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, 2006

Commission
  file number: 1-13762

RECKSON
  ASSOCIATES REALTY CORP.

(Exact
  name of registrant as specified in its charter)



| | Maryland(State or other jurisdiction of incorporation or organization) |  | 11-3233650(IRS Employer Identification Number) | 
| | ---------------------------------------------------------------------- |  | ---------------------------------------------- | 

| |  |  |  | 
| |  |  |  | 

| | 225
      Broadhollow Road, Melville, NY(Address of principal executive office) |  | 11747(zip code) | 
| | ------------------------------------------------------------------------------- |  | --------------- | 

(631)
  694-6900

(Registrants
  telephone number including area code)



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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) YesNo , and (2) has been subject
  to such filing requirements for the past 90 days. YesNo .

Indicate
  by check mark whether the registrant is a large accelerated filer, an accelerated
  filer, or a non-accelerated filer. See definition of accelerated filer
  and large accelerated filer in Rule 12b-2 of the Exchange Act (Check One):

Large
  Accelerated FilerAccelerated
  FilerNon-Accelerated
  Filer

Indicate
  by check mark whether the registrant is a shell company (as defined in Rule
  12b-2 of the Exchange Act). Yes 
    No .



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The
  Company has one class of common stock, par value $.01 per share, with 83,251,419
  shares outstanding as of August 7, 2006.






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RECKSON
  ASSOCIATES REALTY CORP.

QUARTERLY
  REPORT

FOR
  THE THREE MONTHS
  ENDED JUNE 30, 2006

TABLE
  OF CONTENTS



|                                    |  |                                                                                                                   | PAGE
|----------------------------------- |  | ----------------------------------------------------------------------------------------------------------------- | ----
|                                    |  |                                                                                                                   |     
|PARTI.                              |  | FINANCIALINFORMATION                                                                                              |     
|                                    |  |                                                                                                                   |     
|                                    |  |                                                                                                                   |     
|Item 1.                             |  | Financial Statements                                                                                              |     
|                                    |  |                                                                                                                   |     
|                                    |  | Consolidated Balance Sheets as of June 30, 2006 (unaudited) and December 31, 2005                                 | 1   
|                                    |  |                                                                                                                   |     
|                                    |  | Consolidated Statements of Income for the three and six months ended June 30, 2006 and 2005 (unaudited)           | 2   
|                                    |  |                                                                                                                   |     
|                                    |  | Consolidated
        Statements of Cash Flows for the six months ended June 30, 2006 and 2005
        (unaudited) | 3   
|                                    |  |                                                                                                                   |     
|                                    |  | Notes to the Consolidated Financial Statements (unaudited)                                                        | 4   
|                                    |  |                                                                                                                   |     
|Item 2.                             |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                             | 25  
|                                    |  |                                                                                                                   |     
|Item 3.                             |  | Quantitative and Qualitative Disclosures about Market Risk                                                        | 45  
|                                    |  |                                                                                                                   |     
|Item 4.                             |  | Controls and Procedures                                                                                           | 47  
|                                    |  |                                                                                                                   |     
|                                    |  |                                                                                                                   |     
|PARTII.                             |  | OTHERINFORMATION                                                                                                  |     
|                                    |  |                                                                                                                   |     
|                                    |  |                                                                                                                   |     
|Item 1.                             |  | Legal Proceedings                                                                                                 | 53  
|                                    |  |                                                                                                                   |     
|Item 1A.                            |  | Risk Factors                                                                                                      | 53  
|                                    |  |                                                                                                                   |     
|Item 2.                             |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                       | 54  
|                                    |  |                                                                                                                   |     
|Item 3.                             |  | Defaults Upon Senior Securities                                                                                   | 54  
|                                    |  |                                                                                                                   |     
|Item 4.                             |  | Submission of Matters to a Vote of Securities Holders                                                             | 54  
|                                    |  |                                                                                                                   |     
|Item 5.                             |  | Other Information                                                                                                 | 54  
|                                    |  |                                                                                                                   |     
|Item 6.                             |  | Exhibits                                                                                                          | 55  
|                                    |  |                                                                                                                   |     
|                                    |  |                                                                                                                   |     
|SIGNATURES
        & CERTIFICATIONS | 
|                                    | 



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PART
  I - FINANCIAL
  INFORMATION

ITEM
  1 - FINANCIAL STATEMENTS

RECKSON
  ASSOCIATES REALTY
  CORP.

CONSOLIDATED
  BALANCE SHEETS

(in thousands, except share amounts)



|                                                                                                                                                  |  | June
        30,2006 |           | December
        31,2005 |  
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | --------- | ------------------------ | -
|                                                                                                                                                  |  |                      |           |                          |  
|                                                                                                                                                  |  | (unaudited)          |           |                          |  
|ASSETS                                                                                                                                            |  |                      |           |                          |  
|Commercial
        real estate properties, at cost:                                                                                               |  |                      |           |                          |  
|Land                                                                                                                                              |  | $                    | 428,357   |                          | $
|Buildings
        and improvements                                                                                                                |  |                      | 2,886,834 |                          |  
|Developments
        in progress:                                                                                                                 |  |                      |           |                          |  
|Land                                                                                                                                              |  |                      | 127,309   |                          |  
|Development
        costs                                                                                                                         |  |                      | 137,138   |                          |  
|Furniture,
        fixtures and equipment                                                                                                         |  |                      | 13,208    |                          |  
|                                                                                                                                                  |  |                      |           |                          |  
|                                                                                                                                                  |  |                      | 3,592,846 |                          |  
|Less
        accumulated depreciation                                                                                                             |  |                      | (587,317  | )                        |  
|                                                                                                                                                  |  |                      |           |                          |  
|Investments
        in real estate, net of accumulated depreciation                                                                               |  |                      | 3,005,529 |                          |  
|Properties
        and related assets held for sale, net of accumulated depreciation                                                              |  |                      | 68,795    |                          |  
|Investments
        in real estate joint ventures                                                                                                 |  |                      | 46,816    |                          |  
|Investments
        in mortgage notes and notes receivable                                                                                        |  |                      | 169,784   |                          |  
|Cash
        and cash equivalents                                                                                                                 |  |                      | 32,103    |                          |  
|Tenant
        receivables                                                                                                                        |  |                      | 12,804    |                          |  
|Investments
        in affiliate loans and joint ventures                                                                                         |  |                      | 59,435    |                          |  
|Deferred
        rents receivable                                                                                                                 |  |                      | 147,000   |                          |  
|Prepaid
        expenses and other assets                                                                                                         |  |                      | 88,982    |                          |  
|Deferred
        leasing and loan costs, net of accumulated amortization                                                                          |  |                      | 81,308    |                          |  
|                                                                                                                                                  |  |                      |           |                          |  
|Total
        Assets                                                                                                                              |  | $                    | 3,712,556 |                          | $
|                                                                                                                                                  |  |                      |           |                          |  
|LIABILITIES                                                                                                                                       |  |                      |           |                          |  
|Mortgage
        notes payable                                                                                                                    |  | $                    | 464,110   |                          | $
|Mortgage
        notes payable and other liabilities associated with properties held for
        sale                                             |  |                      | 63,839    |                          |  
|Unsecured
        credit facility                                                                                                                 |  |                      | 92,000    |                          |  
|Senior
        unsecured notes                                                                                                                    |  |                      | 1,254,932 |                          |  
|Accrued
        expenses and other liabilities                                                                                                    |  |                      | 118,888   |                          |  
|Deferred
        revenues and tenant security deposits                                                                                            |  |                      | 70,349    |                          |  
|Dividends
        and distributions payable                                                                                                       |  |                      | 36,582    |                          |  
|                                                                                                                                                  |  |                      |           |                          |  
|Total
        Liabilities                                                                                                                         |  |                      | 2,100,700 |                          |  
|                                                                                                                                                  |  |                      |           |                          |  
|Minority
        partners interests in consolidated partnerships                                                                                 |  |                      | 263,475   |                          |  
|Preferred
        unit interest in the operating partnership                                                                                      |  |                      | 1,200     |                          |  
|Limited
        partners minority interest in the operating partnership                                                                          |  |                      | 34,800    |                          |  
|                                                                                                                                                  |  |                      |           |                          |  
|                                                                                                                                                  |  |                      | 299,475   |                          |  
|                                                                                                                                                  |  |                      |           |                          |  
|Commitments
        and contingencies                                                                                                             |  |                      |          |                          |  
|                                                                                                                                                  |  |                      |           |                          |  
|STOCKHOLDERS
        EQUITY                                                                                                                      |  |                      |           |                          |  
|Preferred
        Stock, $.01 par value, 25,000,000 shares authorized                                                                             |  |                      |          |                          |  
|Common
        Stock, $.01 par value, 200,000,000 shares authorized 83,217,550 and 82,995,931
        shares issued and outstanding, respectively |  |                      | 832       |                          |  
|Accumulated
        other comprehensive income                                                                                                    |  |                      | 2,186     |                          |  
|Treasury
        Stock, 3,318,600 shares                                                                                                          |  |                      | (68,492   | )                        |  
|Retained
        earnings                                                                                                                         |  |                      | 63,002    |                          |  
|Additional
        paid in capital                                                                                                                |  |                      | 1,314,853 |                          |  
|                                                                                                                                                  |  |                      |           |                          |  
|Total
        Stockholders Equity                                                                                                                |  |                      | 1,312,381 |                          |  
|                                                                                                                                                  |  |                      |           |                          |  
|Total
        Liabilities and Stockholders Equity                                                                                                |  | $                    | 3,712,556 |                          | $
|                                                                                                                                                  |  |                      |           |                          |  

(see accompanying notes to financial statements)

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RECKSON
  ASSOCIATES REALTY
  CORP.

CONSOLIDATED
  STATEMENTS OF
  INCOME

(Unaudited and in thousands, except per share and share amounts)



|                                                                                                                                                      |  | Three Months EndedJune 30, |            | Six Months EndedJune 30, |  
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ---------- | ------------------------ | -
|                                                                                                                                                      |  |                            |            |                          |  
|                                                                                                                                                      |  | 2006                       |            | 2005                     |  
|                                                                                                                                                      |  |                            |            |                          |  
|PROPERTYOPERATING REVENUES:                                                                                                                           |  |                            |            |                          |  
|Base rents                                                                                                                                            |  | $                          | 128,575    |                          | $
|Tenant escalations and reimbursements                                                                                                                 |  |                            | 19,235     |                          |  
|                                                                                                                                                      |  |                            |            |                          |  
|Total property operating revenues                                                                                                                     |  |                            | 147,810    |                          |  
|                                                                                                                                                      |  |                            |            |                          |  
|OPERATING
        EXPENSES:                                                                                                                           |  |                            |            |                          |  
|Property operating expenses                                                                                                                           |  |                            | 56,974     |                          |  
|Marketing, general and administrative                                                                                                                 |  |                            | 9,475      |                          |  
|Depreciation and amortization                                                                                                                         |  |                            | 36,047     |                          |  
|                                                                                                                                                      |  |                            |            |                          |  
|Total operating expenses                                                                                                                              |  |                            | 102,496    |                          |  
|                                                                                                                                                      |  |                            |            |                          |  
|Operating income                                                                                                                                      |  |                            | 45,314     |                          |  
|                                                                                                                                                      |  |                            |            |                          |  
|NON-OPERATING
        INCOME AND EXPENSES:                                                                                                            |  |                            |            |                          |  
|Gains on sales of real estate                                                                                                                         |  |                            |           |                          |  
|Interest
        income on mortgage notes and notes receivable (including $1,126, $418,
        $2,248 and $1,269, respectively from related parties) |  |                            | 5,502      |                          |  
|Investment income and other                                                                                                                           |  |                            | 2,329      |                          |  
|Interest:                                                                                                                                             |  |                            |            |                          |  
|Expense                                                                                                                                               |  |                            | (27,216    | )                        |  
|Amortization of deferred financing costs                                                                                                              |  |                            | (1,017     | )                        |  
|Long-term incentive compensation expense                                                                                                              |  |                            | (2,232     | )                        |  
|                                                                                                                                                      |  |                            |            |                          |  
|Total non-operating income and expenses                                                                                                               |  |                            | (22,634    | )                        |  
|                                                                                                                                                      |  |                            |            |                          |  
|Income before minority interests, equity in earnings of real estate joint ventures and discontinued operations                                        |  |                            | 22,680     |                          |  
|Minority partners interests in consolidated partnerships                                                                                             |  |                            | (3,850     | )                        |  
|Limited partners minority interest in the operating partnership                                                                                      |  |                            | (693       | )                        |  
|Equity
        in earnings of real estate joint ventures                                                                                              |  |                            | 1,815      |                          |  
|                                                                                                                                                      |  |                            |            |                          |  
|Income
        before discontinued operations                                                                                                         |  |                            | 19,952     |                          |  
|Discontinued operations (net of minority interests):                                                                                                  |  |                            |            |                          |  
|Income (loss) from discontinued operations                                                                                                            |  |                            | (51        | )                        |  
|Gains on sales of real estate                                                                                                                         |  |                            |           |                          |  
|                                                                                                                                                      |  |                            |            |                          |  
|Net income                                                                                                                                            |  | $                          | 19,901     |                          | $
|                                                                                                                                                      |  |                            |            |                          |  
|Basic net income per weighted average common share:                                                                                                   |  |                            |            |                          |  
|Common                                                                                                                                                |  | $                          | .24        |                          | $
|Gains on sales of real estate                                                                                                                         |  |                            |           |                          |  
|Discontinued operations                                                                                                                               |  |                            |           |                          |  
|                                                                                                                                                      |  |                            |            |                          |  
|Basic net income per common share                                                                                                                     |  | $                          | .24        |                          | $
|                                                                                                                                                      |  |                            |            |                          |  
|Diluted net income per weighted average common share                                                                                                  |  | $                          | .24        |                          | $
|                                                                                                                                                      |  |                            |            |                          |  
|Basic weighted average common shares outstanding                                                                                                      |  |                            | 83,211,760 |                          |  
|Diluted weighted average common shares outstanding                                                                                                    |  |                            | 83,708,996 |                          |  

(see accompanying notes to financial statements)

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RECKSON
  ASSOCIATES REALTY
  CORP.

CONSOLIDATED
  STATEMENTS OF
  CASH FLOWS

(Unaudited and in thousands)



|                                                                                             |  | Six Months EndedJune 30, |         
|-------------------------------------------------------------------------------------------- |  | ------------------------ | --------
|                                                                                             |  |                          |         
|                                                                                             |  | 2006                     |         
|                                                                                             |  |                          |         
|CASH
        FLOWS FROM
        OPERATING ACTIVITIES:                                        |  |                          |         
|NET
        INCOME                                                                           |  | $                        | 77,643  
|Adjustments to reconcile net income to net cash provided by operating activities:            |  |                          |         
|Depreciation and amortization (including discontinued operations)                            |  |                          | 72,089  
|Minority partners interests in consolidated partnerships                                    |  |                          | 7,946   
|Limited partners minority interest in the operating partnership                             |  |                          | 2,572   
|Gains on sales of real estate                                                                |  |                          | (44,982 
|Sale of option to acquire joint venture interest                                             |  |                          | (9,016  
|Undistributed earnings from real estate joint ventures                                       |  |                          | (1,870  
|Changes in operating assets and liabilities:                                                 |  |                          |         
|Deferred rents receivable                                                                    |  |                          | (7,957  
|Prepaid expenses and other assets                                                            |  |                          | 12,811  
|Tenant
        receivables                                                                   |  |                          | 7,419   
|Accrued expenses and other liabilities                                                       |  |                          | (13,724 
|Tenant security deposits                                                                     |  |                          | (4,016  
|                                                                                             |  |                          |         
|Net cash provided by operating activities                                                    |  |                          | 98,915  
|                                                                                             |  |                          |         
|CASH
        FLOWS FROM
        INVESTMENT ACTIVITIES:                                       |  |                          |         
|Purchases of commercial real estate properties                                               |  |                          |        
|Additions to Note Receivable Investments                                                     |  |                          | (14,687 
|Repayments of Notes Receivable Investments                                                   |  |                          | 16,990  
|Additions to developments in progress                                                        |  |                          | (30,780 
|Additions to commercial real estate properties                                               |  |                          | (29,540 
|Payment of deferred leasing costs                                                            |  |                          | (10,538 
|Investments in real estate joint ventures                                                    |  |                          |        
|Distributions from unconsolidated real estate joint ventures                                 |  |                          | 3,270   
|Additions to furniture, fixtures and equipment                                               |  |                          | (241    
|Proceeds from sale of option to acquire joint venture interest                               |  |                          | 9,016   
|Proceeds from sales of real estate                                                           |  |                          | 182,978 
|Increase in contract and land deposits and pre-acquisition costs                             |  |                          | (326    
|                                                                                             |  |                          |         
|Net cash provided by (used in) investing activities                                          |  |                          | 126,142 
|                                                                                             |  |                          |         
|CASH
        FLOWS FROM
        FINANCING ACTIVITIES:                                        |  |                          |         
|Principal
        payments on secured borrowings                                             |  |                          | (77,437 
|Proceeds from issuance of senior unsecured notes, net of issuance costs                      |  |                          | 272,819 
|Payment of loan and equity issuance costs                                                    |  |                          | (512    
|Proceeds from unsecured credit facility                                                      |  |                          | 44,000  
|Principal payments on unsecured credit facility                                              |  |                          | (371,000
|Proceeds from unsecured bridge facility                                                      |  |                          |        
|Proceeds from unsecured term loan                                                            |  |                          | 250,000 
|Principal payments on unsecured term loan                                                    |  |                          | (250,000
|Proceeds from issuance of common stock, net of issuance costs, and exercise of stock options |  |                          | 2,279   
|Contributions by minority partners in consolidated partnerships                              |  |                          | 1,798   
|Distributions to minority partners in consolidated partnerships                              |  |                          | (8,474  
|Distributions to limited partners in the operating partnership                               |  |                          | (2,481  
|Dividends to common shareholders                                                             |  |                          | (71,414 
|                                                                                             |  |                          |         
|Net cash (used in) provided by financing activities                                          |  |                          | (210,422
|                                                                                             |  |                          |         
|Net increase (decrease) in cash and cash equivalents                                         |  |                          | 14,635  
|Cash and cash equivalents at beginning of period                                             |  |                          | 17,468  
|                                                                                             |  |                          |         
|Cash and cash equivalents at end of period                                                   |  | $                        | 32,103  
|                                                                                             |  |                          |         

(see accompanying notes to financial statements)

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RECKSONASSOCIATESREALTYCORP.

NOTES
  TO THECONSOLIDATEDFINANCIALSTATEMENTS

JUNE30, 2006

(Unaudited)

1.ORGANIZATION ANDFORMATION
  OF THECOMPANY

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

The
  Company was incorporated in Maryland in September 1994. In June 1995, the Company
  completed an initial public offering (the IPO) and commenced operations.
  On August 3, 2006, we entered into an Agreement and Plan of Merger with SL Green
  Realty Corp. (See Note 13).

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. The remaining 27% interest in the Operating Partnership
  was owned primarily by investors who contributed properties or interests in
  properties to the Operating Partnership in exchange for common units of limited
  partnership interest in the Operating Partnership (OP Units). Since
  the IPO the Company has completed numerous equity transactions and contributed
  any net proceeds received to the Operating Partnership, thereby increasing its
  general partnership interest. The Companys ownership percentage in the
  Operating Partnership was approximately 96.6% and 96.8% at June 30, 2006 and
  2005, respectively. All properties acquired by the Company are held by or through
  the Operating Partnership.

2.BASIS OFPRESENTATION

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 U.S. generally
  accepted accounting principles (GAAP) may have been condensed or
  omitted pursuant to such rules and regulations, although management believes
  that the disclosures are adequate so as not to make the information presented
  misleading. The unaudited financial statements at June 30, 2006 and for the
  three and six month periods ended June 30, 2006 and 2005 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, 2006. 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, 2005.

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, 2006 and December 31, 2005 and the consolidated
  results of their operations for the three and six month periods ended June 30,
  2006 and 2005, respectively, and their cash flows for the six months ended June
  30, 2006 and 2005, 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s investments
  in real estate joint ventures, where it owns less than a controlling interest,
  are reflected in the accompanying financial statements on the equity method
  of accounting. The Service Companies, which provide management, development
  and construction services to the Company, the Operating Partnership and to third
  parties include Reckson Management Group, Inc., RANY Management Group, Inc.,
  Reckson Construction & Development LLC and Reckson Construction Group New
  York, Inc. (collectively, the Service Companies). All significant
  intercompany balances and transactions have been eliminated in the consolidated
  financial statements.

Minority
  partners interests in consolidated partnerships represent a 49% non-affiliated
  interest in RT Tri-State LLC, owner of a six property suburban office portfolio
  located within the New York Tri-State Markets, a 40% non-affiliated interest
  in Omni Partners, L.P., owner of a 579,000 square foot suburban office property
  (the Omni Property), and a 49% non-affiliated interest in Metropolitan
  919 3rd Avenue, LLC, owner of the property located at 919 Third Avenue, New
  York, NY. Limited partners minority interests in the Operating Partnership
  was approximately 3.4% and 3.2% at June 30, 2006 and 2005, respectively.

At
  June 30, 2006, the Operating Partnerships investments in unconsolidated
  real estate joint ventures consisted of a 30% interest in the 1.4 million square
  foot Class A office tower located at One Court Square, Long Island City, NY
  (the Court Square JV), a 25% interest in Reckson Australia Operating
  Company LLC, owner of a 20 suburban office property portfolio, located within
  the New York Tri-State Markets, containing approximately 2.8 million square
  feet (the Australian JV) and an approximate 5% indirect ownership
  interest in a 550,000 square foot office condominium in a Class A office tower
  located at 1166 Avenue of the Americas in New York, NY.

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Use
  of Estimates

The
  preparation of financial statements in conformity with GAAP requires management
  to make estimates and assumptions that affect the amounts reported in the financial
  statements and footnotes thereto. Actual results could differ from those estimates.

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 they are 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, which are included
  in buildings and improvements, are amortized on a straight-line basis over the
  term of the related leases. Depreciation expense for each of the three and six
  month periods ended June 30, 2006 and 2005 amounted to approximately $23.7 million,
  $47.1 million, $22.5 million and $43.3 million, respectively.

We
  are required to make subjective assessments as to the useful lives of our 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 our net income. Should we 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 us of certain other lease related costs must be made when we have 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, we adopted Financial Accounting Standards
  Board (FASB) Statement No.141, Business Combinations
  and FASB Statement No. 142, Goodwill and Other Intangibles, respectively
  (Statement No.s 141 and 142). 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.

We
  allocate a portion of a propertys purchase price to tangible assets including
  the fair value of the building and building improvements on an as-if-vacant
  basis and to land determined either by real estate tax assessments, independent
  appraisals or other relevant data. Additionally, we assess fair value of identified
  intangible assets and liabilities 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 we incorrectly estimate the values at acquisition or the undiscounted
  cash flows, initial allocation of purchase price and future impairment charges
  may be different.

Long
  Lived Assets

We
  are required to make subjective assessments as to whether there are impairments
  in the value of our real estate properties and other investments. An investment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
  investment is less than the carrying value of the investment. Such assessments
  consider factors such as cash flows, expected future operating income, trends
  and prospects, as well as the effects of demand, competition and other factors.
  To the extent impairment has occurred it will be measured as the excess of the
  carrying amount of the property over the fair value of the property. These assessments
  have a direct impact on our net income, as a recognition of an impairment results
  in an immediate negative adjustment to net income. In determining impairment,
  if any, we have followed FASB Statement No. 144, Accounting for the Impairment
  or Disposal of Long Lived Assets (Statement No. 144). Statement
  No. 144 did not have an impact on net income. Statement No. 144 only impacts
  the presentation of the results of operations and gains on sales of real estate
  assets for those properties sold during the period within the consolidated statements
  of income.

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Cash
  Equivalents

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

Tenants
  lease security deposits aggregating approximately $8.5 million and $5.5 million
  at June 30, 2006 and December 31, 2005, respectively, have been included in
  cash and cash equivalents on the accompanying balance sheets.

Deferred
  Costs

Tenant
  leasing commissions, lease incentives and related costs incurred in connection
  with leasing tenant space are capitalized and amortized over the life of the
  related lease. Tenanting costs recorded as tenant improvements are amortized
  and included in depreciation and amortization expense on our consolidated statements
  of income. In contrast, tenanting costs recorded as lease incentives are amortized
  against base rents on our consolidated statements of income.

Loan
  costs incurred in obtaining financing are capitalized and amortized over the
  term of the related loan.

Costs
  incurred in connection with equity offerings are charged to stockholders
  equity when incurred.

Income
  Taxes

Commencing
  with its taxable year ended December 31, 1995, the Company elected to be taxed
  as a REIT under the Internal Revenue Code of 1986, as amended (the Code).
  To qualify as a REIT, the Company must meet a number of organizational and operational
  requirements, including a requirement that it currently distribute at least
  90% of its adjusted taxable income to its stockholders. It is managements
  current intention to adhere to these requirements and maintain the Companys
  REIT status. As a REIT, the Company generally will not be subject to corporate
  level income tax on taxable income it distributes currently to its stockholders.
  If the Company fails to qualify as a REIT in any taxable year, it will be subject
  to income taxes at regular corporate rates (including any applicable alternative
  minimum tax) and may not be able to qualify as a REIT for the subsequent four
  taxable years. Even if the Company qualifies as a REIT, the Company may be subject
  to certain state and local taxes, including tax on its income and property,
  and to federal income and excise taxes on its undistributed taxable income.
  In addition, taxable income from non-REIT activities managed through the Companys
  taxable REIT subsidiaries are subject to federal, state and local income taxes.

Revenue
  Recognition & 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 accompanying
  balance sheets. Contractually due but unpaid rents are included in tenant receivables
  on the accompanying balance sheets. Certain lease agreements also provide for
  reimbursement of real estate taxes, insurance, common area maintenance costs
  and indexed rental increases, which are recorded on an accrual basis. Ancillary
  and other property related income is recognized in the period earned.

We
  make estimates of the collectibility of our accounts receivables related to
  base rents, tenant escalations and reimbursements and other revenue or income.
  We specifically analyze tenant receivables and historical bad debts, customer
  credit worthiness, current economic trends and changes in customer payment terms
  when evaluating the adequacy of our allowance for doubtful accounts. In addition,
  when tenants are in bankruptcy, we make 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 our
  net income because a higher bad debt reserve results in less net income.

We
  incurred approximately $175,000 and $445,000 and $253,000 and $645,000 of bad
  debt expense and related costs related to tenant receivables during the three
  and six month periods ended June 30, 2006 and 2005, respectively, which accordingly
  reduced our total revenues and reported net income during those periods.

We
  record interest income on our investments in notes receivable on the accrual
  basis of accounting. We do 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 we consider 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 & Development LLC 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.

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Gain
  on the sale of real estate is 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 us having no substantial continuing involvement
  with the buyer. Additionally, in connection with a sale of real estate, if we
  retain certain risks in the form of guarantees, the profit recognized on that
  sale shall be reduced and deferred by the maximum exposure to loss, until such
  exposure is relieved.

Earnings
  Per Share

We
  follow the guidance provided for under FASB Statement No. 128, Earnings
  per Share (Statement No. 128) which replaced the calculation
  of primary and fully diluted earnings per share with basic and diluted earnings
  per share. Unlike primary earnings per share, basic earnings per share excludes
  any dilutive effects of options, warrants and convertible securities. Diluted
  earnings per share are very similar to the previously reported fully diluted
  earnings per share. The conversion of OP Units into common stock would not have
  a significant effect on per share amounts as the OP Units share proportionately
  with the common stock in the results of the Operating Partnerships operations.

Stock
  Options

In
  December 2002, the FASB issued Statement No. 148, Accounting for Stock-Based
  CompensationTransition and Disclosure (Statement No. 148).
  Statement No. 148 amends FASB Statement No. 123, Accounting for Stock-Based
  Compensation (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.

On
  December 16, 2004, the FASB issued Statement No. 123 (revised 2004), Share-Based
  Payment (Statement No. 123R), which is a revision of Statement
  No. 123. Statement No. 123R supersedes Accounting Principles Board Opinion No.
  25, Accounting for Stock Issued to Employees, and amends FASB Statement
  No. 95, Statement of Cash Flows. Generally, the approach in Statement
  No. 123R is similar to the approach described in Statement No. 123. However,
  Statement No. 123R requires all share-based payments to employees, including
  grants of employee stock options, to be recognized in the income statement based
  on their fair values. We adopted Statement No. 123R on January 1, 2006. The
  adoption of Statement No. 123R did not have a material impact on our consolidated
  financial statements.

Effective
  January 1, 2002, we elected to follow Statement No. 123 and use the Black-Scholes
  option pricing model to estimate the value of stock options granted to employees
  and continue to use this acceptable option valuation model upon our required
  adoption of Statement No. 123R on January 1, 2006. Because Statement No. 123R
  must be applied not only to new awards but to previously granted awards that
  are not fully vested on the effective date, and because we adopted Statement
  No. 123 using the prospective transition method (which applied only to awards
  granted, modified or settled after the adoption date), compensation cost for
  previously granted awards that were not recognized under Statement No. 123 would
  be recognized under Statement No. 123R. However, on January 1, 2006, the date
  we adopted Statement No. 123R, all of the unexercised options outstanding under
  our stock option plans were fully vested. As a result, no additional expense
  will be recognized. In addition, had we adopted Statement No. 123R in the prior
  period, there would be no impact on our consolidated financial statements.

Accumulated
  Other Comprehensive Income (Loss)

We
  report comprehensive income or loss in accordance with the provisions of FASB
  Statement No. 130, Reporting Comprehensive Income, which establishes
  standards for reporting comprehensive income and its components in the financial
  statements. The components of other comprehensive income (loss) (OCI)
  consist of unrealized gains and losses on derivative instruments. OCI is presented
  in the accompanying consolidated statements of stockholders equity.

