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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2005

Commission file number: 1-13762

RECKSON OPERATING PARTNERSHIP, L. P.

(Exact name of registrant as specified in its charter)



|Delaware                                                           | 11-3233647                          
|------------------------------------------------------------------ | ------------------------------------
|(State or other jurisdiction of incorporation
    or organization) | (IRS Employer Identification
Number)
|                                                                   |                                     
|225 Broadhollow Road, Melville,
    NY                             | 11747                               
|(Address of principal executive office)                            | (zip code)                          
|                                                                   |                                     
|(631) 694-6900                                                    
|(Registrant's telephone number including
    area code)           
|                                                                  
|                                                                   |                                     

Indicate by check mark
      whether the registrant (1) has filed all reports required to be filed by
      Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
      12 months (or for such shorter period that the registrant was required
      to file such reports) YesX No__, and (2) has been subject to such
      filing requirements for the past 90 days.

Yes      No.

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

Yes      No



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RECKSON OPERATING PARTNERSHIP, L.P.
  QUARTERLY REPORTFOR THE THREE MONTHS ENDED JUNE 30, 2005

TABLE OF CONTENTS

|INDEX                       |                                                                                                              | PAGE
|--------------------------- | ------------------------------------------------------------------------------------------------------------ | ----
|                           
|PART I.                     | FINANCIAL INFORMATION                                                                                        | 2   
|                           
|Item 1.                     | Financial Statements                                                                                         | 2   
|                            |                                                                                                              |     
|                            | Consolidated Balance Sheets
    as of June 30, 2005 (unaudited) and December 31, 2004                        | 2   
|                            |                                                                                                              |     
|                            | Consolidated Statements of Income for the three and six
months ended
    June 30, 2005 and 2004 (unaudited). | 3   
|                            |                                                                                                              |     
|                            | Consolidated Statements of Cash Flows for the six
months ended June 30, 2005 and 2004 (unaudited).           | 4   
|                            |                                                                                                              |     
|                            | Notes to the Consolidated Financial Statements
(unaudited).                                                  | 5   
|                            |                                                                                                              |     
|Item 2.                     | Management’s Discussion and Analysis
    of Financial Condition and Results of Operations                    | 22  
|                            |                                                                                                              |     
|Item 3.                     | Quantitative and Qualitative Disclosures
about Market Risk                                                   | 40  
|                            |                                                                                                              |     
|Item 4.                     | Controls and Procedures                                                                                      | 41  
|                           
|PART II.                    | OTHER INFORMATION                                                                                            | 46  
|                           
|Item 1.                     | Legal Proceedings                                                                                            | 46  
|Item 2.                     | Unregistered Sales of Equity
      Securities and Use of Proceeds                                            | 46  
|Item 3.                     | Defaults Upon Senior Securities                                                                              | 46  
|Item 4.                     | Submission of Matters to
      a Vote of Securities Holders                                                  | 46  
|Item 5.                     | Other Information                                                                                            | 46  
|Item 6.                     | Exhibits                                                                                                     | 47  
|                           
|SIGNATURES & CERTIFICATIONS | 47                                                                                                          
|                           



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PART I  FINANCIAL INFORMATIONITEM
1  FINANCIAL STATEMENTS

RECKSON OPERATING PARTNERSHIP, L.P. 
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except for share amounts)

|                                                                                                           |  |   | June 30,2005 |   |   | December 31,2004 |  
|---------------------------------------------------------------------------------------------------------- |  | - | ------------ | - | - | ---------------- | -
|                                                                                                           |  |   |              |   |   |                  |  
|                                                                                                           |  |   | (unaudited)  |   |   |                  |  
|ASSETS:                                                                                                    |  |   |              |   |   |                  |  
|Commercial real estate properties, at cost:                                                                |  |   |              |   |   |                  |  
|Land                                                                                                       |  | $ | 551,269      |   | $ | 409,034          |  
|Building and improvements                                                                                  |  |   | 3,111,512    |   |   | 2,706,406        |  
|Developments in progress:                                                                                  |  |   |              |   |   |                  |  
|Land                                                                                                       |  |   | 126,375      |   |   | 103,986          |  
|Development costs                                                                                          |  |   | 48,950       |   |   | 29,159           |  
|Furniture, fixtures and equipment                                                                          |  |   | 12,622       |   |   | 11,935           |  
|                                                                                                           |  |   |              |   |   |                  |  
|                                                                                                           |  |   | 3,850,728    |   |   | 3,260,520        |  
|Less accumulated depreciation                                                                              |  |   | (623,134     | ) |   | (563,706         | )
|                                                                                                           |  |   |              |   |   |                  |  
|Investments in real estate, net of accumulated deprecation                                                 |  |   | 3,227,594    |   |   | 2,696,814        |  
|Properties and related assets held for sale, net of accumulated depreciation                               |  |   | 3,650        |   |   | 4,651            |  
|Investment in real estate joint ventures                                                                   |  |   | 6,308        |   |   | 6,657            |  
|Investment in notes receivable                                                                             |  |   | 135,449      |   |   | 85,855           |  
|Investments in affiliate loans and joint ventures                                                          |  |   | 66,911       |   |   | 65,186           |  
|Cash and cash equivalents                                                                                  |  |   | 23,672       |   |   | 25,137           |  
|Tenant receivables                                                                                         |  |   | 10,483       |   |   | 9,470            |  
|Deferred rents receivable                                                                                  |  |   | 151,034      |   |   | 133,012          |  
|Prepaid expenses and other assets                                                                          |  |   | 103,919      |   |   | 63,548           |  
|Contract and land deposits and pre-acquisition costs                                                       |  |   | 5,206        |   |   | 121              |  
|Deferred leasing and loan costs.                                                                           |  |   | 85,162       |   |   | 80,915           |  
|                                                                                                           |  |   |              |   |   |                  |  
|TOTAL ASSETS                                                                                               |  | $ | 3,819,388    |   | $ | 3,171,366        |  
|                                                                                                           |  |   |              |   |   |                  |  
|LIABILITIES:                                                                                               |  |   |              |   |   |                  |  
|Mortgage notes payable                                                                                     |  | $ | 614,834      |   | $ | 609,518          |  
|Unsecured credit facility                                                                                  |  |   | 128,000      |   |   | 235,500          |  
|Unsecured bridge facility                                                                                  |  |   | 470,000      |   |   |                 |  
|Senior unsecured notes                                                                                     |  |   | 979,857      |   |   | 697,974          |  
|Liabilities associated with properties held for sale                                                       |  |   | 124          |   |   | 82               |  
|Accrued expenses and other liabilities.                                                                    |  |   | 88,987       |   |   | 69,939           |  
|Deferred revenues and tenant security deposits.                                                            |  |   | 53,942       |   |   | 50,373           |  
|Dividends and distributions payable                                                                        |  |   | 36,175       |   |   | 35,924           |  
|                                                                                                           |  |   |              |   |   |                  |  
|TOTAL LIABILITIES                                                                                          |  |   | 2,371,919    |   |   | 1,699,310        |  
|                                                                                                           |  |   |              |   |   |                  |  
|Minority partners’ interests
    in consolidated partnerships and other interests                          |  |   | 214,313      |   |   | 211,178          |  
|                                                                                                           |  |   |              |   |   |                  |  
|Commitments and contingencies                                                                              |  |   |             |   |   |                 |  
|PARTNERS’ CAPITAL:                                                                                         |  |   |              |   |   |                  |  
|Preferred capital 1,200 units
    issued and outstanding                                                   |  |   | 1,200        |   |   | 1,200            |  
|General Partners’ Capital:
Class A common units, 82,533,774 and 80,618,339 units outstanding, respectively |  |   | 1,201,810    |   |   | 1,206,447        |  
|Limited Partners’ Capital:                                                                                 |  |   |              |   |   |                  |  
|Class A common units, 1,617,675 and 3,093,341
units issued and outstanding, respectively                   |  |   | 18,708       |   |   | 46,450           |  
|Class C common units, 465,845 units issued and
 outstanding                                                |  |   | 11,438       |   |   | 6,781            |  
|                                                                                                           |  |   |              |   |   |                  |  
|Total Partners’ Capital                                                                                    |  |   | 1,233,156    |   |   | 1,260,878        |  
|                                                                                                           |  |   |              |   |   |                  |  
|TOTAL LIABILITIES AND PARTNERS’ CAPITAL                                                                    |  | $ | 3,819,388    |   | $ | 3,171,366        |  
|                                                                                                           |  |   |              |   |   |                  |  

