a change in the Company's
consolidation policy.

In May  2003,  the FASB  issued  Statement  No.  150,  "Accounting  for  Certain
Financial  Instruments  with  Characteristics  of both  Liabilities  and Equity"
("Statement No. 150").  Statement No. 150 is effective for financial instruments
entered into or modified  after May 15, 2003,  and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. It is to be
implemented  by reporting  the  cumulative  effect of a change in an  accounting
principle  for  financial  instruments  created  before the issuance date of the
statement and still existing at the beginning of the interim period of adoption.
The  adoption  of  Statement  No.  150 did not  have a  material  effect  on the
Company's financial position or results of operations.

                                       7
<PAGE>


3.   MORTGAGE NOTES PAYABLE

As of June 30, 2004,  the Company had  approximately  $965.6 million of mortgage
notes  payable,  which mature at various times between 2004 and 2027.  The notes
are secured by 20 properties with an aggregate  carrying value of  approximately
$1.84  billion  which are  pledged as  collateral  against  the  mortgage  notes
payable.  In  addition,  approximately  $43.5  million of the $965.6  million is
recourse to the Company and certain of the mortgage notes payable are guaranteed
by certain limited partners in the Operating Partnership and / or the Company.

The following  table sets forth the Company's  mortgage notes payable as of June
30, 2004, by scheduled maturity date (dollars in thousands):

<TABLE>
<CAPTION>
                                               Principal     Interest         Maturity       Amortization
Property                                      Outstanding      Rate             Date         Term (Years)
-------------------------------------------  -------------  ----------  -----------------  ---------------
<C>                                           <C>              <C>       <C>                <C>
1185 Avenue of the Americas, NY, NY           $   250,000      4.95%        August, 2004    Interest only
395 North Service Road, Melville, NY               19,097      6.45%       October, 2005    $34 per month
200 Summit Lake Drive, Valhalla, NY                18,704      9.25%       January, 2006          25
1350 Avenue of the Americas, NY, NY                73,431      6.52%          June, 2006          30
Landmark Square, Stamford, CT (a)                  43,465      8.02%       October, 2006          25
100 Summit Lake Drive, Valhalla, NY                16,981      8.50%         April, 2007          15
333 Earle Ovington Blvd, Mitchel Field,
NY(b)                                              52,343      7.72%        August, 2007          25
810 Seventh Avenue, NY, NY (e)                     80,498      7.73%        August, 2009          25
100 Wall Street, NY, NY (e)                        34,883      7.73%        August, 2009          25
6900 Jericho Turnpike, Syosset, NY                  7,165      8.07%          July, 2010          25
6800 Jericho Turnpike, Syosset, NY                 13,576      8.07%          July, 2010          25
580 White Plains Road, Tarrytown, NY               12,365      7.86%     September, 2010          25
919 Third Ave, NY, NY (c)                         242,904      6.87%        August, 2011          30
One Orlando Center, Orlando, FL (d)                37,439      6.82%      November, 2027          28
120 West 45th Street, NY, NY (d)                   62,710      6.82%      November, 2027          28
                                             -------------

Total/Weighted Average                        $   965,561      6.65%
                                             =============
</TABLE>

------------------------
     (a)  Encompasses six Class A office properties.

     (b)  The Company has a 60% general  partnership  interest in this  property
          and its  proportionate  share of the  aggregate  principal  amount  is
          approximately $31.4 million.

     (c)  The Company has a 51%  membership  interest in this  property  and its
          proportionate share of the aggregate principal amount is approximately
          $123.9 million.

     (d)  Subject to interest rate adjustment on November 1, 2004 to the greater
          of  8.82%  per  annum  or the  yield  on  non-callable  U.S.  treasury
          obligations  with a term  of  fifteen  years  plus 2% per  annum.  The
          Company has the ability to pre-pay the loan at that time. In addition,
          these properties are cross-collateralized.

     (e)  These properties are cross-collateralized.

     (f)  Such rate is based on the  greater of one month  LIBOR or 2.15% plus a
          weighted average spread of approximately 2.80%. An interest rate hedge
          agreement  was acquired to limit  exposure to increases in LIBOR above
          5.825%.


In addition,  the Company has a 60% interest in an unconsolidated  joint venture
property.  The  Company's  share  of the  mortgage  debt  at  June  30,  2004 is
approximately  $7.6 million.  This mortgage note payable bears interest at 8.85%
per annum and matures on September 1, 2005 at which time the Company's  share of
the mortgage debt will be approximately $6.9 million.

On March 19, 2004, the Company entered into two anticipatory interest rate hedge
instruments,  which are scheduled to coincide with an August 2004 debt maturity,
totaling $100 million,  to protect itself against  potentially  rising  interest
rates.  At June 30, 2004,  the fair value of these  instruments  exceeded  their
carrying value by approximately $5.2 million.  Such amount has been reflected as
accumulated other comprehensive income with a corresponding  increase to prepaid
expenses and other assets on the  accompanying  balance sheet.  In addition,  on
July 1, 2004, the Company entered into an additional  anticipatory interest rate
hedge  instrument  totaling  $12.5 million to coincide  with the  aforementioned
August 2004 debt maturity.

                                       8
<PAGE>


4.   SENIOR UNSECURED NOTES

On January 22, 2004, the Operating Partnership issued $150 million of seven-year
5.15% (5.196%  effective rate) senior unsecured notes.  Prior to the issuance of
these notes the Company  entered into several  anticipatory  interest rate hedge
instruments to protect itself against  potentially rising interest rates. At the
time the notes were  issued  the  Company  incurred a net cost of  approximately
$980,000 to settle these  instruments.  Such costs are being  amortized over the
term of the notes. Net proceeds of approximately $148 million received from this
issuance were used to repay outstanding borrowings under the Credit Facility (as
defined below) and to invest in short-term liquid investments.

On  March  15,  2004,   the  Company   repaid  $100  million  of  the  Operating
Partnership's 7.4% senior unsecured notes at maturity.

As of June 30, 2004, the Operating  Partnership  had  outstanding  approximately
$549.1  million  (net of  issuance  discounts)  of senior  unsecured  notes (the
"Senior  Unsecured  Notes").  The  following  table  sets  forth  the  Operating
Partnership's  Senior Unsecured Notes and other related disclosures by scheduled
maturity date (dollars in thousands):

                         FACE
       ISSUANCE         AMOUNT      COUPON RATE     TERM         MATURITY
   ----------------   ----------    -----------   --------   ----------------
     June 17, 2002    $   50,000       6.00%       5 years      June 15, 2007

    August 27, 1997      150,000       7.20%      10 years    August 28, 2007

    March 26, 1999       200,000       7.75%      10 years     March 15, 2009

   January 22, 2004      150,000       5.15%       7 years   January 15, 2011
                      ----------
                      $  550,000
                      ==========

Interest on the Senior Unsecured Notes are payable  semi-annually with principal
and unpaid interest due on the scheduled maturity dates. In addition, certain of
the Senior  Unsecured Notes were issued at discounts  aggregating  approximately
$1.2 million.  Such  discounts are being  amortized  over the term of the Senior
Unsecured Notes to which they relate.

5.   UNSECURED CREDIT FACILITY

As of June 30, 2004, the Company had a $500 million  unsecured  revolving credit
facility (the "Credit  Facility")  from JPMorgan  Chase Bank, as  administrative
agent,  Wells  Fargo Bank,  National  Association,  as  syndication  agent,  and
Citicorp  North  America,  Inc.  and Wachovia  Bank,  National  Association,  as
co-documentation agents. The Credit Facility was scheduled to mature in December
2005,  contained  options for a one-year  extension subject to a fee of 25 basis
points and, upon receiving additional lender commitments, increasing the maximum
revolving credit amount to $750 million. As of June 30, 2004, based on a pricing
grid of the Operating Partnership's unsecured debt ratings, borrowings under the
Credit  Facility  were  priced  off LIBOR  plus 90 basis  points  and the Credit
Facility  carried a facility fee of 20 basis points per annum. In the event of a
change in the  Operating  Partnership's  unsecured  credit  ratings the interest
rates and facility fee are subject to change.  At June 30, 2004, the outstanding
borrowings  under the Credit  Facility  aggregated  $90  million  and  carried a
weighted average interest rate of 2.18%.

In August 2004, the Company  amended and extended the Credit  Facility to mature
in August  2007  with  similar  terms and  conditions  as  existed  prior to the
amendment and extension.

The  Company  utilizes  the Credit  Facility  primarily  to finance  real estate
investments, fund its real estate development activities and for working capital
purposes.  At June 30,  2004,  the  Company  had  availability  under the Credit
Facility  to  borrow  approximately  an  additional  $410  million,  subject  to
compliance with certain financial covenants.

In connection with the acquisition of certain properties,  contributing partners
of such properties have provided guarantees on indebtedness of the Company. As a
result,  the  Company  maintains  certain  outstanding  balances  on its  Credit
Facility.

In  accordance  with the  provisions  of FASB  Statement  No.  144,  the Company
allocated approximately $2.6 million and $5.2 million of its unsecured corporate
interest expense to discontinued  operations for the three and six month periods
ended June 30, 2003.


                                       9
<PAGE>


6.   COMMERCIAL REAL ESTATE INVESTMENTS

As of June 30,  2004,  the  Company  owned and  operated  76  office  properties
(inclusive of nine office  properties  owned through joint ventures)  comprising
approximately  14.4  million  square  feet  and 9  industrial  / R&D  properties
comprising approximately 955,000 square feet located in the Tri-State Area.

In June,  2004 the Company  entered into a contract to sell a 92,000 square foot
industrial  property located in Westchester for approximately $7.5 million.  The
Company's basis in this property is  approximately  $4.8 million and is included
in  properties  and  related  assets held for sale on the  accompanying  balance
sheet.

As of June 30, 2004, the Company also owned  approximately  313 acres of land in
12  separate  parcels of which the  Company  can,  based on  current  estimates,
develop  approximately  3.0 million square feet of office space.  The Company is
currently  evaluating  alternative land uses for certain of the land holdings to
realize the highest  economic value.  These  alternatives  may include  rezoning
certain  land  parcels  from   commercial  to  residential   use  for  potential
disposition.  As of June 30, 2004, the Company had invested approximately $124.5
million  in  these   development   projects.   Management  has  made  subjective
assessments as to the value and  recoverability  of these  investments  based on
current  and  proposed  development  plans,  market  comparable  land values and
alternative  use values.  In  addition,  during the three and six month  periods
ended June 30, 2004, the Company has capitalized  approximately $2.3 million and
$5.1  million,  respectively  related to real estate  taxes,  interest and other
carrying  costs related to these  development  projects.  In October  2003,  the
Company  entered  into a contract to sell a 113 acre land parcel  located in New
Jersey.  The contract provides for a sales price ranging from $18 million to $36
million. The sale is contingent upon obtaining zoning for residential use of the
land and other customary  approvals.  The proceeds ultimately received from such
sale  will be based  upon the  number  of  residential  units  permitted  by the
rezoning.  The cost basis of the land parcel at June 30, 2004 was  approximately
$5.7  million.  The closing is  scheduled to occur upon the  rezoning,  which is
anticipated to occur within 12 to 24 months. However, there can be no assurances
such rezoning will occur.  During  February 2004, a 3.9 acre land parcel located
on Long Island was condemned by the Town of Oyster Bay. As consideration for the
condemnation  the Company  anticipates it will initially  receive  approximately
$1.8  million.  The Company's  cost basis in this land parcel was  approximately
$1.4 million.  The Company is currently  contesting  this  valuation and seeking
payment of additional consideration from the Town of Oyster Bay but there can be
no  assurances  that  the  Company  will be  successful  in  obtaining  any such
additional  consideration.  In July 2004,  the Company  commenced  the ground-up
development  of a  277,000  square  foot  Class A office  building  with a total
anticipated  investment cost of approximately  $60 million.  This development is
located within the Company's  existing 404,000 square foot executive office park
in Melville, NY.

In November 2003, the Company disposed of all but three of its 95 property,  5.9
million square foot, Long Island industrial building portfolio to members of the
Rechler family (the "Disposition") for approximately  $315.5 million,  comprised
of $225.1  million in cash and debt  assumption and 3,932,111 OP Units valued at
approximately  $90.4 million.  Approximately $204 million of cash sales proceeds
from the Disposition  were used to repay  borrowings  under the Credit Facility.
For information concerning certain litigation pertaining to this transaction see
Part II-Other Information; Item 1. Legal Proceedings of this Form 10-Q.

In January 2004, the Company sold a 104,000 square foot office property  located
on Long Island for approximately $18.5 million.  Net proceeds from the sale were
used to repay  borrowings under the Credit  Facility.  As a result,  the Company
recorded a net gain of  approximately  $5.2  million,  net of limited  partners'
minority interest. In accordance with FASB Statement No. 144, such gain has been
reflected in discontinued operations on the accompanying consolidated statements
of income.

In January 2004, the Company  acquired 1185 Avenue of the Americas,  a 42-story,
1.1 million  square foot Class A office  tower,  located  between  46th and 47th
Streets in New York, NY for $321 million.  In connection with this  acquisition,
the Company  assumed a $202 million  mortgage and $48 million of mezzanine debt.
The balance of the purchase  price was paid through an advance  under the Credit
Facility.  The floating rate  mortgage and mezzanine  debt both mature in August
2004 and presently have a weighted average interest rate of 4.95%.  Such rate is
based on the greater of one month LIBOR or 2.15% plus a weighted  average spread
of  approximately  2.80%. An interest rate hedge agreement was acquired to limit
exposure to increases in LIBOR above 5.825%.  The property is also encumbered by
a ground lease which has a remaining  term of  approximately  40 years with rent
scheduled  to be  re-set  at the end of 2005 and then  remain  constant  for the
balance of the term.  Pursuant to the terms of the ground lease, the Company and
the  ground  lessor  have  commenced  arbitration  proceedings  relating  to the
re-setting of the ground lease.  There can be no assurances as to the outcome of
the rent re-set process.  In accordance  with FASB Statement No. 141,  "Business
Combinations",  the Company allocated and recorded net deferred intangible lease
income of  approximately  $14.2 million,  representing the net value of acquired
above and below market leases,  assumed lease  origination costs and other value
of  in-place  leases.  The net value of the above  and  below  market  leases is
amortized  over the remaining  terms of the  respective  leases to rental income
which amounted to approximately  $2.0 million and $3.8 million for the three and
six month periods ended June 30, 2004 . In addition, amortization expense on the
value of lease origination costs was approximately $746,000 and $1.3 million for
the three and six month periods ended June 30, 2004. At acquisition,  there were
31 in-place  leases  aggregating  approximately  one million  square feet with a
weighted average remaining lease term of approximately 6 years.

                                       10
<PAGE>


In April 2004, the Company sold a 175,000 square foot office building located on
Long Island for  approximately  $30  million,  of which the Company  owned a 51%
interest, and a wholly owned 9,000 square foot retail property for approximately
$2.8  million.  In  addition,  the  Company  completed  the  sale  on two of the
remaining three properties from the Disposition for approximately  $5.8 million.
Proceeds from the sale were used to establish an escrow account with a qualified
intermediary for a future exchange of real property  pursuant to Section 1031 of
the Code (a "Section 1031  Exchange").  A Section 1031  Exchange  allows for the
deferral of taxes  related to the gain  attributable  to the sale of property if
qualified  replacement  property is identified within 45 days and such qualified
replacement  property is then  acquired  within 180 days from the initial  sale.
There  can be no  assurances  that the  Company  will meet the  requirements  of
Section 1031 by identifying and acquiring  qualified  replacement  properties in
the required time frame, in which case the Company would incur the tax liability
on the capital gain realized of approximately  $1.5 million.  The disposition of
the other industrial property, which is subject to certain environmental issues,
is  conditioned  upon the  approval  of the buyer's  lender,  which has not been
obtained.  As a result, the Company will not dispose of this property as part of
the   Disposition.   Management   believes   that  the  cost  to  remediate  the
environmental issues will not have a material adverse effect on the Company, but
there can be no assurance in this regard.

In July  2004,  the  Company  acquired  a  141,000  square  foot  Class A office
property,  located in Chatham Township,  NJ for approximately $22.7 million. The
Company made this acquisition through available cash-on-hand.

During February 2003, the Company,  through Reckson  Construction  Group,  Inc.,
entered  into a  contract  with an  affiliate  of  First  Data  Corp.  to sell a
19.3-acre  parcel of land located in Melville,  New York and was retained by the
purchaser to develop a  build-to-suit  195,000  square foot office  building for
aggregate consideration of approximately $47 million. This transaction closed on
March 11, 2003 and  development of the  aforementioned  office building has been
completed.  In accordance with FASB Statement No. 66, the Company has recognized
a book gain,  before taxes, on this land sale and  build-to-suit  transaction of
approximately  $23.8  million,  of which  $400,000 and $5.0  million  and,  $4.3
million  and $10.1  million has been  recognized  during the three and six month
periods  ended  June  30,  2004  and  2003,  respectively,  and is  included  in
investment  and other  income on the  accompanying  consolidated  statements  of
income.

The Company holds a $17.0 million note  receivable,  which bears interest at 12%
per annum and is secured by a minority  partnership  interest in Omni  Partners,
L.P.,  owner of the Omni, a 579,000 square foot Class A office property  located
in  Uniondale,  New York (the "Omni  Note").  The Company  currently  owns a 60%
majority partnership  interest in Omni Partners,  L.P. and on March 14, 2007 may
exercise an option to acquire the  remaining  40%  interest for a price based on
90% of the fair  market  value of the  property.  The  Company  also holds a $30
million  junior  mezzanine  loan  which is  secured  by a pledge of an  indirect
ownership  interest of an entity which owns the ground  leasehold estate under a
1.1 million  square foot office  complex  located on Long Island,  New York (the
"Mezz Note"). The Mezz Note matures in September 2005,  currently bears interest
at  12.73%,  and the  borrower  has the  right to extend  for  three  additional
one-year   periods.   The  Company  also  holds  three  other  notes  receivable
aggregating $19.0 million which bear interest at rates ranging from 10.5% to 12%
per annum.  These  notes are secured in part by a minority  partner's  preferred
unit interest in the Operating  Partnership,  an interest in real property and a
personal  guarantee (the "Other Notes" and  collectively  with the Omni Note and
the  Mezz  Note,  the  "Note  Receivable   Investments").   During  April  2004,
approximately $2.7 million of the Other Notes, including accrued interest,  were
repaid  by the  minority  partner  exchanging,  and  the  Operating  Partnership
redeeming,  approximately  3,081  preferred  units.  The  preferred  units  were
redeemed  at a  par  value  of  $3.1  million.  Approximately  $420,000  of  the
redemption  proceeds was used to offset  interest due from the minority  partner
under the Other  Notes and for  prepaid  interest.  In July 2004,  the  minority
partner delivered notice to the Operating  Partnership  stating his intention to
repay $15.5 million of the 10.5% Other Notes.  When repaid,  the remaining Other
Notes will aggregate $3.5 million and carry a weighted  average interest rate of
11.57%. The Operating Partnership has also agreed to extend the maturity of $2.5
million of such debt  through  January 31, 2005 and the  remaining  $1.0 million
through  January 31, 2010. As of June 30, 2004,  management has made  subjective
assessments as to the underlying security value on the Company's Note Receivable
Investments.  These  assessments  indicate  an excess of market  value  over the
carrying value related to the Company's Note  Receivable  Investments.  Based on
these  assessments the Company's  management  believes there is no impairment to
the carrying value related to the Company's Note Receivable Investments.

The Company also owns a 355,000 square foot office building in Orlando, Florida.
This  non-core real estate  holding was acquired in May 1999 in connection  with
the  Company's  initial New York City  portfolio  acquisition.  This property is
cross-collateralized under a $100.1 million mortgage note payable along with one
of the  Company's New York City  buildings.  The Company has the right to prepay
this note in November 2004, prior to its maturity.

The Company also owns a 60%  non-controlling  interest in a 172,000  square foot
office building located at 520 White Plains Road in White Plains,  New York (the
"520JV"),  which it manages.  As of June 30, 2004, the 520JV had total assets of
$20.6 million, a mortgage note payable of $11.7 million and other liabilities of
$582,000.  The Company's  allocable  share of the 520JV mortgage note payable is
approximately  $7.6 million.  This mortgage note payable bears interest at 8.85%
per annum and matures on September 1, 2005. The operating agreement of the 520JV
requires  joint  decisions  from all members on all  significant  operating  and
capital decisions including sale of the property,  refinancing of the property's
mortgage  debt,  development  and  approval of leasing  strategy  and leasing of
rentable space. As a result of the decision-making participation relative to the
operations of the property,  the Company accounts for the 520JV under the equity
method of  accounting.  In accordance  with the equity method of accounting  the
Company's  proportionate  share of the 520JV  income  (loss)  was  approximately
$294,000 and $408,000 and $(270,000) and $($164,000) for the three and six month
periods ended June 30, 2004 and 2003, respectively.