Derivative
  Instruments

FASB
  Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
  (Statement No. 133), as amended, establishes accounting and reporting
  standards for derivative instruments, including certain derivative instruments
  embedded in other contracts, and for hedging activities.

The
  accounting for changes in the fair value of derivatives depends on the intended
  use of the derivative and the resulting designation. Derivatives used to hedge
  the exposure to changes in the fair value of an asset, liability, or firm commitment
  attributable to a particular risk, such as interest rate risk, are considered
  fair value hedges. Derivatives used to hedge the exposure to variability in
  expected future cash flows, or other types of forecasted transactions, are considered
  cash flow hedges.

As
  required by Statement No. 133, we record all derivatives on our balance sheet
  at fair value. For effective hedges, depending on the nature of the hedge, changes
  in the fair value of the derivative will be offset against the corresponding
  change in fair value of the hedged asset, liability, or firm commitment through
  earnings or recognized in OCI until the hedged item is recognized in earnings.

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For
  derivatives designated as cash flow hedges, the effective portion of changes
  in the fair value of the derivative is initially reported in OCI and subsequently
  reclassified to earnings when the hedged transaction affects earnings, and the
  ineffective portion of changes in the fair value of the derivative is recognized
  directly in earnings. We assess the effectiveness of each hedging relationship
  by comparing the changes in fair value or cash flows of the derivative hedging
  instrument with the changes in fair value or cash flows of the designated hedged
  item or transaction. For derivatives not designated as hedges, changes in fair
  value are recognized in earnings.

We
  do not enter into derivative financial instruments for trading or speculative
  purposes. However, in the normal course of our business and to help us manage
  our debt issuances and maturities, we do use derivative financial instruments
  in the form of cash flow hedges to protect ourselves against potentially rising
  interest rates.

Variable
  Interest Entities

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. VIEs are primarily entities that lack sufficient
  equity to finance their activities without additional financial support from
  other parties or whose equity holders lack adequate decision making ability.
  All VIEs which we are involved with must be evaluated to determine the primary
  beneficiary of the risks and rewards of the VIE. The primary beneficiary is
  required to consolidate the VIE for financial reporting purposes. 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
  ended March 31, 2004 for interests held by public companies in VIEs created
  before February 1, 2003, which were non-special purpose entities. We adopted
  FIN 46R during the period ended March 31, 2004 and have determined that our
  unconsolidated subsidiaries do not represent VIEs pursuant to such interpretation.
  We will continue to monitor any changes in circumstances relating to certain
  of our consolidated and unconsolidated joint ventures which could result in
  a change in our consolidation policy.

Current
  pronouncements

In
  July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty
  in Income Taxes (FIN 48). This interpretation, among other
  things, creates a two step approach for evaluating uncertain tax positions.
  Recognition (step one) occurs when an enterprise concludes that a tax position,
  based solely on its technical merits, is more-likely-than-not to be sustained
  upon examination. Measurement (step two) determines the amount of benefit that
  more-likely-than-not will be realized upon settlement. De-recognition of a tax
  position that was previously recognized would occur when a company subsequently
  determines that a tax position no longer meets the more-likely-than-not threshold
  of being sustained. FIN 48 specifically prohibits the use of a valuation allowance
  as a substitute for de-recognition of tax positions, and it has expanded disclosure
  requirements. FIN 48 is effective for fiscal years beginning after December
  15, 2006, in which the impact of adoption should be accounted for as a cumulative-effect
  adjustment to the beginning balance of retained earnings. We are currently evaluating
  FIN 48 and have not yet determined the impact the adoption will have on our
  consolidated financial statements.

In
  June 2005, the FASB ratified the consensus in EITF Issue No. 04-5,
  Determining Whether a General Partner, or the General Partners as a Group,
  Controls a Limited Partnership or Similar Entity When the Limited Partners Have
  Certain Rights (Issue 04-5), which provides guidance in determining
  whether a general partner controls a limited partnership. Issue 04-5 states
  that the general partner in a limited partnership is presumed to control that
  limited partnership. The presumption may be overcome if the limited partners
  have either (1) the substantive ability to dissolve the limited partnership
  or otherwise remove the general partner without cause or (2) substantive
  participating rights, which provide the limited partners with the ability to
  effectively participate in significant decisions that would be expected to be
  made in the ordinary course of the limited partnerships business and thereby
  preclude the general partner from exercising unilateral control over the partnership.
  The adoption of Issue 04-5 by us for new or modified limited partnership arrangements
  is effective June 30, 2005 and for existing limited partnership arrangements
  effective January 1, 2006. We have evaluated the guidance provided for
  under Issue 04-5 and have concluded that we are not required to consolidate
  our current unconsolidated joint venture investments nor do we expect Issue
  04-5 to have a material effect on our consolidated financial statements.

In
  May 2005, the FASB issued Statement No. 154, Accounting Changes and Error
  Corrections (Statement No. 154). Statement No. 154, which
  replaces APB Opinion No. 20, Accounting Changes and FASB Statement
  No. 3, Reporting Accounting Changes in Interim Financial Statements,
  changes the requirements for the accounting for and reporting of a change in
  accounting principle. The statement requires retrospective application of changes
  in accounting principle to prior periods financial statements unless it
  is impracticable to determine the period-specific effects or the cumulative
  effect of the change. Statement No. 154 is effective for accounting changes
  and corrections of errors made in fiscal years beginning after December 15,
  2005. We adopted Statement No. 154 on January 1, 2006. The adoption of Statement
  No. 154 did not have a material impact on our consolidated financial position,
  results of operations or cash flows.

In
  March 2005, FASB issued Interpretation No. 47, Accounting for Conditional
  Asset Retirement Obligations (FIN 47), which became effective
  December 31, 2005. Under FIN 47, a conditional asset retirement obligation (CARO)
  must be recorded if the liability can be reasonably estimated. A CARO is an
  obligation that is settled at the time an asset is retired or disposed of and
  for which the timing and/or method of settlement are conditional on future events.
  We own certain properties that currently have asbestos which under certain conditions
  must be remediated. As a result of adopting FIN 47, we will increase the value
  of our recorded tangible assets at the time we recognize the associated conditional
  retirement obligation.

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As
  a result, during 2005, we recorded approximately $2.0 million which represents
  the fair value of the CARO related to asbestos removal in tenant spaces. In
  addition, for certain limited areas of our properties, management is unable
  to reasonably determine the fair value of potential remediation costs as there
  is an indeterminate settlement date for the asset retirement obligation because
  the range of time over which way we may choose to remediate this condition may
  not be estimated with any level of precision which would lend itself to a meaningful
  estimate.

Reclassifications

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

3.MORTGAGENOTESPAYABLE

On
  January 6, 2006, we sold two of our suburban office properties: 6800 and 6900
  Jericho Turnpike, Jericho, NY to the Australian JV, subject to their mortgage
  debt of approximately $20.1 million. The Australian JV subsequently pre-paid
  the mortgage notes with proceeds from a new mortgage financing transaction.

Pursuant
  to the terms of the mortgage note encumbering the property located at 1350 Avenue
  of the Americas in New York, NY, the note was prepayable, without penalty, subsequent
  to March 31, 2006. On March 31, 2006, we satisfied the note and unencumbered
  the property by repaying the outstanding balance of approximately $71.9 million
  with proceeds received from property sales and cash-on-hand.

At
  June 30, 2006, we had 12 fixed rate mortgage notes payable with an aggregate
  outstanding principal amount of approximately $527.5 million. These mortgage
  notes are secured by properties with an aggregate cost basis at June 30, 2006
  of approximately $1.1 billion and which are pledged as collateral against the
  mortgage notes payable. In addition, approximately $41.0 million of the $527.5
  million is recourse to the Company. The mortgage notes bear interest at rates
  ranging from 5.20% to 8.50%, and mature between 2006 and 2015. The weighted
  average interest rate on the outstanding mortgage notes payable at June 30,
  2006 was approximately 7.1%.

Certain
  of the mortgage notes payable are guaranteed by the Company and/or certain limited
  partners in the Operating Partnership. 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.

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The
  following table sets forth our mortgage notes payable at June 30, 2006, by scheduled
  maturity date (dollars in thousands):



|Property                                            |  |    |   | Principal
        AmountOutstanding |         | Interest
        Rate |      | Maturity
        Date |                         | AmortizationTerm (Years) |                      
|--------------------------------------------------- |  | -- | - | ----------------------------------- | ------- | --------------------- | ---- | --------------------- | ----------------------- | ------------------------ | ---------------------
|                                                    |  |    |   |                                     |         |                       |      |                       |                         |                          |                      
|Landmark
        Square, Stamford, CT               |  | (a | ) | $                                   | 40,973  |                       | 8.02 | %                     | October,
        2006   |                          | 25                   
|100
        Summit Lake Drive, Valhalla, NY         |  |    |   |                                     | 13,699  |                       | 8.50 | %                     | April,
        2007     |                          | 15                   
|333
        Earle Ovington Blvd., Mitchel Field, NY |  | (b | ) |                                     | 50,011  |                       | 7.72 | %                     | August,
        2007    |                          | 25                   
|810
        Seventh Avenue, NY, NY                  |  | (c | ) |                                     | 76,902  |                       | 7.73 | %                     | August,
        2009    |                          | 25                   
|275
        Broadhollow Road, Melville, NY          |  | (c | ) |                                     | 14,966  |                       | 7.73 | %                     | August,
        2009    |                          | 25                   
|90
        Merrick Avenue, East Meadow, NY          |  | (c | ) |                                     | 18,359  |                       | 7.73 | %                     | August,
        2009    |                          | 25                   
|580
        White Plains Road, Tarrytown, NY        |  | (d | ) |                                     | 11,876  |                       | 7.86 | %                     | September,
        2010 |                          | 25                   
|520
        Broadhollow Road, Melville, NY          |  | (e | ) |                                     | 11,869  |                       | 5.20 | %                     | October,
        2010   |                          | Interest
        Only
|50
        Marcus Avenue, Melville, NY              |  | (e | ) |                                     | 28,277  |                       | 5.20 | %                     | October,
        2010   |                          | Interest
        Only
|1660
        Walt Whitman Road, Melville, NY        |  | (e | ) |                                     | 11,386  |                       | 5.20 | %                     | October,
        2010   |                          | Interest
        Only
|919
        Third Avenue, NY, NY                    |  | (f | ) |                                     | 236,675 |                       | 6.87 | %                     | July,
        2011      |                          | 30                   
|711
        Westchester Avenue, White Plains, NY    |  |    |   |                                     | 12,525  |                       | 5.36 | %                     | January,
        2015   |                          | 30 (g)               
|                                                    |  |    |   |                                     |         |                       |      |                       |                         |                          |                      
|Total
        / Weighted average                    |  |    |   | $                                   | 527,518 |                       | 7.09 | %                     |                         |                          |                      
|                                                    |  |    |   |                                     |         |                       |      |                       |                         |                          |                      

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

|(b) | At
        June 30, 2006, we had a 60% general partnership interest in this property
        and our proportionate share of the aggregate principal amount of the mortgage
        was approximately $30.0 million.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | These
        mortgages are cross-collateralized.
|--- | -------------------------------------------------

|(d) | The
        property subject to this mortgage is contracted to be sold to the Australian
        JV in October 2006.
|--- | --------------------------------------------------------------------------------------------------------------------

|(e) | These
        mortgages are cross-collateralized by properties that are contracted to
        be sold, subject to the mortgages, to the Australian JV in October 2006.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) | We
        have a 51% membership interest in this property and our proportionate
        share of the aggregate principal amount of the mortgage is approximately
        $120.7 million.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(g) | This
        mortgage note is interest only through January 2007 and then amortizes
        over a 30-year period.
|--- | ------------------------------------------------------------------------------------------------------------------

Scheduled
  principal repayments to be made during the next five years and thereafter, for
  mortgage notes payable outstanding at June 30, 2006, are as follows (in thousands):



|           |  | PrincipalAmortization |        | Due
        atMaturity |   | Total   | 
|---------- |  | --------------------- | ------ | ---------------------- | - | ------- | 
|           |  |                       |        |                        |   |         | 
|2006       |  | $                     | 5,229  |                        | $ | 40,402  | 
|2007       |  |                       | 8,406  |                        |   | 60,642  | 
|2008       |  |                       | 7,370  |                        |   |        | 
|2009       |  |                       | 6,774  |                        |   | 100,254 | 
|2010       |  |                       | 4,665  |                        |   | 62,105  | 
|Thereafter |  |                       | 3,236  |                        |   | 228,435 | 
|           |  |                       |        |                        |   |         | 
|           |  | $                     | 35,680 |                        | $ | 491,838 | 
|           |  |                       |        |                        |   |         | 

At
  June 30, 2006, our unconsolidated joint ventures had total indebtedness of approximately
  $838.3 million, which was comprised of $30.5 million of floating rate unsecured
  debt and approximately $807.8 million of fixed rate mortgage indebtedness with
  a weighted average interest rate of approximately 5.4% and a weighted average
  maturity of approximately 9.2 years. Our aggregate pro-rata share of the unconsolidated
  joint venture debt was approximately $180.8 million.

4.SENIORUNSECUREDNOTES

During
  March 2006, the Operating Partnership issued $275.0 million aggregate principal
  amount of ten-year 6.00% senior unsecured notes. Interest on the notes will
  be payable semi-annually on May 15 and November 15, commencing May 15, 2006.
  Prior to the issuance of these notes, we entered into an anticipatory interest
  rate hedge instrument to protect ourselves against potentially rising interest
  rates. At the time the notes were issued, this instrument was settled and we
  received a net benefit of approximately $490,000. Such benefit has been recorded
  to OCI and is being amortized as a yield adjustment to the fixed rate notes.
  The net proceeds from the offering, after the underwriters discounts and
  expenses, were approximately $272.5 million and were used for the repayment
  of amounts outstanding under our term loan. (See Note 5)

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At
  June 30, 2006, the Operating Partnership had outstanding approximately $1.25
  billion (net of unamortized 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):



|Issuance                 |  | FaceAmount |           | CouponRate |        | Term(in Years) |    | Maturity |                          
|------------------------ |  | ---------- | --------- | ---------- | ------ | -------------- | -- | -------- | -------------------------
|                         |  |            |           |            |        |                |    |          |                          
|June
        17, 2002    |  | $          | 50,000    |            | 6.00%  |                | 5  |          | June
        15, 2007    
|August
        27, 1997  |  |            | 150,000   |            | 7.20%  |                | 10 |          | August
        28, 2007  
|March
        26, 1999   |  |            | 200,000   |            | 7.75%  |                | 10 |          | March
        15, 2009   
|January
        22, 2004 |  |            | 150,000   |            | 5.15%  |                | 7  |          | January
        15, 2011 
|August
        13, 2004  |  |            | 150,000   |            | 5.875% |                | 10 |          | August
        15, 2014  
|March
        31, 2006   |  |            | 275,000   |            | 6.00%  |                | 10 |          | March
        31, 2016   
|June
        27, 2005    |  |            | 287,500   |            | 4.00%  |                | 20 |          | June
        15, 2025 (a)
|                         |  |            |           |            |        |                |    |          |                          
|                         |  | $          | 1,262,500 |            |        |                |    |          |                          
|                         |  |            |           |            |        |                |    |          |                          

| | (a) | Exchangable
        senior debentures which are callable after June 17, 2010 at 100% of par.
        In addition, the debentures can be put to us, at the option of the holder
        at par, on June 15, 2010, 2015 and 2020 and upon the occurrence of certain
        change of control transactions (including the Merger as discussed in Note
        13).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Interest
  on the Senior Unsecured Notes is payable semiannually 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 $8.6 million.
  Such discounts are being amortized to interest expense over the term of the
  Senior Unsecured Notes to which they relate. Through June 30, 2006, approximately
  $1.1 million of the aggregate discounts have been amortized.

5.UNSECUREDCREDITFACILITY ANDTERMLOAN

We
      currently maintain our $500 million Credit Facility with 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 matures in August 2008,
      provides
  for a one-year extension subject to a fee of 25 basis points and, upon receiving
      additional lender commitments, for an increase to the maximum revolving
      credit
  amount to $750 million.The
  Credit Facility has a competitive bid feature, which allows us to solicit bids
  from lenders under the Credit Facility to borrow up to 50% of the maximum revolving
  credit amount at interest rates less than the current LIBOR plus 80 basis point
  spread.In addition, the Credit Facility carries
  a facility fee of 20 basis points per annum. In the event of a change in the
  Operating
  Partnerships senior unsecured credit ratings, the interest rates and
  facility  fee are subject to change. At June 30, 2006, the outstanding borrowings
  under
  the Credit Facility aggregated $92.0 million and carried a weighted average
   interest rate of 5.86% per annum.

We
  utilize the Credit Facility primarily to finance real estate investments, fund
  our real estate development activities and for working capital purposes. At
  June 30, 2006, we had availability under the Credit Facility to borrow approximately
  an additional $407.9 million, subject to compliance with certain financial covenants.
  Such amount is net of approximately $100,000 in an outstanding undrawn standby
  letter of credit, which is issued under the Credit Facility.

In
  connection with the acquisition of certain properties, contributing partners
  of such properties have provided guarantees on certain of our indebtedness.
  As a result, we maintain certain minimum outstanding balances on our Credit
  Facility.

On
  January 13, 2006, we obtained a $250.0 million term loan (the Term Loan)
  from Goldman Sachs Mortgage Company. The Term Loan was for an initial period
  of three months and had terms, including interest rates and financial covenants,
  substantially similar to our Credit Facility. Proceeds from the Term Loan were
  used to repay outstanding borrowings under our Credit Facility. On March 31,
  2006, in conjunction with net proceeds received from the issuance of Senior
  Unsecured Notes, we repaid the entire amount outstanding under the Term Loan.
  As a result, the Term Loan has been retired and is no longer available for borrowings
  thereunder.

6.COMMERCIALREALESTATEINVESTMENTS

In
  May 2005, we acquired a 1.4 million square foot, 50-story, Class A office tower
  located at One Court Square, Long Island City, NY. On November 30, 2005, we
  sold a 70% joint venture interest in One Court Square to certain institutional
  funds advised by JPMorgan Investment Management (the JPM Investor).
  The operating agreement of the Court Square JV requires approvals from members
  on certain decisions including annual budgets, sale of the property, refinancing
  of the propertys mortgage debt and material renovations to the property.
  In addition, after September 20, 2009 the members each have the right to recommend
  the sale of the property, subject to the terms of the mortgage debt, and to
  dissolve the Court Square JV. We have evaluated the impact of FIN 46R on our
  accounting for the Court Square JV and have concluded that the Court Square
  JV is not a VIE. We account for the Court Square JV under the equity method
  of accounting. We have also evaluated and determined that under Issue 04-5 the
  JPM Investor has substantive participating rights in the ordinary course of
  the Court Square JVs business. In accordance with the equity method of
  accounting, our proportionate share of the Court Square JV income was approximately
  $67,400 and $110,000 for the three and six months ended June 30, 2006, respectively.

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On
  May 26, 2005, we entered into a contract to sell approximately 60 acres of land
  located in Chatham Township, NJ. The sale was contingent upon due diligence,
  environmental assessment, final re-zoning and other customary approvals. During
  July 2006, the contract was terminated.

On
  August 18, 2005, we entered into (i) an underwriting agreement relating to the
  public offering in Australia of approximately A$263.0 million (approximately
  US$202.0 million) of units (LPT Units) in a newly-formed Reckson-sponsored
  Australian listed property trust, Reckson New York Property Trust (Reckson
  LPT), a newly-formed listed property trust which is traded on the Australian
  Stock Exchange and (ii) contribution and sale agreements pursuant to which,
  among other things, we agreed to transfer 25 of our properties for an aggregate
  purchase price of approximately $563.0 million and containing an aggregate of
  3.4 million square feet, in three separate tranches, to the Australian JV in
  exchange for a 25% interest in the Australian JV and approximately $502.0 million
  in cash (inclusive of proceeds from mortgage debt to be assumed by the Australian
  JV). On September 21, 2005, Reckson LPT completed its public offering and the
  closing of the first of three tranches (Tranche I) of this transaction.

In
  connection with the Tranche I closing, the Australian JV acquired from us 17
  of our suburban office properties containing approximately 2.0 million square
  feet for approximately $367.0 million (including the assumption of approximately
  $196.1 million in mortgage debt which had been incurred by us in August 2005
   see Note 2). In return, we received a 25% interest in the Australian
  JV and approximately $128.1 million in cash resulting in an aggregate gain of
  approximately $103.6 million. As discussed below relating to certain guarantees
  we have made, approximately $18 million of the aggregate gain has been deferred
  to future periods pursuant to Statement No. 66 to coincide with the release
  of the guarantees. As a result, gains on sales of real estate reported in 2005,
  related to theTranche I closing was approximately $82.7 million, net of limited
  partners minority interest. Approximately $22.0 million of the cash received
  was used to repay certain of our secured mortgage indebtedness on September
  30, 2005 and approximately $105.7 million of the cash received was 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 a qualified replacement property is
  identified within 45 days and such qualified replacement property is acquired
  within 180 days from the initial sale. On October 7, 2005 we acquired a qualified
  replacement property for purposes of this Section 1031 Exchange and thereby
  deferred a portion of the tax gain from the Tranche I sale.

In
  connection with the foregoing, on September 21, 2005, Reckson Australia Holdings
  LLC (Reckson Holdings), a wholly-owned subsidiary of the Operating
  Partnership, and Reckson Australia LPT Corporation (LPT REIT), a
  U.S. real estate investment trust which is wholly-owned by Reckson LPT, entered
  into the Amended and Restated Limited Liability Company Agreement governing
  the Australian JV (the Operating Agreement). Pursuant to the Operating
  Agreement, LPT REIT holds a 75% interest in, and acts as the managing member
  for, the Australian JV, and Reckson Holdings holds a 25% non-managing member
  interest therein. The Operating Agreement provides that, if at any time additional
  capital contributions are made to the Australian JV, Reckson Holdings will have
  a right to make additional capital contributions up to an amount necessary to
  maintain its 25% interest therein on the same terms and conditions as such other
  capital contributions.

As
  the managing member of the Australian JV, LPT REIT has the sole responsibility
  for managing its business and affairs on a day-to-day basis, other than with
  respect to certain identified major decisions, including but not
  limited to a merger or consolidation involving the Australian JV, a disposition
  of all or substantially all of its assets, or the liquidation or dissolution
  of the Australian JV. Such major decisions require the prior written consent
  of a majority of the non-managing members. As a result of the foregoing, we
  are accounting for our 25% non-managing member interest in the Australian JV
  under the equity method of accounting. In accordance with the equity method
  of accounting, our proportionate share of the Australian JVs income was
  approximately $1.6 million and $1.9 million for the three and six months ended
  June 30, 2006, respectively.

On
  January 6, 2006, Reckson LPT completed the second Tranche of this transaction
  (Tranche II) whereby the Australian JV acquired three of our suburban
  office properties: 6800 and 6900 Jericho Turnpike, Syosset, NY and 710 Bridgeport
  Avenue, Shelton, CT, (the Tranche II Properties) aggregating approximately
  761,000 square feet for approximately $84.6 million, including the assignment
  of approximately $20.1 million of mortgage debt. As a result, gains on sales
  of real estate related to Tranche II is approximately $34.3 million, net of
  limited partners minority interest. Approximately $25.1 million of sales
  proceeds was used to establish an escrow account for the purpose of a future
  Section 1031 Exchange. During May 2006, we terminated the Section 1031 Exchange
  and received the sales proceeds previously held by the qualified intermediary,
  including accrued interest. Such proceeds were used to repay outstanding borrowings
  under our Credit Facility. The balance of the cash proceeds, received at the
  time of the sale was used to fund our development activities and for general
  corporate purposes. For federal income tax purposes, we recognized a tax gain
  of approximately $26.7 million. We do not anticipate that such tax gain will
  require us to distribute more than our regular quarterly distribution in order
  to satisfy the distribution requirements necessary to qualify as a REIT.

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The
  Tranche III closing (Tranche III), consisting of five of our suburban
  office properties valued at approximately $111.8 million, is scheduled to close
  in October 2006 and will include the assumption by the Australian JV of approximately
  $51.5 million of existing mortgage debt. It is anticipated that the Australian
  JV will pre-pay such mortgage debt in connection with the Tranche III closing.
  The Tranche III closing is subject to customary closing conditions and the Tranche
  III Properties consist of: 520 Broadhollow Road, 50 Marcus Avenue, 1660
  Walt Whitman Road, all of which are located in Melville, NY, 580 White Plains
  Road, Tarrytown, NY and 300 Executive Park Drive, West Orange, NJ.

Our
  Service Companies provide asset management, property management, leasing, construction
  and other services to the Australian JV. Affiliates of ours are entitled to
  transaction fees and ongoing fees for providing services to the Australian JV.
  During January 2006, in connection with the Tranche II closing we earned and
  received approximately $819,000 in transaction related fees. Also, during the
  three and six months ended June 30, 2006 we earned and received approximately
  $1.5 million and $2.4 million, respectively of ongoing service related fees.
  Such amounts are included in investment income and other on our consolidated
  statements of income. In addition, we also formed Reckson Australia Management
  Limited (RAML), a wholly owned subsidiary, that will manage Reckson
  LPT and serve as its Responsible Entity. The Responsible Entity
  will be managed by a six member board that includes three independent directors
  domiciled in Australia and three of the Companys executive officers. To
  address and mitigate any potential conflicts of interest with Reckson LPT or
  its affiliates the Company has adopted the following policies: (i) all transactions
  between the Company and Reckson LPT or its affiliates shall require the approval
  of a majority of the independent directors of both the Company and Reckson LPT,
  (ii) executive officers and directors of the Company are prohibited from owning
  equity in Reckson LPT, and (iii) the adoption of an express policy which mandates
  that property services and leasing decisions shall be made without regard to
  the Companys percentage ownership of any property.

Under
  the Operating Agreement, Reckson Holdings will have the right, beginning September
  21, 2007, to require LPT REIT to redeem all or a portion of Reckson Holdings
  membership interest in the Australian JV for cash or, at LPT REITs option,
  shares of LPT REITs common stock (which may be exchanged for LPT Units)
  on a one-for-one basis. Reckson Holdings also has the right to cause the liquidation
  of the Australian JV in the event that RAML is replaced as Reckson LPTs
  Responsible Entity. In addition, the Operating Agreement contains a right of
  first refusal granting Reckson Holdings the right to acquire any asset of the
  Australian JV, at fair market value, in the event of an attempted sale of such
  asset or the exercise of Reckson Holdings right to liquidate the Australian
  JV.

In
  connection with the Tranche I closing, on September 21, 2005, the Company, the
  Australian JV and LPT REIT entered into an Option Agreement (the Option
  Agreement) pursuant to which we granted the Australian JV options to acquire
  ten additional properties from the Operating Partnership over a two year period,
  beginning January 1, 2006. The properties contain an aggregate of approximately
  1.2 million square feet and will be priced based on the fair market value. The
  Option Agreement contains a right of first refusal granting the Australian JV
  the right to acquire any option property from Reckson in the event we receive,
  and are amenable to, an offer from a third party to purchase such option property.
  The Option Agreement will terminate under certain circumstances, including if
  (i) the Australian JV sends notice of its intent to exercise its option but
  fails to close as obligated, (ii) the Australian JV is in default under the
  Option Agreement, the contribution agreement or the sale agreement or (iii)
  RAML or an affiliate of ours is no longer the Responsible Entity of Reckson
  LPT.

In
  connection with the mortgage indebtedness securing nine of the Tranche I properties,
  which were transferred to the Australian JV on September 21, 2005, and three
  of the Tranche III properties scheduled to be transferred to the Australian
  JV during October 2006, we have guaranteed to the lender certain customary non-recourse
  carve-outs, as well as certain obligations relating to the potential termination
  of a number of leases at four of these properties. We have also guaranteed to
  the lender certain capital requirements related to these properties. We will
  be relieved of the customary non-recourse carve-outs and capital requirements
  upon transfer of the respective properties to the Australian JV and the Australian
  JV meeting a net worth test of at least $100.0 million. We will be relieved
  of all but two of the lease related obligations upon transfer of the respective
  properties to the Australian JV and the Australian JV meeting a net worth test
  of at least $200.0 million. The Australian JV has agreed to indemnify us for
  any loss, cost or damage it may incur pursuant to our guaranty of these obligations.
  The Australian JV has met the $100.0 million net worth threshold and there remain
  approximately $18 million of aggregate guarantees outstanding.

In
  accordance with FASB Statement No. 144, the assets and liabilities of the properties
  transferred and to be transferred, excluding the option properties, to the Australian
  JV are classified as held for sale on our consolidated balance sheets, for all
  periods presented.

During
     September 2005, we entered into a letter of intent with an entity owned
    by the
  owner of the New York Islanders professional hockey team to enter into a 50
     / 50 joint venture to potentially develop over five million square feet
    of office,
  residential, retail and hotel space located on 77 acres in the Mitchel Field,
     Long Island sub-market in and around Nassau Countys Veterans Memorial
      Coliseum where we are currently the largest owner of office properties.
     In March
  2006, the joint venture was selected by the County Executive for the development
      of the 77 acre site. In May 2006, the County Executive and the joint venture
     entered into a memorandum of understanding for the development of the site.
     The development remains subject to certain conditions and governmental approvals,
     including
     legislative,
     zoning
     and
     other customary
     approvals.
      In addition, there can be no assurances that we will enter into the aforementioned

  joint venture, that all applicable conditions will be satisfied or that all
      required approvals can be obtained.