(see accompanying notes to financial statements)

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RECKSON OPERATING PARTNERSHIP, L.P.CONSOLIDATED STATEMENTS OF INCOME(Unaudited and in thousands, except
per share and share amounts)

|                                                                                                                                        |  | Three Months Ended
June 30, |            | Six Months Ended
June 30, |   |           
|--------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ---------- | ------------------------- | - | ----------
|                                                                                                                                        |  |                             |            |                           |   |           
|                                                                                                                                        |  |                             | 2005       |                           |   | 2004      
|                                                                                                                                        |  |                             |            |                           |   |           
|PROPERTY OPERATING REVENUES:                                                                                                            |  |                             |            |                           |   |           
|Base Rents                                                                                                                              |  | $                           | 123,804    |                           | $ | 109,265   
|Tenant escalations and reimbursements                                                                                                   |  |                             | 17,998     |                           |   | 17,452    
|                                                                                                                                        |  |                             |            |                           |   |           
|Total property operating revenues                                                                                                       |  |                             | 141,802    |                           |   | 126,717   
|                                                                                                                                        |  |                             |            |                           |   |           
|OPERATING EXPENSES:                                                                                                                     |  |                             |            |                           |   |           
|Property operating expenses                                                                                                             |  |                             | 53,995     |                           |   | 50,369    
|Marketing, general and administrative                                                                                                   |  |                             | 8,477      |                           |   | 7,354     
|Depreciation and amortization                                                                                                           |  |                             | 32,994     |                           |   | 28,621    
|                                                                                                                                        |  |                             |            |                           |   |           
|Total
    operating expenses                                                                                                            |  |                             | 95,466     |                           |   | 86,344    
|                                                                                                                                        |  |                             |            |                           |   |           
|Operating
    income                                                                                                                    |  |                             | 46,336     |                           |   | 40,373    
|                                                                                                                                        |  |                             |            |                           |   |           
|NON-OPERATING INCOME AND EXPENSES:                                                                                                      |  |                             |            |                           |   |           
|Interest income on notes receivable
 (including $418, $539, 
         $1,269 and $1,128, respectively from related parties)             |  |                             | 3,333      |                           |   | 1,876     
|Investment income and other                                                                                                             |  |                             | 486        |                           |   | 1,442     
|Interest:                                                                                                                               |  |                             |            |                           |   |           
|Expense                                                                                                                                 |  |                             | (27,257    | )                         |   | (24,607   
|Amortization
    of deferred financing costs                                                                                            |  |                             | (1,021     | )                         |   | (899      
|                                                                                                                                        |  |                             |            |                           |   |           
|Total
    non-operating income and expenses                                                                                             |  |                             | (24,459    | )                         |   | (22,188   
|                                                                                                                                        |  |                             |            |                           |   |           
|Income before minority interests, preferred
distributions, equity in earnings of real estate joint
ventures and discontinued operations |  |                             | 21,877     |                           |   | 18,185    
|Minority
    partners’ interests in consolidated partnerships and other interests                                                       |  |                             | (3,986     | )                         |   | (4,422    
|Equity in earnings
    of real estate joint venturesventures                                                                            |  |                             | 83         |                           |   | 294       
|                                                                                                                                        |  |                             |            |                           |   |           
|Income
      before discontinued operations and 
  preferred distributions                                                              |  |                             | 17,974     |                           |   | 14,057    
|Discontinued operations (net of minority interests):                                                                                    |  |                             |            |                           |   |           
|Income
    from discontinued operations                                                                                                 |  |                             | 181        |                           |   | 256       
|Gain
    on sales of real estate                                                                                                        |  |                             | 181        |                           |   | 3,830     
|                                                                                                                                        |  |                             |            |                           |   |           
|Net income                                                                                                                              |  |                             | 18,336     |                           |   | 18,143    
|Preferred distributions                                                                                                                 |  |                             |           |                           |   | (4,399    
|                                                                                                                                        |  |                             |            |                           |   |           
|Net income allocable to common unitholders                                                                                              |  | $                           | 18,336     |                           | $ | 13,744    
|                                                                                                                                        |  |                             |            |                           |   |           
|Net income allocable to:                                                                                                                |  |                             |            |                           |   |           
|Common
    unitholders                                                                                                                  |  | $                           | 18,225     |                           | $ | 13,644    
|Class
    C common unitholders                                                                                                          |  |                             | 111        |                           |   | 100       
|                                                                                                                                        |  |                             |            |                           |   |           
|Total                                                                                                                                   |  | $                           | 18,336     |                           | $ | 13,744    
|                                                                                                                                        |  |                             |            |                           |   |           
|Net income per weighted average common units:                                                                                           |  |                             |            |                           |   |           
|Income
    from continuing operations                                                                                                   |  | $                           | .22        |                           | $ | .13       
|Discontinued
    operations                                                                                                             |  |                             |           |                           |   | .06       
|                                                                                                                                        |  |                             |            |                           |   |           
|Basic
    net income per common unit                                                                                                    |  | $                           | .22        |                           | $ | .19       
|                                                                                                                                        |  |                             |            |                           |   |           
|Class
    C common  income from continuing operations                                                                                  |  | $                           | .24        |                           | $ | .15       
|Discontinued
    operations                                                                                                             |  |                             |           |                           |   | .06       
|                                                                                                                                        |  |                             |            |                           |   |           
|Basic
    net income per Class C common unit                                                                                            |  | $                           | .24        |                           | $ | .21       
|                                                                                                                                        |  |                             |            |                           |   |           
|Weighted average common units outstanding:                                                                                              |  |                             |            |                           |   |           
|Common
    units                                                                                                                        |  |                             | 83,998,653 |                           |   | 69,976,809
|Class
    C common units                                                                                                                |  |                             | 465,845    |                           |   | 465,845   
|                                                                                                                                        |  |                             |            |                           |   |           

(see accompanying notes to financial statements)