                                       11
<PAGE>


During  September  2000, the Company formed a joint venture (the "Tri-State JV")
with Teachers  Insurance and Annuity  Association  ("TIAA") and contributed nine
Class A suburban office properties aggregating  approximately 1.5 million square
feet to the Tri-State JV for a 51% majority ownership interest. TIAA contributed
approximately $136 million for a 49% interest in the Tri-State JV which was then
distributed  to the Company.  In August 2003,  the Company  acquired  TIAA's 49%
interest in the property  located at 275  Broadhollow  Road,  Melville,  NY, for
approximately  $12.4 million.  In addition,  during April 2004, the Tri-State JV
sold  a  175,000  square  foot  office  building  located  on  Long  Island  for
approximately  $30 million.  Net proceeds from this sale were distributed to the
members of the Tri-State JV. As a result of these transactions, the Tri-State JV
owns seven Class A suburban  office  properties  aggregating  approximately  1.2
million  square feet.  The Company is  responsible  for managing the  day-to-day
operations and business  affairs of the Tri-State JV and has substantial  rights
in making  decisions  affecting the  properties  such as leasing,  marketing and
financing.  The minority member has certain rights primarily intended to protect
its   investment.   For  purposes  of  its  financial   statements  the  Company
consolidates the Tri-State JV.

On December 21, 2001, the Company formed a joint venture with the New York State
Teachers'  Retirement Systems ("NYSTRS") (the "919JV") whereby NYSTRS acquired a
49% indirect interest in the property located at 919 Third Avenue,  New York, NY
for $220.5 million which included $122.1 million of its  proportionate  share of
secured  mortgage  debt and  approximately  $98.4 million of cash which was then
distributed  to the  Company.  The  Company  is  responsible  for  managing  the
day-to-day  operations  and  business  affairs of the 919JV and has  substantial
rights in making  decisions  affecting the property such as developing a budget,
leasing and marketing. The minority member has certain rights primarily intended
to protect its investment.  For purposes of its financial statements the Company
consolidates the 919JV.

                                       12
<PAGE>


7.   STOCKHOLDERS' EQUITY

An OP Unit  and a share of  common  stock  have  essentially  the same  economic
characteristics  as they effectively share equally in the net income or loss and
distributions of the Operating Partnership.  Subject to certain holding periods,
OP Units may either be redeemed  for cash or, at the  election  of the  Company,
exchanged  for  shares  of common  stock on a  one-for-one  basis.  The OP Units
currently  receive a quarterly  distribution  of $.4246 per unit. As of June 30,
2004, the Operating  Partnership had issued and outstanding 3,084,713 Class A OP
Units and 465,845  Class C OP Units.  The Class C OP Units were issued in August
2003 in  connection  with the  contribution  of real  property to the  Operating
Partnership and currently receive a quarterly distribution of $.4664 per unit

During June,  2004, the Board of Directors of the Company declared the following
dividends on the Company's securities:

<TABLE>
<CAPTION>
                                                                                               ANNUALIZED
                             DIVIDEND /        RECORD           PAYMENT        THREE MONTHS    DIVIDEND /
         SECURITY           DISTRIBUTION        DATE             DATE              ENDED       DISTRIBUTION
         --------           ------------   -------------    --------------    -------------    ------------
<S>                           <C>          <C>              <C>               <C>              <C>
Common stock                  $ .4246       July 7, 2004     July 20, 2004    June 30, 2004     $ 1.6984
Series A preferred stock      $ .4766      July 15, 2004    August 2, 2004    July 31, 2004     $ 1.9063
</TABLE>

On November  25, 2003 the Company  exchanged  all of its  9,915,313  outstanding
shares  of Class B common  stock for an equal  number  of  shares of its  common
stock.  The Board of Directors  declared a final cash  dividend on the Company's
Class B common  stock to holders of record on November 25, 2003 in the amount of
$.1758 per share which was paid on January 12, 2004.  This  payment  covered the
period from  November  1, 2003  through  November  25, 2003 and was based on the
previous  quarterly  Class B common stock dividend rate of $.6471 per share.  In
order to align the regular  quarterly  dividend  payment  schedule of the former
holders of Class B common stock with the schedule of the holders of common stock
for periods  subsequent to the exchange  date for the Class B common stock,  the
Board of Directors also declared a cash dividend with regard to the common stock
to holders of record on October 14, 2003 in the amount of $.2585 per share which
was paid on January 12, 2004.  This  payment  covered the period from October 1,
2003  through  November 25, 2003 and was based on the current  quarterly  common
stock  dividend  rate of $.4246 per share.  As a result,  the  Company  declared
dividends  through  November 25, 2003 to all holders of common stock and Class B
common  stock.  The Board of  Directors  also  declared  the  common  stock cash
dividend for the portion of the fourth quarter  subsequent to November 25, 2003.
The holders of record of common stock on January 2, 2004,  giving  effect to the
exchange  transaction,  received a dividend on the common stock in the amount of
$.1661 per share on January  12,  2004.  This  payment  covered  the period from
November  26,  2003  through  December  31,  2003 and was  based on the  current
quarterly common stock dividend rate of $.4246 per share.

During the six month  period  ended June 30,  2004,  approximately  1.3  million
shares of the Company's  common stock was issued in connection with the exercise
of outstanding  options to purchase stock under its stock option plans resulting
in proceeds to the Company of approximately $27.2 million.

In March 2004, the Company completed an equity offering of 5.5 million shares of
its common stock raising  approximately  $149.5 million,  net of an underwriting
discount,  or $27.18 per share. Net proceeds received from this transaction were
used to repay  outstanding  borrowings  under the  Credit  Facility,  repay $100
million of the Operating Partnership's 7.4% senior unsecured notes and to invest
in short-term liquid investments.

The Board of  Directors  of the Company  authorized  the  purchase of up to five
million shares of the Company's common stock.  Transactions conducted on the New
York Stock Exchange have been,  and will continue to be,  effected in accordance
with the safe harbor  provisions of the Securities  Exchange Act of 1934 and may
be  terminated  by  the  Company  at  any  time.   Since  the  Board's   initial
authorization,  the Company has purchased  3,318,600  shares of its common stock
for an aggregate  purchase price of approximately  $71.3 million.  In June 2004,
the Board of Directors re-set the Company's common stock repurchase program back
to five million shares.  No purchases were made during the six months ended June
30, 2004.

The  Board of  Directors  of the  Company  also  formed a pricing  committee  to
consider purchases of up to $75 million of the Company's  outstanding  preferred
securities.

On June 30, 2004,  the Company had issued and  outstanding  8,693,900  shares of
7.625% Series A Convertible  Cumulative Preferred Stock (the "Series A preferred
stock").  The Series A preferred  stock is redeemable by the Company on or after
April 13, 2004 at a price of $25.7625 per share with such price  decreasing,  at
annual intervals, to $25.00 per share on April 13, 2008. In addition, the Series
A preferred stock, at the option of the holder,  is convertible at any time into
the Company's  common stock at a price of $28.51 per share. On May 13, 2004, the
Company purchased and retired 140,600 shares of the Series A preferred stock for
approximately  $3.4 million or $24.45 per share. In addition,  during July 2004,
the  Company  exchanged  1,350,000  shares of the Series A  preferred  stock for
1,304,602  shares of common  stock.  As a result  of these  transactions  annual
preferred  dividends will decrease by approximately $2.8 million.  In accordance
with the Emerging  Issues Task Force  ("EITF") Topic D-42 the Company will incur
an  accounting  charge during the third  quarter of 2004 of  approximately  $3.4
million in  connection  with the July 2004  exchange  of the Series A  preferred
stock.

                                       13
<PAGE>


On January 1, 2004, the Company had issued and outstanding two million shares of
Series B  Convertible  Cumulative  Preferred  Stock  (the  "Series  B  preferred
stock").  The Series B preferred stock was redeemable by the Company as follows:
(i) on or after June 3, 2003 to and including  June 2, 2004, at $25.50 per share
and (ii) on or after  June 3, 2004 and  thereafter,  at $25.00  per  share.  The
Series B preferred  stock,  at the option of the holder,  was convertible at any
time into the Company's  common stock at a price of $26.05 per share. On January
16, 2004,  the Company  exercised its option to redeem the two million shares of
outstanding  Series B preferred stock for approximately  1,958,000 shares of its
common stock. As a result of this redemption,  annual  preferred  dividends will
decrease by approximately $4.4 million.

On  April  1,  2004,  the  Operating  Partnership  had  issued  and  outstanding
approximately  19,662  preferred  units of limited  partnership  interest with a
liquidation  preference  value  of  $1,000  per unit  and a  current  annualized
distribution  of $55.60 per unit (the  "Preferred  Units").  The Preferred Units
were issued in 1998 in connection with the  contribution of real property to the
Operating  Partnership.  On April 12, 2004, the Operating  Partnership  redeemed
approximately  3,081  Preferred  Units,  at  the  election  of the  holder,  for
approximately  $3.1 million,  including  accrued and unpaid  dividends  which is
being  applied to amounts owed from the unit holder  under the Other  Notes.  In
addition,   during  July  2004,  the  holder  of  approximately  15,381  of  the
outstanding  Preferred  Units  exchanged  them  into  OP  Units.  The  Operating
Partnership  converted  the  Preferred  Units,   including  accrued  and  unpaid
dividends,   into   approximately   531,000  OP  Units,  which  were  valued  at
approximately  $14.7  million at the time of the  conversion.  Subsequent to the
conversion,  the OP Units were  exchanged  for an equal  number of shares of the
Company's  common  stock.  In  connection  with  the  July  2004  exchanges  and
conversions,  the  preferred  unit  holder  delivered  notice  to the  Operating
Partnership of his intent to repay $15.5 million owed from the unit holder under
the Other Notes.

The Company had historically  structured long term incentive  programs  ("LTIP")
using  restricted  stock and stock loans.  In July 2002,  as a result of certain
provisions of the Sarbanes Oxley legislation,  the Company  discontinued the use
of stock  loans in its LTIP.  In  connection  with LTIP grants made prior to the
enactment  of the  Sarbanes  Oxley  legislation  the Company made stock loans to
certain  executive and senior officers to purchase  487,500 shares of its common
stock at market  prices  ranging from $18.44 per share to $27.13 per share.  The
stock loans were set to bear  interest at the mid-term  Applicable  Federal Rate
and were secured by the shares  purchased.  Such stock loans (including  accrued
interest)  were  scheduled  to vest and be  ratably  forgiven  each  year on the
anniversary  of the grant date based upon vesting  periods  ranging from four to
ten years based on  continued  service and in part on attaining  certain  annual
performance  measures.  These  stock  loans had an  initial  aggregate  weighted
average vesting period of  approximately  nine years. As of June 30, 2004, there
remains 222,429 shares of common stock subject to the original stock loans which
are  anticipated  to vest  between  2005 and 2011.  Approximately  $248,000  and
$556,000  of  compensation  expense  was  recorded  for the  three and six month
periods ended June 30, 2004, respectively related to these LTIP. Such amount has
been  included  in  marketing,   general  and  administrative  expenses  on  the
accompanying consolidated statements of income.

The  outstanding  stock loan  balances due from  executive  and senior  officers
aggregated  approximately  $4.7 million at June 30, 2004, and have been included
as a reduction of additional  paid in capital on the  accompanying  consolidated
balance sheets. Other outstanding loans to executive and senior officers at June
30, 2004 amounted to approximately $1.9 million primarily related to tax payment
advances  on stock  compensation  awards and life  insurance  contracts  made to
certain executive and non-executive officers.

In  November  2002 and March  2003 an award of rights  was  granted  to  certain
executive  officers  of the  Company  (the  "2002  Rights"  and  "2003  Rights",
respectively,  and collectively,  the "Rights"). Each Right represents the right
to receive, upon vesting, one share of common stock if shares are then available
for grant under one of the Company's stock option plans or, if shares are not so
available,  an  amount  of cash  equivalent  to the  value of such  stock on the
vesting  date.  The 2002  Rights  will vest in four  equal  annual  installments
beginning on November 14, 2003 (and shall be fully vested on November 14, 2006).
The 2003 Rights will be earned as of March 13, 2005 and will vest in three equal
annual  installments  beginning  on March 13, 2005 (and shall be fully vested on
March 13, 2007).  Dividends on the shares will be held by the Company until such
shares become  vested,  and will be  distributed  thereafter  to the  applicable
officer.  The 2002 Rights also  entitle the holder  thereof to cash  payments in
respect of taxes  payable  by the holder  resulting  from the  Rights.  The 2002
Rights aggregate 62,835 shares of the Company's common stock and the 2003 Rights
aggregate  26,042  shares of common  stock.  As of June 30, 2004,  there remains
47,126  shares of common stock  related to the 2002 Rights and 26,042  shares of
common stock related to the 2003 Rights.  During the three and six month periods
ended June 30, 2004 the Company  recorded  approximately$100,000  and  $201,000,
respectively of compensation expense related to the Rights. Such amount has been
included in marketing,  general and administrative  expenses on the accompanying
consolidated statements of income.

                                       14
<PAGE>


In March 2003,  the Company  established a new LTIP for its executive and senior
officers.  The four-year plan has a core award,  which provides for annual stock
based  compensation  based upon continued service and in part based on attaining
certain annual performance measures.  The plan also has a special outperformance
award,  which provides for  compensation  to be earned at the end of a four-year
period if the Company attains certain four-year cumulative performance measures.
Amounts  earned  under the special  outperformance  award may be paid in cash or
stock at the discretion of the Compensation Committee of the Board.  Performance
measures  are based on total  shareholder  returns  on a relative  and  absolute
basis.  On March 13, 2003,  the Company  made  available  827,776  shares of its
common stock under one of its existing stock option plans in connection with the
core award of this LTIP for eight of its executive and senior officers. On March
13,  2004,  the Company met its annual  performance  measure with respect to the
prior annual period. As a result, the Company issued to the participants 206,944
shares of its common stock  related to the core  component  of this LTIP.  As of
June 30, 2004,  there remains 620,832 shares of common stock reserved for future
issuance  under the core award of this LTIP.  With  respect to the core award of
this LTIP,  the Company  recorded  approximately  $699,000  and $1.4  million of
compensation  expense for the three and six month  periods  ended June 30, 2004,
respectively.   Such  amount  has  been  included  in  marketing,   general  and
administrative  expenses on the accompanying  consolidated statements of income.
Further, no provision will be made for the special  outperformance award of this
LTIP  until  such  time as  achieving  the  requisite  performance  measures  is
determined to be probable.

Basic net income per share on the Company's  common stock was  calculated  using
the weighted  average number of shares  outstanding of 66,892,096 and 48,000,995
for the three months ended June 30, 2004 and 2003,  respectively  and 64,127,596
and 48,100,148 for the six months ended June 30, 2004 and 2003, respectively.

Basic net income per share on the Company's  Class B common stock was calculated
using the weighted average number of Class B shares outstanding of 9,915,313 for
the three and six month periods ended June 30, 2003.

The following  table sets forth the Company's  reconciliation  of numerators and
denominators  of the basic and diluted net income per  weighted  average  common
share and the  computation of basic and diluted net income per weighted  average
share for the Company's common stock (in thousands except for earnings per share
data):

<TABLE>
<CAPTION>
                                                                        THREE MONTHS ENDED           SIX MONTHS ENDED
                                                                             JUNE 30,                    JUNE 30,
                                                                    -------------------------   -------------------------
                                                                        2004          2003          2004          2003
                                                                    -----------   -----------   -----------   -----------
<S>                                                                 <C>           <C>           <C>           <C>
Numerator:
   Income before discontinued operations, dividends to
      preferred shareholders and (income) allocated
      to Class B shareholders ....................................  $    13,481   $     9,487   $    28,046   $    20,479
   Discontinued operations (net of share applicable to limited
      partners, minority interests  and Class B shareholders) ....        3,734         2,597         9,393         4,872
   Dividends to preferred shareholders ...........................       (4,172)       (5,317)       (8,432)      (10,634)
   (Income) allocated to Class B common shareholders .............         --            (998)         --          (2,353)
                                                                    -----------   -----------   -----------   -----------
Numerator for basic and diluted earnings per common share ........  $    13,043   $     5,769   $    29,007   $    12,364
                                                                    ===========   ===========   ===========   ===========

Denominator:
   Denominator for basic earnings per share - weighted average
      common shares ..............................................       66,892        48,001        64,128        48,100
   Effect of dilutive securities:
      Common stock equivalents ...................................          435           117           394           118
                                                                    -----------   -----------   -----------   -----------
Denominator for diluted earnings per common share - adjusted
      weighted average shares and assumed conversions ............       67,327        48,118        64,522        48,218
                                                                    ===========   ===========   ===========   ===========

Basic earnings per weighted average common share:
   Income from continuing operations .............................  $       .13   $       .07   $       .30   $       .16
   Discontinued operations .......................................          .06           .05           .15           .10
                                                                    -----------   -----------   -----------   -----------
   Net income per common share ...................................  $       .19   $       .12   $       .45   $       .26
                                                                    ===========   ===========   ===========   ===========

Diluted earnings per weighted average common share:
   Income from continuing operations .............................  $       .13   $       .07   $       .30   $       .16
   Discontinued operations .......................................          .06           .05           .15           .10
                                                                    -----------   -----------   -----------   -----------
   Diluted net income per common share ...........................  $       .19   $       .12   $       .45   $       .26
                                                                    ===========   ===========   ===========   ===========
</TABLE>

                                       15
<PAGE>


The following  table sets forth the Company's  reconciliation  of numerators and
denominators  of the basic and diluted net income per  weighted  average  common
share and the  computation of basic and diluted net income per weighted  average
share for the Company's  Class B common stock (in thousands  except for earnings
per share data):

<TABLE>
<CAPTION>
                                                                      THREE MONTHS ENDED   SIX MONTHS ENDED
                                                                        JUNE 30, 2003        JUNE 30, 2003
                                                                      ------------------   ----------------
<S>                                                                      <C>                 <C>
Numerator:
   Income before discontinued operations, dividends to preferred
      shareholders and (income) allocated to common shareholders ......  $      9,487        $     20,479
   Discontinued operations (net of share applicable to limited
      partners and common shareholders) ...............................           818               1,531
   Dividends to preferred shareholders ................................        (5,317)            (10,634)
   (Income) allocated to common shareholders ..........................        (3,172)             (7,492)
                                                                         ------------        ------------
Numerator for basic earnings per Class B common share .................         1,816               3,884
Add back:
   Income allocated to common shareholders ............................         5,769              12,364
   Limited partner's minority interest in the operating partnership ...           874               1,870
                                                                         ------------        ------------
Numerator for diluted earnings per Class B common share ...............  $      8,459        $     18,118
                                                                         ============        ============
Denominator:
   Denominator for basic earnings per share-weighted average
      Class B common shares ...........................................         9,915               9,915
   Effect of dilutive securities:
      Weighted average common shares outstanding ......................        48,001              48,100
      Weighted average OP Units outstanding ...........................         7,276               7,276
      Common stock equivalents ........................................           117                 118
                                                                         ------------        ------------
Denominator for diluted earnings per Class B common share -
      adjusted weighted average shares and assumed conversions ........        65,309              65,409
                                                                         ============        ============

Basic earnings per weighted average common share:
     Income from continuing operations ................................  $        .18        $        .39
     Discontinued operations ..........................................            --                  --
                                                                         ------------        ------------
     Net income per Class B common share ..............................  $        .18        $        .39
                                                                         ============        ============

Diluted earnings per weighted average common share:
     Income from continuing operations ................................  $        .13        $        .28
     Discontinued operations ..........................................            --                  --
                                                                         ------------        ------------
     Diluted net income per Class B common share ......................  $        .13        $        .28
                                                                         ============        ============

</TABLE>

8.   SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                 SIX MONTHS ENDED
                                                                                     JUNE 30,
                                                                         --------------------------------
                                                                             2004                2003
                                                                         ------------        ------------
<S>                                                                      <C>                 <C>
        Cash paid during the period for interest ......................  $     50,277        $     47,304
                                                                         ============        ============


        Interest capitalized during the period ........................  $      4,000        $      3,675
                                                                         ============        ============
</TABLE>

                                       16
<PAGE>


9.   SEGMENT DISCLOSURE

The Company owns all of the interests in its real estate properties  directly or
indirectly through the Operating  Partnership.  The Company's portfolio consists
of Class A office properties  located within the New York City metropolitan area
and Class A suburban office properties located and operated within the Tri-State
Area (the "Core  Portfolio").  The Company's  portfolio also includes one office
property  located in  Orlando,  Florida.  The  Company  has formed an  Operating
Committee that reports directly to the President and Chief Financial Officer who
have been identified as the Chief  Operating  Decision Makers due to their final
authority over resource allocation, decisions and performance assessment.

The Company does not consider (i) interest  incurred on its Credit  Facility and
Senior  Unsecured Notes,  (ii) the operating  performance of the office property
located in Orlando, Florida, (iii) the operating performance of those properties
reflected as discontinued operations in the Company's consolidated statements of
income,  and (iv) the operating  results of the Service Companies as part of its
Core Portfolio's  property  operating  performance for purposes of its component
disclosure set forth below.

The  accounting  policies  of the  reportable  segments  are the  same as  those
described in the summary of significant account policies.  In addition,  amounts
reflected  have  been  adjusted  to give  effect to the  Company's  discontinued
operations in accordance with FASB Statement No. 144.