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On
  March 7, 2006, we sold our 354,000 square foot office building in Orlando, Florida
  for aggregate consideration of approximately $70.0 million which resulted in
  a gain of approximately $9.3 million, net of limited partners minority
  interest. Such gain is reflected as a component of discontinued operations on
  our consolidated statements of income. This non-core real estate holding was
  acquired in May 1999 in connection with our initial New York City portfolio
  acquisition. Net proceeds from the sale were used to establish an escrow account
  with a qualified intermediary for a future Section 1031 Exchange. During May
  2006 we terminated the Section 1031 Exchange and received the sales proceeds
  previously held by the qualified intermediary, including accrued interest. Such
  proceeds were used to repay outstanding borrowings under our Credit Facility.
  For federal income tax purposes, we recognized a tax gain of approximately $5.2
  million. We do not anticipate that such tax gain will require us to distribute
  more than our regular quarterly distribution in order to satisfy the distribution
  requirements necessary to qualify as a REIT.

On
  March 31, 2006, we sold a 161,000 square foot office building located in Westchester
  County for $35.3 million. Sales proceeds received were used for the repayment
  of the mortgage note encumbering the property located at 1350 Avenue of the
  Americas in New York, NY. This non-core real estate holding was acquired in
  December 2005 as part of a 14 office property portfolio acquisition.

On
  March 31, 2006, a group of institutional investors led by JPMorgan Investment
  Management, our joint venture partner in the Court Square JV and the property
  located at 919 Third Avenue, NY, purchased our option to acquire the existing
  minority partners 40% partnership interest in the Omni Property for net
  proceeds of approximately $9.0 million. Such proceeds have been included in
  investment income and other on our consolidated statements of income. In connection
  with this transaction, the original minority partner repaid to us approximately
  $22.1 million representing amounts due under a note receivable which was secured
  by their interest in the Omni Property. Such aggregate proceeds to us of approximately
  $31.2 million were used for the repayment of the mortgage note encumbering the
  property located at 1350 Avenue of the Americas in New York, NY.

As
  of June 30, 2006, we owned and operated 93 office properties (inclusive of twenty-six
  office properties owned through joint ventures) comprising approximately 19.3
  million square feet and eight flex properties (inclusive of two flex properties
  owned through joint ventures) comprising approximately 863,000 square feet located
  in the New York Tri-State Markets.

We
  also own certain land parcels throughout our markets in the New York Tri-State
  Markets (the Development Parcels). During July 2005, we commenced
  the ground-up development on one of the Development Parcels of a 37,000 square
  foot Class A retail property located within our existing six building Landmark
  Square office park in Stamford, Connecticut. In August 2005, we recommenced
  the ground-up development of one of the Development Parcels of a 313,000 square
  foot Class A office building located within our existing three building office
  park located in Princeton, NJ. Further, one of the Development Parcels, aggregating
  approximately 4.1 acres, is classified as held for sale on our balance sheets
  and is expected to close during September 2006 for aggregate consideration of
  $2.0 million. Excluding the foregoing, at June 30, 2006 our inventory of Development
  Parcels aggregated approximately 305 acres of land in 9 separate parcels in
  which we had invested approximately $124.3 million.

Management
  has made subjective assessments as to the value and recoverability of our investments
  in the Development Parcels based on current and proposed development plans,
  market comparable land values and alternative use values. Based on these assessments,
  we believe there is no impairment to the carrying value of the Development Parcels.

Discontinued
  Operations

At
  June 30, 2006, we had identified five of our operating properties and one parcel
  of land as held for sale in accordance with Statement No. 144. We have classified
  the assets and liabilities for these properties and parcel of land at June 30,
  2006 and December 31, 2005 on our consolidated balance sheets as held for sale.
  In addition, where we will not have a continuing interest in their operations,
  we have classified their results of operations, for all periods presented, as
  discontinued operations on our consolidated statements of income.

In
  addition, during 2006 we sold two of our operating properties. We have classified
  the assets and liabilities for these properties at December 31, 2005 on our
  consolidated balance sheet as held for sale. In addition, we have classified
  their results of operations, for all periods presented, and gains from their
  sales, as discontinued operations on our consolidated statements of income.

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The
  following table sets forth those assets and liabilities classified on our balances
  sheets as held for sale (in thousands):



|                                                                       |  | June
        30, 2006 |        | December
        31, 2005 |  
|---------------------------------------------------------------------- |  | --------------------- | ------ | ------------------------- | -
|                                                                       |  |                       |        |                           |  
|                                                                       |  | Assets                |        | Liabilities               |  
|                                                                       |  |                       |        |                           |  
|Properties
        held for sale at June 30, 2006:                     |  |                       |        |                           |  
|The
        Australian JV Tranche III Properties                       |  | $                     | 67,646 |                           | $
|Land
        parcel located in Long Island, New York                   |  |                       | 1,149  |                           |  
|Properties
        sold during 2006:                                   |  |                       |        |                           |  
|The
        Australian JV Tranche II Properties                        |  |                       |       |                           |  
|One
        operating property located in Westchester County, New York |  |                       |       |                           |  
|One
        Orlando Centre located in Orlando, Florida                 |  |                       |       |                           |  
|                                                                       |  |                       |        |                           |  
|Totals                                                                 |  | $                     | 68,795 |                           | $
|                                                                       |  |                       |        |                           |  

The
  following table sets forth the income (loss) from discontinued operations and
  the related net gains on sales of real estate for those properties sold during
  the respective periods presented (in thousands and net of minority and limited
  partners interests):



|                                                                       |  | Three
        Months Ended June 30, |     | Six
        Months Ended June 30, |  
|---------------------------------------------------------------------- |  | ----------------------------------- | --- | --------------------------------- | -
|                                                                       |  |                                     |     |                                   |  
|                                                                       |  | 2006                                |     | 2005                              |  
|                                                                       |  |                                     |     |                                   |  
|Income
        (loss) from discontinued operations:                    |  |                                     |     |                                   |  
|310
        / 333 East Shore Road, Great Neck, New York                |  | $                                   |    |                                   | $
|48
        Harbor Park Drive, Port Washington, New York                |  |                                     |    |                                   |  
|100
        Wall Street, New York, New York                            |  |                                     |    |                                   |  
|One
        Orlando Centre located in Orlando, Florida                 |  |                                     | (30 | )                                 |  
|One
        operating property located in Westchester County, New York |  |                                     | (21 | )                                 |  
|                                                                       |  |                                     |     |                                   |  
|Total
        income (loss) from discontinued operations               |  |                                     | (51 | )                                 |  
|                                                                       |  |                                     |     |                                   |  
|Gains
        on sales of real estate:                                 |  |                                     |     |                                   |  
|One
        Orlando Centre located in Orlando, Florida                 |  |                                     |    |                                   |  
|Land
        parcel located in Long Island, New York                   |  |                                     |    |                                   |  
|                                                                       |  |                                     |     |                                   |  
|Total
        discontinued operations                                  |  | $                                   | (51 | )                                 | $
|                                                                       |  |                                     |     |                                   |  

Note
  Receivable Investments

At
  June 30, 2006, we had invested approximately $93.4 million in mezzanine loans
  and approximately $70.9 million in other loan investments (collectively, the
  Note Receivable Investments). In general these investments are secured
  by a pledge of either a direct or indirect ownership interest in the underlying
  real estate or leasehold, a first mortgage, other guaranties, pledges and assurances.

The
  following table sets forth the terms of the mezzanine loans at June 30, 2006
  (in thousands):



|Property                                        |  | Amount |        | Interest
        Rate |       | Funding |                    | Maturity |                   
|----------------------------------------------- |  | ------ | ------ | --------------------- | ----- | ------- | ------------------ | -------- | ------------------
|                                                |  |        |        |                       |       |         |                    |          |                   
|Long
        Island office portfolio            |  | $      | 8,031  |                       | 9.00  | %       | Mar.,
        2005 |          | Apr.,
        2010
|Long
        Island office portfolio            |  |        | 20,356 |                       | 9.00  | %       | Mar.,
        2005 |          | Apr.,
        2012
|72
        Madison Avenue, NY, NY (b)           |  |        | 10,000 |                       | 20.00 | %       | Oct.,
        2005 |          | Oct.,
        2007
|1166
        Avenue of the Americas, NY, NY (c) |  |        | 25,000 |                       | 17.50 | %       | Nov.,
        2005 |          | Nov.,
        2009
|100
        Wall Street, NY, NY                 |  |        | 30,000 |                       | 15.00 | %       | Dec.,
        2005 |          | Dec.,
        2007
|                                                |  |        |        |                       |       |         |                    |          |                   
|                                                |  | $      | 93,387 |                       |       |         |                    |          |                   
|                                                |  |        |        |                       |       |         |                    |          |                   

|(a) | Prepayable
        without penalty after 18 months from initial funding.
|--- | ------------------------------------------------------------------------

|(b) | In
        addition to this mortgage loan, Reckson Construction and Development,
        LLC (RCD) entered into a development agreement with the owner
        of the property to perform certain predevelopment, development and / or
        other services with respect to the property. In exchange for its services,
        RCD will receive a development fee of $2.0 million which is payable in
        equal monthly installments over a two-year period which commenced during
        October 2005.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Junior
        mezzanine loan secured by interests in a 550,000 square foot condominium
        interest.
|--- | ---------------------------------------------------------------------------------------------------------

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In
  May 2005 we funded $55.3 million under an $85.0 million participating loan investment
  which is secured by an indirect interest in a 550,000 square foot condominium
  in a Class A office tower located at 1166 Avenue of the Americas, New York,
  NY. The loan accrues interest compounded at 9.0% and pays interest at an annual
  rate of 6.0% through March 2010, 8.5% thereafter through March 2015 and 11.0%
  thereafter through maturity in 2020. The loan is pre-payable only under certain
  circumstances and, in any case, not before 2009. Upon a capital event related
  to the indirect interest in the property which secures the loan, we are entitled
  to participate in 30% of the net proceeds derived from such capital event.

On
  March 30, 2006, we advanced approximately $14.2 million under three separate
  loan agreements which are secured by certain flex properties, aggregating approximately
  450,000 square feet, located in Nassau County, Long Island and in part by a
  personal guarantee of an affiliate of the borrower. These loans have an initial
  weighted average interest rate of 15.3% and mature on April 1, 2008. In addition,
  the loans are not prepayable, without penalty, prior to October 1, 2007.

At
  June 30, 2006, we held one other note receivable, which aggregated $1.0 million
  and carried an interest rate of 10.50% per annum. This note receivable matures
  on January 31, 2010 and is secured in part by a minority partners preferred
  unit interest in the Operating Partnership.

The
  following table sets forth the terms of our other loan investments at June 30,
  2006 (in thousands):



|Property                                                    |  | Amount |        | Interest
        Rate |       | Funding |                    | Maturity |                   
|----------------------------------------------------------- |  | ------ | ------ | --------------------- | ----- | ------- | ------------------ | -------- | ------------------
|                                                            |  |        |        |                       |       |         |                    |          |                   
|NYC
        Class A office condominium interest             |  | $      | 55,250 |                       | 9.00  | %       | May,
        2005  |          | Dec.,
        2020
|Flex
        property located in Nassau County, Long Island |  |        | 14,188 |                       | 15.29 | %       | Mar.,
        2006 |          | Apr.,
        2008
|Other                                                       |  |        | 1,000  |                       | 10.50 | %       | Oct.,
        2004 |          | Jan.,
        2010
|Other                                                       |  |        | 500    |                       | 5.35  | %       | Dec.,
        2004 |          | Dec.,
        2009
|                                                            |  |        |        |                       |       |         |                    |          |                   
|                                                            |  | $      | 70,938 |                       |       |         |                    |          |                   
|                                                            |  |        |        |                       |       |         |                    |          |                   

As
  of June 30, 2006, management has made subjective assessments as to the underlying
  security value on the Note Receivable Investments. Based on these assessments,
  we believe there is no impairment to their carrying value.

On
  July 27, 2006, we advanced $20.0 million under a loan agreement which is secured
  by certain pledges of project income and ownership interests and a personal
  guarantee of an affiliate of the borrower. This loan matures in August 2009,
  bears interest at 15% per annum (10% annual pay rate and 5% monthly compounded
  deferred rate). The loan is pre-payable at any time and with yield maintenance
  through August 1, 2007 if pre-paid prior to August 2007. This investment was
  funded through a borrowing under our Credit Facility.

7. STOCKHOLDERS'
        EQUITY

Basic
  net income per share on the Companys common stock was calculated using
  the weighted average number of shares outstanding of 83,211,760 and 81,882,157
  for the three months ended June 30, 2006 and 2005, respectively, and 83,140,318
  and 81,493,293 for the six months ended June 30, 2006 and 2005, respectively.

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The following table sets forth our 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):



|                                                                                                     |  | Three
        Months EndedJune 30, |        | Six
        Months EndedJune 30,
|---------------------------------------------------------------------------------------------------- |  | ---------------------------------- | ------ | --------------------------------
|                                                                                                     |  |                                    |        |                                 
|                                                                                                     |  | 2006                               |        | 2005                            
|                                                                                                     |  |                                    |        |                                 
|Numerator:                                                                                           |  |                                    |        |                                 
|Income
        before discontinued operations                                                        |  | $                                  | 19,952 |                                 
|Discontinued
        operations (net of share applicable to limited partners and minority interests) |  |                                    | (51    | )                               
|                                                                                                     |  |                                    |        |                                 
|Numerator
        for basic and diluted earnings per common share                                    |  | $                                  | 19,901 |                                 
|                                                                                                     |  |                                    |        |                                 
|Denominator:                                                                                         |  |                                    |        |                                 
|Denominator
        for basic earnings per share  weighted average common shares                    |  |                                    | 83,212 |                                 
|Effect
        of dilutive securities:                                                               |  |                                    |        |                                 
|Common
        stock equivalents                                                                     |  |                                    | 497    |                                 
|                                                                                                     |  |                                    |        |                                 
|Denominator
        for diluted earnings per common share  adjusted                                 |  |                                    |        |                                 
|weighted
        average shares and assumed conversions                                              |  |                                    | 83,709 |                                 
|                                                                                                     |  |                                    |        |                                 
|Basic
        earnings per weighted average common share:                                            |  |                                    |        |                                 
|Income
        from continuing operations                                                            |  | $                                  | .24    |                                 
|Gains
        on sales of real estate                                                                |  |                                    |       |                                 
|Discontinued
        operations                                                                      |  |                                    |       |                                 
|                                                                                                     |  |                                    |        |                                 
|Net
        income per common share                                                                  |  | $                                  | .24    |                                 
|                                                                                                     |  |                                    |        |                                 
|Diluted
        earnings per weighted average common share:                                          |  |                                    |        |                                 
|Income
        from continuing operations                                                            |  | $                                  | .24    |                                 
|Gains
        on sales of real estate                                                                |  |                                    |       |                                 
|Discontinued
        operations                                                                      |  |                                    |       |                                 
|                                                                                                     |  |                                    |        |                                 
|Net
        income per common share                                                                  |  | $                                  | .24    |                                 
|                                                                                                     |  |                                    |        |                                 

In calculating diluted net income per weighted average common share, the Company takes into consideration any security that may be potentially dilutive with respect to its common stock. For all periods presented, securities considered to be potentially dilutive include, to the extent outstanding, stock option grants and convertible debentures. OP Units have a distribution rate equivalent to a share of common stock and are convertible into common stock on a one for one basis. As such, OP Units are not dilutive with respect to the common stock.

A Class A OP Unit and a share of common stock have similar economic characteristics as they effectively share equally in the net income or loss and distributions of the Operating Partnership. As of June 30, 2006, the Operating Partnership had issued and outstanding 1,546,133 Class A OP Units and 456,621 Class C OP Units. The Class A OP Units and the Companys common stock currently receive a quarterly distribution of $0.4246 per unit/share. 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 $0.4664 per unit. 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.

During
    June 2005, the Operating Partnership issued $287.5 million aggregate principal
    amount of 4.00% exchangeable senior debentures due June 15, 2025. The debentures
    were issued at 98% of par and are exchangeable for shares of common stock
    of the Company on or after June 15, 2024 at an initial exchange rate of 24.6124
    common shares per $1,000 of principal amount of debentures. The debentures
    are also exchangeable: (i) if the market price of our common stock over a
    specified period of time is more than 125% of the exchange price per share
    then in effect; (ii) if the trading price of the debentures over a specified
    period of time is less than 98% of the product of the closing price of our
    shares multiplied by the applicable exchange rate; (iii) during a specified
    period of time, for any debentures that have been called for redemption;
    (iv) under certain circumstances, upon the occurrence of a distribution to
    holders of our shares of (a) rights to purchase our common stock at a price
    below the market price of our shares or (b) assets, debt securities or rights
    to purchase our securities or securities of the Operating Partnership that
    have a per share value exceeding 10% of the market price of our shares; (v)
    if our common stock is not listed on a national or regional securities exchange
    or quoted on NASDAQ for 30 consecutive trading days; or (vi) if the Operating
    Partnership or the Company is party to a consolidation, merger or binding
    share exchange
pursuant to which all of the Companys common stock would be exchanged for
cash, securities or other property.

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The initial exchange price of $40.63 represents a premium of approximately 25% to the closing price of the Companys common stock on the issuance date of $32.50 per share. If exchanged in accordance with their terms, the debentures will be settled in cash up to their principal amount and any remaining exchange value will be settled, at our option, in cash, the Companys common stock or a combination thereof. In accordance with the exchange rate terms of the debentures the Company has reserved approximately 8.8 million shares of its authorized common stock, $.01 par value, for potential future issuance upon the exchange of the debentures. Such amount is based on an exchange rate of 30.7692 common shares per $1,000 of principal amount of debentures. Although we have reserved these shares pursuant to the exchange rate terms, we believe the issuance of our shares, if any, would be significantly less than
8.8 million shares. The debentures are guaranteed by the Company. We have the option to redeem the debentures beginning June 18, 2010 for the principal amount plus accrued and unpaid interest. Holders of the debentures have the right to require us to repurchase their debentures at 100% of the principal amount thereof plus accrued and unpaid interest on June 15, 2010, June 15, 2015 and June 15, 2020 or, in the event of certain change in control transactions (including the Merger as discussed in Note 13), prior to June 15, 2010.

The limited partners minority interest in the Operating Partnership (Limited Partner Equity), which is reflected on the accompanying balance sheets, is reported at an amount equal to the limited partners ownership percentage of the net equity of the Operating Partnership at the end of the reporting period. The Limited Partner Equity is adjusted at the end of the period to reflect the ownership percentages at that time. The Limited Partner Equity was approximately 3.4% and 3.2% at June 30, 2006 and 2005, respectively.

During the three month period ended June 30, 2006,  certain limited partners in the Operating Partnership exchanged 12,224 OP Units for an equal number of shares of the Companys common stock.

The Board of Directors of the Company initially authorized the purchase of up to 5.0 million shares of the Companys common stock. Transactions conducted on the New York Stock Exchange have been, and will continue to be, effectuated 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 2006, the Board of Directors authorized the re-institution of the Companys common stock repurchase program, which had been inactive since March 2003. Subject to the restrictive covenants contained in the Merger Agreement (see Note 13), the Company may repurchase up to an aggregate of 5.0 million shares of its common stock under the re-instituted plan.

The Operating Partnership has issued and outstanding 1,200 preferred units of limited partnership interest with a liquidation preference value of $1,000 per unit and a stated distribution rate of 7.0%, which is subject to reduction based upon terms of their initial issuance (the Preferred Units). The terms of the Preferred Units provide for this reduction in distribution rate in order to address the effect of certain mortgages with above market interest rates which were assumed by the Operating Partnership in connection with properties contributed to the Operating Partnership in 1998. As a result of the aforementioned reduction, there are currently no distributions being made on the Preferred Units.

In July 2002, as a result of certain provisions of the Sarbanes-Oxley Act of 2002, we discontinued the use of stock loans in our Long Term Incentive Programs (LTIP). In connection with LTIP grants made prior to the enactment of the Sarbanes-Oxley Act of 2002, we currently have stock loans outstanding to certain executive officers which were used to purchase 385,000 shares of our common stock. The stock loans were priced at the market prices of our common stock at the time of issuance, bear interest at the mid-term Applicable Federal Rate and are secured by the shares purchased. Such stock loans (including accrued interest) are scheduled to vest and be ratably forgiven each year on the anniversary of the grant date based upon initial vesting periods ranging from seven to ten years. Such forgiveness is based on continued service and in part on the Company attaining certain annual performance
measures. These stock loans had an initial aggregate weighted average vesting period of approximately nine years. As of June 30, 2006, there remains 139,000 shares of common stock subject to the original stock loans which are anticipated to vest between 2007 and 2011. Approximately $627,000 and $1.4 million and $573,000 and $1.1 million of compensation expense (inclusive of cash payments in respect of taxes payable by the borrower resulting from such forgiveness) was recorded for the three and six month periods ended June 30, 2006 and 2005, respectively, related to these loans. Such amounts have been included in marketing, general and administrative expenses on the accompanying consolidated statements of income.

The outstanding stock loan balances due from executive officers aggregated approximately $2.9 million and $3.8 million at June 30, 2006 and December 31, 2005, respectively, 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, 2006 and December 31, 2005 amounted to approximately $1.6 million and $2.5 million, respectively, and are included in investments in affiliate loans and joint ventures on the accompanying consolidated balance sheets and are primarily related to tax payment advances on stock compensation awards and life insurance contracts made to certain executive and non-executive officers.

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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 vest in four equal annual installments beginning on November 14, 2003 (and shall be fully vested on November 14, 2006). The 2003 Rights were earned on March 13, 2005 and 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 2002 Rights. The 2002 Rights aggregate 62,835 shares of the Companys common stock and the 2003 Rights aggregate 26,040 shares of common stock. As of June 30, 2006, there remains 15,709 shares of common stock reserved related to the 2002 Rights and 8,682 shares of common stock reserved related to the 2003 Rights. Approximately $120,000 and $240,000 and $120,000 and $224,000 of compensation expense was recorded for the three and six month periods ended June 30, 2006 and 2005, respectively, related to the Rights. Such amounts have been included in marketing, general and administrative expenses on the accompanying consolidated statements of income.

In March 2003, the Company established a new LTIP for its executive and senior officers (the 2003 LTIP). The four-year plan has a core award, which provides for annual stock based compensation based upon continued service and in part based on the Company attaining certain annual performance measures. The plan also has a special outperformance component in the form of a bonus pool equal to 10% of the total return in excess of a 9% cumulative and compounded annual total return on the Companys common equity for the period through the four-year anniversary after the date of grant (the Special Outperformance Pool). The aggregate amount payable to such officers from the Special Outperformance Pool is capped at an amount calculated based upon a total cumulative and compounded annual return on the common equity of 15%. An officers special outperformance award represents an
allocation of the Special Outperformance Pool and will become vested on the fourth anniversary of the date of grant, provided that the officer remains in continuous employment with the Company or any of its affiliates until such date, and the Company has achieved on a cumulative and compounded basis, during the four fiscal years completed on the applicable anniversary date, a total return to holders of the common equity that (i) is at or above the 60thpercentile of the total return to stockholders achieved by members of the peer group during the same period and (ii) equals at least 9% per annum. Special outperformance awards will be paid in cash; however, the Compensation Committee, in its sole discretion, may elect to pay such an award in shares of common stock, valued at the date of vesting, if shares are available at such time under any of the Companys existing stock option plans. The LTIP provides that no dividends or
dividend equivalent payments will accrue with respect to the special outperformance awards. On March 13, 2003, the Company made available 827,776 shares of its common stock under its existing stock option plans in connection with the core award of the 2003 LTIP for certain of its executive and senior officers. During May 2003, the special outperformance awards of the 2003 LTIP were amended to increase the per share base price above which the four year cumulative return is measured from $18.00 to $22.40.

The Board of Directors approved an amendment to the 2003 LTIP to revise the peer group used to measure relative performance. The amendment eliminated the mixed office and industrial companies and added certain other pure office companies in order to revise the peer group to office sector companies. The Board has also approved the revision of the performance measurement dates for future vesting under the core component of the 2003 LTIP from the anniversary of the date of grant to December 31 of each year. This was done in order to have the performance measurement coincide with the performance period that the Company believes many investors use to judge the performance of the Company.

On December 27, 2004, the Operating Partnership entered into definitive agreements with certain executive and senior officers of the Company to revise their incentive awards under the 2003 LTIP. The revised agreements provide for (i) the rescission of the unvested portion of their core awards and (ii) an award in exchange for the rescinded core awards of an equal number of units of a new class of limited partnership interests (LTIP Units) of the Operating Partnership.

Each executive and senior officer participating in the 2003 LTIP was offered the option to retain all or a portion of his core awards or to rescind them in exchange for new awards of LTIP Units. On December 27, 2004, certain executive and senior officers accepted such offer and thereby amended their Amended and Restated Long-Term Incentive Award Agreement to cancel, in the aggregate, 362,500 shares of restricted stock of the Company representing all or a portion of their unvested core award, and received an equal number of LTIP Units.

The revised awards under the 2003 LTIP were designed to provide the potential for executives to retain a greater equity interest in the Company by eliminating the need for executives to sell a portion of the core awards immediately upon vesting in order to satisfy personal income taxes which are due upon vesting under the original core awards.

With respect to the 2003 LTIP, the Company met its annual performance measure with respect to the 2005, 2004 and 2003 annual measurement periods, respectively. As a result, the Company issued to the participants of the 2003 LTIP 86,111, 102,779 and 206,944 shares of its common stock, respectively, related to the core component of the 2003 LTIP.

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The
    terms of each award of LTIP Units are substantially similar to those of the
    core awards under the 2003 LTIP. The vesting, performance hurdles and timing
    for vesting remain unchanged. However, an LTIP Unit represents an equity
    interest in the Operating Partnership, rather than the Company. At issuance,
    the LTIP Unit has no value but may over time accrete to a value equal to
    (but never greater than) the value of one share of common stock of the Company
    (a REIT Share). Initially, LTIP Units will not have full parity
    with OP Units with respect to liquidating distributions. Upon the occurrence
    of certain triggering events (such as the issuance of additional
    OP Units by the Operating Partnership), the Operating Partnership will revalue
    its assets for the purpose of the capital accounts of its partners and any
    increase in valuation of the Operating Partnerships assets from the
    date
of the issuance of the LTIP Units through the triggering event will
be allocated to the capital accounts of holders of LTIP Units until their capital
accounts are equivalent to the capital accounts of holders of OP Units. If such
equivalence is reached, LTIP Units would achieve full parity with OP Units for
all purposes, and therefore accrete to an economic value equivalent to REIT Shares
on a one-for-one basis. In addition, if such parity is reached, vested LTIP Units
may only be converted into an equal number of OP Units after two years from the
date of grant. However, in the absence of an increase in the value of the assets
of the Operating Partnership and the occurrence of triggering events,
such economic equivalence would not be reached. Until and unless such economic
equivalence is reached, the value that the officers will realize for vested LTIP
Units will be less than the value of an equal number of REIT Shares. In addition,
LTIP Units are subject to  specific performance related vesting requirements.
In addition, unlike core awards under the 2003 LTIP (wherein dividends that accumulate
are paid upon vesting), LTIP Units will receive the same quarterly distributions
as OP Units on a current basis, thus providing full dividend equivalence with
REIT Shares. Each LTIP Unit awarded is deemed equivalent to an award of one share
of common stock reserved under one of the Companys stock option plans,
reducing availability for other equity awards on a one-for-one basis. At the
scheduled March 2005 vesting date, the specified performance hurdles were met,
and officers that received LTIP Units received a one-time cash payment that represented
payment of the full vested amount of the accrued unpaid dividends under the core
award of the 2003 LTIP through December 27, 2004, the issuance date of the LTIP
Units. In addition, the officers, in the aggregate, vested in 104,167 LTIP Units.
At the scheduled March 2006 vesting date, the specified  performance hurdles
were met and officers that received LTIP Units, in the aggregate, vested in 120,833
LTIP Units. On April 4, 2006 (the Measurement Date), as a result
of the Company
issuing 207,000 LTIP Units (discussed below) a triggering event occurred
and the Company completed an analysis to determine the increase in the valuation,
if any of the Operating Partnerships assets from the issuance of 362,500 LTIP
Units on December 27, 2004 through the Measurement Date and with respect to the
issuance of 272,100 LTIP Units issued on March 11, 2005 through the Measurement
Date. The results of the analysis indicated that a sufficient increase in value
to
the Operating Partnerships assets was achieved. As a result the aforementioned
LTIP Units achieved full parity with an OP Unit.

In order to more closely replicate the terms of the core awards being rescinded,
the Company also entered into agreements with three executive officers, which
provide that in the event of a change of control the executive shall receive
the equivalent value of one REIT Share for each LTIP Unit.

For
    each of the calendar years ended December 31, 2004 and 2005, following the
    recommendations of the Compensation Committee, eight senior and executive
    officers of the Company were awarded, in the aggregate, 272,100 LTIP Units
    and 207,000 LTIP Units, respectively, for outperformance and to continue
    to incentivize them for the long-term (the Restricted Equity Awards).
    Initially, the terms of the Restricted Equity Awards were generally consistent
    with the terms of the 2003 LTIP, including with respect to the impact upon
    vesting
    in the
    event of a change of control. On June 12, 2006, with respect to the 2005
    Restricted Equity Awards, the vesting periods were extended so that they
    will vest over a four-year period in lieu of a two-year period, provided
    that the officer remains in continuous employment with the Company until
    such dates and the Company has achieved certain specified performance requirements
    during the year ending December 31, 2006. If the performance requirements
    are not met in 2006, the awards will become vested on any subsequent annual
    vesting date on which the performance requirements are met on a cumulative
    and compounded basis. In addition, with respect to the 2004 Restricted Equity
    Award to Scott Rechler, the Companys Chief Executive Officer, was similarly
    extended provided that Mr. Rechler remains in continuous employment with
    the Company.