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RECKSON OPERATING PARTNERSHIP, L.P.CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited and in thousands)





|                                                                                  |  | Six Months Ended
    June 30, |         
|--------------------------------------------------------------------------------- |  | ----------------------------- | --------
|                                                                                  |  |                               |         
|                                                                                  |  |                               |         
|                                                                                  |  |                               | 2005    
|                                                                                  |  |                               |         
|Cash Flows From Operating Activities:                                             |  |                               |         
|Net Income                                                                        |  | $                             | 36,389  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                               |         
|Depreciation
    and amortization (including discontinued operations)             |  |                               | 65,579  
|Minority
    partners’ interests in consolidated partnerships and other interests |  |                               | 7,854   
|Gain
    on sales of real estate                                                  |  |                               | (181    
|Equity
    in earnings of real estate joint ventures                              |  |                               | (205    
|Changes in operating assets and liabilities:                                      |  |                               |         
|Deferred
    rents receivable                                                     |  |                               | (17,444 
|Prepaid
    expenses and other assets                                             |  |                               | 11,894  
|Tenant
    receivables                                                            |  |                               | (1,013  
|Accrued
    expenses and other liabilities                                        |  |                               | 1,910   
|                                                                                  |  |                               |         
|                                                                                  |  |                               |         
|Net cash provided by operating activities                                         |  |                               | 104,783 
|                                                                                  |  |                               |         
|                                                                                  |  |                               |         
|Cash Flows From Investment Activities:                                            |  |                               |         
|Purchases
    of commercial real estate properties                                |  |                               | (547,823
|Additions
    to developments in progress                                         |  |                               | (22,590 
|Increase
    in contract and land deposits and pre-acquisition costs              |  |                               | (5,221  
|Repayments
    of notes receivable                                                |  |                               | 2,952   
|Additions
    to notes receivable                                                 |  |                               | (50,219 
|Additions
    to commercial real estate properties                                |  |                               | (30,491 
|Payment
    of deferred leasing costs                                             |  |                               | (9,108  
|Investments
    in real estate joint ventures                                     |  |                               | (6,223  
|Contributions
    to a real estate joint venture                                  |  |                               |        
|Additions
    to furniture, fixtures and equipment                                |  |                               | (606    
|Proceeds
    from sales of real estate                                            |  |                               | 1,285   
|                                                                                  |  |                               |         
|                                                                                  |  |                               |         
|Net cash (used in) investing activities                                           |  |                               | (668,044
|                                                                                  |  |                               |         
|                                                                                  |  |                               |         
|Cash Flows From Financing Activities:                                             |  |                               |         
|Principal
    payments on secured borrowings                                      |  |                               | (5,742  
|Proceeds
    from issuance of senior unsecured notes, net of issuance costs       |  |                               | 281,750 
|Repayment
    of senior unsecured notes                                           |  |                               |        
|Payment
    of loan and equity issuance costs                                     |  |                               | (1,683  
|Proceeds
    from unsecured credit facility                                       |  |                               | 182,000 
|Principal
    payments on unsecured credit facility                               |  |                               | (289,500
|Proceeds
    from unsecured bridge facility                                       |  |                               | 470,000 
|Distributions
    to minority partners in consolidated partnerships               |  |                               | (5,629  
|Contributions                                                                     |  |                               | 3,369   
|Distributions                                                                     |  |                               | (72,769 
|                                                                                  |  |                               |         
|                                                                                  |  |                               |         
|Net cash provided by financing activities                                         |  |                               | 561,796 
|                                                                                  |  |                               |         
|                                                                                  |  |                               |         
|Net (decrease) increase in cash and cash equivalents                              |  |                               | (1,465  
|Cash and cash equivalents at beginning of period                                  |  |                               | 25,137  
|                                                                                  |  |                               |         
|                                                                                  |  |                               |         
|Cash and cash equivalents at end of period                                        |  | $                             | 23,672  
|                                                                                  |  |                               |         

(see accompanying notes to financial statements)

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RECKSON OPERATING PARTNERSHIP,
      L.P.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2005(Unaudited)

|1. | ORGANIZATION AND FORMATION OF THE OPERATING PARTNERSHIP
|-- | -------------------------------------------------------

Reckson Operating Partnership,
    L.P. (The “Operating Partnership”) commenced operations on June 2, 1995.  Reckson Associates Realty Corp. (the “Company”), which serves as the sole general partner of the Operating Partnership, is a fully integrated, self administered and self managed real estate investment trust (“REIT”).
    The Operating Partnership and the Company were formed for the purpose of
    continuing the commercial real estate business of Reckson Associates, their
predecessor, its affiliated partnerships and other entities

The Operating Partnership is
    engaged in the ownership, management, operation, leasing and development
    of commercial real estate properties, principally office and to a lesser
    extent industrial buildings and also owns land for future development (collectively,
the “Properties”) located in the New York City tri-state area (the “Tri-State Area”).

The Company 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.  All Properties acquired by the Company are held by or through the Operating Partnership.  In conjunction with the IPO, the Operating Partnership executed various option and purchase agreements whereby it issued common units of limited partnership interest in the Operating Partnership (“OP Units”)
    to certain continuing investors and assumed certain indebtedness in exchange
    for (i) interests in certain property partnerships, (ii) fee simple and leasehold
    interests in properties and development land, (iii) certain other business
    assets and (iv) 100% of the non-voting preferred stock of the management
and construction companies.

|2. | BASIS OF PRESENTATION
|-- | ---------------------

The accompanying interim unaudited
    financial statements have been prepared by the Operating Partnership’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 to not make the information presented misleading.  The unaudited financial statements at June 30, 2005 and for the three and six month periods ended June 30, 2005 and 2004 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, 2005.  These financial statements should be read in conjunction with the Operating Partnership’s audited financial statements and the notes thereto included in the Company’s
Form 10-K for the year ended December 31, 2004.

The accompanying consolidated
    financial statements include the consolidated financial position of the Operating
    Partnership and the Service Companies (as defined below) at June 30, 2005
    and December 31, 2004 and the consolidated results of their operations for
    the three and six month periods ended June 30, 2005 and 2004, respectively,
    and their cash flows for the six months ended June 30, 2005 and 2004, 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 Operating Partnership had an investment in a real estate joint venture in which it owned less than a controlling interest and which was reflected in the accompanying financial statements on the equity method of accounting.  Commencing June 20, 2005, as a result of the Operating Partnership acquiring the minority partner’s interest, the Operating Partnership commenced consolidating the financial results of this investment.  The Service Companies which provide management, development and construction services to the Company, the Operating Partnership and to third parties are 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, a 40% non-affiliated
    interest in Omni Partners, L.P., owner of a 579,000 square foot suburban
    office property and a 49% non-affiliated interest in Metropolitan 919 3rd
    Avenue, LLC, owner of the property located at 919 Third Avenue, New York,
NY.

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.

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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, net of discontinued operations, for each of the three and six month periods ended June 30, 2005 and 2004 amounted to approximately $22.5 million and $43.1 million and $19.6 million and $39.2 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.

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. 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 the 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 are 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, because recognizing 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 did not have an impact on net income allocable to common shareholders.
Statement No. 144 only impacts the presentation of the results of operations
and gain on sales of real estate assets for those properties sold during the
period within the consolidated statements of income.

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 $4.5 million at June 30, 2005 and December
    31, 2004 have been included in cash and cash equivalents on the accompanying
balance sheets.

Deferred Costs

Tenant leasing commissions and related costs incurred in connection with leasing tenant space are capitalized and amortized over the life of the related lease.  In addition, 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.



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Income Taxes

No provision has been made for income taxes in the accompanying consolidated financial statements since such taxes, if any, are the responsibility of the individual partners.

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 $657,000 and $1.1 million and $700,000 and $1.8 million of bad debt expense during the three and six month periods ended June 30, 2005 and 2004, respectively, related to tenant receivables 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 (the successor to Reckson Construction Group, Inc.) and Reckson Construction
    Group New York, Inc. use the percentage-of-completion method for recording
    amounts earned on their contracts. This method records amounts earned as
    revenue in the proportion that actual costs incurred to date bear to the
estimate of total costs at contract completion.