The following  table sets forth the  components  of the  Company's  revenues and
expenses and other related disclosures (in thousands):

<TABLE>
<CAPTION>
                                                                             THREE MONTHS ENDED
                                             ------------------------------------------------------------------------------------
                                                          JUNE 30, 2004                              JUNE 30, 2003
                                             -----------------------------------------  -----------------------------------------
                                                Core                      CONSOLIDATED     Core                      CONSOLIDATED
                                              Portfolio       Other          TOTALS      Portfolio       Other          TOTALS
                                             ------------  ------------   ------------  ------------  ------------   ------------
<S>                                          <C>           <C>            <C>           <C>           <C>            <C>
REVENUES:
Base rents, tenant
   escalations and reimbursements .........  $    125,324  $      1,919   $    127,243  $    106,041  $      2,007   $    108,048
Interest, investment and other income .....           562         2,761          3,323         1,097         3,791          4,888
                                             ------------  ------------   ------------  ------------  ------------   ------------

Total Revenues ............................       125,886         4,680        130,566       107,138         5,798        112,936
                                             ------------  ------------   ------------  ------------  ------------   ------------

EXPENSES:
Property operating expenses ...............        49,785           841         50,626        41,426         1,012         42,438
Marketing, general and administrative .....         4,076         3,298          7,374         3,987         4,808          8,795
Interest ..................................        15,847         8,760         24,607        10,054        10,091         20,145
Depreciation and amortization .............        28,026         1,591         29,617        25,453         1,530         26,983
                                             ------------  ------------   ------------  ------------  ------------   ------------
Total Expenses ............................        97,734        14,490        112,224        80,920        17,441         98,361
                                             ------------  ------------   ------------  ------------  ------------   ------------

Income (loss) before minority
   interests, preferred dividends and
   distributions, equity (loss) in
   earnings of real estate joint
   ventures and discontinued operations ...  $     28,152  $     (9,810)  $     18,342  $     26,218  $    (11,643)  $     14,575
                                             ============  ============   ============  ============  ============   ============
</TABLE>

                                       17
<PAGE>


<TABLE>
<CAPTION>
                                                                            SIX MONTHS ENDED OR AS OF
                                             ------------------------------------------------------------------------------------
                                                         JUNE 30, 2004                                JUNE 30, 2003
                                             -----------------------------------------  -----------------------------------------
                                                Core                      CONSOLIDATED      Core                     CONSOLIDATED
                                              Portfolio       Other          TOTALS       Portfolio      Other           TOTALS
                                             ------------  ------------   ------------  ------------  ------------   ------------
<S>                                          <C>           <C>            <C>           <C>           <C>            <C>
REVENUES:
Base rents, tenant
   escalations and reimbursements .........  $    252,483  $      3,910   $    256,393  $    213,221  $      3,607   $    216,828
Interest, investment and other income .....         1,986         7,000          8,986         1,797        10,350         12,147
                                             ------------  ------------   ------------  ------------  ------------   ------------

Total Revenues ............................       254,469        10,910        265,379       215,018        13,957        228,975
                                             ------------  ------------   ------------  ------------  ------------   ------------

EXPENSES:
Property operating expenses ...............       100,608         1,483        102,091        83,962         1,856         85,818
Marketing, general and administrative .....         8,280         6,161         14,441         7,963         8,401         16,364
Interest ..................................        31,477        18,791         50,268        20,060        20,182         40,242
Depreciation and amortization .............        55,516         3,222         58,738        52,634         3,129         55,763
                                             ------------  ------------   ------------  ------------  ------------   ------------
Total Expenses ............................       195,881        29,657        225,538       164,619        33,568        198,187
                                             ------------  ------------   ------------  ------------  ------------   ------------
Income (loss) before minority
   interests, preferred dividends and
   distributions, equity (loss) in
   earnings of real estate joint
   ventures and discontinued operations ...  $     58,588  $    (18,747)  $     39,841  $     50,399  $    (19,611)  $     30,788
                                             ============  ============   ============  ============  ============   ============

Total Assets ..............................  $  2,893,110  $    239,744   $  3,132,854  $  2,425,189  $    475,805   $  2,900,994
                                             ============  ============   ============  ============  ============   ============
</TABLE>


10.  NON-CASH INVESTING AND FINANCING ACTIVITIES

During January 2004, in connection with the Company's acquisition of 1185 Avenue
of the Americas,  New York, NY, the Company assumed a $202 million mortgage note
payable and $48 million of mezzanine debt (see Note 6).

During  January  2004,  the Company  exercised  its option to redeem two million
shares of its outstanding  Series B preferred stock for approximately  1,958,000
shares of its common stock.

During April 2004, the OP redeemed  approximately  3,081 Preferred Units,  which
were valued at  approximately  $3.1 million  which was applied to amounts  owned
from the unit holder under the Other Notes.

                                       18
<PAGE>


11.  RELATED PARTY TRANSACTIONS

In connection  with the  Disposition,  four of the five  remaining  options (the
"Remaining Option Properties")  granted to the Company at the time of the IPO to
purchase   interests  in  properties   owned  by  Rechler  family  members  were
terminated. In return the Company received an aggregate payment from the Rechler
family  members of $972,000.  Rechler  family members have also agreed to extend
the term of the  remaining  option on the  property  located at 225  Broadhollow
Road, Melville, New York (the Company's current headquarters) for five years and
to release the Company from approximately  15,500 square feet under its lease at
this property.  In connection with the restructuring of the remaining option the
Rechler  family  members paid the Company $1 million in return for the Company's
agreement not to exercise the option during the next three years. As part of the
agreement, the exercise price of the option payable by the Company was increased
by $1 million.

In addition, in April 2004, the Company completed the sale to the Rechler family
two of the three properties  remaining in connection with the  Disposition.  The
third property has subsequently  been excluded from the Disposition and will not
be transferred to the Rechler family (see Note 6).

As part of the Company's REIT structure it is provided  management,  leasing and
construction  related services  through taxable REIT  subsidiaries as defined by
the Code.  During the three and six month  periods ended June 30, 2004 and 2003,
Reckson  Construction  Group,  Inc. or its  successor,  Reckson  Construction  &
Development,  LLC billed  approximately  $217,000  and $678,000 and $105,000 and
$231,000,  respectively,  of market rate services and Reckson  Management Group,
Inc.  billed  approximately  $72,000 and  $138,000  and  $69,000  and  $140,000,
respectively, of market rate management fees to the Remaining Option Properties.

Reckson Management Group, Inc. leases approximately 26,000 square feet of office
space  at  the  Remaining  Option  Property  located  at 225  Broadhollow  Road,
Melville,  New  York  for  its  corporate  offices  at an  annual  base  rent of
approximately  $750,000.  The Company had also entered into a short term license
agreement at the property for 6,000 square feet of temporary space which expired
in January 2004.  Reckson  Management Group, Inc. also leases 10,722 square feet
of warehouse  space used for  equipment,  materials and  inventory  storage at a
property  owned by certain  members of the Rechler family at an annual base rent
of  approximately  $75,000.  In  addition,  commencing  April 1,  2004,  Reckson
Construction & Development,  LLC ("RCD") has been leasing  approximately  17,000
square  feet  of  space  at  the  Remaining  Option  Property,  located  at  225
Broadhollow  Road,  Melville,  New  York,  which  was  formerly  occupied  by an
affiliate of First Data Corp. through September 30, 2006 (see Note 6). Base rent
of approximately $121,000 was paid by RCD during the three months ended June 30,
2004. RCD  anticipates it will mitigate this obligation by sub-letting the space
to a  third  party.  However,  there  can be no  assurances  that  RCD  will  be
successful in sub-leasing the aforementioned  space and mitigating its aggregate
costs.

A company  affiliated with an Independent  Director of the Company leases 15,566
square  feet in a  property  owned by the  Company  at an  annual  base  rent of
approximately $445,000.

During 1997,  the Company  formed  FrontLine  Capital  Group,  formerly  Reckson
Service Industries,  Inc.  ("FrontLine") and Reckson Strategic Venture Partners,
LLC  ("RSVP").  RSVP  is a real  estate  venture  capital  fund  which  invested
primarily  in real  estate  and real  estate  operating  companies  outside  the
Company's core office and industrial / R&D focus and whose common equity is held
indirectly  by  FrontLine.  In  connection  with the  formation  and spin-off of
FrontLine,  the Operating  Partnership  established an unsecured credit facility
with  FrontLine  (the  "FrontLine  Facility")  in the amount of $100 million for
FrontLine to use in its  investment  activities,  operations  and other  general
corporate purposes.  The Company has advanced  approximately $93.4 million under
the FrontLine Facility.  The Operating  Partnership also approved the funding of
investments  of up to $100  million  relating  to RSVP (the "RSVP  Commitment"),
through  RSVP-controlled  joint  ventures (for  REIT-qualified  investments)  or
advances  made  to  FrontLine  under  an  unsecured  loan  facility  (the  "RSVP
Facility") having terms similar to the FrontLine  Facility  (advances made under
the RSVP Facility and the FrontLine Facility hereafter,  the "FrontLine Loans").
During March 2001, the Company increased the RSVP Commitment to $110 million and
as of June 30, 2004  approximately  $109.1  million had been funded  through the
RSVP Commitment, of which $59.8 million represents investments by the Company in
RSVP-controlled  (REIT-qualified)  joint  ventures and $49.3 million  represents
loans made to FrontLine under the RSVP Facility.  As of June 30, 2004,  interest
accrued (net of reserves) under the FrontLine Facility and the RSVP Facility was
approximately $19.6 million.

                                       19
<PAGE>


A  committee  of  the  Board  of  Directors,  comprised  solely  of  independent
directors,  considers any actions to be taken by the Company in connection  with
the FrontLine Loans and its investments in joint ventures with RSVP.  During the
third  quarter  of  2001,  the  Company  noted a  significant  deterioration  in
FrontLine's  operations and financial  condition and, based on its assessment of
value and recoverability and considering the findings and recommendations of the
committee  and its  financial  advisor,  the  Company  recorded  a $163  million
valuation  reserve charge,  inclusive of anticipated  costs, in its consolidated
statements of operations  relating to its investments in the FrontLine Loans and
joint ventures with RSVP. The Company has  discontinued  the accrual of interest
income with  respect to the  FrontLine  Loans.  The  Company  has also  reserved
against  its share of GAAP  equity in earnings  from the RSVP  controlled  joint
ventures  funded  through  the RSVP  Commitment  until such  income is  realized
through cash distributions.

At December 31, 2001, the Company,  pursuant to Section 166 of the Code, charged
off for tax purposes $70 million of the aforementioned  reserve directly related
to the FrontLine Facility, including accrued interest. On February 14, 2002, the
Company  charged off for tax purposes an  additional  $38 million of the reserve
directly related to the FrontLine Facility,  including accrued interest, and $47
million of the reserve directly related to the RSVP Facility,  including accrued
interest.

FrontLine is in default under the FrontLine Loans from the Operating Partnership
and on June 12, 2002, filed a voluntary  petition for relief under Chapter 11 of
the United States Bankruptcy Code.

In September 2003, RSVP completed the restructuring of its capital structure and
management arrangements. In connection with the restructuring, RSVP redeemed the
interest  of  the  preferred   equity  holders  of  RSVP  for  an  aggregate  of
approximately  $137  million in cash and the  transfer to the  preferred  equity
holders  of the  assets  that  comprised  RSVP's  parking  investment  valued at
approximately $28.5 million. RSVP also restructured its management  arrangements
whereby a management  company formed by its former  managing  directors has been
retained to manage RSVP pursuant to a management  agreement  and the  employment
contracts  of the  managing  directors  with  RSVP  have  been  terminated.  The
management agreement provides for an annual base management fee, and disposition
fees equal to 2% of the net proceeds  received by RSVP on asset sales. (The base
management  fee and  disposition  fees are subject to a maximum over the term of
the agreement of $7.5 million.) In addition,  the managing  directors retained a
one-third  residual  interest  in RSVP's  assets  which is  subordinated  to the
distribution of an aggregate amount of $75 million to RSVP and/or the Company in
respect  of its  joint  ventures  with  RSVP.  The  management  agreement  has a
three-year term, subject to early termination in the event of the disposition of
all of the assets of RSVP.

In  connection  with the  restructuring,  RSVP  and  certain  of its  affiliates
obtained a $60 million secured loan. In connection with this loan, the Operating
Partnership  agreed to  indemnify  the lender in  respect  of any  environmental
liabilities  incurred  with  regard  to  RSVP's  remaining  assets  in which the
Operating  Partnership has a joint venture interest  (primarily  certain student
housing  assets held by RSVP) and  guaranteed  the obligation of an affiliate of
RSVP to the lender in an amount up to $6 million plus  collection  costs for any
losses  incurred by the lender as a result of certain acts of malfeasance on the
part of RSVP and/or its affiliates.  The loan is scheduled to mature in 2006 and
is expected to be repaid  from  proceeds of assets  sales by RSVP and or a joint
venture between RSVP and a subsidiary of the Operating Partnership.

In April 2004,  American Campus  Communities,  Inc.  ("ACC"),  a student housing
company owned by RSVP and the joint venture between RSVP and a subsidiary of the
Operating  Partnership,  filed a  registration  statement  on Form S-11 with the
Securities and Exchange  Commission in connection with a proposed initial public
offering  ("IPO") of its common stock.  RSVP and the joint venture  between RSVP
and a subsidiary  of the Operating  Partnership  plan to liquidate the ownership
position in ACC in connection with the IPO transaction.

As a  result  of  the  foregoing,  the  net  carrying  value  of  the  Company's
investments  in the  FrontLine  Loans and joint venture  investments  with RSVP,
inclusive of the Company's  share of previously  accrued GAAP equity in earnings
on those investments,  is approximately $65 million which was reassessed with no
change by  management  as of June 30,  2004.  Such amount has been  reflected in
investments in service  companies and affiliate  loans and joint ventures on the
Company's consolidated balance sheet.

Scott H.  Rechler,  who  serves  as Chief  Executive  Officer,  President  and a
director of the Company, serves as CEO and Chairman of the Board of Directors of
FrontLine and is its sole board member. Scott H. Rechler also serves as a member
of the  management  committee of RSVP and has agreed to serve as a member of the
board of ACC upon consummation of its initial public offering.

                                       20
<PAGE>


ITEM 2.   MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND
          RESULTS OF OPERATIONS

The  following  discussion  should be read in  conjunction  with the  historical
financial  statements of Reckson  Associates  Realty Corp.  (the  "Company") and
related notes thereto.

The Company considers certain  statements set forth herein to be forward-looking
statements  within the meaning of Section 27A of the  Securities Act of 1933, as
amended,  and Section 21E of the  Securities  Exchange Act of 1934,  as amended,
with  respect  to  the  Company's  expectations  for  future  periods.   Certain
forward-looking statements,  including, without limitation,  statements relating
to the timing and success of  acquisitions  and the completion of development or
redevelopment  of  properties,  the financing of the Company's  operations,  the
ability to lease  vacant  space and the  ability to renew or relet  space  under
expiring leases,  involve risks and uncertainties.  Many of the  forward-looking
statements  can be  identified  by the use of words such as  "believes",  "may",
"expects", "anticipates", "intends" or similar expressions. Although the Company
believes that the expectations reflected in such forward-looking  statements are
based on reasonable  assumptions,  the actual results may differ materially from
those set forth in the  forward-looking  statements  and the Company can give no
assurance that its expectation will be achieved.  Among those risks,  trends and
uncertainties  are:  the general  economic  climate,  including  the  conditions
affecting  industries in which our  principal  tenants  compete;  changes in the
supply of and  demand  for  office in the New York  Tri-State  area;  changes in
interest rate levels;  changes in the Company's  credit ratings;  changes in the
Company's  cost and access to  capital;  downturns  in rental rate levels in our
markets and our ability to lease or re-lease space in a timely manner at current
or anticipated  rental rate levels;  the  availability of financing to us or our
tenants;  financial  condition  of our  tenants;  changes  in  operating  costs,
including utility,  security,  real estate tax and insurance costs; repayment of
debt owed to the Company by third parties  (including  FrontLine Capital Group);
risks  associated  with  joint  ventures;  liability  for  uninsured  losses  or
environmental  matters;  and other risks  associated  with the  development  and
acquisition of properties, including risks that development may not be completed
on  schedule,  that the tenants  will not take  occupancy  or pay rent,  or that
development or operating  costs may be greater than  anticipated.  Consequently,
such forward-looking  statements should be regarded solely as reflections of the
Company's current operating and development plans and estimates. These plans and
estimates are subject to revisions  from time to time as additional  information
becomes  available,  and actual  results may differ from those  indicated in the
referenced statements.

CRITICAL ACCOUNTING POLICIES

The  consolidated  financial  statements of the Company include  accounts of the
Company  and all  majority-owned  subsidiaries.  The  preparation  of  financial
statements in conformity with accounting  principles  generally  accepted in the
United States ("GAAP") requires  management to make estimates and assumptions in
certain circumstances that affect amounts reported in the Company's consolidated
financial statements and related notes. In preparing these financial statements,
management  has  utilized  information  available  including  its past  history,
industry  standards and the current economic  environment among other factors in
forming  its  estimates  and  judgments  of  certain  amounts  included  in  the
consolidated financial statements,  giving due consideration to materiality.  It
is  possible  that  the  ultimate   outcome  as  anticipated  by  management  in
formulating  its  estimates  inherent  in  these  financial  statements  may not
materialize.  However,  application  of the critical  accounting  policies below
involves  the  exercise  of  judgment  and  use  of  assumptions  as  to  future
uncertainties  and,  as  a  result,  actual  results  could  differ  from  these
estimates. In addition,  other companies may utilize different estimates,  which
may impact  comparability  of the  Company's  results of  operations to those of
companies in similar businesses.

REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE

Minimum rental revenue is recognized on a  straight-line  basis,  which averages
minimum rents over the terms of the leases.  The excess of rents recognized over
amounts  contractually  due are  included in deferred  rents  receivable  on the
Company's  balance  sheets.   The  leases  also  typically  provide  for  tenant
reimbursements of common area maintenance and other operating  expenses and real
estate taxes.  Ancillary and other property  related income is recognized in the
period earned.

The  Company  makes  estimates  of the  collectibility  of its  tenant  accounts
receivables  related to base rents,  tenant  escalations and  reimbursements and
other revenue or income.  The Company  specifically  analyzes tenant receivables
and analyzes historical bad debts, customer credit worthiness,  current economic
trends,  changes in customer payment terms,  publicly available information and,
to the extent  available,  guidance  provided by the tenant when  evaluating the
adequacy of its allowance for doubtful accounts.  In addition,  when tenants are
in  bankruptcy  the  Company  makes  estimates  of  the  expected   recovery  of
pre-petition  administrative  and damage  claims.  In some cases,  the  ultimate
resolution  of those  claims can exceed a year.  These  estimates  have a direct
impact on the Company's net income because a higher bad debt reserve  results in
less net income.

The Company incurred  approximately  $700,000 and $1.8 million, and $1.6 million
and $3.6  million of bad debt  expense  during  the three and six month  periods
ended June 30, 2004 and 2003,  respectively,  related to tenant  receivables and
deferred rents receivable which accordingly  reduced total revenues and reported
net income during the periods presented.

                                       21
<PAGE>


The Company  records  interest income on investments in mortgage notes and notes
receivable  on an  accrual  basis of  accounting.  The  Company  does not accrue
interest on impaired loans where,  in the judgment of management,  collection of
interest  according to the contractual terms is considered  doubtful.  Among the
factors the Company  considers in making an evaluation of the  collectibility of
interest  are:  (i) the  status  of the loan,  (ii) the value of the  underlying
collateral,  (iii) the financial  condition of the borrower and (iv) anticipated
future events.

Reckson  Construction Group, Inc., Reckson  Construction & Development LLC, (the
successor to Reckson  Construction  Group, Inc.) and Reckson  Construction Group
New York,  Inc. use the  percentage-of-completion  method for recording  amounts
earned on their contracts.  This method records amounts earned as revenue in the
proportion  that actual  costs  incurred  to date bear to the  estimate of total
costs at contract completion.

Gain on sales of real estate are  recorded  when title is conveyed to the buyer,
subject to the buyer's financial commitment being sufficient to provide economic
substance  to  the  sale  and  the  Company  having  no  substantial  continuing
involvement with the buyer.

The Company  follows the guidance  provided for under the  Financing  Accounting
Standards Board ("FASB") Statement No. 66, "Accounting for Sales of Real Estate"
("Statement  No.  66"),  which  provides  guidance on sales  contracts  that are
accompanied  by  agreements  which require the seller to develop the property in
the future.  Under  Statement No. 66 profit is  recognized  and allocated to the
sale of the land and the later  development or construction work on the basis of
estimated costs of each activity;  the same rate of profit is attributed to each
activity. As a result, profits are recognized and reflected over the improvement
period on the basis of costs incurred  (including land) as a percentage of total
costs  estimated to be incurred.  The Company uses the  percentage of completion
method, as the future costs of development and profit are reliably estimated.

REAL ESTATE

Land, buildings and improvements, furniture, fixtures and equipment are recorded
at cost. Tenant improvements,  which are included in buildings and improvements,
are also stated at cost.  Expenditures for ordinary  maintenance and repairs are
expensed to operations as incurred.  Renovations  and / or  replacements,  which
improve or extend the life of the asset,  are capitalized  and depreciated  over
their estimated useful lives.

Depreciation is computed  utilizing the straight-line  method over the estimated
useful lives of ten to thirty years for buildings and  improvements  and five to
ten years  for  furniture,  fixtures  and  equipment.  Tenant  improvements  are
amortized on a straight-line basis over the term of the related leases.

The Company is required to make subjective assessments as to the useful lives of
its properties for purposes of determining the amount of depreciation to reflect
on an annual basis with respect to those  properties.  These  assessments have a
direct  impact on the  Company's  net income.  Should the Company  lengthen  the
expected useful life of a particular  asset,  it would be depreciated  over more
years and result in less depreciation expense and higher annual net income.

Assessment by the Company of certain other lease related costs must be made when
the Company has a reason to believe  that the tenant will not be able to execute
under the term of the lease as originally expected.