As
    a result of the foregoing, there remains 69,443 shares of common stock reserved
    for future issuance under the core award of the 2003 LTIP and 616,600 shares
    of common stock reserved for issuance with respect to the issuance of LTIP
    Units. With respect to the core award of the 2003 LTIP, the Company recorded
    approximately $305,000 and $610,000 of compensation expense for each of the
    three and six month periods ended June 30, 2006 and 2005, respectively. In
    addition, with respect to the LTIP Units and the Restricted Equity Awards,
    the Company recorded compensation expense of approximately $941,000 and $1.8
    million and $822,000 and $1.3 million, respectively, for the three and six
    month periods ended June 30, 2006 and 2005. Such amounts have been included
    in marketing, general and administrative expenses on the accompanying consolidated
    statements of income. Based on the terms of the 2003 LTIP, potential outcomes
    of the Special Outperformance Pool are estimated to range from $0, assuming
    the requisite four year cumulative performance measures are not met, to a
    maximum of approximately $35.7 million, assuming relative peer group performance
    measures are met and a cap of 15% cumulative and compounded return on common
    equity. As of June 30, 2006, we have accrued approximately $29.4 million
    of compensation expense with respect to the Special Outperformance Pool of
    which $2.2 million and $5.9 million was accrued during the three and six
    months ended June 30, 2006. This amount is calculated on the closing stock
price of our common stock on June 30, 2006 and is based on managements
determination of the probability of requisite performance measures being met.
The accrual represents approximately 82% of the total estimated Special Outperformance
Pool reflecting the service period through June 30, 2006.

Compensation expense with respect to the core component of the 2003 LTIP, which relates to the Company attaining certain annual performance measures, is recognized as a target stock price plan. Under this type of plan, compensation expense is recognized for the target stock price awards whether or not the targeted stock price condition is achieved as long as the underlying service conditions are achieved. Accordingly, we obtained an independent third party valuation of the 2003 LTIP awards and recognize compensation expense on a straight-line basis through the performance and vesting period for awards to employees who remain in service over the requisite period regardless of whether the target stock price has been reached.

Compensation expense with respect to the core component of the 2003 LTIP, which relates to the continued service of the grantee, is recognized as compensation expense on a straight-line basis through the vesting period based on the fair market value of the stock on the date of grant.

As a result of the election of certain executive and senior officers to exchange all or a portion of their unvested core awards under the 2003 LTIP into an equal number of LTIP Units we again obtained an independent third party valuation of the newly granted LTIP Units and determined that the fair value of the LTIP Units was not greater than the exchanged 2003 LTIP awards on the date of the exchange. As such, compensation expense to be recognized, on a straight-lined basis, over the vesting period of the LTIP Units equals the amount of unamortized compensation expense cost for the 2003 LTIP awards as of the exchange date.

On January 1, 2006, we adopted Statement No. 123R and have determined that the adoption of Statement No. 123R did not have a material impact on our consolidated financial statements.

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8. SUPPLEMENTAL
        DISCLOSURES OFCASHFLOWS
        INFORMATION (IN
        THOUSANDS)



|                                                 |  | Six
        Months EndedJune 30,
|------------------------------------------------ |  | --------------------------------
|                                                 |  |                                 
|                                                 |  | 2006                            
|                                                 |  |                                 
|Cash
        paid during the period for interest |  | $                               
|                                                 |  |                                 
|Interest
        capitalized during the period   |  | $                               
|                                                 |  |                                 
|                                                 |  |                                 

9. SEGMENTDISCLOSURE

We own all of the interests in our real estate properties directly or indirectly through the Operating Partnership. Our portfolio consists of Class A office properties located within the New York City metropolitan area and Class A suburban office and flex properties located and operated within the New York Tri-State Markets (the Core Portfolio). We have formed an Operating Committee that reports directly to our Chief Executive Officer 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.

We do not consider (i) interest incurred on our Credit Facility, Term Loan and Senior Unsecured Notes, (ii) the operating performance of those properties reflected as discontinued operations on our consolidated statements of income and (iii) the operating results of the Service Companies as part of our Core Portfolios property operating performance for purposes of our component disclosure set forth below.

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

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



|                                                                                                                                      |  | Three
        months ended |        
|------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | -------
|                                                                                                                                      |  |                            |        
|                                                                                                                                      |  | June
        30, 2006      |        
|                                                                                                                                      |  |                            |        
|                                                                                                                                      |  | Core
        Portfolio     |        
|                                                                                                                                      |  |                            |        
|PROPERTYOPERATINGREVENUES:                                                                                                            |  |                            |        
|Base
        rents, tenant escalations and reimbursements                                                                             |  | $                          | 147,810
|                                                                                                                                      |  |                            |        
|EXPENSES:                                                                                                                             |  |                            |        
|Property
        operating expenses                                                                                                   |  |                            | 56,974 
|Marketing,
        general and administrative                                                                                         |  |                            | 4,667  
|Depreciation
        and amortization                                                                                                 |  |                            | 35,457 
|                                                                                                                                      |  |                            |        
|Total
        operating expenses                                                                                                      |  |                            | 97,098 
|                                                                                                                                      |  |                            |        
|Operating
        income (loss)                                                                                                       |  |                            | 50,712 
|                                                                                                                                      |  |                            |        
|NON-OPERATINGINCOMEANDEXPENSES                                                                                                        |  |                            |        
|Interest
        income, investment income and other                                                                                  |  |                            | 1,096  
|Interest:                                                                                                                             |  |                            |        
|Expense
        incurred                                                                                                              |  |                            | (6,226 
|Amortization
        of deferred financing costs                                                                                      |  |                            | (320   
|Long-term
        incentive compensation expense                                                                                      |  |                            |       
|                                                                                                                                      |  |                            |        
|Total
        non-operating income and expenses                                                                                       |  |                            | (5,450 
|                                                                                                                                      |  |                            |        
|Income
        (loss) before minority interests, equity in earnings of real estate joint
        ventures and discontinued operations |  | $                          | 45,262 
|                                                                                                                                      |  |                            |        

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|                                                                                                                                      |  | Six
        Months Ended |          
|------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ---------
|                                                                                                                                      |  |                          |          
|                                                                                                                                      |  | June
        30, 2006    |          
|                                                                                                                                      |  |                          |          
|                                                                                                                                      |  | Core
        Portfolio   |          
|                                                                                                                                      |  |                          |          
|PROPERTYOPERATINGREVENUES:                                                                                                            |  |                          |          
|Base
        rents, tenant escalations and reimbursements                                                                             |  | $                        | 282,963  
|                                                                                                                                      |  |                          |          
|EXPENSES:                                                                                                                             |  |                          |          
|Property
        operating expenses                                                                                                   |  |                          | 117,209  
|Marketing,
        general and administrative                                                                                         |  |                          | 9,671    
|Depreciation
        and amortization                                                                                                 |  |                          | 68,151   
|                                                                                                                                      |  |                          |          
|Total
        Operating Expenses                                                                                                      |  |                          | 195,031  
|                                                                                                                                      |  |                          |          
|Operating
        Income (Loss)                                                                                                       |  |                          | 87,932   
|                                                                                                                                      |  |                          |          
|NON-OPERATINGINCOMEANDEXPENSES                                                                                                        |  |                          |          
|Gains
        on sales of real estate                                                                                                 |  |                          | 35,393   
|Interest
        and investment income and other                                                                                      |  |                          | 2,069    
|Interest:                                                                                                                             |  |                          |          
|Expense
        incurred                                                                                                              |  |                          | (13,883  
|Amortization
        of deferred financing costs                                                                                      |  |                          | (772     
|Long-term
        incentive compensation expense                                                                                      |  |                          |         
|                                                                                                                                      |  |                          |          
|Total
        Non-Operating Income and Expenses                                                                                       |  |                          | 22,807   
|                                                                                                                                      |  |                          |          
|Income
        (loss) before minority interests, equity in earnings of real estate joint
        ventures and discontinued operations |  | $                        | 110,739  
|                                                                                                                                      |  |                          |          
|Total
        Assets                                                                                                                  |  | $                        | 3,332,263
|                                                                                                                                      |  |                          |          
|                                                                                                                                      |  |                          |          

10. NON-CASHINVESTINGANDFINANCINGACTIVITIES

During the three months ended June 30, 2006, certain limited partners in the Operating Partnership exchanged 12,224 OP Units for an equal number of shares of the Companys common stock for total non cash consideration of approximately $493,000.

On March 31, 2006, a group of institutional investors purchased our option to acquire the existing minority partners 40% partnership interest in the Omni Property for net proceeds of approximately $9.0 million. Simultaneously, these institutional investors exercised the option and acquired the minority partners interest from the minority partner for approximately $50.8 million including the assumption of an allocation of approximately $20.1 million of mortgage debt on the Omni Property for a total investment of $59.9 million. As a result of the foregoing and in accordance with Statement No.s 141 and 142, we recorded approximately $44.4 million of fair value adjustments to the real estate and other intangible assets acquired by the institutional investors.

11. RELATEDPARTYTRANSACTIONS

In
    connection with our IPO, we were granted an option to acquire the property
    located at 225 Broadhollow Road which is owned by certain Rechler family
    members including Scott H. Rechler, our CEO at a price based upon an agreed
    upon formula. Reckson Management Group, Inc. (RMG)
    currently leases approximately 26,000 square feet of office space at this
    property for its corporate offices at an annual base rent of approximately
    $809,000. During 2005, RMG exercised a termination option to terminate this
    lease on November 30, 2006 without penalty and in August 2006 will relocate
    its corporate headquarters to Reckson Plaza, a wholly owned property located
    in Uniondale, Long Island. During June 2006, we incurred approximately $211,000
    of expense related to the repair of certain HVAC equipment at the 225 Broadhollow
    Road property. Such expenditure was approved by the independent members of
    the Companys
Board of Directors. RMG 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 $81,000.
    In addition, commencing April 1, 2004, RCD has been leasing approximately
    17,000 square feet of space at 225 Broadhollow Road, Melville, NY at an annual
    base rent of approximately $507,000, which is scheduled to terminate on September
    30, 2006. RCD has sub-let the entire 17,000 square feet to a third party
    for approximately $35,000 per month through RCDs September 2006 lease
    termination date. RCD will also relocate to Reckson Plaza.

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During
  the three and six month periods ended June 30, 2006 and 2005, RCD billed approximately
  $29,000 and $30,000 and $17,000 and $26,000, respectively, of market rate services
  and RMG billed approximately $80,000 and $153,000 and $71,000 and $142,000,
  respectively, of market rate management fees to certain properties owned by
  members of the Rechler family including Scott H. Rechler, our CEO.

On
  March 28, 2005, an entity (REP) owned by members of the Rechler
  family (excluding Scott H. Rechler, but including his father, Roger, and brother,
  Gregg) exercised a Right of First Refusal (which was granted in connection with
  the 2003 sale of the industrial portfolio by us) to acquire a vacant parcel
  of land for a purchase price of $2.0 million. We have agreed to provide REP
  with the option to defer the closing on the purchase until September 2006, for
  a non-refundable deposit of $400,000 and a fee of $10,666 per month for each
  month that the closing is deferred. In connection therewith, REP agreed to settle
  a dispute concerning an easement on a separate parcel of land owned by us adjacent
  to one of the properties transferred to REP in November 2003.

A
       company affiliated with an independent director of the Company leases
      15,566
  square feet in a property owned by us at an annual base rent of approximately
       $430,000. Such lease expired on October 31, 2005. We are currently in
      the process
  of renewing the lease for approximately 8,000 square feet upon market terms
      through 2011. Such renewal is subject to approval by the other independent
      directors of
      the
      Companys
      Board of Directors. In addition, since the leases expiration, the
      lessee has
      been
      operating
       consistent
  with terms of the expired lease.

The
  Company has a net investment of approximately $55.2 million in loans and REIT-qualified
  joint ventures with FrontLine Capital Group (FrontLine) and Reckson
  Strategic Venture Partners, LLC (RSVP), a real estate venture capital
  fund whose common equity is held indirectly by FrontLine (collectively, the
  RSVP / FLCG Investments). Frontline was formed by the Company in
  1997. The net carrying value of the RSVP / FLCG Investments was reassessed with
  no change by management at June 30, 2006 and is included in investments in affiliate
  loans and joint ventures on our consolidated balance sheets.

FrontLine
  is in default under the 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.

The
  RSVP REIT-qualified joint ventures are managed subject to a management agreement
  with the former managing directors of RSVP, which expires in September 2006.
  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 which are
  subject to a maximum of $7.5 million. In addition, the former managing directors
  of RSVP retained a one-third residual interest in RSVPs assets which is
  subordinated to the distribution of an aggregate amount of $75.0 million to
  RSVP and/or us in respect of RSVP-controlled joint ventures.

Scott
  H. Rechler, our CEO and Chairman of the Board of Directors, serves as CEO and
  is FrontLines sole board member. Mr. Rechler also serves as a member
  of the management committee of RSVP.

In
  November 2004, a joint venture in which RSVP owns approximately 47% executed
  a binding agreement to contribute its Catskills, NY resort properties (excluding
  residentially zoned land) to Empire Resorts Inc. (NASDAQ: NYNY) (Empire)
  for consideration of 18.0 million shares of Empires common stock and the
  right to appoint five members of their Board of Directors. On December 29, 2005,
  the agreement was terminated and the joint venture received options to purchase
  approximately 5.2 million shares of common stock of Empire at a price of $7.50
  per share. The options will be exercisable until December 29, 2006. On June
  30, 2006, the closing price of a share of Empires common stock was $6.95
  per share.

We
  have discontinued the accrual of interest income with respect to the loans from
  the Operating Partnership and our share of GAAP equity in earnings, if any,
  from the RSVP-controlled REIT-qualified joint ventures until such income is
  realized through cash distributions.

12.
  COMMITMENTS AND CONTINGENCIES

We
  had undrawn letters of credit outstanding against our Credit Facility of approximately
  $100,000 at June 30, 2006.

In
  connection with the mortgage indebtedness securing nine of the Tranche I properties,
  which were transferred to the Australian JV on September 21, 2005, and three
  of the Tranche III properties scheduled to be transferred to the Australian
  JV during October 2006, we have guaranteed to the lender certain customary non-recourse
  carve-outs, as well as certain obligations relating to the potential termination
  of a number of leases at four of these properties. We have also guaranteed to
  the lender certain capital requirements related to these properties. We will
  be relieved of the customary non-recourse carve-outs and capital requirements
  upon transfer of the respective properties to the Australian JV and the Australian
  JV meeting a net worth test of at least $100.0 million. We will be relieved
  of all but two of the lease related obligations upon transfer of the respective
  properties to the Australian JV and the Australian JV meeting a net worth test
  of at least $200.0 million. The Australian JV has agreed to indemnify us for
  any loss, cost or damage it may incur pursuant to our guaranty of these obligations.
  As of June 30, 2006, the Australian JV met the $100.0 million net worth threshold
  and there remain approximately $18 million of aggregate guarantees outstanding.

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13.
  SUBSEQUENTEVENTS

On
       August 3, 2006, the Company, the Operating Partnership, SL Green Realty
      Corp.
  (Parent), Wyoming Acquisition Corp. (Purchaser), Wyoming
   Acquisition GP LLC and Wyoming Acquisition Partnership LP entered into an
  Agreement
  and Plan of Merger (the Merger Agreement). Under the terms of the
   Merger Agreement, the Company will merge with and into Purchaser (the Merger),
    with Purchaser continuing after the Merger as the surviving entity. At the
   effective
  time of the Merger, each of the issued and outstanding shares of common stock
    of the Company will be converted into the right to receive (i) $31.68 in
   cash,
  and (ii) 0.10387 of a share of the common stock, par value $0.01 per share,
    of Parent (the Merger Consideration).

In
      addition, under the terms of the Merger Agreement, Wyoming Acquisition
      LP will merge with and into
  the Operating Partnership (the Partnership Merger), with the Operating
   Partnership continuing after the Partnership Merger as the surviving entity.

  At the effective time of the Partnership Merger, each common unit in the Operating
   Partnership will be converted into the right to receive the applicable amount

  of Merger Consideration, in respect of the number of shares of Reckson common
   stock issuable upon exchange of each such common unit in accordance with the

  Amended and Restated Agreement of Limited Partnership of the Operating Partnership
   as if such common units were converted or exchanged for an equal number of
  Reckson
  common shares immediately prior to the effective time of the Merger.

At
       the effective time of the Merger, any options which have not been exercised

  will be cancelled and holders will be paid the Merger Consideration in respect
       of such options; the exercise price of the options will first be deducted
      from
  the cash consideration and then second from the stock consideration, if necessary.
       All outstanding options are currently vested. Restricted stock whether
      or not vested, will be converted into the right to receive the Merger Consideration
       as if such restricted stock had vested immediately prior to the effective
      time
       of the Merger. Restricted stock units whether or not vested, and LTIP
      Units whether or not vested (other than certain LTIP
  Units held by Messrs. Rechler, Maturo and Barnett, the vesting and payment
  rights to which they are waiving pursuant to the Amendments described below)
  will be converted
  into
  the right

  to receive the Merger Consideration (on a one-for-one basis).

The
      Company has agreed to certain covenants, including, among others, subject
    to certain exceptions described in the Merger Agreement, an obligation not
    to initiate, solicit, encourage or facilitate (including by way of furnishing
    nonpublic information or assistance) any inquiries or the making of any proposal
    or other action that constitutes or may reasonably be expected to lead to
    any competing transaction (as defined in the Merger Agreement) or enter into
    discussions or negotiate with any person in furtherance of such inquiries
    or to obtain a competing transaction. Prior to the closing, the Company has
    agreed to operate its business in the ordinary course consistent with past
    practice and not to take certain actions specified in the Merger Agreement.
    The Company will be permitted to pay its regular quarterly dividends through
    the consummation of the Merger.

Consummation
      of the Merger is subject to customary conditions, including the approval
      of the Merger by the holders
    of the Companys common stock, the registration of SL Greens shares of common
    stock to be issued in the Merger, the listing of such shares on the New York
    Stock Exchange and the absence of any order, injunction or legal restraint
    or prohibition preventing the consummation of the Merger. In addition, each
    partys obligation to consummate the Merger is subject to certain other conditions,
    including (i) the accuracy of the representations and warranties of the other
    party (subject to the materiality standards contained in the Merger Agreement),
    (ii) compliance in all material respects of the other party with its covenants,
    (iii) the absence of a material adverse effect (as defined in the Merger
    Agreement) on the other party and (iv) the delivery of opinions with respect
    to each others status as a real estate investment trust.

The
      Merger Agreement contains certain termination rights for both the Company
    and SL Green and provides that, upon termination of the Merger Agreement
    under specified circumstances described in the Merger Agreement, the Company
    would be required to pay SL Green a termination fee of $99.8 million, and/or
    that the Company would be required to reimburse SL Green for its out-of-pocket
    costs and expenses up to $13.0 million.

The
      Merger Agreement contains representations and warranties that the parties
    have made to each other as of specific dates. The assertions embodied in
    those representations and warranties were made solely for purposes of the
       contract between the parties, and may be subject to important qualifications
    and limitations agreed to by the parties in connection with negotiating its
    terms. Moreover, the representations and warranties are subject to a contractual
    standard of materiality that may be different from what may be viewed as
    material to shareholders, and the representations and warranties may have
    been intended not as statements of fact, but rather as a way of allocating
    risk among the parties.

In
       connection with the Merger, Scott Rechler, Michael Maturo, and Jason Barnett

  each entered into an Agreement to Amend their existing Employment and Noncompetition
       Agreement and Severance Agreement (the Amendments). Pursuant
       to  the Amendments, each executive agreed to: (1) reduce the period of
       time he will
  be entitled to receive severance following a termination of employment in connection
        with a change in control from five years to three years, and to cap the
       cash
  severance he is entitled to receive under his existing severance agreement,
        (2) waive all rights to vesting and payment of certain outstanding long-term

  incentive awards, (3) further reduce the payments and benefits he is otherwise
        entitled to receive in connection with a change in control if the total
       amount
  of payments and benefits exceed his safe harbor amount under the
   Internal Revenue Codes so-called golden parachute rules by
    5% or less so that the total change in control-related payments and benefits

  paid or provided to him will not exceed his safe harbor amount, and (4) not
    compete with the Company in the acquisition, operation or management of any

  office real estate property in any of the submarkets in the borough of Manhattan,
    New York for the period commencing on August 3, 2006 through the earlier
   of
  August 3, 2007 or the six-month anniversary of the Closing. The parties also
    agreed to extend the terms of their existing
   Employmentand Noncompetition Agreementsand
   Severance Agreements through April 30, 2007. In addition, the Company agreed
   to assign certain existing
    split-dollar life insurance policies to the executives at their request in
   connection
  with a change in control of the Company.

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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, the Companys announced transaction with SL Green Realty
   Corp., 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 and around New
  York
  City and the surrounding tri-state markets (the New York Tri-State Markets);
   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; the 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; risks associated with joint
    ventures;
  liability for uninsured losses or environmental matters; approval of the Companys
   announced transaction with SL Green Realty Corp. by shareholders of the Company,
  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 and controlled subsidiaries. The preparation of financial
  statements in conformity with U.S. generally accepted accounting principles
  (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 our balance sheets.
  Contractually due but unpaid rents are included in tenant receivables on our
  balance sheets. Certain lease agreements also provide for reimbursement of real
  estate taxes, insurance, common area maintenance costs and indexed rental increases,
  which are recorded on an accrual basis. Ancillary and other property related
  income is recognized in the period earned.

We
  make estimates of the collectibility of our accounts receivables related to
  base rents, tenant escalations and reimbursements and other revenue or income.
  We specifically analyze tenant receivables and historical bad debts, customer
  credit worthiness, current economic trends and changes in customer payment terms
  when evaluating the adequacy of our allowance for doubtful accounts. In addition,
  when tenants are in bankruptcy, we make 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 our
  net income because a higher bad debt reserve results in less net income.

We
  incurred approximately $175,000 and $445,000 and $253,000 and $645,000 of bad
  debt expense and related costs related to tenant receivables during the three
  and six month periods ended June 30, 2006 and 2005, respectively, which accordingly
  reduced our total revenues and reported net income during the period.

We
  record interest income on our investments in notes receivable on the accrual
  basis of accounting. We do not accrue interest on impaired loans where, in the
  judgment of management, collection of interest according to the contractual
  terms is considered doubtful.

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Among the factors we consider 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 & Development LLC 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 the sale of real estate is 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 us having no substantial continuing involvement
  with the buyer. Additionally, in connection with a sale of real estate, if we
  retain certain risks in the form of guarantees, the profit recognized on that
  sale shall be reduced and deferred by the maximum exposure to loss, until such
  exposure is relieved.

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 they are 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, which are included
  in buildings and improvements, are amortized on a straight-line basis over the
  term of the related leases.

We
  are required to make subjective assessments as to the useful lives of our 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 our net income. Should we 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 us of certain other lease related costs must be made when we have 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, we adopted FASB Statement No.141, Business
  Combinations and FASB Statement No. 142, Goodwill and Other Intangibles,
  respectively (Statement No.s 141 and 142). 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.

We
  allocate a portion of a propertys purchase price to tangible assets including
  the fair value of the building and building improvements on an as-if-vacant
  basis and to land determined either by real estate tax assessments, independent
  appraisals or other relevant data. Additionally, we assess fair value of identified
  intangible assets and liabilities 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 we incorrectly estimate the values at acquisition or the undiscounted
  cash flows, initial allocation of purchase price and future impairment charges
  may be different.

Long
  Lived Assets

We
  are required to make subjective assessments as to whether there are impairments
  in the value of our real estate properties and other investments. An investment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
  investment is less than the carrying value of the investment. Such assessments
  consider factors such as cash flows, expected future operating income, trends
  and prospects, as well as the effects of demand, competition and other factors.
  To the extent impairment has occurred it will be measured as the excess of the
  carrying amount of the property over the fair value of the property. These assessments
  have a direct impact on our net income, as the recognition of an impairment
  results in an immediate negative adjustment to net income. In determining impairment,
  if any, we have followed FASB Statement No. 144, Accounting for the Impairment
  or Disposal of Long Lived Assets (Statement No. 144). Statement
  No. 144 did not have an impact on net income. Statement No. 144 only impacts
  the presentation of the results of operations and gains on sales of real estate
  assets for those properties sold during the period within the consolidated statements
  of income.

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Stock-Based
  Compensation

In
  December 2002, the FASB issued Statement No. 148, Accounting for Stock-Based
  CompensationTransition and Disclosure (Statement No. 148).
  Statement No. 148 amends FASB Statement No. 123, Accounting for Stock-Based
  Compensation (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.

On
  December 16, 2004, the FASB issued Statement No. 123 (revised 2004), Share-Based
  Payment (Statement No. 123R), which is a revision of Statement
  No. 123. Statement No. 123R supersedes Accounting Principles Board Opinion No.
  25, Accounting for Stock Issued to Employees, and amends FASB Statement
  No. 95, Statement of Cash Flows. Generally, the approach in Statement
  No. 123R is similar to the approach described in Statement No. 123. However,
  Statement No. 123R requires all share-based payments to employees, including
  grants of employee stock options, to be recognized in the income statement based
  on their fair values. We adopted Statement No. 123R on January 1, 2006. The
  adoption of Statement No. 123R did not have a material impact on our consolidated
  financial statements.

Effective
  January 1, 2002, we elected to follow Statement No. 123 and use the Black-Scholes
  option pricing model to estimate the value of stock options granted to employees
  and continue to use this acceptable option valuation model upon our required
  adoption of Statement No. 123R on January 1, 2006. Because Statement No. 123R
  must be applied not only to new awards but to previously granted awards that
  are not fully vested on the effective date, and because we adopted Statement
  No. 123 using the prospective transition method (which applied only to awards
  granted, modified or settled after the adoption date), compensation cost for
  previously granted awards that were not recognized under Statement No. 123 would
  be recognized under Statement No. 123R. However, on January 1, 2006, the date
  we adopted Statement No. 123R, all of the unexercised options outstanding under
  our stock option plans were fully vested. As a result, no additional expense
  will be recognized. In addition, had we adopted Statement No. 123R in the prior
  period, there would be no impact on our consolidated financial statements.

Accumulated
  Other Comprehensive Income (Loss)

We
  report comprehensive income or loss in accordance with the provisions of FASB
  Statement No. 130, Reporting Comprehensive Income, which establishes
  standards for reporting comprehensive income and its components in the financial
  statements. The components of other comprehensive income (loss) (OCI)
  consist of unrealized gains and losses on derivative instruments. OCI is presented
  in the accompanying consolidated statements of stockholders equity.

Variable
  Interest Entities

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. VIEs are primarily entities that lack sufficient
  equity to finance their activities without additional financial support from
  other parties or whose equity holders lack adequate decision making ability.
  All VIEs which we are involved with must be evaluated to determine the primary
  beneficiary of the risks and rewards of the VIE. The primary beneficiary is
  required to consolidate the VIE for financial reporting purposes. 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
  ended March 31, 2004 for interests held by public companies in VIEs created
  before February 1, 2003, which were non-special purpose entities. We adopted
  FIN 46R during the period ended March 31, 2004 and have determined that our
  unconsolidated subsidiaries do not represent VIEs pursuant to such interpretation.
  We will continue to monitor any changes in circumstances relating to certain
  of our consolidated and unconsolidated joint ventures which could result in
  a change in our consolidation policy.

Current
  pronouncements

In
  July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty
  in Income Taxes (FIN 48). This interpretation, among other
  things, creates a two step approach for evaluating uncertain tax positions.
  Recognition (step one) occurs when an enterprise concludes that a tax position,
  based solely on its technical merits, is more-likely-than-not to be sustained
  upon examination. Measurement (step two) determines the amount of benefit that
  more-likely-than-not will be realized upon settlement. De-recognition of a tax
  position that was previously recognized would occur when a company subsequently
  determines that a tax position no longer meets the more-likely-than-not threshold
  of being sustained. FIN 48 specifically prohibits the use of a valuation allowance
  as a substitute for de-recognition of tax positions, and it has expanded disclosure
  requirements. FIN 48 is effective for fiscal years beginning after December
  15, 2006, in which the impact of adoption should be accounted for as a cumulative-effect
  adjustment to the beginning balance of retained earnings. We are currently evaluating
  FIN 48 and have not yet determined the impact the adoption will have on our
  consolidated financial statements.

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In
  June 2005, the FASB ratified the consensus in EITF Issue No. 04-5,
  Determining Whether a General Partner, or the General Partners as a Group,
  Controls a Limited Partnership or Similar Entity When the Limited Partners Have
  Certain Rights (Issue 04-5), which provides guidance in determining
  whether a general partner controls a limited partnership. Issue 04-5 states
  that the general partner in a limited partnership is presumed to control that
  limited partnership. The presumption may be overcome if the limited partners
  have either (1) the substantive ability to dissolve the limited partnership
  or otherwise remove the general partner without cause or (2) substantive
  participating rights, which provide the limited partners with the ability to
  effectively participate in significant decisions that would be expected to be
  made in the ordinary course of the limited partnerships business and thereby
  preclude the general partner from exercising unilateral control over the partnership.
  The adoption of Issue 04-5 by us for new or modified limited partnership arrangements
  is effective June 30, 2005 and for existing limited partnership arrangements
  effective January 1, 2006. We have evaluated the guidance provided for
  under Issue 04-5 and have concluded that we are not required to consolidate
  our current unconsolidated joint venture investments nor do we expect Issue
  04-5 to have a material effect on our consolidated financial statements.

In
  May 2005, the FASB issued Statement No. 154, Accounting Changes and Error
  Corrections (Statement No. 154). Statement No. 154, which
  replaces APB Opinion No. 20, Accounting Changes and FASB Statement
  No. 3, Reporting Accounting Changes in Interim Financial Statements,
  changes the requirements for the accounting for and reporting of a change in
  accounting principle. The statement requires retrospective application of changes
  in accounting principle to prior periods financial statements unless it
  is impracticable to determine the period-specific effects or the cumulative
  effect of the change. Statement No. 154 is effective for accounting changes
  and corrections of errors made in fiscal years beginning after December 15,
  2005. We adopted Statement No. 154 on January 1, 2006. The adoption of Statement
  No. 154 did not have a material impact on our consolidated financial position,
  results of operations or cash flows.