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

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

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 accumulated other comprehensive income (“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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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 consolidated
    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 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 the Operating Partnership for new or modified limited partnership arrangements is effective June 30, 2005 and for existing limited partnership arrangements effective January 1,
2006. We do not expect that we will be required to consolidate our current unconsolidated
joint venture investment nor will Issue 04-05 have a material effect on our consolidated
financial statements.

Reclassifications

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

|3. | MORTGAGE NOTES PAYABLE
|-- | ----------------------

On June 20, 2005, in connection
    with our acquiring our joint venture partner’s 40% interest in the
    property located at 520 White Plains Road, Tarrytown, NY, we assumed approximately
    $4.1 million of secured mortgage indebtedness of the joint venture. As a
    result, our total secured debt related to this property at June 30, 2005
    was approximately $11.1 million. This mortgage note bears interest at 8.85%
    per annum and matures on September 1, 2005 at which time the balance will
    be approximately $10.9 million. We anticipate making a borrowing under our
    unsecured credit facility to satisfy the mortgage note at its scheduled maturity
date.

During the quarterly period ended June 30, 2005 we entered into anticipatory interest rate hedge instruments totaling $250.0 million to protect ourselves against potentially rising interest rates. These instruments were settled prior to their maturity in exchange for a mortgage rate lock agreement in connection with a 15 year permanent financing on the property located at One Court Square in Queens, NY which closed on August 3, 2005. Costs related to the terminated instruments of approximately $1.4 million were incorporated into the final fixed mortgage rate of 4.905%. At June 30, 2005, the fair value of the mortgage rate lock approximated its carrying value.

We also entered into an additional $200.0 million of anticipatory interest rate hedge instruments during the quarterly period ended June 30, 2005, which are scheduled to coincide with certain secured debt we anticipate incurring on a group of our office properties.  These properties are anticipated to be included in a joint venture transaction in the latter part of 2005. As of June 30, 2005, we incurred approximately $207,000 of ineffectiveness related to these hedge instruments, which has been included in interest expense on our consolidated statements of income. At June 30, 2005, the carrying value of these instruments exceeded their fair value by approximately $2.0 million, which has been reflected as accumulated other comprehensive loss with
a corresponding increase in accrued expenses and other liabilities on our balance sheet. These instruments were settled on August 1, 2005, at which time their fair value exceeded their carrying value by approximately $1.1 million.  Such amount will be classified as an offset to deferred loan costs and amortized against deferred financing costs over the term of the secured debt. Based on the settlement proceeds of approximately $1.1 million and a projected debt tenor of five years, we would anticipate that during the twelve-month period commencing on July 1, 2005 we would amortize approximately $165,000 of these settlement proceeds (representing the period October 1, 2005 through June 30, 2006) against the amortization of deferred financing costs.

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At June 30, 2005, there were 13 fixed rate mortgage notes payable with an aggregate outstanding principal amount of approximately $614.8 million.  These mortgage notes are secured by properties with an aggregate carrying value at June 30, 2005 of approximately $1.3 billion and which are pledged as collateral against the mortgage notes payable.  In addition, approximately $42.3 million of the $614.8 million is recourse to us.  The mortgage notes bear interest at rates ranging from 6.45% to 9.25%, and mature between 2005 and 2011.  The weighted average interest rate on the outstanding mortgage notes payable at June 30, 2005 was approximately 7.3%.  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.

The following table sets forth our mortgage notes payable at June 30, 2005, by scheduled maturity date (dollars in thousands):

|Property                                        |  |   | Principal Outstanding |  |  | InterestRate |   |  | MaturityDate    |  |  | AmortizationTerm (Years) | 
|----------------------------------------------- |  | - | --------------------- |  |  | ------------ | - |  | --------------- |  |  | ------------------------ | 
|                                                |  |   |                       |  |  |              |   |  |                 |  |  |                          | 
|520 White Plains Road, Tarrytown, NY            |  | $ | 11,059                |  |  | 8.85         | % |  | September, 2005 |  |  | 20                       | 
|395 North Service Road, Melville, NY            |  |   | 18,689                |  |  | 6.45         | % |  | October, 2005   |  |  | $34 per month            | 
|200 Summit Lake Drive, Valhalla, NY             |  |   | 18,204                |  |  | 9.25         | % |  | January, 2006   |  |  | 25                       | 
|1350 Avenue of the Americas, NY, NY             |  |   | 72,559                |  |  | 6.52         | % |  | June, 2006      |  |  | 30                       | 
|Landmark Square, Stamford, CT (a)               |  |   | 42,269                |  |  | 8.02         | % |  | October, 2006   |  |  | 25                       | 
|100 Summit Lake Drive, Valhalla, NY             |  |   | 15,409                |  |  | 8.50         | % |  | April, 2007     |  |  | 15                       | 
|333 Earle Ovington Blvd., Mitchel Field, NY (b) |  |   | 51,226                |  |  | 7.72         | % |  | August, 2007    |  |  | 25                       | 
|810 Seventh Avenue, NY, NY (c)                  |  |   | 78,770                |  |  | 7.73         | % |  | August, 2009    |  |  | 25                       | 
|100 Wall Street, NY, NY (c)                     |  |   | 34,134                |  |  | 7.73         | % |  | August, 2009    |  |  | 25                       | 
|6900 Jericho Turnpike, Syosset, NY              |  |   | 7,030                 |  |  | 8.07         | % |  | July, 2010      |  |  | 25                       | 
|6800 Jericho Turnpike, Syosset, NY              |  |   | 13,320                |  |  | 8.07         | % |  | July, 2010      |  |  | 25                       | 
|580 White Plains Road, Tarrytown, NY            |  |   | 12,130                |  |  | 7.86         | % |  | September, 2010 |  |  | 25                       | 
|919 Third Avenue, NY, NY (d)                    |  |   | 240,035               |  |  | 6.87         | % |  | August, 2011    |  |  | 30                       | 
|                                                |  |   |                       |  |  |              |   |  |                 |  |  |                          | 
|Total / Weighted average                        |  | $ | 614,834               |  |  | 7.33         | % |  |                 |  |  |                          | 
|                                                |  |   |                       |  |  |              |   |  |                 |  |  |                          | 

|   
|---
|   
|(a)
|(b)
|(c)
|(d)

On August 3, 2005, we placed a first mortgage
        in the amount of $315.0 million on the property located at One Court
    Square in Queens, NY. The mortgage note bears interest at a fixed rate of
    4.905%,
        requires monthly payments of interest only through September 1, 2015,
    the anticipated repayment date (“ARD”). After the ARD, all excess
        cash flow, as defined, shall be applied to amortize the loan and the interest
        rate shall be reset to 2% plus the greater of 4.905% and the then-current
        ten-year U.S. Treasury yield. The final maturity date of the loan is May
        1, 2020. The mortgage note is secured by the property and is otherwise non-recourse
        except in limited circumstances regarding breaches of material representations.
        As additional collateral for the loan, we may be required to post letters
        of credit for the benefit of the lender, in the amount of $10.0 million each,
        during September 2013, March 2014 and September 2014 if Citibank, N.A., the
        property’s current sole tenant, exercises its second cancellation
        option for up to 20% of its leased space during 2014 and 2015. Net proceeds
        received
        of approximately $303.5 million were used to re-pay a portion of our
        unsecured bridge facility
    discussed below.

We have given notice to the mortgagee with respect to the mortgage
    debt on the property located at 200 Summit Lake Drive in Valhalla, NY to pre-pay
    the mortgage debt during the third calendar quarter of 2005. Pursuant to the
    terms of the mortgage note, the mortgage may be pre-paid without penalty subsequent
    to September 1, 2005 and upon notice. The balance of the mortgage note will be
    approximately $18.1 million on September 1, 2005. We anticipate making a borrowing
    under our unsecured credit facility to satisfy this mortgage note on the prepayment
    date.