On July 1, 2001 and January 1, 2002, the Company adopted FASB Statement  No.141,
"Business  Combinations"  and  FASB  Statement  No.  142,  "Goodwill  and  Other
Intangibles",  respectively.  As part of the  acquisition of real estate assets,
the fair value of the real estate acquired is allocated to the acquired tangible
assets,  consisting of land, building and building improvements,  and identified
intangible  assets and liabilities,  consisting of the value of above-market and
below-market  leases,  other  value of  in-place  leases,  and  value of  tenant
relationships,  based in each case on their fair  values.  The Company  assesses
fair value based on estimated  cash flow  projections  that utilize  appropriate
discount and capitalization rates and available market information. Estimates of
future  cash flows are based on a number of  factors  including  the  historical
operating results, known trends, and market/economic  conditions that may affect
the property.  If the Company incorrectly estimates the values at acquisition or
the  undiscounted  cash flows,  initial  allocation of purchase price and future
impairment charges may be different.

                                       22
<PAGE>


LONG LIVED ASSETS

On a periodic basis,  management  assesses whether there are any indicators that
the value of the real estate  properties may be impaired.  A property's value is
impaired  only if  management's  estimate  of the  aggregate  future  cash flows
(undiscounted  and without interest charges) to be generated by the property are
less than the carrying value of the property.  Such cash flows consider  factors
such as expected future operating income,  trends and prospects,  as well as the
effects of demand,  competition and other factors.  To the extent impairment has
occurred,  the loss will be measured as the excess of the carrying amount of the
property over the fair value of the property.

The Company is required to make  subjective  assessments as to whether there are
impairments in the value of its real estate  properties  and other  investments.
These  assessments  have a direct  impact on the  Company's  net income  because
recognizing  an impairment  results in an immediate  negative  adjustment to net
income.  In  determining  impairment,  if any,  the  Company  has  adopted  FASB
Statement  No. 144,  "Accounting  for the  Impairment  or Disposal of Long Lived
Assets." In  accordance  with the  provisions  of Statement No. 144, the Company
allocated approximately $2.6 million and $5.2 million of its unsecured corporate
interest  expense to discontinued  operations for the three and six months ended
June 30,  2003.

CASH AND CASH EQUIVALENTS

The Company considers highly liquid investments with a maturity of six months or
less when  purchased  to be cash  equivalents.  Cash  balances  at June 30, 2004
include  approximately  $46.5  million of the  remaining  net proceeds  received
during the six month period ended June 30, 2004 relating to property sales,  the
issuance of the Company's  equity and the Operating  Partnership's  January 2004
issuance of senior unsecured notes.

OVERVIEW AND BACKGROUND

The Company is a self-administered and self-managed real estate investment trust
("REIT")  specializing  in  the  ownership,  operation,   acquisition,  leasing,
financing,  management  and  development  of  office  and  to  a  lesser  extent
industrial  / R&D  properties  and also owns land for  future  development.  The
Company's  growth  strategy is focused on the commercial  real estate markets in
and around the New York City tri-state area (the "Tri-State  Area"). The Company
owns all of its interest in its real properties, directly or indirectly, through
Reckson Operating Partnership, L.P. (the "Operating Partnership").

As of June 30,  2004,  the  Company  owned and  operated  76  office  properties
(inclusive of nine office  properties  owned through joint ventures)  comprising
approximately  14.4  million  square  feet  and 9  industrial  / R&D  properties
comprising approximately 955,000 located in the Tri-State Area.

In June 2004,  the Company  entered into a contract to sell a 92,000 square foot
industrial  property located in Westchester for approximately $7.5 million.  The
Company's basis in this property is  approximately  $4.8 million and is included
in properties and related assets held for sale on the Company's balance sheet.

As of June 30, 2004, the Company also owned  approximately  313 acres of land in
12 separate parcels of which the Company can develop  approximately  3.0 million
square feet of office  space.  The Company is currently  evaluating  alternative
land uses for  certain of the land  holdings  to realize  the  highest  economic
value.  These  alternatives  may include  rezoning  certain  land  parcels  from
commercial to residential  use for potential  disposition.  As of June 30, 2004,
the Company  had  invested  approximately  $124.5  million in these  development
projects.  Management  has  made  subjective  assessments  as to the  value  and
recoverability of these  investments  based on current and proposed  development
plans,  market  comparable land values and alternative use values.  In addition,
during the three and six month  periods  ended June 30,  2004,  the  Company has
capitalized approximately $2.3 million and $5.1 million, respectively related to
real  estate  taxes,   interest  and  other  carrying  costs  related  to  these
development  projects.  In October 2003, the Company  entered into a contract to
sell a 113 acre land parcel located in New Jersey.  The contract  provides for a
sales price ranging from $18 million to $36 million. The sale is contingent upon
obtaining zoning for residential use of the land and other customary  approvals.
The proceeds ultimately received from such sale will be based upon the number of
residential  units permitted by the rezoning.  The cost basis of the land parcel
at June 30, 2004 was  approximately  $5.7  million.  The closing is scheduled to
occur upon the rezoning,  which is  anticipated to occur within 12 to 24 months.
However,  there can be no assurances  such rezoning will occur.  During February
2004, a 3.9 acre land parcel located on Long Island was condemned by the Town of
Oyster Bay. As consideration  from the  condemnation the Company  anticipates it
will initially receive  approximately $1.8 million.  The Company's cost basis in
this land  parcel was  approximately  $1.4  million.  The  Company is  currently
contesting this valuation and seeking payment of additional  consideration  from
the Town of Oyster Bay but there can be no  assurances  that the Company will be
successful in obtaining any such  additional  consideration.  In July 2004,  the
Company  commenced the ground-up  development  of a 277,000  square foot Class A
office building with a total  anticipated  investment cost of approximately  $60
million.  This  development  is located  within the Company's  existing  404,000
square foot executive office park in Melville, NY.

                                       23
<PAGE>


In November 2003, the Company disposed of all but three of its 95 property,  5.9
million square foot, Long Island industrial building portfolio to members of the
Rechler family (the "Disposition") for approximately  $315.5 million,  comprised
of $225.1  million in cash and debt  assumption  and  3,932,111  common units of
limited partnership interest in the Operating Partnership ("OP Units") valued at
approximately  $90.4 million.  Approximately $204 million of cash sales proceeds
from the Disposition  were used to repay  borrowings  under the Credit Facility.
For  information  concerning  certain  litigation  matters  pertaining  to  this
transaction  see Part II-Other  Information;  Item 1. Legal  Proceedings of this
Form 10-Q.

In connection  with the  Disposition,  four of the five  remaining  options (the
"Remaining Option Properties")  granted to the Company at the time of the IPO to
purchase   interests  in  properties   owned  by  Rechler  family  members  were
terminated. In return the Company received an aggregate payment from the Rechler
family  members of $972,000.  Rechler  family members have also agreed to extend
the term of the  remaining  option on the  property  located at 225  Broadhollow
Road, Melville, New York (the Company's current headquarters) for five years and
to release the Company from approximately  15,500 square feet under its lease at
this property.  In connection with the restructuring of the remaining option the
Rechler  family  members paid the Company $1 million in return for the Company's
agreement not to exercise the option during the next three years. As part of the
agreement, the exercise price of the option payable by the Company was increased
by $1 million.

In January 2004, the Company sold a 104,000 square foot office property  located
on Long Island for approximately $18.5 million.  Net proceeds from the sale were
used to repay  borrowings under the Company's  unsecured  Credit Facility.  As a
result,  the Company recorded a net gain of approximately  $5.2 million,  net of
limited partners' minority interest.  In accordance with FASB Statement No. 144,
such  gain  has been  reflected  in  discontinued  operations  on the  Company's
consolidated statements of income.

In January 2004, the Company  acquired 1185 Avenue of the Americas,  a 42-story,
1.1 million  square foot Class A office  tower,  located  between  46th and 47th
Streets in New York, NY for $321 million.  In connection with this  acquisition,
the Company  assumed a $202 million  mortgage and $48 million of mezzanine debt.
The balance of the purchase  price was paid through an advance  under the Credit
Facility.  The floating rate  mortgage and mezzanine  debt both mature in August
2004 and presently have a weighted average interest rate of 4.95%.  Such rate is
based on the greater of one month LIBOR or 2.15% plus a weighted  average spread
of  approximately  2.80%. An interest rate hedge agreement was acquired to limit
exposure to increases in LIBOR above 5.825%.  The property is also encumbered by
a ground lease which has a remaining  term of  approximately  40 years with rent
scheduled  to be  re-set  at the end of 2005 and then  remain  constant  for the
balance of the term.  Pursuant to the terms of the ground lease, the Company and
the  ground  lessor  have  commenced  arbitration  proceedings  related  to  the
re-setting of the ground lease.  There can be no assurances as to the outcome of
the rent re-set process.  In accordance  with FASB Statement No. 141,  "Business
Combinations",  the Company allocated and recorded net deferred intangible lease
income of  approximately  $14.2 million,  representing the net value of acquired
above and below market leases,  assumed lease  origination costs and other value
of  in-place  leases.  The net value of the above  and  below  market  leases is
amortized  over the remaining  terms of the  respective  leases to rental income
which amounted to approximately  $2.0 million and $3.8 million for the three and
six month periods ended June 30, 2004. In addition,  amortization expense on the
value of lease origination costs was approximately $746,000 and $1.3 million for
the  three  and  six  month  periods  ended  June  30,  2004,  respectively.  At
acquisition, there were 31 in-place leases aggregating approximately one million
square feet with a weighted  average  remaining  lease term of  approximately  6
years.

During  February 2004,  the Company  executed a lease with Nassau County for the
entire building and concourse level at 60 Charles  Lindbergh Blvd., Long Island,
comprising  approximately  200,000  square feet,  including  127,000 square feet
previously  vacated  by  WorldCom/MCI.   60  Charles  Lindbergh  Blvd.  will  be
repositioned to satisfy Nassau County's use.

In April 2004, the Company sold a 175,000 square foot office building located on
Long Island for  approximately  $30  million,  of which the Company  owned a 51%
interest, and a wholly owned 9,000 square foot retail property for approximately
$2.8  million.  In  addition,  the  Company  completed  the  sale  on two of the
remaining three properties from the Disposition for approximately  $5.8 million.
Proceeds from the sale were used to establish an escrow account with a qualified
intermediary for a future exchange of real property  pursuant to Section 1031 of
the Code (a "Section 1031  Exchange").  A Section 1031  Exchange  allows for the
deferral of taxes  related to the gain  attributable  to the sale of property if
qualified  replacement  property is identified within 45 days and such qualified
replacement  property is then  acquired  within 180 days from the initial  sale.
There  can be no  assurances  that the  Company  will meet the  requirements  of
Section 1031 by identifying and acquiring  qualified  replacement  properties in
the required time frame, in which case the Company would incur the tax liability
on the capital gain realized of approximately  $1.5 million.  The disposition of
the other industrial property, which is subject to certain environmental issues,
is  conditioned  upon the  approval  of the buyer's  lender,  which has not been
obtained.  As a result, the Company will not dispose of this property as part of
the   Disposition.   Management   believes   that  the  cost  to  remediate  the
environmental issues will not have a material adverse effect on the Company, but
there can be no assurance in this regard.

In July  2004,  the  Company  acquired  a  141,000  square  foot  Class A office
property,  located in Chatham Township,  NJ for approximately $22.7 million. The
Company made this acquisition through available cash-on-hand.

                                       24
<PAGE>


During February 2003, the Company,  through Reckson  Construction  Group,  Inc.,
entered  into a  contract  with an  affiliate  of  First  Data  Corp.  to sell a
19.3-acre  parcel of land located in Melville,  New York and was retained by the
purchaser to develop a  build-to-suit  195,000  square foot office  building for
aggregate consideration of approximately $47 million. This transaction closed on
March 11, 2003 and  development of the  aforementioned  office building has been
completed.  In accordance with FASB Statement No. 66, the Company has recognized
a book gain,  before taxes, on this land sale and  build-to-suit  transaction of
approximately $23.8 million, of which $400,000 and $5.0 million and $4.3 million
and $10.1  million has been  recognized  during the three and six month  periods
ended June 30, 2004 and 2003,  respectively,  and is included in investment  and
other income on the Company's consolidated statements of income.

The Company holds a $17.0 million note  receivable,  which bears interest at 12%
per annum and is secured by a minority  partnership  interest in Omni  Partners,
L.P.,  owner of the Omni, a 579,000 square foot Class A office property  located
in  Uniondale,  New York (the "Omni  Note").  The Company  currently  owns a 60%
majority partnership  interest in Omni Partners,  L.P. and on March 14, 2007 may
exercise an option to acquire the  remaining  40%  interest for a price based on
90% of the fair  market  value of the  property.  The  Company  also holds a $30
million  junior  mezzanine  loan  which is  secured  by a pledge of an  indirect
ownership  interest of an entity which owns the ground  leasehold estate under a
1.1 million  square foot office  complex  located on Long Island,  New York (the
"Mezz Note"). The Mezz Note matures in September 2005,  currently bears interest
at  12.73%,  and the  borrower  has the  right to extend  for  three  additional
one-year   periods.   The  Company  also  holds  three  other  notes  receivable
aggregating $19.0 million which bear interest at rates ranging from 10.5% to 12%
per annum.  These  notes are secured in part by a minority  partner's  preferred
unit interest in the Operating  Partnership,  an interest in real property and a
personal  guarantee (the "Other Notes" and  collectively  with the Omni Note and
the  Mezz  Note,  the  "Note  Receivable   Investments").   During  April  2004,
approximately $2.7 million of the Other Notes, including accrued interest,  were
repaid  by the  minority  partner  exchanging,  and  the  Operating  Partnership
redeeming,  approximately  3,081  preferred  units.  The  preferred  units  were
redeemed  at a  par  value  of  $3.1  million.  Approximately  $420,000  of  the
redemption  proceeds was used to offset  interest due from the minority  partner
under the Other  Notes and for  prepaid  interest.  In July 2004,  the  minority
partner delivered notice to the Operating  Partnership  stating his intention to
repay $15.5 million of the 10.5% Other Notes.  When repaid,  the remaining Other
Notes will aggregate $3.5 million and carry a weighted  average interest rate of
11.57%. The Operating Partnership has also agreed to extend the maturity of $2.5
million of such debt  through  January 31, 2005 and the  remaining  $1.0 million
through  January 31, 2010. As of June 30, 2004,  management has made  subjective
assessments as to the underlying security value on the Company's Note Receivable
Investments.  These  assessments  indicate  an excess of market  value  over the
carrying value related to the Company's Note  Receivable  Investments.  Based on
these  assessments the Company's  management  believes there is no impairment to
the carrying value related to the Company's Note Receivable Investments.

The Company also owns a 355,000 square foot office building in Orlando, Florida.
This  non-core real estate  holding was acquired in May 1999 in connection  with
the  Company's  initial New York City  portfolio  acquisition.  This property is
cross-collateralized under a $100.1 million mortgage note payable along with one
of the  Company's New York City  buildings.  The Company has the right to prepay
this note in November 2004, prior to its maturity.

The Company also owns a 60%  non-controlling  interest in a 172,000  square foot
office building located at 520 White Plains Road in White Plains,  New York (the
"520JV"),  which it manages.  As of June 30, 2004, the 520JV had total assets of
$20.6 million, a mortgage note payable of $11.7 million and other liabilities of
$582,000.  The Company's  allocable  share of the 520JV mortgage note payable is
approximately  $7.6 million.  This mortgage note payable bears interest at 8.85%
per annum and matures on September 1, 2005. The operating agreement of the 520JV
requires  joint  decisions  from all members on all  significant  operating  and
capital decisions including sale of the property,  refinancing of the property's
mortgage  debt,  development  and  approval of leasing  strategy  and leasing of
rentable space. As a result of the decision-making participation relative to the
operations of the property,  the Company accounts for the 520JV under the equity
method of  accounting.  In accordance  with the equity method of accounting  the
Company's  proportionate  share of the 520JV  income  (loss)  was  approximately
$294,000 and $408,000 and  $(270,000) and $(164,000) for the three and six month
periods ended June 30, 2004 and 2003, respectively.

As part of the Company's REIT structure it is provided  management,  leasing and
construction  related services  through taxable REIT  subsidiaries as defined by
the Code. During the three and six months ended June 30, 2004 and 2003,  Reckson
Construction Group, Inc. or its successor,  Reckson  Construction & Development,
LLC billed  approximately  $217,000 and  $678,000  and  $105,900  and  $231,000,
respectively,  of market rate services and Reckson Management Group, Inc. billed
approximately $72,000 and $138,000, and $69,000 and $140,000,  respectively,  of
market rate management fees to the Remaining Option Properties.

Reckson Management Group, Inc. leases approximately 26,000 square feet of office
space  at  the  Remaining  Option  Property  located  at 225  Broadhollow  Road,
Melville,  New  York  for  its  corporate  offices  at an  annual  base  rent of
approximately  $750,000.  The Company had also entered into a short term license
agreement at the property for 6,000 square feet of temporary space which expired
in January 2004.  Reckson  Management Group, Inc. also leases 10,722 square feet
of warehouse  space used for  equipment,  materials and  inventory  storage at a
property  owned by certain  members of the Rechler family at an annual base rent
of  approximately  $75,000.  In  addition,  commencing  April 1,  2004,  Reckson
Construction & Development,  LLC ("RCD") has been leasing  approximately  17,000
square  feet  of  space  at  the  Remaining  Option  Property,  located  at  225
Broadhollow  Road,  Melville,  New  York,  which  was  formerly  occupied  by an
affiliate  of  First  Data  Corp.  through  September  30,  2006.  Base  rent of
approximately  $121,000  was paid by RCD during the three  months ended June 30,
2004. RCD  anticipates it will mitigate this obligation by sub-letting the space
to a  third  party.  However,  there  can be no  assurances  that  RCD  will  be
successful in sub-leasing the aforementioned  space and mitigating its aggregate
costs.

                                       25
<PAGE>


A company  affiliated with an Independent  Director of the Company leases 15,566
square  feet in a  property  owned by the  Company  at an  annual  base  rent of
approximately $445,000.

During July 1998, the Company formed Metropolitan Partners, LLC ("Metropolitan")
for the  purpose  of  acquiring  Class A office  properties  in New  York  City.
Currently the Company owns, through Metropolitan and the Operating  Partnership,
six  Class  A  office  properties,  located  in the New  York  City  borough  of
Manhattan, aggregating approximately 4.5 million square feet.

During  September  2000, the Company formed a joint venture (the "Tri-State JV")
with Teachers  Insurance and Annuity  Association  ("TIAA") and contributed nine
Class A suburban office properties aggregating  approximately 1.5 million square
feet to the Tri-State JV for a 51% majority ownership interest. TIAA contributed
approximately $136 million for a 49% interest in the Tri-State JV which was then
distributed  to the Company.  In August 2003,  the Company  acquired  TIAA's 49%
interest in the property  located at 275  Broadhollow  Road,  Melville,  NY, for
approximately  $12.4 million.  In addition,  during April 2004, the Tri-State JV
sold  a  175,000  square  foot  office  building  located  on  Long  Island  for
approximately  $30 million.  Net proceeds from this sale were distributed to the
members of the Tri-State JV. As a result of these transactions, the Tri-State JV
owns seven Class A suburban  office  properties  aggregating  approximately  1.2
million  square feet.  The Company is  responsible  for managing the  day-to-day
operations and business  affairs of the Tri-State JV and has substantial  rights
in making  decisions  affecting the  properties  such as leasing,  marketing and
financing.  The minority member has certain rights primarily intended to protect
its   investment.   For  purposes  of  its  financial   statements  the  Company
consolidates the Tri-State JV.

On December 21, 2001, the Company formed a joint venture with the New York State
Teachers'  Retirement Systems ("NYSTRS") (the "919JV") whereby NYSTRS acquired a
49% indirect interest in the property located at 919 Third Avenue,  New York, NY
for $220.5 million which included $122.1 million of its  proportionate  share of
secured  mortgage  debt and  approximately  $98.4 million of cash which was then
distributed  to the  Company.  The  Company  is  responsible  for  managing  the
day-to-day  operations  and  business  affairs of the 919JV and has  substantial
rights in making  decisions  affecting the property such as developing a budget,
leasing and marketing. The minority member has certain rights primarily intended
to protect its investment.  For purposes of its financial statements the Company
consolidates the 919JV.

The  total  market   capitalization   of  the  Company  at  June  30,  2004  was
approximately $3.7 billion.  The Company's total market  capitalization is based
on the sum of (i) the market  value of the  Company's  common stock and OP Units
(assuming  conversion) of $27.46 per  share/unit  (based on the closing price of
the Company's  common stock on June 30, 2004),  (ii) the liquidation  preference
value of the Company's  Series A preferred stock of $1,000 per share,  (iii) the
liquidation preference value of the Operating  Partnership's  preferred units of
$1,000 per unit and (iv) the approximately  $1.5 billion (including its share of
consolidated and unconsolidated joint venture debt and net of minority partners'
interests share of consolidated  joint venture debt) of debt outstanding at June
30, 2004. As a result,  the Company's total debt to total market  capitalization
ratio at June 30, 2004 equaled approximately 40.3%.