In
  March 2005, FASB issued Interpretation No. 47, Accounting for Conditional
  Asset Retirement Obligations (FIN 47), which became effective
  December 31, 2005. Under FIN 47, a conditional asset retirement obligation (CARO)
  must be recorded if the liability can be reasonably estimated. A CARO is an
  obligation that is settled at the time an asset is retired or disposed of and
  for which the timing and/or method of settlement are conditional on future events.
  We own certain properties that currently have asbestos which under certain conditions
  must be remediated. As a result of adopting FIN 47, we will increase the value
  of our recorded tangible assets at the time we recognize the associated conditional
  retirement obligation.

As
  a result, during 2005, we recorded approximately $2.0 million which represents
  the fair value of the CARO related to asbestos removal in tenant spaces. In
  addition, for certain limited areas of our properties, management is unable
  to reasonably determine the fair value of potential remediation costs as there
  is an indeterminate settlement date for the asset retirement obligation because
  the range of time over which way we may choose to remediate this condition may
  not be estimated with any level of precision which would lend itself to a meaningful
  estimate.

Overview
  and Background

The
  Company was incorporated in Maryland in September 1994. In June 1995, the Company
  completed an initial public offering (the IPO) and commenced operations.
  On August 3, 2006, we entered into an Agreement and Plan of Merger with SL Green
  Realty Corp., which agreement is further discussed below.

The
  Company is a self-administered and self managed real estate investment trust
  (REIT) engaged in the ownership, operation, acquisition, leasing,
  financing, management and development of commercial real estate properties,
  principally office and to a lesser extent flex properties and also owns land
  for future development. The Companys growth strategy is focused on the
  commercial real estate markets in the New York Tri-State Markets. All of the
  Companys interests in its real properties, land held for development and
  investments in notes receivable are held directly or indirectly by, and all
  of its operations are conducted through, Reckson Operating Partnership, L.P.
  (the Operating Partnership).

In
       connection with our IPO, we were granted an option to acquire the property
      located
  at 225 Broadhollow Road which is owned by certain Rechler family members including
       Scott H. Rechler, our CEO at a price based upon an agreed upon formula.
      Reckson
  Management Group, Inc. (RMG) currently leases approximately 26,000
   square feet of office space at this property for its corporate offices at
  an
  annual base rent of approximately $809,000. During 2005, RMG exercised a termination
   option to terminate this lease on November 30, 2006 without penalty and in
  August
  2006 will relocate its corporate headquarters to Reckson Plaza, a wholly owned
   property located in Uniondale, Long Island. During June 2006, we incurred
  approximately
  $211,000 of expense related to the repair of certain HVAC equipment at the
  225  Broadhollow Road property. Such expenditure was approved by the independent

  members of the Board of Directors. RMG 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
   $81,000. In addition, commencing April 1, 2004, RCD has been leasing approximately

  17,000 square feet of space at 225 Broadhollow Road, Melville, NY at an annual
   base rent of approximately $507,000, which is scheduled to terminate on September

  30, 2006. RCD has sub-let the entire 17,000 square feet to a third party for
   approximately $35,000 per month through RCDs September 2006 lease termination
    date. RCD will also relocate to Reckson Plaza.

During
  the three and six month periods ended June 30, 2006 and 2005, RCD billed approximately
  $29,000 and $30,000 and $17,000 and $26,000, respectively, of market rate services
  and RMG billed approximately $80,000 and $153,000 and $71,000 and $142,000,
  respectively, of market rate management fees to certain properties owned by
  members of the Rechler family including Scott H. Rechler, our CEO.

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On
  March 28, 2005, an entity (REP) owned by members of the Rechler
  family (excluding Scott H. Rechler, but including his father, Roger, and brother,
  Gregg) exercised a Right of First Refusal (which was granted in connection with
  the 2003 sale of the industrial portfolio by us) to acquire a vacant parcel
  of land for a purchase price of $2.0 million. We have agreed to provide REP
  with the option to defer the closing on the purchase until September 2006, for
  a non-refundable deposit of $400,000 and a fee of $10,666 per month for each
  month that the closing is deferred. In connection therewith, REP agreed to settle
  a dispute concerning an easement on a separate parcel of land owned by us adjacent
  to one of the properties transferred to REP in November 2003.

A
       company affiliated with an independent director of the Company leases
      15,566
  square feet in a property owned by us at an annual base rent of approximately
       $430,000. Such lease expired on October 31, 2005. We are currently in
      the process
  of renewing the lease for approximately 8,000 square feet upon market terms
      through 2011. Such renewal is subject to approval by the other independent
      directors of
      the
      Companys
      Board of Directors. In addition, since the leases expiration, the
      lessee has
      been
      operating
       consistent
  with terms of the expired lease.

In
  May 2005, we acquired a 1.4 million square foot, 50-story, Class A office tower
  located at One Court Square, Long Island City, NY. On November 30, 2005, we
  sold a 70% joint venture interest in One Court Square to certain institutional
  funds advised by JPMorgan Investment Management (the JPM Investor).
  The operating agreement of the Court Square JV requires approvals from members
  on certain decisions including annual budgets, sale of the property, refinancing
  of the propertys mortgage debt and material renovations to the property.
  In addition, after September 20, 2009 the members each have the right to recommend
  the sale of the property, subject to the terms of the mortgage debt, and to
  dissolve the Court Square JV. We have evaluated the impact of FIN 46R on our
  accounting for the Court Square JV and have concluded that the Court Square
  JV is not a VIE. We account for the Court Square JV under the equity method
  of accounting. We have also evaluated and determined that under Issue 04-5 the
  JPM Investor has substantive participating rights in the ordinary course of
  the Court Square JVs business. In accordance with the equity method of
  accounting, our proportionate share of the Court Square JV income was approximately
  $67,400 and $110,000 for the three and six months ended June 30, 2006, respectively.

On
  May 26, 2005, we entered into a contract to sell approximately 60 acres of land
  located in Chatham Township, NJ. The sale was contingent upon due diligence,
  environmental assessment, final re-zoning and other customary approvals. During
  July 2006, the contract was terminated.

On
  August 18, 2005, we entered into (i) an underwriting agreement relating to the
  public offering in Australia of approximately A$263.0 million (approximately
  US$202.0 million) of units (LPT Units) in a newly-formed Reckson-sponsored
  Australian listed property trust, Reckson New York Property Trust (Reckson
  LPT), a newly-formed listed property trust which is traded on the Australian
  Stock Exchange and (ii) contribution and sale agreements pursuant to which,
  among other things, we agreed to transfer 25 of our properties for an aggregate
  purchase price of approximately $563.0 million and containing an aggregate of
  3.4 million square feet, in three separate tranches, to the Australian JV in
  exchange for a 25% interest in the Australian JV and approximately $502.0 million
  in cash (inclusive of proceeds from mortgage debt to be assumed by the Australian
  JV). On September 21, 2005, Reckson LPT completed its public offering and the
  closing of the first of three tranches (Tranche I) of this transaction.

In
  connection with the Tranche I closing, the Australian JV acquired from us 17
  of our suburban office properties containing approximately 2.0 million square
  feet for approximately $367.0 million (including the assumption of approximately
  $196.1 million in mortgage debt which had been incurred by us in August 2005
   see Note 2). In return, we received a 25% interest in the Australian
  JV and approximately $128.1 million in cash resulting in an aggregate gain of
  approximately $103.6 million. As discussed below relating to certain guarantees
  we have made, approximately $18 million of the aggregate gain has been deferred
  to future periods pursuant to Statement No. 66 to coincide with the release
  of the guarantees. As a result, gains on sales of real estate reported in 2005,
  related to theTranche I closing was approximately $82.7 million, net of limited
  partners minority interest. Approximately $22.0 million of the cash received
  was used to repay certain of our secured mortgage indebtedness on September
  30, 2005 and approximately $105.7 million of the cash received was 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 a qualified replacement property is
  identified within 45 days and such qualified replacement property is acquired
  within 180 days from the initial sale. On October 7, 2005 we acquired a qualified
  replacement property for purposes of this Section 1031 Exchange and thereby
  deferred a portion of the tax gain from the Tranche I sale.

In
  connection with the foregoing, on September 21, 2005, Reckson Australia Holdings
  LLC (Reckson Holdings), a wholly-owned subsidiary of the Operating
  Partnership, and Reckson Australia LPT Corporation (LPT REIT), a
  U.S. real estate investment trust which is wholly-owned by Reckson LPT, entered
  into the Amended and Restated Limited Liability Company Agreement governing
  the Australian JV (the Operating Agreement). Pursuant to the Operating
  Agreement, LPT REIT holds a 75% interest in, and acts as the managing member
  for, the Australian JV, and Reckson Holdings holds a 25% non-managing member
  interest therein. The Operating Agreement provides that, if at any time additional
  capital contributions are made to the Australian JV, Reckson Holdings will have
  a right to make additional capital contributions up to an amount necessary to
  maintain its 25% interest therein on the same terms and conditions as such other
  capital contributions.

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As
  the managing member of the Australian JV, LPT REIT has the sole responsibility
  for managing its business and affairs on a day-to-day basis, other than with
  respect to certain identified major decisions, including but not
  limited to a merger or consolidation involving the Australian JV, a disposition
  of all or substantially all of its assets, or the liquidation or dissolution
  of the Australian JV. Such major decisions require the prior written consent
  of a majority of the non-managing members. As a result of the foregoing, we
  are accounting for our 25% non-managing member interest in the Australian JV
  under the equity method of accounting. In accordance with the equity method
  of accounting, our proportionate share of the Australian JVs income was
  approximately $1.6 million and $1.9 million for the three and six months ended
  June 30, 2006, respectively.

On
  January 6, 2006, Reckson LPT completed the second Tranche of this transaction
  (Tranche II) whereby the Australian JV acquired three of our suburban
  office properties: 6800 and 6900 Jericho Turnpike, Syosset, NY and 710 Bridgeport
  Avenue, Shelton, CT, (the Tranche II Properties) aggregating approximately
  761,000 square feet for approximately $84.6 million, including the assignment
  of approximately $20.1 million of mortgage debt. As a result, gains on sales
  of real estate related to Tranche II is approximately $34.3 million, net of
  limited partners minority interest. Approximately $25.1 million of sales
  proceeds was used to establish an escrow account for the purpose of a future
  Section 1031 Exchange. During May 2006 we terminated the Section 1031 Exchange
  and received the sales proceeds previously held by the qualified intermediary,
  including accrued interest. Such proceeds were used to repay outstanding borrowings
  under our Credit Facility. The balance of the cash proceeds, received at the
  time of the sale was used to fund our development activities and for general
  corporate purposes. For federal income tax purposes we recognized a tax gain
  of approximately $26.7 million. We do not anticipate that such tax gain will
  require us to distribute more than our regular quarterly distribution in order
  to satisfy the distribution requirements necessary to qualify as a REIT.

The
  Tranche III closing (Tranche III), consisting of five of our suburban
  office properties valued at approximately $111.8 million, is scheduled to close
  in October 2006 and will include the assumption by the Australian JV of approximately
  $51.5 million of existing mortgage debt. It is anticipated that the Australian
  JV will pre-pay such mortgage debt in connection with the Tranche III closing.
  The Tranche III closing is subject to customary closing conditions and the Tranche
  III Properties consist of: 520 Broadhollow Road, 50 Marcus Avenue, 1660
  Walt Whitman Road, all of which are located in Melville, NY, 580 White Plains
  Road, Tarrytown, NY and 300 Executive Park Drive, West Orange, NJ.

Our
  Service Companies provide asset management, property management, leasing, construction
  and other services to the Australian JV. Affiliates of ours are entitled to
  transaction fees and ongoing fees for providing services to the Australian JV.
  During January 2006, in connection with the Tranche II closing we earned and
  received approximately $819,000 in transaction related fees. Also, during the
  three and six months ended June 30, 2006 we earned and received approximately
  $1.5 million and $2.4 million, respectively of ongoing service related fees.
  Such amounts are included in investment income and other on our consolidated
  statements of income. In addition, we also formed Reckson Australia Management
  Limited (RAML), a wholly owned subsidiary, that will manage Reckson
  LPT and serve as its Responsible Entity. The Responsible Entity
  will be managed by a six member board that includes three independent directors
  domiciled in Australia and three of the Companys executive officers. To
  address and mitigate any potential conflicts of interest with Reckson LPT or
  its affiliates the Company has adopted the following policies: (i) all transactions
  between the Company and Reckson LPT or its affiliates shall require the approval
  of a majority of the independent directors of both the Company and Reckson LPT,
  (ii) executive officers and directors of the Company are prohibited from owning
  equity in Reckson LPT, and (iii) the adoption of an express policy which mandates
  that property services and leasing decisions shall be made without regard to
  the Companys percentage ownership of any property.

Under
  the Operating Agreement, Reckson Holdings will have the right, beginning September
  21, 2007, to require LPT REIT to redeem all or a portion of Reckson Holdings
  membership interest in the Australian JV for cash or, at LPT REITs option,
  shares of LPT REITs common stock (which may be exchanged for LPT Units)
  on a one-for-one basis. Reckson Holdings also has the right to cause the liquidation
  of the Australian JV in the event that RAML is replaced as Reckson LPTs
  Responsible Entity. In addition, the Operating Agreement contains a right of
  first refusal granting Reckson Holdings the right to acquire any asset of the
  Australian JV, at fair market value, in the event of an attempted sale of such
  asset or the exercise of Reckson Holdings right to liquidate the Australian
  JV.

In
  connection with the Tranche I closing, on September 21, 2005, the Company, the
  Australian JV and LPT REIT entered into an Option Agreement (the Option
  Agreement) pursuant to which we granted the Australian JV options to acquire
  ten additional properties from the Operating Partnership over a two year period,
  beginning January 1, 2006. The properties contain an aggregate of approximately
  1.2 million square feet and will be priced based on the fair market value. The
  Option Agreement contains a right of first refusal granting the Australian JV
  the right to acquire any option property from Reckson in the event we receive,
  and are amenable to, an offer from a third party to purchase such option property.
  The Option Agreement will terminate under certain circumstances, including if
  (i) the Australian JV sends notice of its intent to exercise its option but
  fails to close as obligated, (ii) the Australian JV is in default under the
  Option Agreement, the contribution agreement or the sale agreement or (iii)
  RAML or an affiliate of ours is no longer the Responsible Entity of Reckson
  LPT.

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In
  connection with the mortgage indebtedness securing nine of the Tranche I properties,
  which were transferred to the Australian JV on September 21, 2005, and three
  of the Tranche III properties scheduled to be transferred to the Australian
  JV during October 2006, we have guaranteed to the lender certain customary non-recourse
  carve-outs, as well as certain obligations relating to the potential termination
  of a number of leases at four of these properties. We have also guaranteed to
  the lender certain capital requirements related to these properties. We will
  be relieved of the customary non-recourse carve-outs and capital requirements
  upon transfer of the respective properties to the Australian JV and the Australian
  JV meeting a net worth test of at least $100.0 million. We will be relieved
  of all but two of the lease related obligations upon transfer of the respective
  properties to the Australian JV and the Australian JV meeting a net worth test
  of at least $200.0 million. The Australian JV has agreed to indemnify us for
  any loss, cost or damage it may incur pursuant to our guaranty of these obligations.
  The Australian JV has met the $100.0 million net worth threshold and there remain
  approximately $18 million of aggregate guarantees outstanding.

In
  accordance with FASB Statement No. 144, the assets and liabilities of the properties
  transferred and to be transferred, excluding the option properties, to the Australian
  JV are classified as held for sale on our consolidated balance sheets, for all
  periods presented.

During
       September 2005, we entered into a letter of intent with an entity owned
      by the
  owner of the New York Islanders professional hockey team to enter into a 50
       / 50 joint venture to potentially develop over five million square feet
      of office,
  residential, retail and hotel space located on 77 acres in the Mitchel Field,
       Long Island sub-market in and around Nassau Countys Veterans Memorial
        Coliseum where we are currently the largest owner of office properties.
       In March
  2006, the joint venture was selected by the County Executive for the development
        of the 77 acre site. In May 2006, the County Executive and the joint
       venture entered into a memorandum of understanding for the development
       of the site. The development remains subject to certain conditions and
       governmental approvals, including legislative, zoning and
       other customary
       approvals.
        In addition, there can be no assurances that we will enter into the aforementioned

  joint venture, that all applicable conditions will be satisfied or that all
        required approvals can be obtained.

On
  March 7, 2006, we sold our 354,000 square foot office building in Orlando, Florida
  for aggregate consideration of approximately $70.0 million which resulted in
  a gain of approximately $9.3 million, net of limited partners minority
  interest. Such gain is reflected as a component of discontinued operations on
  our consolidated statements of income. This non-core real estate holding was
  acquired in May 1999 in connection with our initial New York City portfolio
  acquisition. Net proceeds from the sale were used to establish an escrow account
  with a qualified intermediary for a future Section 1031 Exchange. During May
  2006 we terminated the Section 1031 Exchange and received the sales proceeds
  previously held by the qualified intermediary, including accrued interest. Such
  proceeds were used to repay outstanding borrowings under our Credit Facility.
  For federal income tax purposes we recognized a tax gain of approximately $5.2
  million. We do not anticipate that such tax gain will require us to distribute
  more than our regular quarterly distribution in order to satisfy the distribution
  requirements necessary to qualify as a REIT.

On
  March 31, 2006, we sold a 161,000 square foot office building located in Westchester
  County for $35.3 million. Sales proceeds received were used for the repayment
  of the mortgage note encumbering the property located at 1350 Avenue of the
  Americas in New York, NY. This non-core real estate holding was acquired in
  December 2005 as part of a 14 office property portfolio acquisition.

On
  March 31, 2006, a group of institutional investors led by JPMorgan Investment
  Management, our joint venture partner in the Court Square JV and the property
  located at 919 Third Avenue, NY, purchased our option to acquire the existing
  minority partners 40% partnership interest in the Omni Property for net
  proceeds of approximately $9.0 million. Such proceeds have been included in
  investment income and other on our consolidated statements of income. In connection
  with this transaction, the original minority partner repaid to us approximately
  $22.1 million representing amounts due under a note receivable which was secured
  by their interest in the Omni Property. Such aggregate proceeds to us of approximately
  $31.2 million were used for the repayment of the mortgage note encumbering the
  property located at 1350 Avenue of the Americas in New York, NY.

As
  of June 30, 2006, we owned and operated 93 office properties (inclusive of twenty-six
  office properties owned through joint ventures) comprising approximately 19.3
  million square feet and eight flex properties (inclusive of two flex properties
  owned through joint ventures) comprising approximately 863,000 square feet located
  in the New York Tri-State Markets.

We
  also own certain land parcels throughout our markets in the New York Tri-State
  Markets (the Development Parcels). During July 2005, we commenced
  the ground-up development on one of the Development Parcels of a 37,000 square
  foot Class A retail property located within our existing six building Landmark
  Square office park in Stamford, Connecticut. In August 2005, we recommenced
  the ground-up development of one of the Development Parcels of a 313,000 square
  foot Class A office building located within our existing three building office
  park located in Princeton, NJ. Further, one of the Development Parcels, aggregating
  approximately 4.1 acres, is classified as held for sale on our balance sheets
  and is expected to close during September 2006 for aggregate consideration of
  $2.0 million. Excluding the foregoing, at June 30, 2006 our inventory of Development
  Parcels aggregated approximately 305 acres of land in 9 separate parcels in
  which we had invested approximately $124.3 million.

Management
  has made subjective assessments as to the value and recoverability of our investments
  in the Development Parcels based on current and proposed development plans,
  market comparable land values and alternative use values. Based on these assessments,
  we believe there is no impairment to the carrying value of the Development Parcels.

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Proposed
  Merger with SL Green Realty Corp.

On
       August 3, 2006, the Company, the Operating Partnership, SL Green Realty
      Corp.
  (Parent), Wyoming Acquisition Corp. (Purchaser), Wyoming
   Acquisition GP LLC and Wyoming Acquisition Partnership LP entered into an
  Agreement
  and Plan of Merger (the Merger Agreement). Under the terms of the
   Merger Agreement, the Company will merge with and into Purchaser (the Merger),
    with Purchaser continuing after the Merger as the surviving entity. At the
   effective
  time of the Merger, each of the issued and outstanding shares of common stock
    of the Company will be converted into the right to receive (i) $31.68 in
   cash,
  and (ii) 0.10387 of a share of the common stock, par value $0.01 per share,
    of Parent (the Merger Consideration).

In
      addition, under the terms of the Merger Agreement, Wyoming Acquisition
      LP will merge with and into
  the Operating Partnership (the Partnership Merger), with the Operating
  Partnership continuing after the Partnership Merger as the surviving entity.
  At the effective time of the Partnership Merger, each common unit in the Operating
  Partnership will be converted into the right to receive the applicable amount
  of Merger Consideration, in respect of the number of shares of Reckson common
  stock issuable upon exchange of each such common unit in accordance with the
  Amended and Restated Agreement of Limited Partnership of the Operating Partnership
  as if such common units were converted or exchanged for an equal number of Reckson
  Common Shares immediately prior to the effective time of the Merger.

At
       the effective time of the Merger, any options which have not been exercised

  will be cancelled and holders will be paid the Merger Consideration in respect
       of such options; the exercise price of the options will first be deducted
      from
  the cash consideration and then second from the stock consideration, if necessary.
       All outstanding options are currently vested. Restricted stock whether
      or not vested will be converted into the right to receive the Merger Consideration
       as if such restricted stock had vested immediately prior to the effective
      time
       of the Merger. Restricted stock units whether or not vested, and LTIP
      Units whether or not vested, (other than certain LTIP
  Units held by Messrs. Rechler, Maturo and Barnett, the vesting and payment
  rights to which they are waiving pursuant to the Amendments described below)
  will be converted
  into
  the right

  to receive the Merger Consideration (on a one-for-one basis).

The
      Company has agreed to certain covenants, including, among others, subject
    to certain exceptions described in the Merger Agreement, an obligation not
    to initiate, solicit, encourage or facilitate (including by way of furnishing
    nonpublic information or assistance) any inquiries or the making of any proposal
    or other action that constitutes or may reasonably be expected to lead to
    any competing transaction (as defined in the Merger Agreement) or enter into
    discussions or negotiate with any person in furtherance of such inquiries
    or to obtain a competing transaction. Prior to the closing, the Company has
    agreed to operate its business in the ordinary course consistent with past
    practice and not to take certain actions specified in the Merger Agreement.
    The Company will be permitted to pay its regular quarterly dividends through
    the consummation of the Merger.

Consummation
      of the Merger is subject to customary conditions, including the approval
      of the Merger by the holders
    of the Companys common stock, the registration of SL Greens shares of common
    stock to be issued in the Merger, the listing of such shares on the New York
    Stock Exchange and the absence of any order, injunction or legal restraint
    or prohibition preventing the consummation of the Merger. In addition, each
    partys obligation to consummate the Merger is subject to certain other conditions,
    including (i) the accuracy of the representations and warranties of the other
    party (subject to the materiality standards contained in the Merger Agreement),
    (ii) compliance in all material respects of the other party with its covenants,
    (iii) the absence of a material adverse effect (as defined in the Merger
    Agreement) on the other party and (iv) the delivery of opinions with respect
    to each others status as a real estate investment trust.

The
      Merger Agreement contains certain termination rights for both the Company
    and SL Green and provides that, upon termination of the Merger Agreement
    under specified circumstances described in the Merger Agreement, the Company
    would be required to pay SL Green a termination fee of $99.8 million, and/or
    that the Company would be required to reimburse SL Green for its out-of-pocket
    costs and expenses up to $13.0 million.

The
      Merger Agreement contains representations and warranties that the parties
    have made to each other as of specific dates. The assertions embodied in
    those representations and warranties were made solely for purposes of the
       contract between the parties, and may be subject to important qualifications
    and limitations agreed to by the parties in connection with negotiating its
    terms. Moreover, the representations and warranties are subject to a contractual
    standard of materiality that may be different from what may be viewed as
    material to shareholders, and the representations and warranties may have
    been intended not as statements of fact, but rather as a way of allocating
    risk among the parties.

This
  description of certain terms of the Merger Agreement does not purport to be
  complete and is qualified in its entirety by reference to the full text of the
  Merger Agreement, a copy of which is filed as an exhibit to this report.

Note
  Receivable Investments

At
  June 30, 2006, we had invested approximately $93.4 million in mezzanine loans
  and approximately $70.9 million in other loan investments (collectively, the
  Note Receivable Investments). In general these investments are secured
  by a pledge of either a direct or indirect ownership interest in the underlying
  real estate or leasehold, a first mortgage, other guaranties, pledges and assurances.

The
  following table sets forth the terms of the mezzanine loans at June 30, 2006
  (in thousands):



|Property                                        |  | Amount |        | Interest
        Rate |       | Funding |                    | Maturity |                   
|----------------------------------------------- |  | ------ | ------ | --------------------- | ----- | ------- | ------------------ | -------- | ------------------
|                                                |  |        |        |                       |       |         |                    |          |                   
|Long
        Island office portfolio            |  | $      | 8,031  |                       | 9.00  | %       | Mar.,
        2005 |          | Apr.,
        2010
|Long
        Island office portfolio            |  |        | 20,356 |                       | 9.00  | %       | Mar.,
        2005 |          | Apr.,
        2012
|72
        Madison Avenue, NY, NY (b)           |  |        | 10,000 |                       | 20.00 | %       | Oct.,
        2005 |          | Oct., 2007        
|1166
        Avenue of the Americas, NY, NY (c) |  |        | 25,000 |                       | 17.50 | %       | Nov.,
        2005 |          | Nov., 2009        
|100
        Wall Street, NY, NY                 |  |        | 30,000 |                       | 15.00 | %       | Dec.,
        2005 |          | Dec., 2007        
|                                                |  |        |        |                       |       |         |                    |          |                   
|                                                |  | $      | 93,387 |                       |       |         |                    |          |                   
|                                                |  |        |        |                       |       |         |                    |          |                   

|(a) | Prepayable
        without penalty after 18 months from initial funding.
|--- | ------------------------------------------------------------------------

|(b) | In
        addition to this mortgage loan, Reckson Construction and Development,
        LLC (RCD) entered into a development agreement with the owner
        of the property to perform certain predevelopment, development and / or
        other services with respect to the property. In exchange for its services,
        RCD will receive a development fee of $2.0 million which is payable in
        equal monthly installments over a two-year period which commenced during
        October 2005.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Junior
        mezzanine loan secured by interests in a 550,000 square foot condominium
        interest.
|--- | ---------------------------------------------------------------------------------------------------------

In
  May 2005 we funded $55.3 million under an $85.0 million participating loan investment
  which is secured by an indirect interest in a 550,000 square foot condominium
  in a Class A office tower located at 1166 Avenue of the Americas, New York,
  NY. The loan accrues interest compounded at 9.0% and pays interest at an annual
  rate of 6.0% through March 2010, 8.5% thereafter through March 2015 and 11.0%
  thereafter through maturity in 2020. The loan is pre-payable only under certain
  circumstances and, in any case, not before 2009. Upon a capital event related
  to the indirect interest in the property which secures the loan, we are entitled
  to participate in 30% of the net proceeds derived from such capital event.

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On
  March 30, 2006, we advanced approximately $14.2 million under three separate
  loan agreements which are secured by certain flex properties, aggregating approximately
  450,000 square feet, located in Nassau County, Long Island and in part by a
  personal guarantee of an affiliate of the borrower. These loans have an initial
  weighted average interest rate of 15.3% and mature on April 1, 2008. In addition,
  the loans are not prepayable, without penalty, prior to October 1, 2007.

At
  June 30, 2006, we held one other note receivable, which aggregated $1.0 million
  and carried an interest rate of 10.50% per annum. This note receivable matures
  on January 31, 2010 and is secured in part by a minority partners preferred
  unit interest in the Operating Partnership.

The
  following table sets forth the terms of our other loan investments at June 30,
  2006 (in thousands):



|Property                                                    |  | Amount |        | Interest
        Rate |       | Funding |                    | Maturity
|----------------------------------------------------------- |  | ------ | ------ | --------------------- | ----- | ------- | ------------------ | --------
|                                                            |  |        |        |                       |       |         |                    |         
|NYC
        Class A office condominium interest             |  | $      | 55,250 |                       | 9.00  | %       | May,
        2005  |         
|Flex
        property located in Nassau County, Long Island |  |        | 14,188 |                       | 15.29 | %       | Mar.,
        2006 |         
|Other                                                       |  |        | 1,000  |                       | 10.50 | %       | Oct.,
        2004 |         
|Other                                                       |  |        | 500    |                       | 5.35  | %       | Dec.,
        2004 |         
|                                                            |  |        |        |                       |       |         |                    |         
|                                                            |  | $      | 70,938 |                       |       |         |                    |         
|                                                            |  |        |        |                       |       |         |                    |         

As
  of June 30, 2006, management has made subjective assessments as to the underlying
  security value on the Note Receivable Investments. Based on these assessments,
  we believe there is no impairment to their carrying value.

On
  July 27, 2006, we advanced $20.0 million under a loan agreement which is secured
  by certain pledges of project income and ownership interests and a personal
  guarantee of an affiliate of the borrower. This loan matures in August 2009,
  bears interest at 15% per annum (10% annual pay rate and 5% monthly compounded
  deferred rate). The loan is pre-payable at any time and with yield maintenance
  through August 1, 2007 if pre-paid prior to August 2007. This investment was
  funded through a borrowing under our Credit Facility.