Our mortgage debt on the property located at 395 North Service
    Road in Melville, NY matures on October 28, 2005. We have given notice to the
    mortgagee to prepay the mortgage debt on September 30, 2005, at which time the
    balance will be approximately $18.6 million. We anticipate making a borrowing
    under our unsecured credit facility to satisfy the mortgage note at its scheduled
maturity.

|4. | SENIOR UNSECURED NOTES
|-- | ----------------------

During June 2005, the Operating
    Partnership issued $287.5 million aggregate principal amount of 4.00% exchangeable
    senior debentures due June 15, 2025. Interest on the debentures will be payable
    semi-annually on June 15 and December 15, commencing December 15, 2005. The
    debentures 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 and at par,
    on June 15, 2010, 2015 and 2020. The net proceeds from the offering, after
    the underwriter’s discounts and expenses, were approximately $281.6 million and were used for repayment of amounts outstanding under our unsecured credit facility. (See footnote 7, Stockholders’ Equity, regarding the terms of the debenture’s
exchange into our common stock).

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At June 30, 2005, the Operating
    Partnership had outstanding approximately $979.9 million (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  | 
|June 27, 2005    |  |   | 287,500    |  |  | 4.00       | % |  | 20             |  |  | June 15, 2025    | 
|                 |  |   |            |  |  |            |   |  |                |  |  |                  | 
|                 |  | $ | 987,500    |  |  |            |   |  |                |  |  |                  | 
|                 |  |   |            |  |  |            |   |  |                |  |  |                  | 

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 $8.3 million.  Such discounts are being amortized to interest expense over the term of the Senior Unsecured Notes to which they relate.

|5. | UNSECURED CREDIT FACILITY & BRIDGE FACILITY
|-- | -------------------------------------------

On May 13, 2005, we obtained
    a $470.0 million unsecured bridge facility (the “Bridge Facility”) from Citibank, N.A. The Bridge Facility is for an initial term of six months and we have the option for a six-month extension upon paying a one-time fee of 7.5 basis points on the amount then outstanding. The Bridge Facility has terms, including interest rates and financial covenants, substantially similar to our unsecured $500 million revolving credit facility (the “Credit Facility”),
    and was amended in June 2005 in the same manner as our Credit Facility as
    described below. As of June 30, 2005, there was $470.0 million outstanding
    under the Bridge Facility at an interest rate of 4.04%. On August 3, 2005,
    net proceeds received from the secured financing of the property located
    at One Court Square in Queens, NY of approximately $303.5 million were used
to repay amounts outstanding under the Bridge Facility.

During the three months ended June 30, 2005, we amended our Credit Facility to, among other things, extend the maturity for one year, modify a financial covenant to increase the percentage that our total indebtedness can represent when compared to the total value of our assets from 55% to 60% and on a temporary basis to 65% upon an acquisition of a material property, reduce the rate of interest on borrowings by 0.10%, modify the capitalization rates used to value our properties for purposes of the financial covenants contained in the Credit Facility, increase the portion of assets and net operating income that may come from minority joint ventures from 5% to 10% and certain other matters.

We currently maintain our $500
    million Credit Facility from JPMorgan Chase Bank, as administrative agent,
    Wells Fargo Bank, National Association as syndication agent and Citicorp,
    North America, Inc. and Wachovia Bank, National Association as co-documentation
    agents. The Credit Facility matures in August 2008, contains options for
    a one-year extension subject to a fee of 25 basis points and, upon receiving
    additional lender commitments, increasing the maximum revolving credit amount
    to $750 million. In addition, borrowings under the Credit Facility are currently
    priced off LIBOR plus 80 basis points and 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, 2005, the outstanding borrowings under the Credit Facility
    aggregated $128.0 million and carried a weighted average interest rate of
4.04% 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, 2005, we had availability under the Credit Facility to borrow approximately an additional $370.8 million, subject to compliance with certain financial covenants.  Such amount is net of approximately $1.2 million in outstanding undrawn standby letters of credit, which are 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 outstanding balances on our Credit Facility.

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6.  COMMERCIAL REAL ESTATE INVESTMENTS

During January 2005, we acquired, in two separate transactions, two Class A office properties located at One and Seven Giralda Farms in Madison, New Jersey for total consideration of approximately $78.0 million.  One Giralda Farms encompasses approximately 150,000 rentable square feet and Seven Giralda Farms encompasses approximately 203,000 rentable square feet.  We made these acquisitions through borrowings under our Credit Facility.

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, a sub-market of New York City, for approximately $471.0 million, inclusive of transfer taxes and transactional costs.  One Court Square is 100% leased to the seller, Citibank N.A., under a 15-year net lease.  The lease contains partial cancellation options effective during 2011 and 2012 for up to 20% of the leased space and in 2014 and 2015 for up to an additional 20% of the leased space, subject to notice and the payment of early termination penalties.   We are currently negotiating with an institutional joint venture partner to sell between a 60% to 70% interest in this property.

In May 2005, we completed mandatory arbitration proceedings relating to the re-setting of the rent under the ground lease pursuant to which we own an approximately 1.1 million square foot Class A office tower located at 1185 Avenue of the Americas, New York, NY.  The rent was re-set, and is not subject to further increase, for the remaining 37 years of the ground lease (inclusive of a 20-year extension at our option) to approximately $6.9 million per annum. Such re-set is retroactive to June 2004.

On May 26, 2005, we entered into a contract to sell approximately 60 acres of vacant land located in Chatham Township, NJ for up to approximately $30.0 million which is based upon a final approved site plan. The closing is anticipated to occur upon receiving final zoning approvals and other customary due diligence and approvals. The sale is contingent upon due diligence, environmental assessment, zoning and other customary approvals. There can be no assurances that any of the aforementioned contingences will be achieved and the sale ultimately completed.

On June 8, 2005, we sold a three-acre
    vacant land parcel located on Long Island for approximately $1.4 million
    which resulted in a net gain of approximately $175,000, net of limited partner’s
    minority interest. Such gain is reflected as a component of discontinued
operations on our consolidated statements of income.

On June 20, 2005, we acquired
    our joint venture partner’s 40% interest in a 172,000 square foot office property located at 520 White Plains Road, Tarrytown, NY for approximately $8.1 million which consisted of the issuance of 127,510 OP Units valued at $31.37 per OP Unit and the assumption of approximately $4.1 million of secured mortgage indebtedness of the joint venture. Prior to us acquiring this interest, we accounted for the joint venture under the equity method of accounting. In accordance with the equity method of accounting our proportionate share of the joint venture’s
    income was approximately $25,000 and $176,000 and $294,000 and $408,000 for
    the three and six month periods ended June 30, 2005 and 2004,
respectively.

On June 21, 2005, we entered into a contract to sell two suburban office properties, aggregating approximately 69,000 square feet, located at 310 and 333 East Shore Road in Great Neck, Long Island for aggregate consideration of approximately $17.3 million. The sale is scheduled to close within 3 months. There can be no assurances that such sale will occur under the terms anticipated or at all.  Pursuant to FASB Statement No. 144, the operating results of these properties are classified within discontinued operations, for all periods presented, on our consolidated statements of income and their assets and liabilities are classified as held for sale on our consolidated balance sheets.