During 1997,  the Company  formed  FrontLine  Capital  Group,  formerly  Reckson
Service Industries,  Inc.  ("FrontLine") and Reckson Strategic Venture Partners,
LLC  ("RSVP").  RSVP is a real  estate  venture  capital  fund,  which  invested
primarily  in real  estate and real  estate,  operating  companies  outside  the
Company's core office and industrial / R&D focus and whose common equity is held
indirectly  by  FrontLine.  In  connection  with the  formation  and spin-off of
FrontLine,  the Operating  Partnership  established an unsecured credit facility
with  FrontLine  (the  "FrontLine  Facility")  in the amount of $100 million for
FrontLine to use in its  investment  activities,  operations  and other  general
corporate purposes.  The Company has advanced  approximately $93.4 million under
the FrontLine Facility.  The Operating  Partnership also approved the funding of
investments  of up to $100  million  relating  to RSVP (the "RSVP  Commitment"),
through  RSVP-controlled  joint  ventures (for  REIT-qualified  investments)  or
advances  made  to  FrontLine  under  an  unsecured  loan  facility  (the  "RSVP
Facility") having terms similar to the FrontLine  Facility  (advances made under
the RSVP Facility and the FrontLine Facility hereafter,  the "FrontLine Loans").
During March 2001, the Company increased the RSVP Commitment to $110 million and
as of June 30, 2004,  approximately  $109.1  million had been funded through the
RSVP Commitment, of which $59.8 million represents investments by the Company in
RSVP-controlled  (REIT-qualified)  joint  ventures and $49.3 million  represents
loans made to FrontLine under the RSVP Facility.  As of June 30, 2004,  interest
accrued (net of reserves) under the FrontLine Facility and the RSVP Facility was
approximately $19.6 million.

In September 2003, RSVP completed the restructuring of its capital structure. In
connection with the  restructuring,  RSVP redeemed the interest of the preferred
equity holders of RSVP for an aggregate of $137 million in cash and the transfer
to the preferred  equity  holders of the assets that  comprised  RSVP's  parking
investments  valued  at  approximately  $28.5  million.  As  a  result  of  this
transaction amounts formerly invested in the privatization,  parking and medical
office platforms have been reinvested as part of the buyout transaction.

A  committee  of  the  Board  of  Directors,  comprised  solely  of  independent
directors,  considers any actions to be taken by the Company in connection  with
the FrontLine Loans and its investments in joint ventures with RSVP.  During the
third  quarter  of  2001,  the  Company  noted a  significant  deterioration  in
FrontLine's  operations and financial  condition and, based on its assessment of
value and recoverability and considering the findings and recommendations of the
committee  and its  financial  advisor,  the  Company  recorded  a $163  million
valuation  reserve charge,  inclusive of anticipated  costs, in its consolidated
statements of operations  relating to its investments in the FrontLine Loans and
joint ventures with RSVP. The Company has  discontinued  the accrual of interest
income with  respect to the  FrontLine  Loans.  The  Company  has also  reserved
against  its share of GAAP  equity in earnings  from the RSVP  controlled  joint
ventures  funded  through  the RSVP  Commitment  until such  income is  realized
through cash distributions.

                                       26
<PAGE>


At December 31, 2001, the Company,  pursuant to Section 166 of the Code, charged
off for tax purposes $70 million of the aforementioned  reserve directly related
to the FrontLine Facility, including accrued interest. On February 14, 2002, the
Company  charged off for tax purposes an  additional  $38 million of the reserve
directly related to the FrontLine Facility,  including accrued interest, and $47
million of the reserve directly related to the RSVP Facility,  including accrued
interest.

FrontLine is in default under the FrontLine Loans from the Operating Partnership
and on June 12, 2002, filed a voluntary  petition for relief under Chapter 11 of
the United States Bankruptcy Code.

RSVP also restructured its management  arrangements whereby a management company
formed by its  former  managing  directors  has been  retained  to  manage  RSVP
pursuant to a management  agreement and the employment contracts of the managing
directors with RSVP have been terminated.  The management agreement provides for
an annual  base  management  fee,  and  disposition  fees equal to 2% of the net
proceeds  received  by  RSVP  on  asset  sales.  (The  base  management  fee and
disposition fees are subject to a maximum over the term of the agreement of $7.5
million.) In  addition,  the managing  directors  retained a one-third  residual
interest  in RSVP's  assets  which is  subordinated  to the  distribution  of an
aggregate  amount of $75  million to RSVP  and/or the  Company in respect of its
joint  ventures  with RSVP.  The  management  agreement  has a three-year  term,
subject  to early  termination  in the  event of the  disposition  of all of the
assets of RSVP.

In  connection  with the  restructuring,  RSVP  and  certain  of its  affiliates
obtained a $60 million secured loan. In connection with this loan, the Operating
Partnership  agreed to  indemnify  the lender in  respect  of any  environmental
liabilities  incurred  with  regard  to  RSVP's  remaining  assets  in which the
Operating  Partnership has a joint venture interest  (primarily  certain student
housing  assets held by RSVP) and  guaranteed  the obligation of an affiliate of
RSVP to the lender in an amount up to $6 million plus  collection  costs for any
losses  incurred by the lender as a result of certain acts of malfeasance on the
part of RSVP and/or its affiliates.  The loan is scheduled to mature in 2006 and
is expected to be repaid  from  proceeds of assets  sales by RSVP and or a joint
venture between RSVP and a subsidiary of the Operating Partnership.

In April 2004,  American Campus  Communities,  Inc.  ("ACC"),  a student housing
company owned by RSVP and the joint venture between RSVP and a subsidiary of the
Operating  Partnership,  filed a  registration  statement  on Form S-11 with the
Securities and Exchange  Commission in connection with a proposed initial public
offering  ("IPO") of its common stock.  RSVP and the joint venture  between RSVP
and a subsidiary  of the Operating  Partnership  plan to liquidate the ownership
position in ACC in connection with the IPO transaction.

As a  result  of  the  foregoing,  the  net  carrying  value  of  the  Company's
investments  in the  FrontLine  Loans and joint venture  investments  with RSVP,
inclusive of the Company's  share of previously  accrued GAAP equity in earnings
on those investments, is approximately $65 million, which was reassessed with no
change by  management  as of June 30,  2004.  Such amount has been  reflected in
investments in service  companies and affiliate  loans and joint ventures on the
Company's consolidated balance sheet.

Scott H.  Rechler,  who  serves  as Chief  Executive  Officer,  President  and a
director of the Company, serves as CEO and Chairman of the Board of Directors of
FrontLine and is its sole board member. Scott H. Rechler also serves as a member
of the  management  committee of RSVP and has agreed to serve as a member of the
board of ACC upon consummation of its initial public offering.

                                       27
<PAGE>


RESULTS OF OPERATIONS

The following  table is a comparison of the results of operations  for the three
month  period  ended June 30, 2004 to the three month period ended June 30, 2003
(dollars in thousands):

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED JUNE 30,
                                              --------------------------------------------------------
                                                                                    CHANGE
                                                                          ----------------------------

                                                  2004          2003         DOLLARS        PERCENT
                                              ------------  ------------  ------------   ------------
<S>                                           <C>           <C>           <C>                    <C>
PROPERTY OPERATING REVENUES:
  Base rents ...............................  $    109,765  $     94,141  $     15,624           16.6%
  Tenant escalations and  reimbursements ...        17,478        13,907         3,571           25.7%
                                              ------------  ------------   ------------

  TOTAL PROPERTY OPERATING REVENUES ........  $    127,243  $    108,048  $     19,195           17.8%
                                              ============  ============   ============

PROPERTY OPERATING EXPENSES:
  Operating expenses .......................  $     30,532  $     25,351  $      5,181           20.4%
  Real estate taxes ........................        20,094        17,087         3,007           17.6%
                                              ------------  ------------   ------------

  TOTAL PROPERTY OPERATING EXPENSES ........  $     50,626  $     42,438  $      8,188           19.3%
                                              ============  ============   ============

INVESTMENT AND OTHER INCOME ................  $      3,323  $      4,888  $     (1,565)         (32.0)%
                                              ============  ============   ============

OTHER EXPENSES:
  Interest expense .........................  $     24,607  $     20,145  $      4,462           22.1%
  Marketing, general and administrative ....         7,374         8,795        (1,421)         (16.2)%
                                              ------------  ------------   ------------

  TOTAL OTHER EXPENSES .....................  $     31,981  $     28,940  $      3,041           10.5%
                                              ============  ============   ============
</TABLE>

The Company's property operating  revenues,  which include base-rents and tenant
escalations and  reimbursements  ("Property  Operating  Revenues")  increased by
$19.2  million for the three  months ended June 30, 2004 as compared to the 2003
period.  Property  Operating  Revenues  increased $14.6 million  attributable to
lease up of redeveloped  properties and from the  acquisitions of 1185 Avenue of
the  Americas in January  2004 and 1055  Washington  Avenue in August  2003.  In
addition,  Property  Operating  Revenues increased by $1.3 million from built-in
rent  increases for existing  tenants in our "same store"  properties  and by an
$800,000  increase  in  termination  fees.   Property  Operating  Revenues  also
increased  by  approximately  $1.6  million  due  to  the  reduction  in  tenant
receivable  write-offs and to a weighted average occupancy increase in our "same
store" properties.  Tenant escalations and reimbursements increased $2.3 million
attributable  to  increased  operating  expense  and real estate tax costs being
passed  through to tenants as base years for 2002 take effect.  These  increases
were offset by $500,000 in same space rental rate decreases and $800,000 of free
rent concessions.

The Company's  property operating  expenses,  real estate taxes and ground rents
("Property  Expenses")  increased  by  approximately  $8.2 million for the three
months  ended June 30,  2004 as  compared to the 2003  period.  The  increase is
primarily attributable the Company's acquisitions of 1185 Avenue of the Americas
and  1055  Washington  Avenue  amounting  to  approximately  $7.6  million.  The
remaining  increase in property  operating expenses is attributable to $ 600,000
in real estate taxes and  operating  expenses  from the  Company's  "same store"
properties.  Increases in real estate taxes is  attributable  to the significant
increases  levied by certain  municipalities,  particularly in New York City and
Nassau County, New York which have experienced fiscal budget issues.

Investment and other income decreased by $1.6 million or 32.0%. This decrease is
primarily  attributable  to the decrease in the gain recognized of the Company's
land sale and  build-to-suit  transaction of  approximately  $3.9 million.  This
decrease was off-set by cost savings achieved by the Company's service companies
related to the November 2003 restructuring.

Interest  expense   increased  by  $4.5  million  or  22.1%.  This  increase  is
attributable to  approximately  $3.4 million of interest expense incurred on the
mortgage debt on 1185 Avenue of the Americas  which was acquired in January 2004
and  approximately  $2.8  million of  corporate  interest  expense  allocable to
discontinued  operations  for the three month period ended June 30, 2003 with no
such allocation in the current period.  These increases were offset by decreases
in interest expense of approximately $400,000 incurred under the Company's "same
store" mortgage  portfolio and a decrease in interest  expense of  approximately
$1.7 million incurred under the Company's  unsecured credit facility as a result
of a decrease in the weighted average balance outstanding.  The weighted average
balance  outstanding  under the  Company's  unsecured  credit  facility  was $90
million for the three months  ended June 30, 2004 as compared to $319.9  million
for the three months ended June 30, 2003.

                                       28
<PAGE>


Marketing,  general and  administrative  expenses  decreased  by $1.4 million or
16.2%.  This overall  decrease is attributable to the  efficiencies  the Company
achieved  as a  result  of its  November  2003  restructuring  and  the  related
termination of certain  employees and settlement of the employment  contracts of
certain former executive officers of the Company.

Discontinued  operations,  net of  limited  partners'  and  minority  interests,
increased by  approximately  $319,000.  This net increase is attributable to the
gain on sales  related to those  properties  sold during the  current  period of
approximately  $3.6 million,  which was offset by the decrease of the operations
for those properties sold between July 1, 2003 and March 31, 2004.

The following  table is a comparison  of the results of  operations  for the six
month  period  ended June 30, 2004 to the six month  period  ended June 30, 2003
(dollars in thousands):

<TABLE>
<CAPTION>
                                                             SIX MONTHS ENDED JUNE 30,
                                             -------------------------------------------------------
                                                                                  CHANGE
                                                                         ---------------------------

                                                  2004         2003         DOLLARS        PERCENT
                                             ------------  ------------  ------------   ------------
<S>                                          <C>           <C>           <C>                    <C>
PROPERTY OPERATING REVENUES:
  Base rents ..............................  $    220,800  $    188,885  $     31,915           16.9%
  Tenant escalations and reimbursements ...        35,593        27,943         7,650           27.4%
                                             ------------  ------------   ------------

  TOTAL PROPERTY OPERATING REVENUES .......  $    256,393  $    216,828  $     39,565           18.2%
                                             ============  ============   ============

PROPERTY OPERATING EXPENSES:
  Operating expenses ......................  $     61,406  $     51,789  $      9,617           18.6%
  Real estate taxes .......................        40,685        34,029         6,656           19.6%
                                             ------------  ------------   ------------

  TOTAL PROPERTY OPERATING EXPENSES .......  $    102,091  $     85,818  $     16,273           19.0%
                                             ============  ============   ============

INVESTMENT AND OTHER INCOME ...............  $      8,986  $     12,147  $     (3,161)         (26.0)%
                                             ============  ============   ============

OTHER EXPENSES:
  Interest expense ........................  $     50,268  $     40,242  $     10,026           24.9%
  Marketing, general and administrative ...        14,441        16,364        (1,923)         (11.8)%
                                             ------------  ------------   ------------

  TOTAL OTHER EXPENSES ....................  $     64,709  $     56,606  $      8,103           14.3%
                                             ============  ============   ============
</TABLE>

The Company's Property Operating Revenues increased by $39.6 million for the six
months  ended June 30, 2004 as compared to the 2003 period.  Property  Operating
Revenues  increased  $27.3  million  attributable  to  lease  up of  redeveloped
properties and from the  acquisitions  of 1185 Avenue of the Americas in January
2004 and 1055 Washington Avenue in August 2003. In addition,  Property Operating
Revenues  increased by $2.6 million from  built-in  rent  increases for existing
tenants  in our  "same  store"  properties  and by a $5.0  million  increase  in
termination fees.  Property  Operating  Revenues also increased by approximately
$2.8  million due to the  reduction  in tenant  receivable  write-offs  and to a
weighted  average  occupancy  increase in our "same  store"  properties.  Tenant
escalations and reimbursements  increased $4.3 million attributable to increased
operating  expense and real estate tax costs being passed  through to tenants as
base years for 2002 take effect. These increases were offset by $800,000 in same
space rental rate decreases and $1.5 million of free rent concessions.

The Company's Property Expenses increased by approximately $16.3 million for the
six months ended June 30, 2004 as compared to the 2003  period.  The increase is
primarily attributable the Company's acquisitions of 1185 Avenue of the Americas
and 1055  Washington  Avenue  amounting  to  approximately  $12.7  million.  The
remaining  increase in Property  Expenses is attributable to approximately  $3.6
million in real estate taxes and operating  expenses  from the  Company's  "same
store"  properties.  Increases  in real  estate  taxes  is  attributable  to the
significant increases levied by certain municipalities, particularly in New York
City and Nassau County, New York which have experienced fiscal budget issues.

Investment  and other  income  decreased  by $3.2 million or 26.0 % from the six
month  period  ended June 30, 2003 as compared to the same  quarterly  period of
2004.  The  decrease  is  primarily  attributable  to a  decrease  in  the  gain
recognized  on  the  Company's  land  sale  and  build-to-suit   transaction  of
approximately  $5.1  million.  This  decrease  was off-set by net  increases  in
interest  income  on  mortgage  notes  and  notes  receivable  of  approximately
$403,000, net increases in real estate tax recoveries, related to prior periods,
of  approximately  $600,000 and cost savings  achieved by the Company's  service
companies related to the November 2003 restructuring.

Interest expense  increased by $10.0 million or 24.9 % from the six month period
ended  June 30,  2003 as  compared  to the same  quarterly  period of 2004.  The
increase is  attributable  to the net  increase of $50 million in the  Operating
Partnership's senior unsecured notes which

                                       29
<PAGE>


resulted in  approximately  $ 1.3  million of  additional  interest  expense and
approximately  $6.5 million of interest expense incurred on the mortgage debt on
1185 Avenue of the  Americas  which was acquired in January  2004.  In addition,
during  the six  month  period  ended  June  30,  2003,  the  Company  allocated
approximately $5.5 million of its interest expense to discontinued operations in
accordance  with FASB  Statement No. 144 with no such  allocation in the current
period.  This allocation  resulted in an additional increase in interest expense
from continuing operations. These increases were offset by decreases in interest
expense of  approximately  $691,000  incurred  under the Company's  "same store"
mortgage portfolio,  in capitalized  interest expense of approximately  $326,000
attributable  to a decrease in development  projects and in interest  expense of
approximately  $2.3  million  incurred  under  the  Company's  unsecured  credit
facility as a result of a decrease in the weighted average balance  outstanding.
The weighted average balance  outstanding  under the Company's  unsecured credit
facility  was $104.9  million for the six months ended June 30, 2004 as compared
to $303.0 million for the six months ended June 30, 2003.

Marketing,  general and  administrative  expenses  decreased  by $1.9 million or
11.8% from the six month  period  ended June 30,  2003 as  compared  to the same
quarterly  period  of  2004.  This  overall  decrease  is  attributable  to  the
efficiencies the Company achieved as a result of its November 2003 restructuring
and  the  related  termination  of  certain  employees  and  settlement  of  the
employment contracts of certain former executive officers of the Company.

Discontinued  operations,  net of  limited  partners'  and  minority  interests,
increased by  approximately  $3.0 million.  This net increase is attributable to
the gain on sales of real  estate for those  properties  sold during the current
period of approximately  $8.8 million,  which was off-set by the decrease of the
operations for those properties sold between July 1, 2003 and January 1, 2004.

LIQUIDITY AND CAPITAL RESOURCES

Historically,  rental  revenue  has been the  principal  source  of funds to pay
operating  expenses,  debt  service and  non-incremental  capital  expenditures,
excluding  incremental capital  expenditures of the Company. The Company expects
to meet its short-term  liquidity  requirements  generally  through its net cash
provided  by  operating  activities  along with its  unsecured  credit  facility
described below. The credit facility contains several  financial  covenants with
which the Company must be in  compliance  in order to borrow  funds  thereunder.
During recent quarterly periods,  the Company has incurred  significant  leasing
costs as a result of  increased  market  demands from tenants and high levels of
leasing transactions that result from the re-tenanting of scheduled  expirations
or early  terminations  of leases.  The Company is currently  experiencing  high
tenanting costs including tenant improvement costs, leasing commissions and free
rent in all of its markets.  For the three and six month  periods ended June 30,
2004,  the  Company  paid $11.5  million  and $21.6  million,  respectively  for
tenanting costs including tenant improvement costs and leasing commissions. As a
result of these and / or other operating  factors,  the Company's cash flow from
operating activities was not sufficient to pay 100% of the dividends paid on its
common stock.  To meet the  short-term  funding  requirements  relating to these
leasing  costs,  the Company has used  proceeds of property  sales or borrowings
under its credit facility. Based on the Company's forecasted leasing for 2004 it
anticipates that it will incur similar shortfalls. The Company currently intends
to fund any shortfalls  with proceeds from  non-income  producing asset sales or
borrowings  under its credit  facility.  The  Company  periodically  reviews its
dividend policy to determine the  appropriateness of the Company's dividend rate
relative to the  Company's  cash flows.  The Company  adjusts its dividend  rate
based on such factors as leasing  activity,  market  conditions  and  forecasted
increases  and decreases in its cash flow as well as required  distributions  of
taxable  income to maintain  REIT  status.  There can be no  assurance  that the
Company will  maintain the current  quarterly  distribution  level on its common
stock.

The  Company  expects to meet  certain  of its  financing  requirements  through
long-term  secured and unsecured  borrowings and the issuance of debt and equity
securities  of the  Company.  During the six months  ended  June 30,  2004,  the
Company  issued $150  million of common  equity  securities  and $150 million of
senior unsecured debt  securities.  There can be no assurance that there will be
adequate  demand for the  Company's  equity at the time or at the price in which
the Company  desires to raise  capital  through the sale of  additional  equity.
Similarly, there can be no assurance that the Company will be able to access the
unsecured  debt  markets  at the  time  when  the  Company  desires  to sell its
unsecured  notes.  In  addition,  when  valuations  for  commercial  real estate
properties  are high,  the Company will seek to sell  certain land  inventory to
realize value and profit created.  The Company will then seek  opportunities  to
reinvest the capital  realized  from these  dispositions  back into  value-added
assets in the Company's core Tri-State  Area markets.  However,  there can be no
assurances  that the Company will be able to identify  such  opportunities  that
meet the Company's  underwriting  criteria.  The Company will refinance existing
mortgage  indebtedness,  senior unsecured notes or indebtedness under its credit
facility at maturity or retire such debt through the issuance of additional debt
securities or additional  equity  securities.  The Company  anticipates that the
current  balance of cash and cash  equivalents  and cash  flows  from  operating
activities,  together with cash available from borrowings,  equity offerings and
proceeds from sales of land and non-income producing assets, will be adequate to
meet the capital and liquidity requirements of the Company in both the short and
long-term.  The Company's  senior  unsecured  debt is currently  rated "BBB-" by
Fitch,  "BBB-" by  Standard & Poors and "Ba1" by  Moody's.  The rating  agencies
review  the  ratings  assigned  to an issuer  such as the  Company on an ongoing
basis.  Negative  changes in the Company's  ratings would result in increases in
the  Company's  borrowing  costs,   including  borrowings  under  the  Company's
unsecured credit facility.