Our
  market capitalization at June 30, 2006 was approximately $5.4 billion. Our market
  capitalization is based on the sum of (i) the market value of the Companys
  common stock and OP Units (assuming conversion) of $41.38 per share / unit (based
  on the closing price of the Companys common stock on June 30, 2006), (ii)
  the liquidation preference value of the Operating Partnerships preferred
  units of $1,000 per unit and (iii) approximately $1.9 billion (net of minority
  partners interests share of consolidated joint venture debt and
  including our share of consolidated and unconsolidated joint venture debt) of
  debt outstanding at June 30, 2006. As a result, our total debt to total market
  capitalization ratio at June 30, 2006 equaled approximately 35.2%.

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Results
  of Operations

The
  following table is a comparison of the results of operations for the three month
  period ended June 30, 2006 to the three month period ended June 30, 2005 (dollars
  in thousands):



|                                                 |  | Three
        months ended June 30, |        
|------------------------------------------------ |  | ----------------------------------- | -------
|                                                 |  |                                     |        
|                                                 |  |                                     |        
|                                                 |  |                                     |        
|                                                 |  | 2006                                |        
|                                                 |  |                                     |        
|Property
        Operating Revenues:             |  |                                     |        
|Base
        rents                               |  | $                                   | 128,575
|Tenant
        escalations and reimbursements    |  |                                     | 19,235 
|                                                 |  |                                     |        
|Total
        property operating revenues        |  | $                                   | 147,810
|                                                 |  |                                     |        
|Property
        Operating Expenses:             |  |                                     |        
|Operating
        expenses                       |  | $                                   | 32,821 
|Real
        estate taxes                        |  |                                     | 24,153 
|                                                 |  |                                     |        
|Total
        property operating expenses        |  | $                                   | 56,974 
|                                                 |  |                                     |        
|Interest
        and Investment Income and other |  | $                                   | 7,831  
|                                                 |  |                                     |        
|Other
        Expenses:                          |  |                                     |        
|Interest
        expense incurred                |  | $                                   | 27,216 
|Amortization
        of deferred financing costs |  |                                     | 1,017  
|Marketing,
        general and administrative    |  |                                     | 9,475  
|                                                 |  |                                     |        
|Total
        other expenses                     |  | $                                   | 37,708 
|                                                 |  |                                     |        

Our
  property operating revenues, which include base rents and tenant escalations
  and reimbursements (Property Operating Revenues), increased by
  $12.4 million or 9.2% for the three months ended June 30, 2006 as compared
  to the
  2005 period. The increase is a result of an $18.0 million increase in Property
  Operating Revenues from the acquisition of thirteen suburban office properties,
  containing approximately 2.4 million square feet which were acquired in the
  fourth quarter of 2005, $2.9 million attributable to straight line rental revenue
  increases in our same-store properties. In
  addition, during the 2006 period we earned approximately $11.8 million in lease
  termination fee revenue as opposed to approximately $800,000 earned during
  the
  2005 period. These aggregate increases of approximately $31.9 million were
  offset by a $19.5 million decrease in Property Operating Revenues from the
  sale of
  the Tranche I Properties in September 2005, 100 Wall Street in December 2005,
  the Tranche II Properties in January 2006 and One Orlando Center in March 2006.

Our
     property operating expenses, real estate taxes and ground rents (Property
      Expenses) increased by $5.8 million or 11.2% for the three months
      ended  June 30, 2006 as compared to the 2005 period. The increase is a
      result of an
  $8.9 million increase in operating expenses and real estate taxes from the
      acquisition  of the aforementioned suburban office properties which were
      acquired in the
  fourth quarter of 2005 and $4.2 million increase in operating expenses and
      real estate taxes in our same-store properties. These aggregate increases
      of
      approximately
  $13.1 million were offset by a $7.3 million decrease in Property Expenses from
       the aforementioned property sales. The increase in real estate taxes is
      attributable
  to higher taxes being levied by the municipalities in which the properties
      are  located. The increase in property expenses is primarily driven by
      the recent
  increases in energy costs.

Gross
    operating margins (defined as Property Operating Revenues less Property Expenses,
    taken as a percentage of Property Operating Revenues) for the three month
    periods
  ended June 30, 2006 and 2005 were 61.5% and 62.2%, respectively. Our 2006 gross
    operating margin, before lease termination fee revenue was 58.1%. The decrease
    in our gross margins reflects the performance of thirteen suburban office
    properties,
  containing approximately 2.4 million square feet which were purchased in the
    fourth quarter of 2005 with below market occupancy levels. The addition of
    these
  properties resulted in a decrease in occupancy for our portfolio.

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Interest
  and Investment income and other increased by $4.0 million for the three months
  ended June 30, 2006 as compared to the 2005 period. This increase is primarily
  a result of an increase in interest income earned on our Note Receivable Investments
  of $2.2 million due to a weighted average increase in our Note Receivable Investments
  of approximately $43.4 million from the 2005 period and $1.8 million in management
  fees earned during the 2006 period related to the Australian and Court Square
  JVs.

Interest
     expense incurred decreased by approximately $43,000 for the three months
    ended
  June 30, 2006 as compared to the 2005 period. The net decrease in interest
    expense  is a result of decreases in interest expense of $4.3 million incurred
    under
  our Credit Facility which resulted from a weighted average decrease in outstanding
    balances under our Credit Facility of approximately $229.7 million from the
    2005 period, a
    decrease of
  $242,000 incurred under our same-store mortgage portfolio, a decrease in mortgage
     interest expense of $1.9 million incurred during the 2005 period from three

  mortgage notes which were subsequently satisfied, $411,000 of mortgage interest
     expense related to two properties which were contributed to the Australian
    JV
  on January 6, 2006, subject to their debt, an increase of approximately $669,000
     in capitalized interest due to increased development activities and a decrease

  of 269,000 in other interest expense. These aggregate decreases of $7.8 million
     were off-set by a $2.8 million increase incurred from the Operating Partnerships
      issuance of $287.5 million of senior unsecured debentures in June 2005,
     $4.1
  million related to the Operating Partnerships issuance of $275.0 million
   of senior unsecured debentures in March 2006, an increase of $680,000 incurred

  from our financing of three properties during September 2005 which are scheduled
   to be contributed to the Australian JV in the latter part of 2006 and $168,000

  of mortgage interest expense incurred on a property which we acquired, subject
   to the debt in October 2005.

Marketing,
  general and administrative expenses increased by $1.2 million for the three
  months ended June 30, 2006 as compared to the 2005 period. This overall net
  increase is attributable to increased costs of maintaining offices and infrastructure
  in each of our five divisional markets, operating as a public company and higher
  compensation costs including amortization expense related to restricted stock
  awards to executive and non-executive officers. Marketing, general and administrative
  costs represented 6.0% of total revenues from continuing operations in the 2006
  period as compared to 5.9% in the 2005 period.

During
  the June 2006 quarterly period, we incurred a $2.2 million charge related to
  our long-term incentive compensation plan with no comparable charge during the
  June 2005 quarterly period. For a further discussion of this charge, see Other
  Matters of this Item 2.

Discontinued
  operations, net of minority interests decreased by approximately $2.1 million
  for the three months ended June 30, 2006 as compared to the 2005 period. This
  increase is attributable to a decrease in the results of operations for those
  properties held for sale during the 2006 period as compared to the 2005 period.

The
  following table is a comparison of the results of operations for the six month
  period ended June 30, 2006 to the six month period ended June 30, 2005 (dollars
  in thousands):



|                                                 |  | Six
        months ended June 30, |        
|------------------------------------------------ |  | --------------------------------- | -------
|                                                 |  |                                   |        
|                                                 |  |                                   |        
|                                                 |  |                                   |        
|                                                 |  | 2006                              |        
|                                                 |  |                                   |        
|Property
        Operating Revenues:             |  |                                   |        
|Base
        rents                               |  | $                                 | 244,660
|Tenant
        escalations and reimbursements    |  |                                   | 38,303 
|                                                 |  |                                   |        
|Total
        property operating revenues        |  | $                                 | 282,963
|                                                 |  |                                   |        
|Property
        Operating Expenses:             |  |                                   |        
|Operating
        expenses                       |  | $                                 | 68,805 
|Real
        estate taxes                        |  |                                   | 48,404 
|                                                 |  |                                   |        
|Total
        property operating expenses        |  | $                                 | 117,209
|                                                 |  |                                   |        
|Interest
        and Investment Income and other |  | $                                 | 25,407 
|                                                 |  |                                   |        
|Other
        Expenses:                          |  |                                   |        
|Interest
        expense incurred                |  | $                                 | 55,205 
|Amortization
        of deferred financing costs |  |                                   | 2,139  
|Marketing,
        general and administrative    |  |                                   | 18,957 
|                                                 |  |                                   |        
|Total
        other expenses                     |  | $                                 | 76,301 
|                                                 |  |                                   |        

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Property
    Operating Revenues increased by $17.4 million or 6.6% for the six months
    ended
  June 30, 2006 as compared to the 2005 period. The increase is a result of a
    $37.2 million increase in Property Operating Revenues from the acquisition
    of
  thirteen suburban office properties, containing approximately 2.4 million square
    feet which were acquired in the fourth quarter of 2005, $8.2 million attributable
    to straight line rental revenue increases in our
  same-store properties. In addition, during the 2006 period we earned approximately
    $12.0 million in lease termination fee revenue as opposed to $1.3 million
    earned
  during the 2005 period. These aggregate increases of approximately $56.1 million
    were offset by a $38.7 million decrease in Property Operating Revenues from
    the sale of the Tranche I Properties in September 2005, 100 Wall Street in
    December
  2005, the Tranche II Properties in January 2006 and One Orlando Center in March
  2006.

Property
    Expenses increased by $13.3 million or 12.7% for the six months ended June
    30,
  2006 as compared to the 2005 period. The increase is a result of a $20.3 million
    increase in operating expenses and real estate taxes from the acquisition
    of
  the aforementioned suburban office properties which were acquired in the fourth
    quarter of 2005 and a $9.6 million increase in operating expenses and real
    estate
  taxes in our same-store properties. These aggregate increases of approximately
    $29.9 million were offset by a $16.6 million decrease in Property Expenses
    from
  the aforementioned property sales. The increase in real estate taxes is attributable
    to higher taxes being levied by the municipalities in which the properties
    are
  located. The increase in property expenses is primarily driven by the recent
  increases in energy costs.

Gross
  operating margins for the six month periods ended June 30, 2006 and 2005 were
  58.6% and 60.9%, respectively. Our 2006 gross operating margin, before lease
  termination fee revenue was 56.8 %. The decrease in our gross margins reflects
  the performance of thirteen suburban office properties, containing approximately
  2.4 million square feet which were purchased in the fourth quarter of 2005 with
  below market occupancy levels. The addition of these properties resulted in
  a decrease in occupancy for our portfolio. In addition, we have experienced
  increases in real estate taxes and operating costs in our core portfolio, particularly
  energy costs, which were not entirely billable to our tenants.

Interest
  and Investment income and other increased by $18.5 million for the six months
  ended June 30, 2006 as compared to the 2005 period. This increase is primarily
  a result of the sale of our option in March 2006 to acquire the minority partners
  40% partnership interest in the Omni Property for net consideration of approximately
  $9.0 million. In addition, this increase is attributable to an increase in interest
  income earned on our Note Receivable Investments of $5.2 million which resulted
  from a weighted average increase in our Note Receivable Investments of approximately
  $61.7 million from the 2005 period, $3.7 million in transaction and management
  fees earned during the 2006 period related to the Australian and Court Square
  JVs, and an increase in interest income of $1.1 million related to property
  sales proceeds held pursuant to Section 1031 Exchanges.

Interest
     expense incurred increased by $4.4 million or 8.6% for the six months ended

  June 30, 2006 as compared to the 2005 period. Approximately $5.8 million of
     the increase is attributable to the Operating Partnerships issuance
     of  $287.5 million of senior unsecured debentures in June 2005 and $4.1
     million
  related to the Operating Partnerships issuance of $275.0 million of senior
   unsecured debentures in March 2006. Interest expense also increased by $2.9

  million incurred under an unsecured term loan, which was funded in January
  2006,  used to purchase the Eastridge portfolio and repaid later in the first
  quarter
  of 2006, $1.3 million incurred from our financing of three properties during
   September 2005 which are scheduled to be contributed to the Australian JV
  in
  the latter part of 2006 and $336,000 of mortgage interest expense incurred
  on  a property which we acquired, subject to the debt in October 2005. These
  aggregate
  increases of $14.4 million were off-set by decreases in interest expense of
   $4.5 million incurred under our Credit Facility which resulted from a weighted

  average decrease in outstanding balances under our Credit Facility of approximately
  $173.5 million from the 2005 period, $339,000 incurred under our same-store
  mortgage
  portfolio,

  a decrease in mortgage interest expense of $2.7 million incurred during the
   2005 period from three mortgage notes which were subsequently satisfied, $802,000

  of mortgage interest expense related to two properties which were contributed
   to the Australian JV on January 6, 2006, subject to their debt, an increase

  of approximately $1.5 million in capitalized interest expense due to increased
   development activities and a decrease of $215,000 in other interest expense.

Marketing,
  general and administrative expenses increased by $2.7 million for the six months
  ended June 30, 2006 as compared to the 2005 period. This overall net increase
  is attributable to increased costs of maintaining offices and infrastructure
  in each of our five divisional markets, operating as a public company and higher
  compensation costs including amortization expense related to restricted stock
  awards to executive and non-executive officers. Marketing, general and administrative
  costs represented 6.1% of total revenues from continuing operations (excluding
  gains on sales of depreciable real estate assets) in the 2006 period as compared
  to 6.0% in the 2005 period.

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. We expect to meet our short-term liquidity requirements
  generally through our net cash provided by operating activities along with our
  $500 million unsecured credit facility (the Credit Facility) described
  below. The Credit Facility contains several financial covenants with which we
  must be in compliance in order to borrow funds thereunder. During the prior
  two years, we have incurred significant leasing costs in the form of tenant
  improvement costs, leasing commissions and free rent. This trend is a result
  of market demands from tenants and high levels of leasing transactions to re-tenant
  scheduled expirations or space vacated due to early terminations of leases.
  We are also expending costs on tenants that are renewing or extending their
  leases earlier than scheduled. For the years ended December 31, 2005 and 2004,
  we paid or accrued approximately $67.7 million and $52.2 million, respectively,
  for tenanting costs including tenant improvement costs and leasing commissions.
  Primarily, as a result of these factors, our cash available for distribution
  from operating activities was not sufficient to cover 100% of the dividends
  paid on our common equity. However, we are beginning to experience a moderation
  in the cost of re-tenanting our properties, primarily in terms of free rent
  concessions and costs to renew existing tenants. We are not yet experiencing
  significant reductions in the cost of re-leasing vacant or vacated space. Recently
  we have experienced an economic recovery in our markets, including an accelerated
  recovery in our New York City and Long Island markets. We are beginning to also
  see this trend in certain of our Stamford, Connecticut properties. This is resulting
  in rental rate increases which is positively impacting our cash flow. To meet
  the short-term funding requirements relating to the higher leasing costs, we
  have used proceeds from non-core property sales or borrowings under our Credit
  Facility. Based on our forecasted leasing, we anticipate that we will continue
  to incur shortfalls during 2006. Subject to the restrictive covenants contained
  in the Merger Agreement, we currently intend to fund any shortfalls with proceeds
  from sales of non-income producing assets or borrowings under our Credit Facility.
  We periodically review our dividend policy to determine the appropriateness
  of our dividend rate relative to our cash flows. We adjust our distribution
  rate based on such factors as leasing activity, market conditions and forecasted
  increases and decreases in our cash flow as well as required distributions of
  taxable income to maintain REIT status. The Merger Agreement contains limitations
  on our ability to make dividends and distributions. There can be no assurance
  that we will maintain the current quarterly distribution level on our common
  equity.

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Subject
  to the restrictive covenants contained in the Merger Agreement, we expect to
  meet most of our financing requirements through long-term unsecured borrowings
  and the issuance of debt and equity securities of the Company. In certain situations,
  primarily in joint venture transactions, we use secured debt in connection with
  the acquisition of properties. During March 2006, the Operating Partnership
  issued $275 million of senior unsecured debt securities and during June 2005
  issued $287.5 million of exchangeable senior debentures. 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 Operating
  Partnership will be able to access the unsecured debt markets at the time when
  the Operating Partnership desires to sell its unsecured notes. In addition,
  when valuations for commercial real estate properties are high, we will seek
  to sell non-core operating properties or certain land inventory to realize value
  and profit created, subject to the restrictive covenants contained in the Merger
  Agreement. We will then seek opportunities to reinvest the capital realized
  from these dispositions back into value-added assets in our core New York Tri-State
  Markets. However, there can be no assurances that we will be able to identify
  such opportunities that meet our underwriting criteria. Additionally, we have
  been actively seeking joint venture relationships to access new sources of equity
  capital. In September 2005, we completed a series of transactions whereby we
  sponsored the IPO of Reckson LPT, a newly-formed Australian listed property
  trust which is traded on the Australian Stock Exchange. Proceeds received from
  the IPO were used by Reckson LPT to form a joint venture with us, the Australian
  JV, and to purchase 17 of our properties. In addition, during January 2006,
  we sold three additional properties to the Australian JV and are under contract
  to sell an additional five of our properties to the Australian JV during October
  2006. Subject to the restrictive covenants contained in the Merger Agreement,
  it is our intention to purchase additional assets, within our New York Tri-State
  Markets, with Reckson LPT through the Australian JV. Joint ventures often involve
  relinquishing sole decision making authority relating to material events such
  as sale and financing. Loss of control of these decisions may adversely affect
  our financial flexibility, particularly relating to liquidating joint venture
  assets. There can be no assurances that we will be able to successfully execute
  this strategy.

Subject
  to the restrictive covenants contained in the Merger Agreement, we expect to
  refinance existing mortgage indebtedness, senior unsecured notes or indebtedness
  under our Credit Facility at maturity through the issuance of unsecured debt
  securities or additional equity securities. We anticipate 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 our capital
  and liquidity requirements in both the short and long-term. Our senior unsecured
  debt is currently investment grade rated BBB- by Fitch Ratings,
  BBB- by Standard & Poors and Baa3 by Moodys
  Investors Service. The rating agencies review the ratings assigned to an issuer
  such as us on an ongoing basis. Negative changes in our ratings may result in
  increases in our borrowing costs, including borrowings under our Credit Facility.

Our
  markets are currently in the recovery stage in the economic cycle. As a result
  of current economic conditions, we have generally experienced higher renewal
  rates and a lower number of lease terminations. Vacancy rates in our markets
  are generally stable or decreasing and asking rents in our markets have stabilized
  and in some instances, particularly in New York City and Long Island, are trending
  higher. Landlords are still required to grant concessions such as free rent
  and tenant improvements but generally at a more moderate rate than had been
  experienced in the prior year, particularly on renewal space. Our markets continue
  to experience higher real estate taxes and utility rates. The recent volatility
  in the energy markets has had a substantial impact on cost of utilities in the
  northeast where we own our properties. In certain of our markets, the increase
  in real estate taxes and utility costs will be included as part of expenses
  subject to escalation above a base year and billed to tenants consistent
  with the terms of their underlying leases. We are also experiencing a similar
  increase in cost of building materials to fit out tenant space, maintain our
  buildings and in new development costs. We believe that trends are moving positively
  from a landlords perspective particularly in terms of increased demand
  and limited new supply and that the above average tenant costs relating to leasing
  are moderating. This trend is supported by increased occupancy and reduced vacancy
  rates in most of our markets, the general economic recovery in the market resulting
  in job growth, and the scarcity of available land in which to develop a new
  supply of office space.

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We
  carry comprehensive liability, fire, extended coverage and rental loss insurance
  on all of our properties. Six of our 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 (TRIA) 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 2005.
  The TRIA was subsequently extended, with certain modifications, through 2007
  with the enactment of the Terrorism Insurance Extension Act of 2005. Our current
  property insurance coverage, which was recently renewed, provides for full replacement
  cost of our properties, including for acts of terrorism up to $600.0 million
  on a per occurrence basis. One of our New York City properties, One Court Square,
  is operated under a net lease to Citibank, N.A. whereby they are required to
  maintain adequate property and liability insurance including coverage for acts
  of terrorism.

The
  potential impact of terrorist attacks in the New York City and New York Tri-State
  Markets may adversely affect the value of our properties and our 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 our 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.
  We expect to use our cash flow from operating activities for distributions to
  stockholders and for payment of recurring, non-incremental revenue-generating
  expenditures. We intend to invest amounts accumulated for distribution in short-term
  investments.

We
    currently maintain our $500 million Credit Facility with 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 matures in August 2008, provides
    for a one-year extension subject to a fee of 25 basis points and, upon receiving
    additional lender commitments, for an increase to the maximum revolving credit
    amount to $750 million. The Credit Facility has a competitive bid feature,
    which allows us to solicit bids from lenders under the Credit Facility to
    borrow up to 50%
  of the maximum revolving credit amount at interest rates less than the current
    LIBOR plus 80 basis point spread. In addition, the Credit Facility carries
    a facility fee of 20 basis
  points per annum. In the event of a change in the Operating
  Partnerships senior unsecured credit ratings the interest rates and facility
   fee are subject to change. At June 30, 2006, the outstanding borrowings under

  the Credit Facility aggregated $92.0 million and carried a weighted average
   interest rate of 5.86% per annum.

We
  utilize the Credit Facility primarily to finance real estate investments, fund
  our real estate development activities and for working capital purposes. At
  June 30, 2006, we had availability under the Credit Facility to borrow approximately
  an additional $407.9 million, subject to compliance with certain financial covenants.
  Such amount is net of approximately $100,000 in an outstanding undrawn standby
  letter of credit, which is issued under the Credit Facility.

In
  connection with the acquisition of certain properties, contributing partners
  of such properties have provided guarantees on certain of our indebtedness.
  As a result, we maintain certain minimum outstanding balances on our Credit
  Facility.

On
  January 13, 2006, we obtained a $250.0 million term loan (the Term Loan)
  from Goldman Sachs Mortgage Company. The Term Loan was for an initial period
  of three months and had terms, including interest rates and financial covenants,
  substantially similar to our Credit Facility. Proceeds from the Term Loan were
  used to repay outstanding borrowings under our Credit Facility. On March 31,
  2006, in conjunction with net proceeds received from the issuance of Senior
  Unsecured Notes, we repaid the entire amount outstanding under the Term Loan.
  As a result, the Term Loan has been retired and is no longer available for borrowings
  thereunder.

As
  a result of increased market values for our commercial real estate assets, we
  have sold certain non-core assets or interests in assets where significant value
  has been created. During 2004, we sold assets or interests in assets with aggregate
  sales prices of approximately $51.4 million, net of minority partners
  joint venture interests. During 2005 we sold approximately $909.8 million of
  our real estate assets including disposition of interests to joint ventures
  and during the first quarter of 2006, we sold two of our non-core assets, the
  Tranche II LPT Properties and an option to acquire our minority partners
  40% partnership interest in the Omni Property for aggregate sales proceeds of
  approximately $178.9 million. We 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 could be made.

A
  Class A OP Unit and a share of common stock have similar economic characteristics
  as they effectively share equally in the net income or loss and distributions
  of the Operating Partnership. As of June 30, 2006, the Operating Partnership
  had issued and outstanding 1,546,133 Class A OP Units and 456,621 Class C OP
  Units. The Class A OP Units and the Companys common stock currently receive
  a quarterly distribution of $.4246 per unit/share. 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. 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.

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During
    June 2005, the Operating Partnership issued $287.5 million aggregate principal
    amount of 4.00% exchangeable senior debentures due June 15, 2025. The debentures
    were issued at 98% of par and are exchangeable for shares of common stock
    of
  the Company on or after June 15, 2024 at an initial exchange rate of 24.6124
    common shares per $1,000 of principal amount of debentures. The debentures
    are
  also exchangeable: (i) if the market price of our common stock over a specified
    period of time is more than 125% of the exchange price per share then in
    effect;
  (ii) if the trading price of the debentures over a specified period of time
    is less than 98% of the product of the closing price of our shares multiplied
    by the applicable exchange rate; (iii) during a specified period of time,
    for
  any debentures that have been called for redemption; (iv) under certain circumstances,
    upon the occurrence of a distribution to holders of our shares of (a) rights
    to purchase our common stock at a price below the market price of our shares
    or (b) assets, debt securities or rights to purchase our securities or securities
    of the Operating Partnership that have a per share value exceeding 10% of
    the
  market price of our shares; (v) if our common stock is not listed on a national
    or regional securities exchange or quoted on NASDAQ for 30 consecutive trading
    days; or (vi) if the Operating Partnership or the Company is party to a consolidation,
    merger or binding share exchange pursuant to which all of the Companys
     common stock would be exchanged for cash, securities or other property.

The
  initial exchange price of $40.63 represents a premium of approximately 25% to
  the closing price of the Companys common stock on the issuance date of
  $32.50 per share. If exchanged in accordance with their terms, the debentures
  will be settled in cash up to their principal amount and any remaining exchange
  value will be settled, at our option, in cash, the Companys common stock
  or a combination thereof. In accordance with the exchange rate terms of the
  debentures the Company has reserved approximately 8.8 million shares of its
  authorized common stock, $.01 par value, for potential future issuance upon
  the exchange of the debentures. Such amount is based on an exchange rate of
  30.7692 common shares per $1,000 of principal amount of debentures. Although
  we have reserved these shares pursuant to the exchange rate terms, we believe
  the issuance of our shares, if any, would be significantly less than 8.8 million
  shares. The debentures are guaranteed by the Company. We have the option to
  redeem the debentures beginning June 18, 2010 for the principal amount plus
  accrued and unpaid interest. Holders of the debentures have the right to require
  us to repurchase their debentures at 100% of the principal amount thereof plus
  accrued and unpaid interest on June 15, 2010, June 15, 2015 and June 15, 2020
  or, in the event of certain change in control transactions (including the Merger),
  prior to June 15, 2010.

During
  the three month period ended June 30, 2006, certain limited partners in the
  Operating Partnership exchanged 12,224 OP Units for an equal number of shares
  of the Companys common stock.

The
  Board of Directors of the Company initially authorized the purchase of up to
  5.0 million shares of the Companys common stock. Transactions conducted
  on the New York Stock Exchange have been, and will continue to be, effectuated
  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
  2006, the Board of Directors authorized the re-institution of the Companys
  common stock repurchase program, which had been inactive since March 2003. Subject
  to the restrictive covenants contained in the Merger Agreement, the Company
  may repurchase up to an aggregate of 5.0 million shares of its common stock
  under the re-instituted plan.

The
  Operating Partnership has issued and outstanding 1,200 preferred units of limited
  partnership interest with a liquidation preference value of $1,000 per unit
  and a stated distribution rate of 7.0%, which is subject to reduction based
  upon terms of their initial issuance (the Preferred Units). The
  terms of the Preferred Units provide for this reduction in distribution rate
  in order to address the effect of certain mortgages with above market interest
  rates, which were assumed by the Operating Partnership in connection with properties
  contributed to the Operating Partnership in 1998. As a result of the aforementioned
  reduction, there are currently no distributions being made on the Preferred
  Units.

Capitalization

Our
  indebtedness at June 30, 2006 totaled approximately $1.9 billion (net of minority
  partners interests share of consolidated joint venture debt and
  including our share of consolidated and unconsolidated joint venture debt) and
  was comprised of approximately $99.6 million of floating rate unsecured debt,
  approximately $1.25 billion of senior unsecured notes and approximately $564.7
  million of fixed rate mortgage indebtedness with a weighted average interest
  rate of approximately 6.0% and a weighted average maturity of approximately
  4.9 years. Based on our total market capitalization of approximately $5.4 billion
  at June 30, 2006 (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 Preferred Units and (iii) the $1.9 billion of debt),
  our debt represented approximately 35.2% of our total market capitalization.

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CONTRACTUAL
  OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following table sets forth our significant consolidated debt obligations by scheduled principal cash flow payments and maturity date and our commercial commitments by scheduled maturity at June 30, 2006 (in thousands):



|                             |  | MATURITY
        DATE |       
|---------------------------- |  | --------------------- | ------
|                             |  |                       |       
|                             |  | 2006                  |       
|                             |  |                       |       
|Mortgage notes payable (1)   |  | $                     | 5,229 
|Mortgage notes payable (2)   |  |                       | 40,402
|Senior unsecured notes       |  |                       |      
|Credit Facility              |  |                       |      
|Land lease obligations (3)   |  |                       | 6,227 
|Air rights lease obligations |  |                       | 181   
|Capital leases               |  |                       | 335   
|Operating leases             |  |                       | 660   
|                             |  |                       |       
|                             |  | $                     | 53,034
|                             |  |                       |       

|(1) | Scheduled principal amortization payments.
|--- | ------------------------------------------

|(2) | Principal payments due at maturity.
|--- | -----------------------------------

|(3) | We lease, pursuant to noncancellable operating leases, the land on which ten of our buildings were constructed. The leases, certain of which contain renewal options at our direction, expire between 2043 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 and includes lease renewals if reasonably assured that we will exercise that option.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

At June 30, 2006, approximately $41.0 million, or 7.8%, of our mortgage debt was recourse to the Company.

The following table sets forth our significant consolidated interest expense obligations on our fixed rate debt by scheduled cash flow payments at June 30, 2006, excluding interest expense obligations related to those properties classified as held for sale on our consolidated balance sheet (in thousands):



|                           |  | YEAR
        ENDED DECEMBER31, |       
|-------------------------- |  | ------------------------------ | ------
|                           |  |                                |       
|                           |  | 2006                           |       
|                           |  |                                |       
|Mortgage notes payable     |  | $                              | 16,711
|Senior unsecured notes     |  |                                | 33,231
|Exchangeable debentures(a) |  |                                | 5,750 
|                           |  |                                |       
|                           |  | $                              | 55,692
|                           |  |                                |       

|(a) | Callable
        after June 17, 2010 at par.
|--- | --------------------------------------------

Interest expense obligations related to those properties classified as held for sale on our consolidated balance sheet at June 30, 2006 over the next five years aggregated approximately $15.3 million.