As of June 30, 2005, we owned
    and operated 82 office properties (inclusive of eight office properties owned
    through joint ventures) comprising approximately 16.8 million square feet
    and eight industrial / R&D properties comprising approximately 863,000
square feet located in the Tri-State Area.

At June 30, 2005, we owned approximately
    341 acres of land in 12 separate parcels of which we can, based on current
    estimates, develop approximately 3.1 million square feet of office space
    (the “Development Parcels”).  During July 2004, we commenced
    the ground-up development on one of the Development Parcels of a 305,000
    square foot Class A office building with a total anticipated investment of
    approximately $61.3 million. This development is located within our existing
    three building executive office park in Melville, NY. In addition, 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 with a total anticipated
    investment of approximately $10.1 million. This development is located within
    our existing six building office park in Stamford, Connecticut. There can
    be no assurances that the actual cost of these ground-up development projects
    will not exceed their anticipated amounts. 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 2006 for aggregate
    consideration of $2.0 million. In addition, as previously discussed, in May
    2005, we entered into a contract to sell approximately 60 acres of vacant
    land in Chatham Township, NJ. As of June 30, 2005, we had invested approximately
    $175.3 million in the Development Parcels. One of the Development Parcels,
    comprising 39.5 acres located in Valhalla, NY, was previously under
contract for sale and was contingent upon obtaining zoning for residential use
    of the land and other customary due diligence and approvals. In May 2005,
the purchaser terminated the contract.

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. We are currently evaluating alternative land uses for certain of the remaining Development Parcels to realize their highest economic value. These alternatives may include rezoning certain Development Parcels from commercial to residential for potential disposition.

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We also own a 354,000 square foot office building in Orlando, Florida.  This non-core real estate holding was acquired in May 1999 in connection with our initial New York City portfolio acquisition.

On July 8, 2005, we entered
    into a contract to purchase a 1.1 million square foot Class A office complex
    located at 204 EAB Plaza in Uniondale, NY, commonly referred to as “EAB Plaza”,
    for approximately $240 million. The property is encumbered by a long-term
    ground lease which has a remaining term in excess of 75 years, including
    renewal options. Pursuant to the terms of the contract, we provided the seller
    with a down payment in the form of a $24.0 million standby letter of credit.
    Such letter of credit was issued under our Credit Facility. We currently
    hold a $27.6 million junior mezzanine loan which is secured by a pledge of
    an indirect ownership interest of an entity which currently owns the ground
    leasehold estate. Prior to closing on the acquisition of EAB Plaza, we have
    the option to purchase an adjoining 8.2-acre development site. If we do not
    exercise this option, we will provide a two-year $10 million loan to the
    seller, secured by the development site and will be retained to provide development
    related consulting services for the site. We anticipate closing on this complex
    in October 2005 through the satisfaction of our junior mezzanine loan and
    a borrowing under our Credit Facility. There can be no assurances that we
will acquire this property or that we will fund the purchase price as described.

On July 14, 2005, we acquired two adjacent Class A suburban office properties aggregating 228,000 square feet located at 225 High Ridge Road in Stamford, CT for approximately $76.3 million. This acquisition was made through a borrowing under our Credit Facility. The buildings are currently 100% leased and we anticipate contributing the property to a to-be-formed joint venture. There can be no assurances that this property will be contributed to the aforementioned joint venture or that such joint venture will be formed.

On July 26, 2005, we announced
    the commencement of marketing of an offering in Australia of A$271 million
    (approximately US$203 million) of units in Reckson New York Property Trust
    (“Reckson LPT”), a newly-formed listed property trust to be traded
    on the Australia Securities Exchange (ASX). It is contemplated that Reckson
    LPT will contribute the net proceeds of the offering in exchange for a 75%
    indirect interest in a newly-formed joint venture in the United States. We
    will transfer 25 of our properties with a value of approximately $563 million
    and containing an aggregate of 3.4 million square feet to the joint venture
    in exchange for a 25% interest and approximately $502 million in cash (inclusive
    of proceeds from mortgage debt). We will arrange for approximately $319 million
    of debt, including approximately $247 million of fixed rate debt and approximately
    $72 million of floating rate debt, that will encumber the properties transferred
    to the joint venture. We will also grant the joint venture options to acquire
    10 additional properties containing an aggregate of approximately 1.2 million
    square feet over a two year period at a price based upon the fair market
 value at the time of transfer to the joint venture.

In accordance with FASB Statement No. 144, it is anticipated that the assets and liabilities of the properties to be contributed to the joint venture will be classified as held for sale on our consolidated balance sheets, for all periods presented, commencing with the quarterly period ended September 30, 2005.

Pursuant to the terms of the offering of the units of Reckson LPT, investors will pay 65% of the price of the units in a closing scheduled to occur in late September 2005 and the remaining 35% in October 2006.  We will transfer the 25 properties to the joint venture in three tranches, with properties having a value of approximately $367 million being transferred in late September 2005, approximately $72 million being transferred in January 2006 (such transfer to be funded entirely from the proceeds of mortgage debt) and approximately $124 million being transferred in October 2006.

We also announced the formation
    of 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 will include
    three independent directors from Australia. Our affiliates will provide asset
    management, property management, leasing, construction and other services
to the joint venture.

It is anticipated that a portion of the gain relating to the properties transferred to the joint venture will be deferred through an exchange qualifying under Section 1031 of the Internal Revenue Code in connection with our acquisition of EAB Plaza in Uniondale, New York.  We do not currently anticipate that we will make any special distribution to our stockholders with regard to the gain.

Under the terms of the offering we will be entitled to receive certain transaction fees. In addition, it is contemplated that RAML and Reckson Management Group, Inc. will share in certain other ongoing fees related to property management, leasing, construction, acquisition and disposition services.

Although the marketing of the units of Reckson LPT has commenced, the underwriting agreement relating to the offering, contribution agreement relating to the contribution of the properties to the joint venture and other documents have not been executed.  There can be no assurance that the offering will be completed and that the joint venture will be formed on the terms described above or at all.

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Note Receivable Investments

On March 16, 2005, a wholly owned subsidiary of the Operating Partnership advanced under separate mezzanine loan agreements, each of which bears interest at 9% per annum, (i) approximately $8.0 million which matures in April 2010 and is secured, in part, by indirect ownership interests in ten suburban office properties located in adjacent office parks in Long Island, NY and (ii) approximately $20.4 million which matures in April 2012 and is secured, in part, by indirect ownership interests in twenty-two suburban office properties located in adjacent office parks in Long Island, NY. Each mezzanine loan is additionally secured by other guaranties, pledges and assurances and are pre-payable without penalty after 18 months from the initial funding.
We made these investments through a borrowing under our Credit Facility.

In May 2005, we acquired a 65% interest in an $85 million, 15-year loan 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 for approximately $55.3 million.  The loan accrues compounded interest 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 net proceeds derived from such capital event.  This investment replaced our $34.0
million mezzanine loan, including accrued and unpaid interest, to one of the partners owning such condominium interest. We also acquired an approximately 5% indirect ownership interest in the property for a purchase price of approximately $6.2 million.  The property is currently 100% leased. The balance of these investments was funded through a borrowing under our Credit Facility and cash on hand.

We hold a $17.0 million note
    receivable, which bears interest at 12% per annum and is secured by a minority
    partnership interest in Omni Partners, L.P., owner of the Omni, a 579,000
    square foot Class A office property located in Uniondale, NY (the “Omni Note”).
    We currently own a 60% majority partnership interest in Omni Partners, L.P.
    and on March 14, 2007 may exercise an option to acquire the remaining 40%
interest for a price based on 90% of the fair market value of the property.