As a result of current  economic  conditions,  certain  tenants  have either not
renewed their leases upon expiration or have paid the Company to terminate their
leases. In addition,  a number of U.S. companies have filed for protection under
federal  bankruptcy laws. Certain of these companies are tenants of the Company.
The Company is subject to the risk that other  companies that are tenants of the
Company may file for bankruptcy  protection.  This may have an adverse impact on
the financial results and condition of the Company.  Our results reflect vacancy
rates in our  markets  that are at the  higher  end of the  range of  historical
cycles and in some instances our asking rents in

                                       30
<PAGE>


our markets have trended lower and landlords have been required to grant greater
concessions  such as free rent and tenant  improvements.  Our markets  have also
been  experiencing  higher real estate  taxes and utility  rates.  However,  our
markets  have begun to recover as  evidenced  by an  increased  level of leasing
activity,  increased  occupancy  rates in our portfolio and decreases in vacancy
rates in certain of our markets.

The Company carries comprehensive liability,  fire, extended coverage and rental
loss  insurance on all of its  properties.  Six of the Company's  properties are
located  in New York  City.  As a result of the events of  September  11,  2001,
insurance  companies were limiting  coverage for acts of terrorism in "all risk"
policies.  In November 2002, the Terrorism Risk Insurance Act of 2002 was signed
into law,  which,  among other  things,  requires  insurance  companies to offer
coverage for losses resulting from defined "acts of terrorism" through 2004. The
Company's current  insurance  coverage provides for full replacement cost of its
properties,  including  for  acts  of  terrorism  up to  $500  million  on a per
occurrence basis, except for one asset which is insured up to $393 million.

The  potential  impact of terrorist  attacks in the New York City and  Tri-State
Area may adversely affect the value of the Company's  properties and its ability
to generate cash flow. As a result, there may be a decrease in demand for office
space in  metropolitan  areas that are  considered at risk for future  terrorist
attacks,  and this  decrease may reduce the  Company's  revenues  from  property
rentals.

In order to qualify as a REIT for federal  income tax  purposes,  the Company is
required  to make  distributions  to its  stockholders  of at least  90% of REIT
taxable  income.  The  Company  expects  to use its  cash  flow  from  operating
activities  for  distributions  to  stockholders  and for payment of  recurring,
non-incremental  revenue-generating  expenditures. The Company intends to invest
amounts accumulated for distribution in short-term liquid investments.

As of June 30, 2004, the Company had a $500 million  unsecured  revolving credit
facility (the "Credit  Facility")  from JPMorgan  Chase Bank, as  administrative
agent,  Wells  Fargo Bank,  National  Association,  as  syndication  agent,  and
Citicorp  North  America,  Inc.  and Wachovia  Bank,  National  Association,  as
co-documentation agents. The Credit Facility was scheduled to mature in December
2005,  contained  options for a one-year  extension subject to a fee of 25 basis
points and, upon receiving additional lender commitments, increasing the maximum
revolving credit amount to $750 million. As of June 30, 2004, based on a pricing
grid of the Operating Partnership's unsecured debt ratings, borrowings under the
Credit  Facility  were  priced  off LIBOR  plus 90 basis  points  and the Credit
Facility  carried a facility fee of 20 basis points per annum. In the event of a
change in the  Operating  Partnership's  unsecured  credit  ratings the interest
rates and facility fee are subject to change.  At June 30, 2004, the outstanding
borrowings  under the Credit  Facility  aggregated  $90  million  and  carried a
weighted average interest rate of 2.18%.

In August 2004, the Company  amended and extended the Credit  Facility to mature
in August  2007  with  similar  terms and  conditions  as  existed  prior to the
amendment and extension.

The  Company  utilizes  the Credit  Facility  primarily  to finance  real estate
investments, fund its real estate development activities and for working capital
purposes.  At June 30,  2004,  the  Company  had  availability  under the Credit
Facility  to borrow an  additional  $410  million,  subject to  compliance  with
certain financial covenants.

In connection with the acquisition of certain properties,  contributing partners
of such properties have provided guarantees on indebtedness of the Company. As a
result,  the  Company  maintains  certain  outstanding  balances  on its  Credit
Facility.

On January 22, 2004, the Operating Partnership issued $150 million of seven-year
5.15% (5.196%  effective rate) senior unsecured notes.  Prior to the issuance of
these senior  unsecured  notes the Company  entered  into  several  anticipatory
interest rate hedge  instruments to protect itself  against  potentially  rising
interest  rates.  At the time the notes were issued the  Company  incurred a net
cost of approximately $980,000 to settle these instruments. Such costs are being
amortized over the term of the senior  unsecured  notes.  During March 2004, the
Company also  completed an equity  offering of 5.5 million  shares of its common
stock raising approximately $149.5 million, net of an underwriting  discount, or
$27.18 per share.  Net proceeds  received from these  transactions  were used to
repay  outstanding  borrowings under the Credit Facility,  repay $100 million of
the  Operating  Partnership's  7.4%  senior  unsecured  notes  and to  invest in
short-term liquid investments.

The Company continues to seek opportunities to acquire real estate assets in its
markets.  The Company has  historically  sought to acquire  properties  where it
could use its real estate  expertise to create  additional  value  subsequent to
acquisition. As a result of increased market values for the Company's commercial
real estate assets, the Company has sold certain non-core assets or interests in
assets where significant  value has been created.  During 2003, the Company sold
assets or  interests  in assets with  aggregate  sales  prices of  approximately
$350.6  million.  In addition,  during the six months  ended June 30, 2004,  the
Company has sold assets or  interests in assets with  aggregate  sales prices of
approximately  $44.1 million,  net of minority partner's joint venture interest.
The Company used the proceeds from these sales  primarily to pay down borrowings
under the Credit  Facility,  for  general  corporate  purposes  and to invest in
short-term  liquid  investments  until  such  time as  alternative  real  estate
investments can be made.

An OP Unit  and a share of  common  stock  have  essentially  the same  economic
characteristics  as they effectively share equally in the net income or loss and
distributions of the Operating Partnership.  Subject to certain holding periods,
OP Units may either be redeemed  for cash or, at the  election  of the  Company,
exchanged  for  shares  of common  stock on a  one-for-one  basis.  The OP Units
currently  receive a quarterly  distribution  of $.4246 per unit. As of June 30,
2004, the Operating  Partnership had issued and outstanding 3,084,708 Class A OP

                                       31
<PAGE>


Units and 465,845  Class C OP Units.  The Class C OP Units were issued in August
2003 in  connection  with the  contribution  of real  property to the  Operating
Partnership and currently receive a quarterly distribution of $.4664 per unit.

On November 25, 2003,  the Company  exchanged all of its  9,915,313  outstanding
shares  of Class B common  stock for an equal  number  of  shares of its  common
stock.  The Board of Directors  declared a final cash  dividend on the Company's
Class B common  stock to holders of record on November 25, 2003 in the amount of
$.1758 per share which was paid on January 12, 2004.  This  payment  covered the
period from  November  1, 2003  through  November  25, 2003 and was based on the
previous  quarterly  Class B common stock dividend rate of $.6471 per share.  In
order to align the regular  quarterly  dividend  payment  schedule of the former
holders of Class B common stock with the schedule of the holders of common stock
for periods  subsequent to the exchange  date for the Class B common stock,  the
Board of Directors also declared a cash dividend with regard to the common stock
to holders of record on October 14, 2003 in the amount of $.2585 per share which
was paid on January 12, 2004.  This  payment  covered the period from October 1,
2003  through  November 25, 2003 and was based on the current  quarterly  common
stock  dividend  rate of $.4246 per share.  As a result,  the  Company  declared
dividends  through  November 25, 2003 to all holders of common stock and Class B
common  stock.  The Board of  Directors  also  declared  the  common  stock cash
dividend for the portion of the fourth quarter  subsequent to November 25, 2003.
The holders of record of common stock on January 2, 2004,  giving  effect to the
exchange  transaction,  received a dividend on the common stock in the amount of
$.1661 per share on January  12,  2004.  This  payment  covered  the period from
November  26,  2003  through  December  31,  2003 and was  based on the  current
quarterly common stock dividend rate of $.4246 per share.

During the six month  period  ended June 30,  2004,  approximately  1.3  million
shares of the Company's  common stock was issued in connection with the exercise
of outstanding  options to purchase stock under its stock option plans resulting
in proceeds to the Company of approximately $27.2 million.

The Board of  Directors  of the Company  authorized  the  purchase of up to five
million shares of the Company's common stock.  Transactions conducted on the New
York Stock Exchange have been,  and will continue to be,  effected in accordance
with the safe harbor  provisions of the Securities  Exchange Act of 1934 and may
be  terminated  by  the  Company  at  any  time.   Since  the  Board's   initial
authorization,  the Company has purchased  3,318,600  shares of its common stock
for an aggregate  purchase price of approximately  $71.3 million.  In June 2004,
the Board of Directors re-set the Company's common stock repurchase program back
to five million shares.  No purchases were made during the six months ended June
30, 2004.

The  Board of  Directors  of the  Company  also  formed a pricing  committee  to
consider purchases of up to $75 million of the Company's  outstanding  preferred
securities.

On June 30, 2004,  the Company had issued and  outstanding  8,693,900  shares of
7.625% Series A Convertible  Cumulative Preferred Stock (the "Series A preferred
stock").  The Series A preferred  stock is redeemable by the Company on or after
April 13, 2004 at a price of $25.7625 per share with such price  decreasing,  at
annual intervals, to $25.00 per share on April 13, 2008. In addition, the Series
A preferred stock, at the option of the holder,  is convertible at any time into
the Company's  common stock at a price of $28.51 per share. On May 13, 2004, the
Company purchased and retired 140,600 shares of the Series A preferred stock for
approximately  $3.4 million or $24.45 per share. In addition,  during July 2004,
the  Company  exchanged  1,350,000  shares of the Series A  preferred  stock for
1,304,602  shares of common  stock.  As a result  of these  transactions  annual
preferred  dividends will decrease by approximately $2.8 million.  In accordance
with the Emerging  Issues Task Force  ("EITF") Topic D-42 the Company will incur
an  accounting  charge during the third  quarter of 2004 of  approximately  $3.4
million in  connection  with the July 2004  exchange  of the Series A  preferred
stock.

On January 1, 2004, the Company had issued and outstanding two million shares of
Series B  Convertible  Cumulative  Preferred  Stock  (the  "Series  B  preferred
stock").  The Series B preferred stock was redeemable by the Company as follows:
(i) on or after June 3, 2003 to and including  June 2, 2004, at $25.50 per share
and (ii) on or after  June 3, 2004 and  thereafter,  at $25.00  per  share.  The
Series B preferred  stock,  at the option of the holder,  was convertible at any
time into the Company's  common stock at a price of $26.05 per share. On January
16, 2004,  the Company  exercised its option to redeem the two million shares of
outstanding  Series B preferred stock for approximately  1,958,000 shares of its
common stock. As a result of this  redemption  annual  preferred  dividends will
decrease by approximately $4.4 million.

On  April  1,  2004,  the  Operating  Partnership  had  issued  and  outstanding
approximately  19,662  preferred  units of limited  partnership  interest with a
liquidation  preference  value  of  $1,000  per unit  and a  current  annualized
distribution  of $55.60 per unit (the  "Preferred  Units").  The Preferred Units
were issued in 1998 in connection with the  contribution of real property to the
Operating  Partnership.  On April 12, 2004, the Operating  Partnership  redeemed
approximately  3,081  Preferred  Units,  at  the  election  of the  holder,  for
approximately  $3.1 million,  including  accrued and unpaid  dividends  which is
being  applied to amounts owed from the unit holder  under the Other  Notes.  In
addition,   during  July  2004,  the  holder  of  approximately  15,381  of  the
outstanding  Preferred  Units  exchanged  them  into  OP  Units.  The  Operating
Partnership  converted  the  Preferred  Units,   including  accrued  and  unpaid
dividends,   into   approximately   531,000  OP  Units,  which  were  valued  at
approximately  $14.7  million at the time of the  conversion.  Subsequent to the
conversion,  the OP Units were  exchanged  for an equal  number of shares of the
Company's  common  stock.  In  connection  with  the  July  2004  exchanges  and
conversions,  the  preferred  unit  holder  delivered  notice  to the  Operating
Partnership of his intent to repay $15.5 million owed from the unit holder under
the Other Notes.

Effective  January 1, 2002 the Company has elected to follow FASB  Statement No.
123,  "Accounting for Stock Based  Compensation".

                                       32
<PAGE>


Statement No.123 requires the use of option valuation models which determine the
fair  value of the option on the date of the grant.  All future  employee  stock
option  grants will be expensed over the options'  vesting  periods based on the
fair value at the date of the grant in  accordance  with  Statement  No. 123. To
determine  the fair  value of the stock  options  granted,  the  Company  uses a
Black-Scholes  option pricing model. Prior to the adoption of Statement No. 123,
the Company had applied  Accounting  Principles Board Opinion No. 25 and related
interpretations  in accounting for its stock option plans and reported pro forma
disclosures  in its Form 10-K  filings by  estimating  the fair value of options
issued and the related expense in accordance with Statement No. 123. During each
of the six month  periods  ended June 30, 2004 and 2003,  the  Company  recorded
approximately  $2,700 of  expense  related  to the fair  value of stock  options
issued. Such amounts have been included in marketing, general and administrative
expenses in the Company's consolidated statements of income.

The Company's  indebtedness at June 30, 2004 totaled  approximately $1.5 billion
(including its share of consolidated and  unconsolidated  joint venture debt and
net of minority  partners'  interests share of consolidated  joint venture debt)
and  was  comprised  of $90  million  outstanding  under  the  Credit  Facility,
approximately  $549.1 million of senior unsecured notes and approximately $833.2
million  of  mortgage   indebtedness.   Based  on  the  Company's  total  market
capitalization of approximately  $3.7 billion at June 30, 2004 (calculated based
on the sum of (i) the market value of the  Company's  common stock and OP Units,
assuming  conversion,  (ii) the  liquidation  preference  value of the Company's
preferred  stock,  (iii)  the  liquidation  preference  value  of the  Operating
Partnership's  preferred units and (iv) the $1.5 billion of debt), the Company's
debt represented approximately 40.3% of its total market capitalization.

                                       33
<PAGE>


CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The  following  table sets forth the  Company's  significant  consolidated  debt
obligations,  by scheduled  principal  cash flow payments and maturity date, and
its  commercial   commitments  by  scheduled  maturity  at  June  30,  2004  (in
thousands):

<TABLE>
<CAPTION>
                                                                         MATURITY DATE
                                 ---------------------------------------------------------------------------------
                                     2004          2005          2006          2007          2008       THEREAFTER      TOTAL
                                 -----------   -----------   -----------   -----------   -----------   -----------   -----------
<S>                              <C>           <C>           <C>           <C>           <C>           <C>           <C>
Mortgage notes payable (1)       $     6,779   $    13,887   $    13,478   $    10,969   $     9,989   $   105,178   $   160,280
Mortgage notes payable (2) (3)       250,000        18,553       129,920        60,539            --       346,269       805,281
Senior unsecured notes                    --            --            --       200,000            --       350,000       550,000
Unsecured credit facility                 --        90,000            --            --            --            --        90,000
Land lease obligations (4)             3,737         3,776         3,828         3,753         3,753        78,672        97,519
Operating leases                       1,119         1,282         1,198           844           359            --         4,802
Air rights lease
 obligations                             333           333           333           333           333         3,680         5,345
                                 -----------   -----------   -----------   -----------   -----------   -----------   -----------
                                 $   261,968   $   127,831   $   148,757   $   276,438   $    14,434   $   883,799   $ 1,713,227
                                 ===========   ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>

(1)  Scheduled principal amortization payments.

(2)  Principal payments due at maturity.

(3)  In  addition,  the Company has a 60%  interest in an  unconsolidated  joint
     venture  property.  The  Company's  share of the mortgage debt at March 31,
     2004 is  approximately  $7.6 million.  This mortgage note bears interest at
     8.85%  per  annum  and  matures  on  September  1,  2005 at which  time the
     Company's share of the mortgage debt will be approximately $6.9 million.

(4)  The Company leases,  pursuant to noncancellable  operating leases, the land
     on which twelve of its buildings were constructed.  The leases,  certain of
     which  contain  renewal  options at the  direction of the  Company,  expire
     between 2006 and 2090. The leases either  contain  provisions for scheduled
     increases in the minimum rent at specified  intervals or for adjustments to
     rent  based  upon the fair  market  value of the  underlying  land or other
     indices at specified  intervals.  Minimum  ground rent is  recognized  on a
     straight-line basis over the terms of the leases.

Certain of the mortgage notes payable are guaranteed by certain limited partners
in the Operating  Partnership and/or the Company.  In addition,  consistent with
customary practices in non-recourse lending,  certain non-recourse mortgages may
be  recourse  to the  Company  under  certain  limited  circumstances  including
environmental issues and breaches of material representations.

During  August 2004 the mortgage note payable and  mezzanine  debt,  aggregating
$250 million, on the property located at 1185 Avenue of the Americas,  New York,
NY,  matures.  On March 19,  2004,  the Company  entered  into two  anticipatory
interest rate hedge  instruments  which are scheduled to coincide with an August
2004 debt maturity, totaling $100 million, to protect itself against potentially
rising  interest  rates.  At June 30, 2004, the fair value of these  instruments
exceeded  their carrying value by  approximately  $5.2 million.  Such amount has
been reflected as accumulated  other  comprehensive  income with a corresponding
increase to prepaid expenses and other assets on the Company's balance sheet. On
July 1, 2004, the Company entered into an additional  anticipatory interest rate
hedge  instrument  totaling  $12.5 million to coincide  with the  aforementioned
August 2004 debt maturity.

At June 30, 2004, the Company had approximately  $940,000 in outstanding undrawn
standby  letters  of credit  issued  under the  Credit  Facility.  In  addition,
approximately $43.5 million, or 4.5%, of the Company's mortgage debt is recourse
to the Company.

                                       34
<PAGE>


OTHER MATTERS

Seven of the Company's office  properties which were acquired by the issuance of
OP Units are subject to agreements  limiting the  Company's  ability to transfer
them prior to agreed upon dates  without the consent of the limited  partner who
transferred  the  respective  property to the Company.  In the event the Company
transfers any of these properties prior to the expiration of these  limitations,
the Company may be required to make a payment  relating to taxes incurred by the
limited partner. These limitations expire between 2007 and 2013.

Three of the  Company's  office  properties  are held in  joint  ventures  which
contain certain limitations on transfer. These limitations include requiring the
consent of the joint  venture  partner to  transfer a property  prior to various
specified dates, rights of first offer, and buy / sell provisions.

With the recent appointment of Messrs. Crocker, Steinberg, Ruffle and Ms. McCaul
as additional  independent  directors and the retirement of Mr.  Kevenides,  the
Company's Board of Directors  currently consists of seven independent  directors
and two insiders.  Mr. Peter Quick serves as the Lead Director of the Board.  In
addition,  each  of  the  Audit,  Compensation  and  Nominating  and  Governance
Committees is comprised solely of independent directors.

In May 2003, the Company  revised its policy with respect to compensation of its
independent  directors to provide that a substantial  portion of the independent
director's  compensation  shall be in the form of common  stock of the  Company.
Such common stock may not be sold until such time as the director is no longer a
member of the Company's Board.

Recently,  the  Company  has taken  certain  additional  actions to enhance  its
corporate governance policies. These actions included opting out of the Maryland
Business  Combination  Statute,  de-staggering the Board of Directors to provide
that each director is subject to election by shareholders on an annual basis and
modifying  the  Company's  "five or fewer"  limitation  on the  ownership of its
common stock so that such  limitation  may only be used to protect the Company's
REIT status and not for anti-takeover purposes.

The Company  has also  adopted a policy  which  requires  that each  independent
director  acquire  $100,000 of common  stock of the  Company and a policy  which
requires that at least one  independent  director be rotated off the Board every
three years.

The Company had historically  structured long term incentive  programs  ("LTIP")
using  restricted  stock and stock loans.  In July 2002,  as a result of certain
provisions of the Sarbanes Oxley legislation,  the Company  discontinued the use
of stock  loans in its LTIP.  In  connection  with LTIP grants made prior to the
enactment  of the  Sarbanes  Oxley  legislation  the Company made stock loans to
certain  executive and senior officers to purchase  487,500 shares of its common
stock at market  prices  ranging from $18.44 per share to $27.13 per share.  The
stock loans were set to bear  interest at the mid-term  Applicable  Federal Rate
and were secured by the shares  purchased.  Such stock loans (including  accrued
interest)  were  scheduled  to vest and be  ratably  forgiven  each  year on the
anniversary  of the grant date based upon vesting  periods  ranging from four to
ten years based on  continued  service and in part on attaining  certain  annual
performance  measures.  These  stock  loans had an  initial  aggregate  weighted
average vesting period of  approximately  nine years. As of June 30, 2004, there
remains 222,429 shares of common stock subject to the original stock loans which
are  anticipated  to vest  between  2005 and 2011.  Approximately  $248,000  and
$556,000  of  compensation  expense  was  recorded  for the  three and six month
periods ended June 30, 2004, respectively related to these LTIP. Such amount has
been included in marketing, general and administrative expenses on the Company's
consolidated statements of income.

The  outstanding  stock loan  balances due from  executive  and senior  officers
aggregated  approximately  $4.7 million at June 30, 2004, and have been included
as a  reduction  of  additional  paid in capital on the  Company's  consolidated
balance sheets. Other outstanding loans to executive and senior officers at June
30, 2004 amounted to approximately $1.9 million primarily related to tax payment
advances  on stock  compensation  awards and life  insurance  contracts  made to
certain executive and non-executive officers.