Interest expense incurred under our variable rate Credit Facility amounted to approximately $2.4 million for the three months ended June 30, 2006 and was based on a weighted average balance and interest rate of $151.8 million and 6.37%, respectively. Our rental revenues are our principal source of funds along with our net cash provided by operating activities to meet these and future interest obligations.

We had undrawn letters of credit outstanding of approximately $100,000 at June 30, 2006.

Certain of the mortgage notes payable are guaranteed by the Company and/or certain limited partners in the Operating Partnership. 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.

Corporate Governance

In February 2006 the Company amended its Bylaws to implement certain corporate governance policies, including (i) a requirement that at least two-thirds of the members of the Board of Directors consist of independent directors and (ii) the establishment of an Affiliate Transaction Committee, which consists of all of the independent directors.

The corporate governance policies implemented by the amendments to the Bylaws supplement the Companys previously-enacted corporate governance enhancements, which include:  (i) the de-staggering of the Board of Directors so that shareholders can vote on the entire slate of directors each year; (ii) the establishment of an independent lead director position; (iii) the mandatory rotation of at least one independent director every three years; (iv) a requirement that independent directors own a minimum equity stake in the Company of $100,000 of common stock; (v) a requirement that a substantial portion of directors compensation be in the Companys equity, which equity must be held during each directors tenure on the Board; (vi) opting out of the Maryland Business Combination Statute; and (vii) 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.

|On
           July 10, 2006, Dr. Edward R. Casas was appointed as an independent
           director of the Companys Board of Directors. At such time,
           Dr. Casas
            also was appointed as a member of the Executive Committee, Nominating
           and Corporate Governance Committee, the Compensation Committee and
           Affiliate
           Transaction
           Committee
           of the Board of Directors. There are no arrangements or understandings
           between
           Dr. Casas
           and any other person pursuant to which Dr. Casas was appointed
           as a director, and neither Dr. Casas nor any member of his immediate
           family has or had, since the beginning of the Companys last
           fiscal year, a material interest in any transaction or proposed transaction
           with
         the Company.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Affiliate
      Transaction Committee of the Board of Directors

The
      Affiliate Transaction Committee of the Board has reviewed and approved
      the Merger Agreement after considering, among other things, managements
      participation in the proposed transaction and the opinions of its financial
      and legal advisors. The committee determined that the proposed transaction
      is fair to and in the best interests of the Company and of its shareholders.
      Additional information concerning the proposed transaction and the Affiliate
      Transaction Committees determination can be found in the Overview
      of the Reckson - SL Green Transaction filed by the Company on Schedule
      14A on August 8, 2006, and in the joint proxy statement/prospectus when
      it becomes available.

Other Matters

In July 2002, as a result of certain provisions of the Sarbanes-Oxley Act of 2002, we discontinued the use of stock loans in our Long Term Incentive Programs (LTIP). In connection with LTIP grants made prior to the enactment of the Sarbanes-Oxley Act of 2002, we currently have stock loans outstanding to certain executive officers which were used to purchase 385,000 shares of our common stock. The stock loans were priced at the market prices of our common stock at the time of issuance, bear interest at the mid-term Applicable Federal Rate and are secured by the shares purchased. Such stock loans (including accrued interest) are scheduled to vest and be ratably forgiven each year on the anniversary of the grant date based upon initial vesting periods ranging from seven to ten years. Such forgiveness is based on continued service and in part on the Company attaining certain annual
performance measures. These stock loans had an initial aggregate weighted average vesting period of approximately nine years. As of June 30, 2006, there remains 139,000 shares of common stock subject to the original stock loans which are anticipated to vest between 2007 and 2011. Approximately $627,000  and $1.4 million and $573,000 and $1.1 million of compensation expense (inclusive of cash payments in respect of taxes payable by the borrower resulting from such forgiveness) was recorded for the three and six month periods ended June 30, 2006 and 2005, respectively, related to these loans. Such amounts have been included in marketing, general and administrative expenses on the accompanying consolidated statements of income.

The outstanding stock loan balances due from executive officers aggregated approximately $2.9 million and $3.8 million at June 30, 2006 and December 31, 2005, respectively, 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, 2006 and December 31, 2005 amounted to approximately $1.6 million and $2.5 million, respectively, and are included in investments in affiliate loans and joint ventures on the accompanying consolidated balance sheets and are 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 vest in four equal annual installments beginning on November 14, 2003 (and shall be fully vested on November 14, 2006). The 2003 Rights were earned on March 13, 2005 and 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 2002 Rights. The 2002 Rights aggregate 62,835 shares of the Companys common stock and the 2003 Rights aggregate 26,040 shares of common stock. As of June 30, 2006, there remains 15,709 shares of common stock reserved related to the 2002 Rights and 8,682 shares of common stock reserved related to the 2003 Rights. Approximately $120,000 and $240,000 and $120,000 and $224,000 of compensation expense was recorded for the three and six month periods ended June 30, 2006 and 2005, respectively, related to the Rights. Such amounts have been included in marketing, general and administrative expenses on the accompanying consolidated statements of income.

In March 2003, the Company established a new LTIP for its executive and senior officers (the 2003 LTIP). The four-year plan has a core award, which provides for annual stock based compensation based upon continued service and in part based on the Company attaining certain annual performance measures. The plan also has a special outperformance component in the form of a bonus pool equal to 10% of the total return in excess of a 9% cumulative and compounded annual total return on the Companys common equity for the period through the four-year anniversary after the date of grant (the Special Outperformance Pool). The aggregate amount payable to such officers from the Special Outperformance Pool is capped at an amount calculated based upon a total cumulative and compounded annual return on the common equity of 15%. An officers special outperformance award
represents an allocation of the Special Outperformance Pool and will become vested on the fourth anniversary of the date of grant, provided that the officer remains in continuous employment with the Company or any of its affiliates until such date, and the Company has achieved on a cumulative and compounded basis, during the four fiscal years completed on the applicable anniversary date, a total return to holders of the common equity that (i) is at or above the 60thpercentile of the total return to stockholders achieved by members of the peer group during the same period and (ii) equals at least 9% per annum. Special outperformance awards will be paid in cash; however, the Compensation Committee, in its sole discretion, may elect to pay such an award in shares of common stock, valued at the date of vesting, if shares are available at such time under any of the Companys existing stock option plans. The LTIP provides that no
dividends or dividend equivalent payments will accrue with respect to the special outperformance awards. On March 13, 2003, the Company made available 827,776 shares of its common stock under its existing stock option plans in connection with the core award of the 2003 LTIP for certain of its executive and senior officers. During May 2003, the special outperformance awards of the 2003 LTIP were amended to increase the per share base price above which the four year cumulative return is measured from $18.00 to $22.40.

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The Board of Directors approved an amendment to the 2003 LTIP to revise the peer group used to measure relative performance. The amendment eliminated the mixed office and industrial companies and added certain other pure office companies in order to revise the peer group to office sector companies. The Board has also approved the revision of the performance measurement dates for future vesting under the core component of the 2003 LTIP from the anniversary of the date of grant to December 31 of each year. This was done in order to have the performance measurement coincide with the performance period that the Company believes many investors use to judge the performance of the Company.

On December 27, 2004, the Operating Partnership entered into definitive agreements with certain executive and senior officers of the Company to revise their incentive awards under the 2003 LTIP. The revised agreements provide for (i) the rescission of the unvested portion of their core awards and (ii) an award in exchange for the rescinded core awards of an equal number of units of a new class of limited partnership interests (LTIP Units) of the Operating Partnership.

Each executive and senior officer participating in the 2003 LTIP was offered the option to retain all or a portion of his core awards or to rescind them in exchange for new awards of LTIP Units. On December 27, 2004, certain executive and senior officers accepted such offer and thereby amended their Amended and Restated Long-Term Incentive Award Agreement to cancel, in the aggregate, 362,500 shares of restricted stock of the Company representing all or a portion of their unvested core award, and received an equal number of LTIP Units.

The revised awards under the 2003 LTIP were designed to provide the potential for executives to retain a greater equity interest in the Company by eliminating the need for executives to sell a portion of the core awards immediately upon vesting in order to satisfy personal income taxes which are due upon vesting under the original core awards.

With respect to the 2003 LTIP, the Company met its annual performance measure with respect to the 2005, 2004 and 2003 annual measurement periods, respectively. As a result, the Company issued to the participants of the 2003 LTIP 86,111, 102,779 and 206,944 shares of its common stock, respectively, related to the core component of the 2003 LTIP.

The
      terms of each award of LTIP Units are substantially similar to those of
      the core awards under the 2003 LTIP. The vesting, performance hurdles and
      timing for vesting remain unchanged. However, an LTIP Unit represents an
      equity interest in the Operating Partnership, rather than the Company.
      At issuance, the LTIP Unit has no value but may over time accrete to a
      value equal to (but never greater than) the value of one share of common
      stock of the Company (a REIT Share). Initially, LTIP Units
      will not have full parity with OP Units with respect to liquidating distributions.
      Upon the occurrence of certain triggering events (such as the
      issuance of additional OP Units by the Operating Partnership), the Operating
      Partnership will revalue its assets for the purpose of the capital accounts
      of its partners and any increase in valuation of the Operating Partnerships

assets from the date of the issuance of the LTIP Units through the triggering
event will be allocated to the capital accounts of holders of LTIP Units
until their capital accounts are equivalent to the capital accounts of holders
of OP Units. If such equivalence is reached, LTIP Units would achieve full parity
with OP Units for all purposes, and therefore accrete to an economic value equivalent
to REIT Shares on a one-for-one basis. In addition, if such parity is reached,
vested LTIP Units may only be converted into an equal number of OP Units after
two years from the date of grant. However, in the absence of an increase in the
value of the assets of the Operating Partnership and the occurrence of triggering
events, such economic equivalence would not be reached. Until and unless
such economic equivalence is reached, the value that the officers will realize
for vested LTIP Units will be less than the value of an equal number of REIT
Shares. In addition, LTIP  Units are subject to specific performance related
vesting requirements. In addition, unlike core awards under the 2003 LTIP (wherein
dividends that accumulate are paid upon vesting), LTIP Units will receive the
same quarterly distributions as OP Units on a current basis, thus providing full
dividend equivalence with REIT Shares. Each LTIP Unit awarded is deemed equivalent
to an award of one share of common stock reserved under one of the Companys
stock option plans, reducing availability for other equity awards on a one-for-one
basis. At the scheduled March 2005 vesting date, the specified performance hurdles
were met, and officers that received LTIP Units received a one-time cash payment
that represented payment of the full vested amount of the accrued unpaid dividends
under the core award of the 2003 LTIP through December 27, 2004, the issuance
date of the LTIP Units. In addition, the officers, in the aggregate, vested in
104,167 LTIP Units. At the scheduled March 2006 vesting date, the specified performance
hurdles were met and officers that received LTIP Units, in the aggregate, vested
in 120,833 LTIP Units. On April 4, 2006 (the Measurement Date),
as a result of the Company issuing 207,000 LTIP Units (discussed below) a triggering
event occurred and the Company completed an analysis to determine the
increase in the valuation, if any of the Operating Partnerships assets
from the issuance of 362,500 LTIP Units on December 27, 2004 through the Measurement
Date and with respect to the issuance of 272,100 LTIP Units issued on March 11,
2005 through the Measurement Date. The results of the analysis indicated that
a sufficient
increase in value to the Operating Partnerships assets was achieved. As
a result the aforementioned LTIP Units achieved full parity with an OP Unit.
In
order to more closely replicate the terms of the core awards being rescinded,
the Company also entered into agreements with three executive officers, which
provide that in the event of a change of control the executive shall receive
the equivalent value of one REIT Share for each LTIP Unit.

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For
      each of the calendar years ended December 31, 2004 and 2005, following
      the recommendations of the Compensation Committee, eight senior and executive
      officers of the Company were awarded, in the aggregate, 272,100 LTIP Units
      and 207,000 LTIP Units, respectively, for outperformance and to continue
      to incentivize them for the long-term (the Restricted Equity Awards).
      Initially, the terms of the Restricted Equity Awards were generally
      consistent with the terms
      of
      the
      2003 LTIP, including with respect to the impact upon vesting in the event
      of a change of control. On June 12, 2006, with respect to the 2005 Restricted
      Equity Awards, the vesting periods were extended so that they will vest
      over a four-year period in lieu of a two-year period, provided that the
      officer remains in continuous employment with the Company until such dates
      and the Company has achieved certain specified performance requirements
      during the year ending December 31, 2006. If the performance requirements
      are not met in 2006, the awards will become vested on any subsequent annual
      vesting date on which the performance requirements are met on a cumulative
      and compounded basis. In addition, with respect to the 2004 Restricted
      Equity Award to Scott Rechler, the Companys Chief Executive Officer, was
      similarly extended provided that Mr. Rechler remains in continuous employment
      with the Company.

As
      a result of the foregoing, there remains 69,443 shares of common stock
      reserved for future issuance under the core award of the 2003 LTIP and
      616,600 shares of common stock reserved for issuance with respect to the
      issuance of LTIP Units. With respect to the core award of the 2003 LTIP,
      the Company recorded approximately $305,000 and $610,000 of compensation
      expense for each of the three and six month periods ended June 30, 2006
      and 2005, respectively. In addition, with respect to the LTIP Units and
      the Restricted Equity Awards, the Company recorded compensation expense
      of approximately $941,000 and $1.8 million and $822,000 and $1.3 million,
      respectively,
      for the three
      and six month periods ended June 30, 2006 and 2005. Such amounts have been
      included in marketing, general and administrative expenses on the accompanying
      consolidated statements of income. Based on the terms of the 2003 LTIP,
      potential outcomes of the Special Outperformance Pool are estimated to
      range from $0, assuming the requisite four year cumulative performance
      measures are not met, to a maximum of approximately $35.7 million, assuming
      relative peer group performance measures are met and a cap of 15% cumulative
      and compounded return on common equity. As of June 30, 2006, we have accrued
      approximately $29.4 million of compensation expense with respect to the
      Special Outperformance Pool of which $2.2 million and $5.9 million was
      accrued during the three months ended June 30, 2006. This amount is calculated
      on the closing stock price of our common stock on June 30, 2006 and is
based on managements determination of the probability of requisite performance
measures being met. The accrual represents approximately 82% of the total estimated
Special Outperformance Pool reflecting the service period through June 30, 2006.

Compensation expense with respect to the core component of the 2003 LTIP, which relates to the Company attaining certain annual performance measures, is recognized as a target stock price plan. Under this type of plan, compensation expense is recognized for the target stock price awards whether or not the targeted stock price condition is achieved as long as the underlying service conditions are achieved. Accordingly, we obtained an independent third party valuation of the 2003 LTIP awards and recognize compensation expense on a straight-line basis through the performance and vesting period for awards to employees who remain in service over the requisite period regardless of whether the target stock price has been reached.

Compensation expense with respect to the core component of the 2003 LTIP, which relates to the continued service of the grantee, is recognized as compensation expense on a straight-line basis through the vesting period based on the fair market value of the stock on the date of grant.

As a result of the election of certain executive and senior officers to exchange all or a portion of their unvested core awards under the 2003 LTIP into an equal number of LTIP Units we again obtained an independent third party valuation of the newly granted LTIP Units and determined that the fair value of the LTIP Units was not greater than the exchanged 2003 LTIP awards on the date of the exchange. As such, compensation expense to be recognized, on a straight-lined basis, over the vesting period of the LTIP Units equals the amount of unamortized compensation expense cost for the 2003 LTIP awards as of the exchange date.

On January 1, 2006, we adopted Statement No. 123R and have determined that the adoption of Statement No. 123R did not have a material impact on our consolidated financial statements.

Nine of our office properties, which were acquired by the issuance of OP Units, are subject to agreements limiting our ability to transfer them prior to agreed upon dates without the consent of the limited partner who transferred the respective property to us. In the event we transfer any of these properties prior to the expiration of these limitations, we may be required to make a payment relating to taxes incurred by the limited partner. These limitations expire between 2011 and 2015.

Two of our office properties that are held in joint ventures 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.

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, we 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.

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All of our properties have been subjected to a Phase I or similar environmental audit (which involved general inspections without soil sampling, ground water analysis or radon testing) completed by independent environmental consultant companies. These environmental audits have not revealed any environmental liability that would have a material adverse effect on our business.

Off Balance Sheet Arrangements

The Company has a net investment of approximately $55.2 million in loans and REIT-qualified joint ventures with FrontLine Capital Group (FrontLine) and Reckson Strategic Venture Partners, LLC (RSVP), a real estate venture capital fund whose common equity is held indirectly by FrontLine (collectively, the RSVP / FLCG Investments). Frontline was formed by the Company in 1997. The net carrying value of the RSVP / FLCG Investments was reassessed with no change by management at June 30, 2006 and is included in investments in affiliate loans and joint ventures on our consolidated balance sheets.

FrontLine is in default under the 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.

The RSVP REIT-qualified joint ventures are managed subject to a management agreement with the former managing directors of RSVP, which expires in September 2006. 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 which are subject to a maximum of $7.5 million. In addition, the former managing directors of RSVP retained a one-third residual interest in RSVPs assets which is subordinated to the distribution of an aggregate amount of $75.0 million to RSVP and/or us in respect of RSVP-controlled joint ventures.

Scott H. Rechler, our CEO and Chairman of the Board of Directors, serves as CEO and is FrontLines sole board member. Mr. Rechler also serves as a member of the management committee of RSVP.

In November 2004, a joint venture in which RSVP owns approximately 47% executed a binding agreement to contribute its Catskills, NY resort properties (excluding residentially zoned land) to Empire Resorts Inc. (NASDAQ: NYNY) (Empire) for consideration of 18.0 million shares of Empires common stock and the right to appoint five members of their Board of Directors. On December 29, 2005, the agreement was terminated and the joint venture received options to purchase approximately 5.2 million shares of common stock of Empire at a price of $7.50 per share. The options will be exercisable until December 29, 2006. On June 30, 2006, the closing price of a share of Empires common stock was $6.95 per share.

We have discontinued the accrual of interest income with respect to the loans from the Operating Partnership and our share of GAAP equity in earnings, if any, from the RSVP-controlled REIT-qualified joint ventures until such income is realized through cash distributions.

In addition to the foregoing, our off-balance sheet arrangements consist of our approximate 5% indirect ownership interest in a joint venture that owns an investment in a New York City Class A office tower where our share of unconsolidated joint venture debt is approximately $11.7 million with an interest rate of 6.35% per annum and a remaining term of approximately 15 years, our 25% joint venture interest in the Australian JV where our share of unconsolidated joint venture debt is approximately $74.6 million with a weighted average interest rate of  5.3% per annum and a weighted average term of 5.3 years and our 30% joint venture interest in the property located at One Court Square, Long Island City, NY where our share of unconsolidated joint venture debt is $94.5 million with an interest rate of 4.91% per annum and a remaining term of approximately 9.1 years.

Funds from Operations

Funds from Operations (FFO) is defined by the National Association of Real Estate Investment Trusts (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. We present FFO because we consider it an important supplemental measure of our operating performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. As a
result, FFO provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities, interest costs and other matters without the inclusion of depreciation and amortization, providing perspective that may not necessarily be apparent from net income.

We compute FFO in accordance with the standards established by NAREIT. 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 our 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, our calculation of FFO presented herein may not be comparable to similarly titled measures as reported by other companies.

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The following table presents our FFO calculations (in thousands):



|                                                                       |  | Three months endedJune 30, |        | Six months endedJune 30, |  
|---------------------------------------------------------------------- |  | -------------------------- | ------ | ------------------------ | -
|                                                                       |  |                            |        |                          |  
|                                                                       |  | 2006                       |        | 2005                     |  
|                                                                       |  |                            |        |                          |  
|Net income                                                             |  | $                          | 19,901 |                          | $
|Adjustments for basic Funds From Operations                            |  |                            |        |                          |  
|Add:                                                                   |  |                            |        |                          |  
|Limited partners minority interest in the OperatingPartnership        |  |                            | 491    |                          |  
|Real estate depreciation and amortization                              |  |                            | 33,505 |                          |  
|Minority partners interests in consolidated partnerships              |  |                            | 7,382  |                          |  
|Deduct:                                                                |  |                            |        |                          |  
|Gains on sales of depreciable real estate                              |  |                            |       |                          |  
|Amounts distributable to minority partners inconsolidated partnerships |  |                            | 6,860  |                          |  
|                                                                       |  |                            |        |                          |  
|Basic and Diluted Funds From Operations                                |  | $                          | 54,419 |                          | $
|                                                                       |  |                            |        |                          |  
|Diluted Weighted Average Shares/OP Units outstanding (1)               |  |                            | 85,758 |                          |  
|                                                                       |  |                            |        |                          |  

|(1) | Assumes
        conversion of limited partnership units of the Operating Partnership.
|--- | -------------------------------------------------------------------------------------

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 flex 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. We believe that inflationary increases in expenses will be mitigated by contractual rent increases and expense escalations described above. As a result of the impact of the events of September 11, 2001, we have realized increased insurance costs, particularly relating to property and terrorism insurance, and security costs. We have included these costs as part of our escalatable expenses and have billed them to our tenants consistent with the terms of the underlying leases and believe they
are collectible. To the extent our properties contain vacant space, we will bear such inflationary increases in expenses.

The Credit Facility and one of our Note Receivable Investments bear interest at variable rates, which will be influenced by changes in short-term interest rates, and are sensitive to inflation.

ITEM3. QUANTITATIVEANDQUALITATIVEDISCLOSURESABOUTMARKETRISK

The primary market risk facing us is interest rate risk on our long-term debt and notes receivable. We do not enter into derivative financial instruments for trading or speculative purposes. However, in the normal course of our business and to help us manage our debt issuances and maturities, we do use derivative financial instruments in the form of cash flow hedges to protect ourselves against potentially rising interest rates. We are not subject to foreign currency risk.

The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

As required by Statement No. 133, we record all derivatives on our balance sheet at fair value. For effective hedges, depending on the nature of the hedge, changes in the fair value of the derivative will be offset against the corresponding change in fair value of the hedged asset, liability, or firm commitment through earnings or recognized in OCI on our balance sheet until the hedged item is recognized in earnings.

For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in OCI and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. We assess the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. For derivatives not designated as hedges, changes in fair value are recognized in earnings.

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The fair market value (FMV) of our long term debt and Note Receivable Investments is estimated based on discounting future cash flows at interest rates that we believe reflects the risks associated with long term debt and notes receivable of similar risk and duration.

The following table sets forth our long-term debt obligations by scheduled principal cash flow payments and maturity date, weighted average interest rates and estimated FMV at June 30, 2006 (dollars in thousands):



|                                       |  | For
        the Year Ending December 31, |        |      |   |         |   |      |        |      |  
|-------------------------------------- |  | ---------------------------------------- | ------ | ---- | - | ------- | - | ---- | ------ | ---- | -
|                                       |  |                                          |        |      |   |         |   |      |        |      |  
|                                       |  | 2006                                     |        | 2007 |   | 2008    |   | 2009 |        | 2010 |  
|                                       |  |                                          |        |      |   |         |   |      |        |      |  
|Long
        term debt:                |  |                                          |        |      |   |         |   |      |        |      |  
|Fixed
        rate                     |  | $                                        | 45,631 |      | $ | 269,048 |   | $    | 7,370  |      | $
|Weighted
        average interest rate |  |                                          | 7.97   | %    |   | 7.13    | % |      | 7.22   | %    |  
|Variable
        rate                  |  | $                                        |       |      | $ |        |   | $    | 92,000 |      | $
|Weighted
        average interest rate |  |                                          |       |      |   |        |   |      | 5.86   | %    |  

|(1) | Includes aggregate unamortized issuance discounts of approximately $7.6 million on the senior unsecured notes which are due at maturity.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------

In addition, we have assessed the market risk for our variable rate debt, which is based upon LIBOR, and believe that a one percent increase in the LIBOR rate would have a $920,000 annual increase in interest expense based on $92.0 million of variable rate debt outstanding at June 30, 2006.

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The following table sets forth our Note Receivable Investments by scheduled maturity date, weighted average interest rates and estimated FMV at June 30, 2006 (dollars in thousands):



|                                       |  | For
        the Year Ending December 31, |   |      |   |        |   |      |        |      |  
|-------------------------------------- |  | ---------------------------------------- | - | ---- | - | ------ | - | ---- | ------ | ---- | -
|                                       |  |                                          |   |      |   |        |   |      |        |      |  
|                                       |  | 2006                                     |   | 2007 |   | 2008   |   | 2009 |        | 2010 |  
|                                       |  |                                          |   |      |   |        |   |      |        |      |  
|Note
        ReceivableInvestments:    |  |                                          |   |      |   |        |   |      |        |      |  
|Fixed
        rate                     |  | $                                        |  |      | $ | 40,000 |   | $    | 14,188 |      | $
|Weighted
        average interest rate |  |                                          |  |      |   | 16.25  | % |      | 15.29  | %    |  
|Variable
        rate                  |  | $                                        |  |      | $ |       |   | $    |       |      | $
|Weighted
        averageinterest rate  |  |                                          |  |      |   |       |   |      |       |      |  

|(1) | Excludes interest receivables and unamortized acquisition costs aggregating approximately $5.5 million.
|--- | -------------------------------------------------------------------------------------------------------

|(2) | Our investment balance, with respect to a participating loan investment, includes approximately $21.2 million of accretive interest which is due at maturity. The FMV calculation considers only accretive interest recorded through June 30, 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, we have assessed the market risk for our variable rate receivables, which are based upon LIBOR, and believe that a one percent increase in the LIBOR rate would have an approximate $5,000 annual increase in interest income based on a $500,000 variable rate note receivable outstanding at June 30, 2006.

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, we have formed a Disclosure Committee currently comprised of all of our executive officers as well as certain other members of our senior management 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 us with the SEC and supports our Chief Executive Officer and Chief Financial Officer in connection with their certifications contained in our 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 our senior 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.