At June 30, 2005, we had invested approximately $111.2 million in mezzanine loans and participating loan 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, other guaranties, pledges and assurances.

The following table sets forth the terms of these investments at June 30, 2005 (in thousands):

|Description        |  |  | Property                     |  |   | Amount  |  |  | Interest Rate |       |  | Funding    |  |  | Maturity   |    
|------------------ |  |  | ---------------------------- |  | - | ------- |  |  | ------------- | ----- |  | ---------- |  |  | ---------- | ---
|                   |  |  |                              |  |   |         |  |  |               |       |  |            |  |  |            |    
|Mezzanine loan     |  |  | EAB Plaza                    |  | $ | 27,592  |  |  | 14.19         | % (a) |  | Sep., 2003 |  |  | Sep., 2005 | (b)
|Participating loan |  |  | 1166 Avenue of the Americas  |  |   | 55,250  |  |  | 9.00          | % (c) |  | May, 2005  |  |  | Dec., 2020 |    
|Mezzanine loan     |  |  | Long Island office portfolio |  |   | 8,031   |  |  | 9.00          | %     |  | Mar., 2005 |  |  | Apr., 2010 | (d)
|Mezzanine loan     |  |  | Long Island office portfolio |  |   | 20,356  |  |  | 9.00          | %     |  | Mar., 2005 |  |  | Apr., 2012 | (d)
|                   |  |  |                              |  |   |         |  |  |               |       |  |            |  |  |            |    
|                   |  |  |                              |  | $ | 111,229 |  |  |               |       |  |            |  |  |            |    
|                   |  |  |                              |  |   |         |  |  |               |       |  |            |  |  |            |    

|    |                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------
|(a) | Weighted average interest rate which is based on a spread over LIBOR, with a LIBOR floor of 1.63% per annum.

|(b) | The borrower has rights to extend the term for three additional one-year periods and, under certain circumstances, prepay amounts outstanding.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Compounded interest rate of 9.0%.  Interest pay rate is at an annual rate of 6.0% through March 2010, 8.5% thereafter through March 2015 and 11.0% thereafter through maturity in 2020.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

As of June 30, 2005, we held
    two other notes receivable, which aggregated $1.9 million and carried a weighted
    average interest rate of 11.21% per annum (the “Other Notes”) and collectively with the Omni Note, our mezzanine loans and preferred loan investments (the “Note Receivable Investments”). The Other Notes are secured in part by a minority partner’s
    preferred unit interest in the Operating Partnership, an interest in real
    property and a personal guarantee. $900,000 of the Other Notes matures on
December 1, 2005 and the remaining $1.0 million matures on January 31, 2010.

As of June 30, 2005, management has made subjective assessments as to the underlying security value on the Note Receivable Investments.  These assessments indicate an excess of market value over the carrying value and, based on these assessments, we believe there is no impairment to their carrying value.

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|7. | PARTNERS’ CAPITAL
|-- | -----------------

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, 2005, the Operating Partnership had issued and outstanding
1,617,675 Class A OP Units and
    465,845 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.

On June 20, 2005, as part of
    the consideration to acquire our joint venture partner’s 40% interest
    in the property located at 520 White Plains Road, Tarrytown, NY, we issued
127,510 OP Units valued at $31.37 per OP Unit.

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, and also under certain circumstances, at an initial
    exchange rate of 24.6124 common shares per $1,000 of principal amount of
    debentures. 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 terms of 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, prior to June 15, 2010.

During the three month period
    ended June 30, 2005, 53,410 shares of the Company’s common stock were issued in connection with the exercise of outstanding options to purchase stock under its stock option plans resulting in proceeds to us of approximately $800,000.  In addition, a limited partner in the Operating Partnership exchanged 841,992 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, effected in accordance with the safe harbor provisions of the Securities Exchange Act of 1934 and may be terminated by the Company at any time.  Since the Board’s initial authorization, the Company has purchased 3,318,600 shares of its common stock for an aggregate purchase price of approximately $71.3 million.  In June 2004, the Board of Directors re-set the Company’s
    common stock repurchase program back to 5.0 million shares. No purchases
have been made since March, 2003.

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.

Net income per common partnership
    unit is determined by allocating net income after preferred distributions
    and minority partners’ interest in consolidated partnerships income to the general and limited partners’ based
    on their weighted average distribution per common partnership units outstanding
during the respective periods presented.

Holders of preferred units of limited and general partnership interest are entitled to distributions based on the stated rates of return (subject to adjustment) for those 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, 2005, there remains 180,714 shares of common stock
    subject to the original stock loans which are anticipated to vest between
    2006 and 2011. Approximately $276,000 and $507,000 and $248,000 and $556,000
    of compensation expense was recorded for the three and six month periods
    ended June 30, 2005 and 2004, respectively, related to these LTIP. Such amounts
    have been included in marketing, general and administrative expenses on the
accompanying consolidated statements of income.

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The outstanding stock loan balances due from executive officers aggregated approximately $3.8 million and $4.7 million at June 30,  2005 and December 31, 2004, 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, 2005 and December 31, 2004 amounted to approximately $1.8 million and $2.7 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, 2005, there remains 31,417 shares of common stock reserved related
to the 2002 Rights and 17,360 shares of common stock reserved related to the
2003 Rights. Approximately $120,000 and $224,000 and $100,000 and $201,000 of
compensation expense was recorded for the three and six month periods ended June
30, 2005 and 2004, 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 60th percentile 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.

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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.

On March 13, 2005 and March 13, 2004, with respect to the 2003 LTIP, the Company met its annual performance measure with respect to the 2004 and 2003 annual measurement periods, respectively. As a result, the Company issued to the participants of the 2003 LTIP 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,” 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.  After two years from the date of grant, if such parity is reached, vested LTIP Units may be redeemed for cash in an amount equal to the then fair market value of an equal number of REIT Shares or converted into an equal number of OP Units, as determined by the
Company’s Compensation Committee.  However, there are circumstances under
which 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,
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. 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. 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.

In March 2005, following the
    recommendation of the Compensation Committee of the Board of Directors, eight
    senior and executive officers of the Company were awarded, in the aggregate,
    272,100 LTIP Units to continue to incentivize them for the long-term (the “2005 LTIP Unit Grants”). Each such 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. The terms of the 2005 LTIP Unit Grants are generally consistent with
    the terms of the 2003 LTIP, including with respect to the impact upon vesting
in the event of a change in control.

As of June 30, 2005, and as a result of the foregoing, there remains 155,553 shares of common stock reserved for future issuance under the core award of the 2003 LTIP and 530,433 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 and $699,000 and $1.4 million of compensation expense for the three and six month periods ended June 30, 2005 and 2004, respectively. In addition, with respect to the LTIP Units and the 2005 LTIP Unit Grants, the Company recorded compensation expense of approximately $822,000 and $1.3 million for the three and six month periods ended June 30, 2005, respectively.  Such amounts
have been included in marketing, general and administrative expenses on the accompanying consolidated statements of income.  No accrual has been made with respect to the Special Outperformance Pool of the 2003 LTIP due to the uncertainty of the outcome of achieving the requisite performance measures.

Compensation expense with respect
    to the core component of the 2003 LTIP, which relates to the Company attaining
    certain annual performance measures, is recognized in accordance with paragraph
    26 of Statement No. 123 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 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 in accordance with Statement No. 123 in which compensation expense is recognized 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 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.

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We expect to adopt Statement No. 123R on January 1, 2006; however, we have not yet been able to determine the impact of Statement No. 123R on our consolidated financial statements at this time.