In  November  2002 and March  2003 an award of rights  was  granted  to  certain
executive  officers  of the  Company  (the  "2002  Rights"  and  "2003  Rights",
respectively,  and collectively,  the "Rights"). Each Right represents the right
to receive, upon vesting, one share of common stock if shares are then available
for grant under one of the Company's stock option plans or, if shares are not so
available,  an  amount  of cash  equivalent  to the  value of such  stock on the
vesting  date.  The 2002  Rights  will vest in four  equal  annual  installments
beginning on November 14, 2003 (and shall be fully vested on November 14, 2006).
The 2003 Rights will be earned as of March 13, 2005 and will vest in three equal
annual  installments  beginning  on March 13, 2005 (and shall be fully vested on
March 13, 2007).  Dividends on the shares will be held by the Company until such
shares become  vested,  and will be  distributed  thereafter  to the  applicable
officer.  The 2002 Rights also  entitle the holder  thereof to cash  payments in
respect of taxes  payable  by the holder  resulting  from the  Rights.  The 2002
Rights aggregate 62,835 shares of the Company's common stock and the 2003 Rights
aggregate  26,042  shares of common  stock.  As of June 30, 2004,  there remains
47,126  shares of common stock  related to the 2002 Rights and 26,042  shares of
common stock related to the 2003 Rights.  During the three and six month periods
ended June 30, 2004 the Company  recorded  approximately  $100,000 and $201,000,
respectively  compensation  expense related to the Rights.  Such amount has been
included in  marketing,  general and  administrative  expenses on the  Company's
consolidated statements of income.

                                       35
<PAGE>


In March 2003,  the Company  established a new LTIP for its executive and senior
officers.  The four-year plan has a core award,  which provides for annual stock
based  compensation  based upon continued service and in part based on attaining
certain annual performance measures.  The plan also has a special outperformance
award,  which provides for  compensation  to be earned at the end of a four-year
period if the Company attains certain four-year cumulative performance measures.
Amounts  earned  under the special  outperformance  award may be paid in cash or
stock at the discretion of the Compensation Committee of the Board.  Performance
measures  are based on total  shareholder  returns  on a relative  and  absolute
basis.  On March 13, 2003,  the Company  made  available  827,776  shares of its
common stock under one of its existing stock option plans in connection with the
core award of this LTIP for eight of its executive and senior officers. On March
13,  2004,  the Company met its annual  performance  measure with respect to the
prior annual period. As a result, the Company issued to the participants 206,944
shares of its common stock  related to the core  component  of this LTIP.  As of
June 30, 2004,  there remains 620,832 shares of common stock reserved for future
issuance  under the core award of this LTIP.  With  respect to the core award of
this LTIP,  the Company  recorded  approximately  $699,000  and $1.4  million of
compensation  expense for the three and six month  periods  ended June 30, 2004,
respectively.   Such  amount  has  been  included  in  marketing,   general  and
administrative  expenses on the  Company's  consolidated  statements  of income.
Further, no provision will be made for the special  outperformance award of this
LTIP  until  such  time as  achieving  the  requisite  performance  measures  is
determined to be probable.

Under various  Federal,  state and local laws,  ordinances and  regulations,  an
owner of real  estate  is liable  for the costs of  removal  or  remediation  of
certain  hazardous or toxic substances on or in such property.  These laws often
impose  such  liability  without  regard to  whether  the owner  knew of, or was
responsible for, the presence of such hazardous or toxic substances. The cost of
any required  remediation and the owner's liability therefore as to any property
is generally not limited under such enactments and could exceed the value of the
property  and/or  the  aggregate  assets  of the  owner.  The  presence  of such
substances, or the failure to properly remediate such substances,  may adversely
affect the owner's ability to sell or rent such property or to borrow using such
property as  collateral.  Persons who arrange for the  disposal or  treatment of
hazardous  or toxic  substances  may also be liable  for the costs of removal or
remediation of such substances at a disposal or treatment  facility,  whether or
not such  facility is owned or operated by such  person.  Certain  environmental
laws govern the removal,  encapsulation  or disturbance  of  asbestos-containing
materials ("ACMs") when such materials are in poor condition, or in the event of
renovation or  demolition.  Such laws impose  liability for release of ACMs into
the air and third  parties may seek  recovery  from owners or  operators of real
properties  for personal  injury  associated  with ACMs. In connection  with the
ownership  (direct or indirect),  operation,  management and development of real
properties,  the  Company  may be  considered  an  owner  or  operator  of  such
properties  or as having  arranged for the disposal or treatment of hazardous or
toxic substances and,  therefore,  potentially liable for removal or remediation
costs, as well as certain other related costs,  including governmental fines and
injuries to persons and property.

All of the Company's  office and industrial / R&D properties have been subjected
to a Phase I or similar  environmental audit after April 1, 1994 (which involved
general  inspections  without  soil  sampling,  ground  water  analysis or radon
testing and, for the Company's properties constructed in 1978 or earlier, survey
inspections  to ascertain  the  existence of ACMs were  conducted)  completed by
independent  environmental  consultant  companies  (except for 35 Pinelawn  Road
which was  originally  developed by Reckson and  subjected to a Phase 1 in April
1992). These environmental audits have not revealed any environmental  liability
that would have a material adverse effect on the Company's business.

Soil,  sediment and groundwater  contamination,  consisting of volatile  organic
compounds ("VOCs") and metals, has been identified at the property at 32 Windsor
Place,  Central Islip, New York. The contamination is associated with industrial
activities  conducted  by a tenant at the property  over a number of years.  The
contamination,  which was  identified  through  an  environmental  investigation
conducted  on behalf of the  Company,  has been  reported  to the New York State
Department of Environmental Conservation. The Company has notified the tenant of
the findings and has demanded that the tenant take appropriate  actions to fully
investigate  and remediate the  contamination.  Under  applicable  environmental
laws,  both the tenant and the Company are liable for the cost of  investigation
and remediation. The Company does not believe that the cost of investigation and
remediation  will be material and the Company has  recourse  against the tenant.
However,  there can be no assurance  that the Company  will not incur  liability
that would have a material adverse effect on the Company's business.

In March 2004,  the Company  received  notification  from the  Internal  Revenue
Service  indicating that they have selected the 2001 tax return of the Operating
Partnership for examination. The examination process is currently on going.

                                       36
<PAGE>


FUNDS FROM OPERATIONS

The Company believes that Funds from Operations  ("FFO") is a widely  recognized
and  appropriate  measure of  performance  of an equity REIT.  Although FFO is a
non-GAAP financial measure,  the Company believes it provides useful information
to shareholders, potential investors and management. The Company computes FFO in
accordance  with the standards  established by the National  Association of Real
Estate Investment Trusts  ("NAREIT").  FFO is defined by NAREIT as net income or
loss,  excluding gains or losses from sales of depreciable  properties plus real
estate  depreciation and amortization,  and after adjustments for unconsolidated
partnerships  and joint  ventures.  FFO does not represent  cash  generated from
operating  activities  in  accordance  with GAAP and is not  indicative  of cash
available to fund cash needs.  FFO should not be considered as an alternative to
net income as an  indicator  of the  Company's  operating  performance  or as an
alternative to cash flow as a measure of liquidity.

Since all companies and analysts do not calculate FFO in a similar fashion,  the
Company's calculation of FFO presented herein may not be comparable to similarly
titled measures as reported by other companies.

The following  table  presents the Company's FFO  calculation  (unaudited and in
thousands):

<TABLE>
<CAPTION>
                                                                                     THREE MONTHS ENDED         SIX MONTHS ENDED
                                                                                           JUNE 30,                  JUNE 30,
                                                                                   -----------------------   -----------------------
                                                                                      2004         2003         2004         2003
                                                                                   ----------   ----------   ----------   ----------
<S>                                                                                <C>          <C>          <C>          <C>
Net income allocable to common shareholders .....................................  $   13,043   $    7,585   $   29,007   $   16,248
Adjustments for basic funds from operations:
   Add:
      Limited partners' minority interest in the operating partnership ..........         701          874        1,637        1,870
      Real estate depreciation and amortization .................................      28,854       29,127       57,411       60,454
      Minority partners' interests in consolidated partnerships .................       6,811        4,335       13,136        9,025
   Less:
      Gain on sales of depreciable real estate ..................................       6,174           --       11,330           --
      Amounts distributable to minority partners in consolidated partnerships ...       6,411        6,769       14,915       13,576
                                                                                   ----------   ----------   ----------   ----------
   Basic Funds From Operations ("FFO") ..........................................      36,824       35,152       74,946       74,021
   Add:
      Dividends and distributions on dilutive shares and units ..................         227          273          500        8,968
                                                                                   ----------   ----------   ----------   ----------
      Diluted FFO ...............................................................  $   37,051   $   35,425   $   75,446   $   82,989
                                                                                   ==========   ==========   ==========   ==========

   Weighted average common shares outstanding ...................................      66,892       57,916       64,128       58,016
   Weighted average units of limited partnership interest outstanding ...........       3,551        7,276        3,551        7,276
                                                                                   ----------   ----------   ----------   ----------

   Basic weighted average common shares and units outstanding ...................      70,443       65,192       67,679       65,292
   Adjustments for dilutive FFO weighted average shares and units outstanding:
      Add:
         Weighted average common stock equivalents ..............................         435          117          394          118
         Weighted average shares of Series A Preferred Stock ....................          --           --           --        7,747
         Weighted average shares of preferred limited partnership interest ......         581          661          635          661
                                                                                   ----------   ----------   ----------   ----------

   Dilutive FFO weighted average shares and units outstanding ...................      71,459       65,970       68,708       73,818
                                                                                   ==========   ==========   ==========   ==========
</TABLE>

INFLATION

The office  leases  generally  provide for fixed base rent  increases or indexed
escalations.  In addition, the office leases provide for separate escalations of
real estate taxes, operating expenses and electric costs over a base amount. The
industrial / R&D leases generally provide for fixed base rent increases,  direct
pass  through  of  certain  operating  expenses  and  separate  real  estate tax
escalations over a base amount. The Company believes that inflationary increases
in expenses will be offset by contractual rent increases and expense escalations
described  above. As a result of the impact of the events of September 11, 2001,
the Company has realized  increased  insurance costs,  particularly  relating to
property and terrorism  insurance,  and security costs. The Company has included
these costs as part of its  escalatable  expenses.  The Company has billed these
escalatable  expense  items to its  tenants  consistent  with  the  terms of the
underlying leases and believes they are collectible. To the extent the Company's
properties  contain  vacant  space,  the  Company  will bear  such  inflationary
increases in expenses.

The Credit  Facility,  $250 million of the Company's  mortgage notes payable and
the Mezz Note,  bear  interest at variable  rates,  which will be  influenced by
changes in short-term interest rates, and are sensitive to inflation.

                                       37
<PAGE>


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary  market  risk  facing the Company is interest  rate risk on its long
term  debt,  mortgage  notes  and  notes  receivable.  The  Company  will,  when
advantageous,  hedge its interest  rate risk using  financial  instruments.  The
Company is not subject to foreign currency risk.

The Company  manages its  exposure to interest  rate risk on its  variable  rate
indebtedness by borrowing on a short-term  basis under its Credit Facility until
such time as it is able to retire the short-term  variable rate debt with either
a long-term fixed rate debt offering,  long term mortgage debt, equity offerings
or through sales or partial sales of assets.

The Company will  recognize all  derivatives on the balance sheet at fair value.
Derivatives  that are not hedges will be adjusted to fair value through  income.
If a derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of the  derivative  will either be offset  against the change in fair
value of the hedged asset,  liability,  or firm commitment through earnings,  or
recognized in other comprehensive  income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately  recognized in earnings. On March 19, 2004, the Company entered into
two anticipatory interest rate hedge instruments which are scheduled to coincide
with an August 2004 debt  maturity,  totaling  $100 million,  to protect  itself
against  potentially  rising interest rates. At June 30, 2004, the fair value of
these instruments  exceeded their carrying value by approximately  $5.2 million.
On July 1, 2004, the Company  entered into an additional  anticipatory  interest
rate hedge instrument totaling $12.5 million to coincide with the aforementioned
August 2004 debt maturity.

The fair market value ("FMV") of the Company's  long term debt,  mortgage  notes
and notes  receivable  is estimated  based on  discounting  future cash flows at
interest rates that management  believes  reflect the risks associated with long
term debt, mortgage notes and notes receivable of similar risk and duration.

The  following  table sets forth the Company's  long-term  debt  obligations  by
scheduled  principal  cash flow  payments and maturity  date,  weighted  average
interest rates and estimated FMV at June 30, 2004 (dollars in thousands):

<TABLE>
<CAPTION>
                                       For the Year Ended December 31,
                         -----------------------------------------------------------------
                             2004          2005          2006         2007         2008       Thereafter    Total (1)       FMV
                         -----------   -----------   -----------  -----------  -----------   -----------   -----------   ----------
<S>                      <C>            <C>           <C>          <C>          <C>           <C>          <C>           <C>
Long term debt:
   Fixed rate .........  $    6,779     $  32,440     $ 143,398    $ 271,508    $   9,989     $ 801,447    $ 1,265,561   $1,340,918
   Weighted average
     interest rate ....        7.47%         6.90%         7.37%        7.14%        7.23%         7.40%          7.33%

   Variable rate ......  $  250,000     $  90,000     $      --    $      --    $      --     $      --    $   340,000   $  340,000
   Weighted average
     interest rate ....        4.95%         2.18%           --           --           --            --           4.22%
</TABLE>

(1)  Includes aggregate unamortized issuance discounts of approximately $868,000
     on certain of the senior unsecured notes which are due at maturity.

In  addition,  a one  percent  increase  in the LIBOR rate would have a $900,000
annual increase in interest expense on the $90 million of variable rate debt due
in 2005.  A one  percent  increase  in LIBOR  would  have no impact to  interest
expense  on the $250  million of  variable  rate debt due in 2004,  as  interest
reported in the current period is calculated using a LIBOR rate in excess of one
percent over the LIBOR rate at June 30, 2004.

The following table sets forth the Company's mortgage notes and note receivables
by scheduled maturity date, weighted average interest rates and estimated FMV at
June 30, 2004 (dollars in thousands):

<TABLE>
<CAPTION>
                                       For the Year Ended December 31,
                         -----------------------------------------------------------------
                             2004          2005          2006         2007         2008       Thereafter    Total (1)       FMV
                         -----------   -----------   -----------  -----------  -----------   -----------   -----------   ----------
<S>                      <C>            <C>           <C>          <C>          <C>           <C>          <C>           <C>
Mortgage notes and notes receivable:

Fixed rate ............   $  19,000     $      --     $      --    $  16,990     $      --    $      --    $    35,990   $39,239
   Weighted average
   interest rate ......       10.70%           --            --        12.00%           --           --          11.31%

Variable rate .........   $      --     $  30,000     $      --    $      --     $      --    $      --    $    30,000   $30,000
   Weighted average
   interest rate ......          --         12.73%           --           --            --           --          12.73%
</TABLE>

(1)  Excludes interest receivables and unamortized acquisition costs aggregating
     approximately $2.4 million dollars.

                                       38
<PAGE>


ITEM 4.  CONTROLS AND PROCEDURES

We  maintain   disclosure  controls  and  procedures  designed  to  ensure  that
information  required  to be  disclosed  in our  filings  under  the  Securities
Exchange Act of 1934 is reported within the time periods  specified in the SEC's
rules and forms. In this regard,  the Company has formed a Disclosure  Committee
currently  comprised  of all of the  Company's  executive  officers  as  well as
certain other employees with knowledge of information  that may be considered in
the SEC reporting process.  The Committee has responsibility for the development
and assessment of the financial and non-financial  information to be included in
the reports  filed by the Company with the SEC and assists the  Company's  Chief
Executive   Officer  and  Chief  Financial  Officer  in  connection  with  their
certifications  contained in the  Company's  SEC reports.  The  Committee  meets
regularly  and reports to the Audit  Committee on a quarterly  or more  frequent
basis. Our Chief Executive  Officer and Chief Financial  Officer have evaluated,
with the participation of the Company's management,  our disclosure controls and
procedures as of the end of the period covered by this Quarterly  Report on Form
10-Q. Based upon the evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that such disclosure controls and procedures are effective.


There were no changes in our internal  control  over  financial  reporting  that
occurred during our most recent fiscal quarter that have materially affected, or
are reasonably likely to materially  affect, our internal control over financial
reporting.

                                       39
<PAGE>


SELECTED PORTFOLIO INFORMATION

The  following  table sets forth the  Company's  schedule  of its top 25 tenants
based on base rental revenue as of June 30, 2004:

<TABLE>
<CAPTION>
                                  WTD. AVG.                            PERCENT OF PRO-RATA      PERCENT OF CONSOLIDATED
                               TERM REMAINING          TOTAL           SHARE OF ANNUALIZED         ANNUALIZED BASE
 TENANT NAME (1) (2)               (YEARS)          SQUARE FEET        BASE RENTAL REVENUE          RENTAL REVENUE
 ----------------------------- ---------------- -------------------- ------------------------- -------------------------
<S>                                 <C>               <C>                      <C>                       <C>
*Debevoise & Plimpton               17.5              465,420                  3.3%                      5.6%
 King & Spalding                     7.8              176,204                  2.3%                      2.0%
*Verizon Communications Inc.         2.7              263,569                  1.9%                      1.7%
*American Express                    9.2              129,818                  1.9%                      1.7%
*Schulte Roth & Zabel               16.4              279,746                  1.6%                      2.7%
*Fuji Photo Film USA                 8.4              186,484                  1.3%                      1.2%
 Dun & Bradstreet Corp.              8.3              123,000                  1.2%                      1.0%
 United Distillers                   0.7              137,918                  1.2%                      1.0%
*Bank of America/Fleet Bank          6.7              125,903                  1.2%                      1.0%
*WorldCom/MCI                        2.6              244,730                  1.1%                      1.1%
 Arrow Electronics                   9.5              163,762                  1.1%                      1.0%
 Amerada Hess Corporation            8.5              127,300                  1.1%                      1.0%
 T.D. Waterhouse                     3.1              103,381                  1.0%                      0.9%
 Westdeutsche Landesbank            11.8              53,000                   1.0%                      0.9%
 D.E. Shaw                          11.5              79,515                   0.9%                      0.8%
 Practicing Law Institute            9.7              77,500                   0.9%                      0.8%
*Banque Nationale De Paris          12.1              145,834                  0.9%                      1.5%
 North Fork Bank                    11.5              126,770                  0.9%                      0.8%
 Vytra Healthcare                    3.5              105,613                  0.9%                      0.8%
*Kramer Levin Nessen Kamin           0.8              158,144                  0.9%                      1.5%
 Heller Ehrman White                 0.9              64,526                   0.9%                      0.7%
 P.R. Newswire Associates            3.9              67,000                   0.8%                      0.7%
*JP Morgan Chase/ Bank One           5.6              87,737                   0.8%                      0.8%
*HQ Global                           4.3              126,487                  0.8%                      0.8%
 Laboratory Corp. Of America         2.9              108,000                  0.8%                      0.7%
</TABLE>

(1)  Ranked by pro-rata share of annualized base rental revenue adjusted for pro
     rata share of joint venture interests.

(2)  Excludes One Orlando Centre in Orlando, Florida.

*    Part or all of space  occupied  by tenant is in a 51% or more  owned  joint
     venture building.

HISTORICAL NON-INCREMENTAL REVENUE-GENERATING CAPITAL EXPENDITURES, TENANT
IMPROVEMENT COSTS AND LEASING COMMISSIONS

The  following  table sets forth  annual  and per  square  foot  non-incremental
revenue-generating  capital  expenditures  in which the Company paid or accrued,
during the  respective  periods,  to retain  revenues  attributable  to existing
leased  space (at 100% of cost) for the years 2000  through 2003 and for the six
month  period  ended June 30,  2004 for the  Company's  consolidated  office and
industrial / R&D properties other than One Orlando Center in Orlando, FL:

<TABLE>
<CAPTION>
                                                                                                     Average          YTD
                                      2000            2001            2002            2003          2000-2003         2004
                                  ------------    ------------    ------------    ------------    ------------    ------------
<S>                               <C>             <C>             <C>             <C>             <C>             <C>
Suburban Office Properties
   Total                          $  3,289,116    $  4,606,069    $  5,283,674    $  6,791,336    $  4,992,549    $  2,835,587
   Per Square Foot                $       0.33    $       0.45    $       0.53    $       0.67    $       0.49    $       0.28

NYC Office Properties
   Total                          $    946,718    $  1,584,501    $  1,939,111    $  1,922,209    $  1,598,135    $  1,210,758
   Per Square Foot                $       0.38    $       0.45    $       0.56    $       0.55    $       0.48    $       0.27

Industrial Properties
   Total                          $    813,431    $    711,666    $  1,881,627    $1,218,401 (1)$    1,156,281    $     22,923
   Per Square Foot                $       0.11    $       0.11    $       0.28    $       0.23    $       0.18    $       0.02

TOTAL PORTFOLIO
                                  ------------    ------------    ------------    ------------    ------------    ------------
   Total                          $  5,049,265    $  6,902,236    $  9,104,412    $  9,931,946    $  7,746,965    $  4,069,268
   Per Square Foot                $       0.25    $       0.34    $       0.45    $       0.52    $       0.39    $       0.26
</TABLE>

(1)  Excludes  non-incremental  capital expenditures of $435,140 incurred during
     the  fourth  quarter  2003 for the  industrial  properties  which were sold
     during the period.