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SELECTEDPORTFOLIOINFORMATION

The following table sets forth our schedule of top 25 tenants based on base rental revenue as of July 1, 2006:



|Tenant
        Name(1)
        (2) |                                      | Wtd.
        Avg.Term Remaining(years) |      | TotalSquare Feet |           | Percent
        of Pro RataShare of AnnualizedBase Rental Revenue
|---------------------------------- | ------------------------------------ | -------------------------------------- | ---- | ---------------- | --------- | -----------------------------------------------------------------
|                                   |                                      |                                        |      |                  |           |                                                                  
|*                                  | Citigroup
        / Citibank         |                                        | 12.1 |                  | 1,988,060 |                                                                  
|*                                  | Debevoise
        & Plimpton         |                                        | 15.5 |                  | 586,528   |                                                                  
|                                   | D.E.
        Shaw                    |                                        | 7.5  |                  | 192,837   |                                                                  
|                                   | Amerada
        Hess Corporation     |                                        | 15.6 |                  | 180,822   |                                                                  
|*                                  | Schering-Plough
        Corporation  |                                        | 0.4  |                  | 152,970   |                                                                  
|                                   | King
        & Spalding              |                                        | 7.5  |                  | 148,675   |                                                                  
|*                                  | Schulte
        Roth & Zabel         |                                        | 14.4 |                  | 279,746   |                                                                  
|*                                  | Verizon
        Communications Inc.  |                                        | 1.4  |                  | 271,384   |                                                                  
|*                                  | American
        Express             |                                        | 7.8  |                  | 125,305   |                                                                  
|*                                  | Bank
        of America / Fleet Bank |                                        | 4.4  |                  | 199,089   |                                                                  
|                                   | County
        of Nassau             |                                        | 15.3 |                  | 219,066   |                                                                  
|*                                  | MCI                                  |                                        | 4.2  |                  | 180,305   |                                                                  
|*                                  | Fuji
        Photo Film USA          |                                        | 6.2  |                  | 194,984   |                                                                  
|                                   | Westpoint
        Stevens            |                                        | 0.5  |                  | 86,800    |                                                                  
|                                   | Arrow
        Electronics Inc.       |                                        | 7.5  |                  | 163,762   |                                                                  
|                                   | Dun
        & Bradstreet Corp.       |                                        | 6.3  |                  | 123,000   |                                                                  
|                                   | Westdeutsche
        Landesbank      |                                        | 9.8  |                  | 53,000    |                                                                  
|*                                  | Banque
        Nationale De Paris    |                                        | 10.1 |                  | 145,834   |                                                                  
|                                   | Washington
        Mutual            |                                        | 0.7  |                  | 127,465   |                                                                  
|*                                  | JP
        Morgan Chase              |                                        | 5.4  |                  | 88,060    |                                                                  
|                                   | North
        Fork Bank              |                                        | 12.5 |                  | 126,770   |                                                                  
|                                   | Practicing
        Law Institute     |                                        | 7.7  |                  | 77,500    |                                                                  
|*                                  | HQ
        Global                    |                                        | 4.5  |                  | 193,414   |                                                                  
|                                   | Vytra
        Healthcare             |                                        | 1.5  |                  | 105,613   |                                                                  
|*                                  | Draft
        Worldwide Inc.         |                                        | 7.4  |                  | 141,260   |                                                                  

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

|(2) | Total square footage is based on currently leased space and excludes expansions or leases with future start dates.
|--- | ------------------------------------------------------------------------------------------------------------------

|* | Part or all of space occupied by tenant is in a joint venture building.
|- | -----------------------------------------------------------------------

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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 we paid or accrued, during the respective periods, to retain revenues attributable to existing leased space (at 100% of cost) for the years 2002 through 2005 and for the six month period ended June 30, 2006 for our consolidated office and industrial / flex properties:



|                             |  | 2002 |           | 2003 |   | 2004      |     | 2005 |           | Average2002-2005 |   | YTD2006   |       
|---------------------------- |  | ---- | --------- | ---- | - | --------- | --- | ---- | --------- | ---------------- | - | --------- | ------
|                             |  |      |           |      |   |           |     |      |           |                  |   |           |       
|Suburban Office Properties   |  |      |           |      |   |           |     |      |           |                  |   |           |       
|Total                        |  | $    | 5,283,674 |      | $ | 6,791,336 |     | $    | 7,034,054 |                  | $ | 8,402,936 |       
|Per Square Foot              |  | $    | 0.53      |      | $ | 0.67      |     | $    | 0.69      |                  | $ | 0.78      | (2)(3)
|NYC Office Properties        |  |      |           |      |   |           |     |      |           |                  |   |           |       
|Total                        |  | $    | 1,939,111 |      | $ | 1,922,209 |     | $    | 2,515,730 |                  | $ | 2,017,360 |       
|Per Square Foot              |  | $    | 0.56      |      | $ | 0.55      |     | $    | 0.56      |                  | $ | 0.42      | (4)   
|Flex / Industrial Properties |  |      |           |      |   |           |     |      |           |                  |   |           |       
|Total                        |  | $    | 1,881,627 |      | $ | 1,218,401 | (1) | $    | 207,028   |                  | $ | 38,723    | (2)   
|Per Square Foot              |  | $    | 0.28      |      | $ | 0.23      |     | $    | 0.23      |                  | $ | 0.05      |       

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

|(2) | Includes costs related to the 17 properties sold to the Australian JV on September 21, 2005.
|--- | --------------------------------------------------------------------------------------------

|(3) | Per square foot calculations for suburban submarkets-office properties exclude 68 South Service Road and the Eastridge Portfolio.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(4) | Per square foot calculations, for NYC office properties, exclude One Court Square, a 1,401,609 square foot, triple net leased building in Long Island City, New York.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Per square foot calculations for suburban office properties exclude 68 South Service Road, a building that was recently placed in service.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------

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The
  following table sets forth annual and per square foot non-incremental revenue-generating
  tenant improvement costs and leasing commissions (at 100% of cost) which we
  committed to perform, during
  the respective periods, to retain revenues attributable to existing leased space
  for the years 2002 through 2005 and for the six month period ended June 30,
  2006 for our consolidated office and industrial / flex properties:



|                                            |  | 2002 |            | 2003 |   | 2004       |        | 2005 |            | Average2002-2005 |   | YTD2006    |        | New |            | Renewal |  
|------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | ------ | ---- | ---------- | ---------------- | - | ---------- | ------ | --- | ---------- | ------- | -
|                                            |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|Long Island Office Properties               |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|Tenant Improvements                         |  | $    | 1,917,466  |      | $ | 3,774,722  |        | $    | 4,856,604  |                  | $ | 4,768,833  |        | $   | 3,829,406  |         | $
|Per Square Foot Improved                    |  | $    | 7.81       |      | $ | 7.05       |        | $    | 8.78       |                  | $ | 11.25      |        | $   | 8.72       |         | $
|Leasing Commissions                         |  | $    | 1,026,970  |      | $ | 2,623,245  |        | $    | 2,345,325  |                  | $ | 1,546,354  |        | $   | 1.885,474  |         | $
|Per Square Foot Leased                      |  | $    | 4.18       |      | $ | 4.90       |        | $    | 4.24       |                  | $ | 3.65       |        | $   | 4.24       |         | $
|                                            |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|Total Per Square Foot                       |  | $    | 11.99      |      | $ | 11.95      |        | $    | 13.02      |                  | $ | 14.90      |        | $   | 12.96      |         | $
|                                            |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|                                            |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|Westchester Office Properties               |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|Tenant Improvements                         |  | $    | 6,391,589  | (1)  | $ | 3,732,370  |        | $    | 6,323,134  |                  | $ | 5,296,662  |        | $   | 5,435,939  |         | $
|Per Square Foot Improved                    |  | $    | 15.05      |      | $ | 15.98      |        | $    | 11.95      |                  | $ | 12.37      |        | $   | 13.84      |         | $
|Leasing Commissions                         |  | $    | 1,975,850  | (1)  | $ | 917,487    |        | $    | 2,671,548  |                  | $ | 1,923,552  |        | $   | 1,872,109  |         | $
|Per Square Foot Leased                      |  | $    | 4.65       |      | $ | 3.93       |        | $    | 5.05       |                  | $ | 4.49       |        | $   | 4.53       |         | $
|                                            |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|Total Per Square Foot                       |  | $    | 19.70      |      | $ | 19.91      |        | $    | 17.00      |                  | $ | 16.86      |        | $   | 18.37      |         | $
|                                            |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|                                            |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|Connecticut Office Properties               |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|Tenant Improvements                         |  | $    | 491,435    |      | $ | 588,087    |        | $    | 3,051,833  |                  | $ | 3,895,369  |        | $   | 2,006,681  |         | $
|Per Square Foot Improved                    |  | $    | 3.81       |      | $ | 8.44       |        | $    | 12.71      |                  | $ | 11.86      |        | $   | 9.20       |         | $
|Leasing Commissions                         |  | $    | 307,023    |      | $ | 511,360    |        | $    | 1,493,664  |                  | $ | 1,819,504  |        | $   | 1,032,888  |         | $
|Per Square Foot Leased                      |  | $    | 2.38       |      | $ | 7.34       |        | $    | 6.22       |                  | $ | 5.54       |        | $   | 5.37       |         | $
|                                            |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|Total Per Square Foot                       |  | $    | 6.19       |      | $ | 15.78      |        | $    | 18.93      |                  | $ | 17.40      |        | $   | 14.57      |         | $
|                                            |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|                                            |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|New Jersey Office Properties                |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|Tenant Improvements                         |  | $    | 2,842,521  |      | $ | 4,327,295  |        | $    | 1,379,362  |                  | $ | 2,421,779  |        | $   | 2,742,739  |         | $
|Per Square Foot Improved                    |  | $    | 10.76      |      | $ | 11.57      |        | $    | 7.12       |                  | $ | 15.49      |        | $   | 11.24      |         | $
|Leasing Commissions                         |  | $    | 1,037,012  |      | $ | 1,892,635  |        | $    | 832,658    |                  | $ | 1,394,470  |        | $   | 1,289,194  |         | $
|Per Square Foot Leased                      |  | $    | 3.92       |      | $ | 5.06       |        | $    | 4.30       |                  | $ | 8.92       |        | $   | 5.55       |         | $
|                                            |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|Total Per Square Foot                       |  | $    | 14.68      |      | $ | 16.63      |        | $    | 11.42      |                  | $ | 24.41      |        | $   | 16.79      |         | $
|                                            |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|                                            |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|Total Suburban Markets -  Office Properties |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|Tenant Improvements                         |  | $    | 11,643,011 |      | $ | 12,422,474 |        | $    | 15,610,933 |                  | $ | 16,382,643 |        | $   | 14,014,765 |         | $
|Per Square Foot Improved                    |  | $    | 10.95      |      | $ | 10.24      |        | $    | 10.30      |                  | $ | 12.25      |        | $   | 10.48      |         | $
|Leasing Commissions                         |  | $    | 4,346,855  |      | $ | 5,944,728  |        | $    | 7,343,194  |                  | $ | 6,683,880  |        | $   | 6,079,664  |         | $
|Per Square Foot Leased                      |  | $    | 4.09       |      | $ | 4.90       |        | $    | 4.84       |                  | $ | 5.00       |        | $   | 4.55       |         | $
|                                            |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|Total Per Square Foot                       |  | $    | 15.04      |      | $ | 15.14      |        | $    | 15.14      |                  | $ | 17.25      |        | $   | 15.03      |         | $
|                                            |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|                                            |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|New York City Office Properties             |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|Tenant Improvements                         |  | $    | 4,350,106  |      | $ | 5,810,017  | (2)(3) | $    | 9,809,822  | (3)(4)           | $ | 10,648,442 | (2)(4) | $   | 7,654,597  |         | $
|Per Square Foot Improved                    |  | $    | 18.39      |      | $ | 32.84      |        | $    | 23.21      |                  | $ | 28.20      |        | $   | 25.66      |         | $
|Leasing Commissions                         |  | $    | 2,019,837  |      | $ | 2,950,330  | (2)    | $    | 3,041,141  | (4)              | $ | 4,418,706  | (2)(4) | $   | 3,107,504  |         | $
|Per Square Foot Leased                      |  | $    | 8.54       |      | $ | 16.68      |        | $    | 7.19       |                  | $ | 11.70      |        | $   | 11.03      |         | $
|                                            |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|Total Per Square Foot                       |  | $    | 26.93      |      | $ | 49.52      |        | $    | 30.40      |                  | $ | 39.90      |        | $   | 36.69      |         | $
|                                            |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|                                            |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|Industrial / Flex Properties                |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|Tenant Improvements                         |  | $    | 1,850,812  |      | $ | 1,249,200  |        | $    | 310,522    |                  | $ | 112,781    |        | $   | 880,829    |         | $
|Per Square Foot Improved                    |  | $    | 1.97       |      | $ | 2.42       |        | $    | 2.27       |                  | $ | 2.46       |        | $   | 2.28       |         | $
|Leasing Commissions                         |  | $    | 890,688    |      | $ | 574,256    |        | $    | 508,198    |                  | $ | 65,740     |        | $   | 509,720    |         | $
|Per Square Foot Leased                      |  | $    | 0.95       |      | $ | 1.11       |        | $    | 3.71       |                  | $ | 1.43       |        | $   | 1.80       |         | $
|                                            |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  
|Total Per Square Foot                       |  | $    | 2.92       |      | $ | 3.53       |        | $    | 5.98       |                  | $ | 3.89       |        | $   | 4.08       |         | $
|                                            |  |      |            |      |   |            |        |      |            |                  |   |            |        |     |            |         |  

|(1) | 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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Excludes
        $15.5 million of tenant improvements and $2.2 million of leasing commissions
        related to a 121,108 square foot lease to Debevoise & Plimpton that
        was signed during the third quarter of 2003 with a lease commencement
        date in 2005.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | 2003
        numbers exclude tenant improvements of $0.2 million for Sandler ONeil
        & Partners (7,446 square feet) for expansion space with a lease commencement
        date in the second quarter of 2004. The tenant improvement allowance is
        reflected in the 2004 numbers.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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. Also excludes Bank of America retail
        lease with $0.6 million of tenant improvements and $0.8 million of leasing
        commissions.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Excludes
        133,727 square foot lease to National Hockey League at 1185 Avenue of
        the Americas. Tenant allowance was granted in the form of a rent concession
        for the deal.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As noted, incremental revenue-generating tenant improvement costs and leasing commissions are excluded from the tables previously set forth. The historical capital expenditures, tenant improvement costs and leasing commissions previously set forth are not necessarily indicative of future non-incremental revenue-generating capital expenditures or non-incremental revenue-generating tenant improvement costs and leasing commissions that may be incurred to retain revenues on leased space.

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



|                                                       |  | Six
        months endedJune 30, |       
|------------------------------------------------------ |  | -------------------------------- | ------
|                                                       |  |                                  |       
|                                                       |  | 2006                             |       
|                                                       |  |                                  |       
|Capital
        expenditures:                          |  |                                  |       
|Non-incremental                                        |  | $                                | 3,700 
|Incremental                                            |  |                                  | 4,732 
|Tenant
        improvements:                           |  |                                  |       
|Non-incremental                                        |  |                                  | 12,027
|Incremental                                            |  |                                  | 9,081 
|                                                       |  |                                  |       
|Additions
        to commercial real estate properties |  | $                                | 29,540
|                                                       |  |                                  |       
|Leasing
        costs:                                 |  |                                  |       
|Non-incremental                                        |  | $                                | 6,012 
|Incremental                                            |  |                                  | 4,526 
|                                                       |  |                                  |       
|Payment
        of deferred leasing costs              |  | $                                | 10,538
|                                                       |  |                                  |       
|Acquisition
        and development costs              |  | $                                | 30,780
|                                                       |  |                                  |       

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The
  following table sets forth our lease expiration schedule, as adjusted for pre-leased
  space and inclusive of joint venture interests, at July 1, 2006 for our total
  portfolio of properties, our office portfolio and our flex portfolio:



|Total
        Portfolio             | 
|----------------------------------- | 
|                                    | 
|Year
        ofExpiration           | 
|                                    | 
|2006                                | 
|2007                                | 
|2008                                | 
|2009                                | 
|2010                                | 
|2011
        and thereafter         | 
|                                    | 
|Total/Weighted
        Average      | 
|                                    | 
|Total
        Portfolio Square Feet | 
|                                    | 



|Office
        Portfolio                   | 
|------------------------------------------ | 
|                                           | 
|Year
        ofExpiration                  | 
|                                           | 
|2006                                       | 
|2007                                       | 
|2008                                       | 
|2009                                       | 
|2010                                       | 
|2011
        and thereafter                | 
|                                           | 
|Total/Weighted
        Average             | 
|                                           | 
|Total
        Office Portfolio Square Feet | 
|                                           | 



|Flex
        Portfolio                   | 
|---------------------------------------- | 
|                                         | 
|Year
        ofExpiration                | 
|                                         | 
|2006                                     | 
|2007                                     | 
|2008                                     | 
|2009                                     | 
|2010                                     | 
|2011
        and thereafter              | 
|                                         | 
|Total/Weighted
        Average           | 
|                                         | 
|Total
        Flex Portfolio Square Feet | 
|                                         | 

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PART
  II - OTHER INFORMATION

Item
  1. Legal Proceedings

On
  or about June 23, 2006, a lawsuit was commenced in the Superior Court of New
  Jersey, Chancery Division, Morris County, New Jersey against Reckson Associates
  Realty Corp. and Reckson Operating Partnership, L.P. (collectively Reckson),
  among other parties, in which the plaintiff alleges that Reckson tortiously
  interfered with the plaintiffs purported right under a non-binding term
  sheet executed between the plaintiff and a former tenant at Three Giralda
  Farms, Madison, New Jersey (the Property), a property owned by Reckson.
  The plaintiff seeks, among other things, a judgment for damages against Reckson
  relating to this alleged tortious interference.  The plaintiff
  also seeks to enjoin Reckson from leasing the Property pending the disposition
  of the lawsuit, and the Court granted temporary restraints on June 27, 2006,
  which were continued on July 25, 2006 through August 28, 2006. Reckson has indemnified
  its former tenant against the claims alleged by plaintiff in the lawsuit. Reckson
  intends to vigorously contest all of the plaintiffs claims, which it believes
  to be without merit.

On
     August 4, 2006, Robert Lowinger filed a purported class action lawsuit in
    the
  Supreme Court of the State of New York, Nassau County, on behalf of himself
     and all other Reckson stockholders against the Company, and our Board of
    Directors,
  seeking to enjoin the sale of the Company to SL Green Realty Corp. (SL
  Green), and related
    transactions in which the Reckson Investment Group (consisting of defendant
    Scott Rechler

  and certain other members of Recksons executive management) and Marathon
   Asset Management will acquire certain assets of the Company from SL Green.
  Lowinger
  alleges that in exchange for agreeing to sell the Company to SL Green for a
   value less than its true value, the Reckson Investment Group was able to acquire

  valuable Reckson assets on very favorable terms, at the expense of Recksons
   stockholders. Lowinger asserts claims of breach of fiduciary duty against
  Reckson
  and its directors, and aiding and abetting breach of fiduciary duty against
   SL Green. Lowinger seeks an injunction prohibiting the transaction (or, in
  the
  event the transaction is consummated, an order rescinding it), as well as damages
   and costs, including plaintiffs attorneys and experts fees.

Except
  as provided above, we are not presently subject to any material litigation nor,
  to our knowledge, is any litigation threatened against us, 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 our liquidity, results of operations or business
  or financial condition.

Item
  1A. Risk Factors

The
         announcement of our proposed Merger with SL Green may have a negative
        effect
  on our business, financial condition and operating results.

In
  response to our announcement and the potential uncertainty about our future
  operating strategy and decisions, tenants may delay, defer or cancel leases
  or contracts with us, which could negatively affect our revenues and results
  of operations. In addition, current and prospective employees may experience
  uncertainty about their future role with the combined company, which may impair
  our ability to attract and retain key management, development, marketing and
  other personnel, which could further affect our operating results. Declining
  results could have negative consequences on our relationships with and obligations
  to tenants, joint venture partners, creditors and others with whom we have business
  relationships. A negative impact on operating results could also cause a decline
  in our stock price.

If
  we are unable to realize our proposed merger with SL Green, our business, financial
  condition, operating results and stock price could suffer.

If
  our shareholders do not approve the transactions contemplated by the Merger
  Agreement or we otherwise fail to satisfy the closing conditions to the transaction,
  we could face adverse consequences, including:

| |  | we
        would remain liable for significant costs relating to the transaction,
        including, among others, legal, accounting, financial advisory and financial
        printing expenses;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | activities
        relating to the proposed merger and related uncertainties could divert
        managements attention from our day-to-day business and disrupt our
        operations;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | an
        announcement that we have abandoned the proposed merger could trigger
        a decline in our stock price to the extent that our stock price reflects
        a market assumption that we will complete the merger;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | we
        could be required to pay SL Green a termination fee and/or expense reimbursement
        if the Merger Agreement is terminated under certain circumstances; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | we
        may forego alternative business opportunities or fail to respond effectively
        to competitive pressures.
| | - | -------------------------------------------------------------------------------------------------------------------------

The
  Merger Agreement limits our ability to pursue alternatives to the proposed merger.

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Under
     the Merger Agreement, we are generally precluded from encouraging or participating

  in any discussions that could lead to an alternative acquisition proposal.
    Similarly  our Board of Directors is restricted in its ability to withdraw
    or modify its
  recommendation that our shareholders approve this merger. In certain circumstances,
     our Board of Directors may terminate the Merger Agreement or withdraw or
    modify
  its recommendation that our shareholders approve this merger in order to pursue
     a proposal that it deems to be superior. In these circumstances, we would
    be
  required to pay SL Green a termination fee and expense reimbursement.

The
     effect of these provisions could be to discourage or prevent a party interested

  in a possible acquisition of our Company from pursuing an offer to acquire
    us. The occurrence of these events individually or in combination could have
    a material
  adverse effect on our business, financial condition, cash flows and operating
     results.

Certain
  restrictive pre-closing covenants in the Merger Agreement may negatively affect
  our business, financial condition, operating results and cash flows.

Pending
  completion of the proposed merger, we have agreed to conduct our business in
  the ordinary course and consistent with our past practices. We have also agreed
  to restrictions on the conduct of our business. These restrictions could have
  a material adverse effect on our business, financial condition, cash flows,
  operating results and stock price.

Item
  2. Unregistered Sales of Equity Securities and Use of Proceeds - None

Item
  3. Defaults Upon Senior Securities  None

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

On
  May 25, 2006, the Company held its annual meeting of stockholders. The matters
  on which the stockholders voted, in person or by proxy, were (1) the election
  of nine directors to serve until the 2007 annual meeting of stockholders and
  until their respective successors are duly elected and qualified and (2) to
  ratify the selection of Ernst & Young LLP as the independent registered
  public accounting firm of the Company for the fiscal year ending December 31,
  2006. The nine nominees were elected and the selection of the independent registered
  public accounting firm was ratified. The results of the voting are set forth
  below:



|                                                                     |  | Votes
        CastFor |  | Withheld  |  | Votes
        CastAgainst |  | Abstain | 
|-------------------------------------------------------------------- |  | --------------------- |  | --------- |  | ------------------------- |  | ------- | 
|                                                                     |  |                       |  |           |  |                           |  |         | 
|Election
        of Directors:                                       |  |                       |  |           |  |                           |  |         | 
|Peter
        Quick                                                  |  | 74,881,643            |  | 103,945   |  | N/A                       |  | N/A     | 
|Stanley
        Steinberg                                            |  | 74,880,278            |  | 105,310   |  | N/A                       |  | N/A     | 
|John
        Ruffle                                                  |  | 74,882,705            |  | 102,883   |  | N/A                       |  | N/A     | 
|Elizabeth
        McCaul                                             |  | 74,883,296            |  | 102,292   |  | N/A                       |  | N/A     | 
|Douglas
        Crocker                                              |  | 74,784,514            |  | 201,074   |  | N/A                       |  | N/A     | 
|Scott
        Rechler                                                |  | 74,196,764            |  | 788,824   |  | N/A                       |  | N/A     | 
|Lewis
        Ranieri                                                |  | 71,095,972            |  | 3,889,616 |  | N/A                       |  | N/A     | 
|Ronald
        Menaker                                               |  | 74,882,269            |  | 103,319   |  | N/A                       |  | N/A     | 
|Michael
        Maturo                                               |  | 72,847,957            |  | 2,137,631 |  | N/A                       |  | N/A     | 
|Ratification
        of independentregistered public accounting firm |  | 74,059,759            |  | N/A       |  | 907,735                   |  | 18,094  | 

Item
  5. Other information

| | a) | On
           July 10, 2006, Dr. Edward R. Casas was appointed as an independent
           director of the Companys Board of Directors. At such time,
           Dr. Casas
            also was appointed as a member of the Executive Committee, Nominating
           and Corporate Governance Committee, the Compensation Committee and
           Affiliate
           Transaction
           Committee
           of the Board of Directors. There are no arrangements or understandings
           between
           Dr. Casas
           and any other person pursuant to which Dr. Casas was appointed
           as a director, and neither Dr. Casas nor any member of his immediate
           family has or had, since the beginning of the Companys last
           fiscal year, a material interest in any transaction or proposed transaction
           with
         the Company.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | b) | On
       August 3, 2006, the Company, the Operating Partnership, SL Green Realty
      Corp.
  (Parent), Wyoming Acquisition Corp. (Purchaser), Wyoming
   Acquisition GP LLC and Wyoming Acquisition Partnership LP entered into an
  Agreement
  and Plan of Merger (the Merger Agreement). Under the terms of the
   Merger Agreement, the Company will merge with and into Purchaser (the Merger),
    with Purchaser continuing after the Merger as the surviving entity. At the
   effective
  time of the Merger, each of the issued and outstanding shares of common stock
    of the Company will be converted into the right to receive (i) $31.68 in
   cash,
  and (ii) 0.10387 of a share of the common stock, par value $0.01 per share,
    of Parent (the Merger Consideration).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | In
      addition, under the terms of the Merger Agreement, Wyoming Acquisition
      LP will merge with and into
  the Operating Partnership (the Partnership Merger), with the Operating
   Partnership continuing after the Partnership Merger as the surviving entity.

  At the effective time of the Partnership Merger, each common unit in the Operating
   Partnership will be converted into the right to receive the applicable amount

  of Merger Consideration, in respect of the number of shares of Reckson common
   stock issuable upon exchange of each such common unit in accordance with the

  Amended and Restated Agreement of Limited Partnership of the Operating Partnership
   as if such common units were converted or exchanged for an equal number of
  Reckson
  common shares immediately prior to the effective time of the Merger.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | At
       the effective time of the Merger, any options which have not been exercised

  will be cancelled and holders will be paid the Merger Consideration in respect
       of such options; the exercise price of the options will first be deducted
      from
  the cash consideration and then second from the stock consideration, if necessary.
       All outstanding options are currently vested. Restricted stock whether
      or not vested, will be converted into the right to receive the Merger Consideration
       as if such restricted stock had vested immediately prior to the effective
      time
       of the Merger. Restricted stock units whether or not vested, and LTIP
      Units whether or not vested (other than certain LTIP
  Units held by Messrs. Rechler, Maturo and Barnett, the vesting and payment
  rights to which they are waiving pursuant to the Amendments described below)
  will be converted
  into
  the right

  to receive the Merger Consideration (on a one-for-one basis).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | The
      Company has agreed to certain covenants, including, among others, subject
    to certain exceptions described in the Merger Agreement, an obligation not
    to initiate, solicit, encourage or facilitate (including by way of furnishing
    nonpublic information or assistance) any inquiries or the making of any proposal
    or other action that constitutes or may reasonably be expected to lead to
    any competing transaction (as defined in the Merger Agreement) or enter into
    discussions or negotiate with any person in furtherance of such inquiries
    or to obtain a competing transaction. Prior to the closing, the Company has
    agreed to operate its business in the ordinary course consistent with past
    practice and not to take certain actions specified in the Merger Agreement.
    The Company will be permitted to pay its regular quarterly dividends through
    the consummation of the Merger.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | Consummation
      of the Merger is subject to customary conditions, including the approval
      of the Merger by the holders
    of the Companys common stock, the registration of SL Greens shares of common
    stock to be issued in the Merger, the listing of such shares on the New York
    Stock Exchange and the absence of any order, injunction or legal restraint
    or prohibition preventing the consummation of the Merger. In addition, each
    partys obligation to consummate the Merger is subject to certain other conditions,
    including (i) the accuracy of the representations and warranties of the other
    party (subject to the materiality standards contained in the Merger Agreement),
    (ii) compliance in all material respects of the other party with its covenants,
    (iii) the absence of a material adverse effect (as defined in the Merger
    Agreement) on the other party and (iv) the delivery of opinions with respect
    to each others status as a real estate investment trust.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | The
      Merger Agreement contains certain termination rights for both the Company
    and SL Green and provides that, upon termination of the Merger Agreement
    under specified circumstances described in the Merger Agreement, the Company
    would be required to pay SL Green a termination fee of $99.8 million, and/or
    that the Company would be required to reimburse SL Green for its out-of-pocket
    costs and expenses up to $13.0 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | The
      Merger Agreement contains representations and warranties that the parties
    have made to each other as of specific dates. The assertions embodied in
    those representations and warranties were made solely for purposes of the
       contract between the parties, and may be subject to important qualifications
    and limitations agreed to by the parties in connection with negotiating its
    terms. Moreover, the representations and warranties are subject to a contractual
    standard of materiality that may be different from what may be viewed as
    material to shareholders, and the representations and warranties may have
    been intended not as statements of fact, but rather as a way of allocating
    risk among the parties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | In
           connection with the Merger Agreement, Scott Rechler, Michael Maturo,
          and
        Jason Barnett each entered into an Agreement to Amend their existing
          Employment  and Noncompetition Agreement and Severance Agreement (the Amendments).
           Pursuant to the Amendments, each executive agreed to: (1) reduce the
          period
        of time he will be entitled to receive severance following a termination
           of employment in connection with a change in control from five years
          to
        three years, and to cap the cash severance he is entitled to receive
          under  his existing severance agreement, (2) waive all rights to vesting
          and payment
        of certain outstanding long-term incentive awards, (3) further reduce
           the payments and benefits he is otherwise entitled to receive in connection

        with a change in control if the total amount of payments and benefits
           exceed his safe harbor amount under the Internal Revenue
           Codes
        so-called golden parachute rules by 5% or less so that the
         total change in control-related payments and benefits paid or provided

        to him will not exceed his safe harbor amount, and (4) not compete with
         the Company in the acquisition, operation or management of any office

        real estate property in any of the submarkets in the borough of Manhattan,
         New York for the period commencing on August 3, 2006 through the earlier

        of August 3, 2007 or the six-month anniversary of the closing. The parties
         also agreed to extend the terms of their existing Employment and Noncompetition
        Agreements and Severance
        Agreements through April 30, 2007. In addition, the Company agreed to
         assign certain existing split-dollar life insurance policies to the
        executives
        at their request in connection with a change in control of the Company.
| | c) | 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

Exhibits



|2.1  | Agreement
        and Plan of Merger dated as of August 3, 2006 by and among SL Green Realty
        Corp., others, the Registrant and the Operating Partnership.                                                      
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                        
|10.1 | Indemnification
        Agreement, dated July 10, 2006, between the Registrant and Edward R. Casas.                                                                                                                    
|     |                                                                                                                                                                                                                        
|10.2 | Agreement
          to Amend Employment and Non-competition Agreement and Severance
        Agreement by and between Scott Rechler and the Registrant dated August
        3, 2006.                                    
|     |                                                                                                                                                                                                                        
|10.3 | Agreement
          to Amend Employment and Non-competition Agreement and Severance
        Agreement by and between Michael Maturo and the Registrant dated August
        3, 2006.                                   
|     |                                                                                                                                                                                                                        
|10.4 | Agreement
          to Amend Employment and Non-competition Agreement and Severance
        Agreement by and between Jason Barnett and the Registrant dated August
        3, 2006.                                    
|     |                                                                                                                                                                                                                        
|31.1 | Certification
        of Scott H. Rechler, Chairman of the Board, Chief Executive Officer and
        Director of the Registrant, pursuant to Rule 13a  14(a) or Rule
        15(d)  14(a).                          
|     |                                                                                                                                                                                                                        
|31.2 | Certification
        of Michael Maturo, President, Treasurer, Chief Financial Officer and Director
        of the Registrant, pursuant to Rule 13a  14(a) or Rule 15(d) 
        14(a).                             
|     |                                                                                                                                                                                                                        
|32.1 | Certification
        of Scott H. Rechler, Chairman of the Board, Chief Executive Officer and
        Director of the Registrant, pursuant to Section 1350 of Chapter 63 of
        Title 18 of the United States Code.
|     |                                                                                                                                                                                                                        
|32.2 | Certification
        of Michael Maturo, President, Treasurer, Chief Financial Officer and Director
        of the Registrant, pursuant to Section 1350 of Chapter 63 of Title 18
        of the United States Code.   
|     |                                                                                                                                                                                                                        

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.



RECKSONASSOCIATESREALTYCORP.By:
      /s/ Scott H. Rechler
      
      By:
      /s/ Michael MaturoScott
        H. RechlerChairman of the Board, ChiefExecutive Officer and Director
      
      
      Michael
          MaturoPresident, Treasurer, Chief Financial Officerand Director


DATE:August 8, 2006

55

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