                                       40
<PAGE>


The  following  table sets forth  annual  and per  square  foot  non-incremental
revenue-generating tenant improvement costs and leasing commissions in which the
Company committed to perform,  during the respective periods, to retain revenues
attributable  to existing  leased  space for the years 2000 through 2003 and for
the six month period ended June 30, 2004 for the Company's  consolidated  office
and industrial / R&D properties other than One Orlando Center in Orlando, FL:

<TABLE>
<CAPTION>
                                                                                  Average      YTD
                              2000         2001         2002         2003        2000-2003    2004 (1)        New       Renewal
                          ----------------------------------------------------------------------------------------------------------
<S>                        <C>         <C>          <C>          <C>            <C>          <C>           <C>         <C>
Long Island Office Properties
 Tenant Improvements       $2,853,706  $ 2,722,457  $ 1,917,466  $ 3,774,722    $ 2,817,088  $2,394,114    $1,327,529  $1,066,585
 Per Square Foot Improved  $     6.99  $      8.47  $      7.81  $      7.05    $      7.58  $     9.05    $    12.67  $     6.67
 Leasing Commissions       $2,208,604  $ 1,444,412  $ 1,026,970  $ 2,623,245    $ 1,825,808  $1,333,976    $  529,537  $  804,439
 Per Square Foot Leased    $     4.96  $      4.49  $      4.18  $      4.90    $      4.63  $     5.04    $     5.05  $     5.03
                          ----------------------------------------------------------------------------------------------------------
  Total Per Square Foot    $    11.95  $     12.96  $     11.99  $     11.95    $     12.21  $    14.09    $    17.72  $    11.70
                          ==========================================================================================================

Westchester Office Properties
 Tenant Improvements       $1,860,027  $2,584,728  $6,391,589(2) $ 3,732,370    $ 3,642,178  $4,937,356    $4,216,913  $  720,443
 Per Square Foot Improved  $     5.72  $     5.91  $    15.05    $     15.98    $     10.66  $    14.64    $    21.48  $     5.12
 Leasing Commissions       $  412,226  $1,263,012  $1,975,850(2) $   917,487    $ 1,142,144  $2,003,752    $1,571,958  $  431,794
 Per Square Foot Leased    $     3.00  $     2.89  $     4.65    $      3.93    $      3.62  $     5.94    $     8.01  $     3.07
                          ----------------------------------------------------------------------------------------------------------
  Total Per Square Foot    $     8.72  $     8.80  $    19.70    $     19.91    $     14.28  $    20.58    $    29.49  $     8.19
                          ==========================================================================================================

Connecticut Office Properties
 Tenant Improvements       $  385,531  $   213,909  $   491,435  $   588,087    $   419,740  $2,400,708    $1,047,111  $1,353,597
 Per Square Foot Improved  $     4.19  $      1.46  $      3.81  $      8.44    $      4.47  $    14.13    $    29.54  $    10.06
 Leasing Commissions       $  453,435  $   209,322  $   307,023  $   511,360    $   370,285  $1,382,615    $  347,634  $1,034,981
 Per Square Foot Leased    $     4.92  $      1.43  $      2.38  $      7.34    $      4.02  $     8.14    $     9.81  $     7.69
                          ----------------------------------------------------------------------------------------------------------
  Total Per Square Foot    $     9.11  $      2.89  $      6.19  $     15.78    $      8.49  $    22.27    $    39.35  $    17.75
                          ==========================================================================================================

New Jersey Office Properties
 Tenant Improvements       $1,580,323  $ 1,146,385  $ 2,842,521  $ 4,327,295    $ 2,474,131  $  710,890    $  665,124  $   45,766
 Per Square Foot Improved  $     6.71  $      2.92  $     10.76  $     11.57    $      7.99  $     7.50    $    13.42  $     1.01
 Leasing Commissions       $1,031,950  $ 1,602,962  $ 1,037,012  $ 1,892,635    $ 1,391,140  $  252,534    $  232,829  $   19,705
 Per Square Foot Leased    $     4.44  $      4.08  $      3.92  $      5.06    $      4.38  $     2.66    $     4.70  $     0.44
                          ----------------------------------------------------------------------------------------------------------
  Total Per Square Foot    $    11.15  $      7.00  $     14.68  $     16.63    $     12.37  $    10.16    $    18.12  $     1.45
                          ==========================================================================================================

New York City Office Properties
 Tenant Improvements       $   65,267  $   788,930  $ 4,350,106  $ 5,810,017(3) $ 2,753,580  $3,497,494(4) $2,393,044  $1,104,450(4)
 Per Square Foot Improved  $     1.79  $     15.69  $     18.39  $     32.84    $     17.18  $    21.01    $    27.11  $    14.12
 Leasing Commissions       $  418,185  $ 1,098,829  $ 2,019,837  $ 2,950,330(3) $ 1,621,795  $1,041,336(4) $  470,445  $  570,891(4)
 Per Square Foot Leased    $    11.50  $     21.86  $      8.54  $     16.68    $     14.64  $     6.25    $     5.33  $     7.30
                          ----------------------------------------------------------------------------------------------------------
  Total Per Square Foot    $    13.29  $     37.55  $     26.93  $     49.52    $     31.82  $    27.26    $    32.44  $    21.42
                          ==========================================================================================================

Industrial Properties
 Tenant Improvements       $  650,216  $ 1,366,488  $ 1,850,812  $ 1,249,200    $ 1,279,179  $  205,104    $  157,661  $   47,443
 Per Square Foot Improved  $     0.95  $      1.65  $      1.97  $      2.42    $      1.75  $     2.11    $     1.73  $     7.46
 Leasing Commissions       $  436,506  $   354,572  $   890,688  $   574,256    $   564,005  $  225,539    $  225,539  $        0
 Per Square Foot Leased    $     0.64  $      0.43  $      0.95  $      1.11    $      0.78  $     2.32    $     2.48  $     0.00
                          ----------------------------------------------------------------------------------------------------------
  Total Per Square Foot    $     1.59  $      2.08  $      2.92  $      3.53    $      2.53  $     4.43    $     4.21  $     7.46
                          ==========================================================================================================
------------------------------------------------------------------------------------------------------------------------------------
TOTAL PORTFOLIO
 Tenant Improvements       $7,395,070  $ 8,822,897  $17,843,929  $19,481,691    $13,385,896  $14,145,666   $9,807,382  $4,338,284
 Per Square Foot Improved  $     4.15  $      4.05  $      7.96  $     10.22    $      6.66  $    12.51       $17. 35  $     7.68
 Leasing Commissions       $4,960,906  $ 5,973,109  $ 7,257,380  $ 9,469,313    $ 6,915,177  $6,239,752    $3,377,942  $2,861,810
 Per Square Foot Leased    $     3.05  $      2.75  $      3.24  $      4.97    $      3.54  $     5.52    $     5.97  $     5.07
                          ----------------------------------------------------------------------------------------------------------
  Total Per Square Foot    $     7.20  $      6.80  $     11.20  $     15.19    $     10.20  $    18.03    $    23.32  $    12.75
                          ==========================================================================================================
</TABLE>


(1)  Excludes  $2.8  million of deferred  leasing  costs  attributable  to space
     marketed but not yet leased.

(2)  Excludes tenant  improvements and leasing  commissions related to a 163,880
     square  foot  leasing  transaction  with Fuji  Photo  Film  U.S.A.  Leasing
     commissions  on this  transaction  amounted  to $5.33 per  square  foot and
     tenant improvement allowance amounted to $40.88 per square foot.

(3)  Excludes  $5.8 million of tenant  improvements  and $2.2 million of leasing
     commissions  related to a new 121,108 square foot lease to Debevoise with a
     lease commencement date in 2005. Also excludes tenant  improvements of $0.2
     million for Sandler O'Neil & Partners (7,446 SF) for expansion space with a
     lease commencement date in 2004.

(4)  Excludes 86,800 square foot Westpoint Stevens early renewal.  There were no
     tenant improvement or leasing costs associated with this transaction.  Also
     excludes  $1.4 million of tenant  improvements  and $1.2 million of leasing
     commissions  related  to a  74,293  square  foot  lease to  Harper  Collins
     Publishers with a lease commencement date in 2006.

                                       41
<PAGE>


The following table sets forth the Company's lease expiration table, as adjusted
for pre-leased space, at July 1, 2004 for its Total Portfolio of properties, its
Office Portfolio and its Industrial / R&D Portfolio:

                                  TOTAL PORTFOLIO (1)
--------------------------------------------------------------------------------
                        Number of       Square     % of Total     Cumulative
Year of                   Leases         Feet       Portfolio     % of Total
Expiration               Expiring      Expiring       Sq Ft     Portfolio Sq Ft
--------------------------------------------------------------------------------
2004                        92           545,148       3.5%          3.5%
2005                       185         1,523,110       9.9%         13.4%
2006                       184         1,692,820      11.0%         24.4%
2007                       109         1,140,838       7.4%         31.8%
2008                       109           959,655       6.2%         38.1%
2009                       102         1,131,680       7.4%         45.4%
2010 and thereafter        315         7,327,050      47.6%         93.0%
--------------------------------------------------------------------------------
Total/Weighted Average    1,096       14,320,301      93.0%
--------------------------------------------------------------------------------
Total Portfolio Square Feet           15,396,244
--------------------------------------------------------------------------------

                                  OFFICE PORTFOLIO (1)
--------------------------------------------------------------------------------
                        Number of       Square     % of Total     Cumulative
Year of                   Leases         Feet        Office       % of Total
Expiration               Expiring      Expiring       Sq Ft     Portfolio Sq Ft
--------------------------------------------------------------------------------
2004                        89           513,528       3.6%          3.6%
2005                       182         1,383,960       9.6%         13.1%
2006                       180         1,595,854      11.1%         24.2%
2007                       105         1,071,346       7.4%         31.6%
2008                       106           916,812       6.3%         38.0%
2009                       101         1,086,699       7.5%         45.5%
2010 and thereafter        310         6,981,186      48.3%         93.8%
--------------------------------------------------------------------------------
Total/Weighted Average    1,073       13,549,385      93.8%
--------------------------------------------------------------------------------
Total Office Portfolio Square Feet    14,440,849
--------------------------------------------------------------------------------

                                INDUSTRIAL/R&D PORTFOLIO
--------------------------------------------------------------------------------
                        Number of       Square      % of Total     Cumulative
Year of                   Leases         Feet     Industrial/R&D   % of Total
Expiration               Expiring      Expiring        Sq Ft     Portfolio Sq Ft
--------------------------------------------------------------------------------
2004                        3            31,620         3.3%          3.3%
2005                        3           139,150        14.6%         17.9%
2006                        4            96,966        10.1%         28.0%
2007                        4            69,492         7.3%         35.3%
2008                        3            42,843         4.5%         39.8%
2009                        1            44,981         4.7%         44.5%
2010 and thereafter         5           345,864        36.2%         80.7%
--------------------------------------------------------------------------------
Total/Weighted Average      23          770,916        80.7%
--------------------------------------------------------------------------------
Total Industrial/R&D
  Portfolio Square Feet                 955,395
--------------------------------------------------------------------------------

(1)  Excludes One Orlando Centre in Orlando, Florida

                                       42
<PAGE>


The following  table sets forth the Company's  components of its paid or accrued
non-incremental and incremental revenue-generating capital expenditures,  tenant
improvements  and  leasing  costs for the periods  presented  as reported on its
"Statements of Cash Flows - Investment Activities" contained in its consolidated
financial statements (in thousands):

                                                           SIX MONTHS ENDED
                                                               JUNE 30,
                                                     ---------------------------
                                                          2004           2003
                                                     ------------   ------------
Capital expenditures:
   Non-incremental ...............................   $      4,069   $      4,297
   Incremental ...................................          1,085            899
Tenant improvements:
   Non-incremental ...............................          9,671         19,901
   Incremental ...................................          2,976             52
                                                     ------------   ------------
Additions to commercial real estate properties ...   $     17,801   $     25,149
                                                     ============   ============

Leasing costs:
   Non-incremental ...............................   $      6,764   $      6,554
   Incremental ...................................          1,913          2,211
                                                     ------------   ------------
Payment of deferred leasing costs ................   $      8,677   $      8,765
                                                     ============   ============

Acquisition and development costs ................   $    335,668   $     16,237
                                                     ============   ============

                                       43
<PAGE>


PART II - OTHER INFORMATION

Item 1. Legal Proceedings

A number of shareholder  derivative  actions have been commenced  purportedly on
behalf of the Company against the Board of Directors in the Supreme Court of the
State of New York,  County of Nassau  (Lowinger v. Rechler et al.,  Index No. 01
4162/03  (9/16/03)),  the  Supreme  Court of the  State of New  York,  County of
Suffolk  (Steiner v. Rechler et al., Index No. 03 32545 (10/2/03) and Lighter v.
Rechler et al., Index No. 03 23593 (10/3/03)), the United States District Court,
Eastern  District  of New York  (Tucker v.  Rechler et al.,  Case No. cv 03 4917
(9/26/03), Clinton Charter Township Police and Fire Retirement System v. Rechler
et al.,  Case No.  cv 03 5008  (10/1/03)  and  Teachers'  Retirement  System  of
Louisiana v.  Rechler et al.,  Case No. cv 03 5178  (10/14/03))  and the Circuit
Court for  Baltimore  County (Sekuk Global  Enterprises  Profit  Sharing Plan v.
Rechler et al., Civil No. 24-C- 03007496 (10/16/03),  Hoffman v. Rechler et al.,
24-C-03-007876   (10/27/03)  and  Chirko  v.  Rechler  et  al.,   24-C-03-008010
(10/30/03)),  relating to the sale of the Long Island  Industrial  Portfolio  to
certain  members of the  Rechler  family.  The  complaints  allege,  among other
things,  that the process by which the directors  agreed to the  transaction was
not  sufficiently  independent  of the  Rechler  family and did not  involve a "
market  check"  or third  party  auction  process  and as a  result  was not for
adequate  consideration.   The  Plaintiffs  seek  similar  relief,  including  a
declaration that the directors  violated their fiduciary  duties,  an injunction
against the  transaction and damages.  The Company  believes that complaints are
without merit.

Kramer Levin Naftalis & Frankel commenced an action against Metropolitan 919 3rd
Avenue  LLC in the  Supreme  Court of the State of New York,  County of New York
(Kramer Levin Naftalis & Frankel LLP v.  Metropolitan  919 3rd Avenue LLC, Index
No.  604512/2002  (12/16/02))  relating to alleged  overcharges of approximately
$700,000  with  respect  to its  lease at 919 3rd  Avenue,  New York,  NY.  Such
overcharges  were  primarily  incurred  during the period prior to the Company's
ownership  of the  property.  Subsequent  to the  filing of the  complaint,  the
parties agreed to pursue private mediation. As of May 2004, the mediation effort
was discontinued and the parties have resumed  litigation.  The Company believes
that the complaint is without merit.

Except as provided above,  the Company is not presently  subject to any material
litigation nor, to the Company's knowledge, is any litigation threatened against
the  Company,  other than  routine  actions for  negligence  or other claims and
administrative  proceedings arising in the ordinary course of business,  some of
which  are  expected  to be  covered  by  liability  insurance  and all of which
collectively  are  not  expected  to  have  a  material  adverse  effect  on the
liquidity,  results of  operations  or business or  financial  condition  of the
Company.

Item 2. Changes in  Securities,  Use of Proceeds and Issuer  Purchases of Equity
Securities

<TABLE>
<CAPTION>
                                             ISSUER PURCHASE OF EQUITY SECURITIES

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

                                                                     (C) TOTAL NUMBER
                                                                     OF SHARES                     (D) MAXIMUM NUMBER
                                                                     (OR UNITS)                    (OR APPROXIMATE DOLLAR
               (A) TOTAL  NUMBER                                     PURCHASED AS                  VALUE) OF SHARES (OR
               OF SHARES                    (B) AVERAGE PRICE        PART OF PUBLICLY              UNITS) THAT MAY YET BE
               (OR  UNITS)                  PAID PER SHARE           ANNOUNCED PLANS               PURCHASED UNDER THE
PERIOD         PURCHASED                    (OR UNIT)                OR PROGRAMS                   PLANS OR PROGRAMS
------------------------------------------------------------------------------------------------------------------------------------
APRIL 1                  ---                  ---                         ---                            ---
THROUGH
APRIL 30
------------------------------------------------------------------------------------------------------------------------------------
<S>            <C>                           <C>                     <C>                           <C>
MAY 1          140,600 shares of Series A    $24.45                  140,600 shares of Series A    Up to $63.6 million of  preferred
THROUGH        preferred stock (1)                                   Preferred Stock               stock (2)
MAY 31
------------------------------------------------------------------------------------------------------------------------------------
JUNE 1                   ---                  ---                         ---                            ---
THROUGH
JUNE 30
------------------------------------------------------------------------------------------------------------------------------------
TOTAL          140,600                       $24.45                  140,600                       Up to $63.6 million of preferred
                                                                                                   stock
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  All of the shares were purchased in a negotiated transaction from a seller
     that is not affiliated with the Company.

(2)  On May 2nd, 2002, the Company announced that its Board of Directors had
     approved the purchase from time to time of up to $75 million of its
     preferred stock.

Item 3. Defaults Upon Senior Securities - None

Item 4. Submission of Matters to a Vote of Securities Holders

On June 2, 2004,  the  Company  held its annual  meeting  of  stockholders.  The
matters  on which the  stockholders  voted,  in person or by proxy,  were (1) to
amend  the  Articles  of   Incorporation   of  the  Company  to  eliminate   the
classification  of  the  board  of  directors,  (2) to  amend  the  Articles  of
Incorporation  to amend the  provision  regarding  the  Company's  common  stock
ownership  limit,  (3) the election of nine nominees as directors to serve until
the 2005 annual meeting of stockholders  and until their  respective  successors
are duly elected and  qualified and (4) to ratify the selection of Ernst & Young
LLP as the  independent  auditors  of the  Company  for the fiscal  year  ending
December 31, 2004. The board was de-classified, the ownership limit was amended,
the nine nominees were elected and the auditors  were  ratified.  The results of
the voting are set forth below:

                                VOTES CAST                  VOTES CAST
                                   FOR          WITHHELD      AGAINST    ABSTAIN
                                ----------     ----------   ---------  -------
ELIMINATE CLASSIFICATION
  OF BOARD OF DIRECTORS         60,546,589         N/A        823,985     43,475

AMEND STOCK OWNERSHIP LIMIT     55,146,770         N/A        141,814     83,644

ELECTION OF DIRECTORS
Peter Quick                     60,840,066        573,986       N/A         N/A
Stanley Steinberg               44,166,846     17,247,206       N/A         N/A
John Ruffle                     60,945,966        468,086       N/A         N/A
Elizabeth McCaul                60,945,966        468,086       N/A         N/A
Douglas Crocker                 61,313,942        100,110       N/A         N/A
Scott Rechler                   60,848,745        565,307       N/A         N/A
Donald Rechler                  60,848,745        565,307       N/A         N/A
Lewis Ranieri                   44,344,488     17,069,564       N/A         N/A
Ronald Menaker                  60,840,066        573,986       N/A         N/A

RATIFICATION OF AUDITORS        60,625,939          N/A       755,864     32,248

                                       44
<PAGE>


Item 5. Other information

       a)     None

       b)     There have been no  material  changes to the  procedures  by which
              stockholders  may  recommend  nominees to the  Company's  Board of
              Directors.


Item 6. Exhibits and Reports on Form 8-K

       a)     Exhibits

              3.1    Articles of Amendment, dated June 2, 2004

              3.2    Articles of Amendment, dated June 2, 2004

              3.3    Amended and Restated Bylaws

              10.1   Third amended and restated credit agreement dated August 6,
                     2004  between  Reckson  Operating  Partnership,   L.P.,  as
                     Borrower  and the  institutions  from  time  to time  party
                     thereto as Lenders.

              31.1   Certification of Scott H. Rechler,  Chief Executive Officer
                     and  President  of the  Registrant,  pursuant to Rule 13a -
                     14(a) or Rule 15(d) - 14(a).

              31.2   Certification of Michael Maturo,  Executive Vice President,
                     Treasurer and Chief  Financial  Officer of the  Registrant,
                     pursuant to Rule 13a - 14(a) or Rule 15(d) - 14(a).

              32.1   Certification of Scott H. Rechler,  Chief Executive Officer
                     and President of the  Registrant,  pursuant to Section 1350
                     of Chapter 63 of Title 18 of the United States Code.

              32.2   Certification of Michael Maturo,  Executive Vice President,
                     Treasurer and Chief  Financial  Officer of the  Registrant,
                     pursuant  to Section  1350 of Chapter 63 of Title 18 of the
                     United States Code.

       b)     During the six months ended June 30, 2004,  the  Registrant  filed
              the following reports on Form 8-K:


              On May 6,  2004, the Registrant  submitted a report on Form 8-K
              under  Items 7 and 12  thereof  in order  to file a press  release
              announcing  its  consolidated  financial  results  for the quarter
              ended March 31, 2004.



SIGNATURES

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

RECKSON ASSOCIATES REALTY CORP.

By:        /s/ Scott H. Rechler         By:      /s/ Michael Maturo
   -----------------------------------     -------------------------------------
   Scott H. Rechler,                       Michael Maturo,
   Chief Executive Officer                 Executive Vice President,
   and President                           Treasurer and Chief Financial Officer

DATE: August 9, 2004

                                       45