As of June 30, 2005, the Company had approximately 1.8 million shares of its common stock reserved for issuance under its stock option plans, in certain cases subject to vested terms, at a weighted average exercise price of $24.97 per option.  In addition, the Company has approximately 2.8 million shares of its common stock reserved for future issuance under its stock option plans.

The Operating Partnership issues
    additional units to the Company, and thereby increases the Company’s general partnership interest in the Operating Partnership, with terms similar to the terms of any securities (i.e., common stock or preferred stock) issued by the Company (including any securities issued by the Company upon the exercise of stock options).  Any consideration received by the Company in respect of the issuance of its securities is contributed to the Operating Partnership.  In addition, the Operating Partnership or a subsidiary funds the compensation of personnel, including any amounts payable under the Company’s
LTIP.

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

|                                         |  |                                       |       
|---------------------------------------- |  | ------------------------------------- | ------
|                                         |  | Six
        Months Ended
    June 30, |       
|                                         |  |                                       |       
|                                         |  |                                       | 2005  
|                                         |  |                                       |       
|Cash paid during the period for interest |  | $                                     | 51,561
|                                         |  |                                       |       
|Interest capitalized during the period   |  | $                                     | 4,611 
|                                         |  |                                       |       

|9. | SEGMENT DISCLOSURE
|-- | ------------------

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
    industrial / R&D properties located and operated within the Tri-State Area (the “Core Portfolio”).
    Our portfolio also includes one office property located in Orlando, Florida.
    We have formed an Operating Committee that reports directly to the President
    and Chief Financial Officer who have been identified as the Chief Operating
    Decision Makers due to their final authority over resource allocation, decisions
and performance assessment.

We do not consider (i) interest
    incurred on our Credit Facility, Bridge Facility and Senior Unsecured Notes,
    (ii) the operating performance of the office property located in Orlando,
    Florida, (iii) the operating performance of those properties reflected as
    discontinued operations on our consolidated statements of income and (iv)
    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 Statement No. 144.

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

|                                                                                                                                                 |  | Three
        months ended |               
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------- | --------------
|                                                                                                                                                 |  |                            |               
|                                                                                                                                                 |  | June 30, 2005              |               
|                                                                                                                                                 |  |                            |               
|                                                                                                                                                 |  |                            | Core Portfolio
|                                                                                                                                                 |  |                            |               
|PROPERTY OPERATING REVENUES:                                                                                                                     |  |                            |               
|Base rents, tenant
  escalations and reimbursements                                                                                              |  | $                          | 138,916       
|                                                                                                                                                 |  |                            |               
|                                                                                                                                                 |  |                            |               
|EXPENSES:                                                                                                                                        |  |                            |               
|Property
    operating expenses                                                                                                                  |  |                            | 52,626        
|Marketing,
    general and administrative                                                                                                        |  |                            | 4,318         
|Depreciation
    and amortization                                                                                                                |  |                            | 32,048        
|                                                                                                                                                 |  |                            |               
|Total
    Operating Expenses                                                                                                                     |  |                            | 88,992        
|                                                                                                                                                 |  |                            |               
|Operating
    Income (Loss)                                                                                                                      |  |                            | 49,924        
|                                                                                                                                                 |  |                            |               
|NON-OPERATING INCOME AND EXPENSES                                                                                                                |  |                            |               
|Interest
    and investment income and other                                                                                                     |  |                            | 557           
|Interest:                                                                                                                                        |  |                            |               
|Expense
    incurred                                                                                                                             |  |                            | (13,976       
|Amortization
    of deferred financing costs                                                                                                     |  |                            | (280          
|                                                                                                                                                 |  |                            |               
|Total
    Non-Operating Income and Expenses                                                                                                      |  |                            | (13,699       
|                                                                                                                                                 |  |                            |               
|Income
      (loss) before minority interests,preferred distributions,equity in earnings of real estatejoint ventures and discontinuedoperations |  | $                          | 36,225        
|                                                                                                                                                 |  |                            |               

|                                                                                                                                           | Six Months
    Ended |               
|------------------------------------------------------------------------------------------------------------------------------------------ | -------------------- | --------------
|                                                                                                                                           |                      |               
|                                                                                                                                           | June 30, 2005        |               
|                                                                                                                                           |                      |               
|                                                                                                                                           |                      | Core Portfolio
|                                                                                                                                           |                      |               
|PROPERTY OPERATING REVENUES:                                                                                                               |                      |               
|Base
      rents, tenant
  escalations and reimbursements                                                                                  |                      | $             
|                                                                                                                                           |                      |               
|                                                                                                                                           |                      |               
|                                                                                                                                           |                      |               
|EXPENSES:                                                                                                                                  |                      |               
|Property operating expenses                                                                                                                |                      |               
|Marketing,
    general and administrative                                                                                                  |                      |               
|Depreciation
    and amortization                                                                                                          |                      |               
|                                                                                                                                           |                      |               
|Total Operating Expenses                                                                                                                   |                      |               
|                                                                                                                                           |                      |               
|Operating Income (Loss)                                                                                                                    |                      |               
|                                                                                                                                           |                      |               
|NON-OPERATING INCOME AND EXPENSES                                                                                                          |                      |               
|Interest and investment income
    and other                                                                                               |                      |               
|Interest:                                                                                                                                  |                      |               
|Expense incurred                                                                                                                           |                      |               
|Amortization of deferred financing
    costs                                                                                               |                      |               
|                                                                                                                                           |                      |               
|Total Non-Operating Income
    and Expenses                                                                                                |                      |               
|                                                                                                                                           |                      |               
|Income (loss) before minority interests,preferred distributions,equity in earnings of real estatejoint ventures and discontinuedoperations |                      | $             
|                                                                                                                                           |                      |               
|Total Assets                                                                                                                               |                      | $             
|                                                                                                                                           |                      |               
|                                                                                                                                           |                      |               

18

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|10. | NON-CASH INVESTING AND FINANCING ACTIVITIES
|--- | -------------------------------------------

During June 2005, a limited
    partner exchanged 841,992 OP Units for an equal number of shares of the Company’s
common stock which were priced at $31.60 per share.

On June 20, 2005, as part of
    the consideration to acquire our joint venture partner’s 40% interest
    in the property located at 520 White Plains Road, Tarrytown, NY, we issued
    127,510 OP Units valued at $31.37 per OP Unit and assumed approximately $4.1
of secured mortgage indebtedness of the joint venture.

In May 2005, we acquired an approximate $55.3 million interest in a 15-year loan 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. This investment replaced our $34.0 million mezzanine loan, including accrued and unpaid interest, to one of the partners owning such condominium interest.

|11. | RELATED PARTY TRANSACTIONS
|--- | --------------------------

In connection with our IPO,
    we were granted ten-year options to acquire ten properties (the “Option Properties”)
    which were either owned by certain Rechler family members who were also executive
    officers of the Company, or in which the Rechler family members owned a non-controlling
    minority interest, at prices based upon an agreed upon formula. In years
    prior to 2001, one Option Property was sold by the Rechler family members
    to a third party and four of the Option Properties were acquired by us for
    an aggregate purchase price of approximately $35.0 million, which included
    the issuance of approximately 475,000 Class A OP Units valued at approximately
$8.8 million. During November, 2003, in connection
    with the sale of all but three of our 95 property, 5.9 million square foot,
    Long Island industrial building portfolio to members of the Rechler family,
    four of the five remaining options (the “Remaining Option Properties”)
    were terminated along with management contracts relating to three of the
properties.

The Operating Partnership conducts
    its management, leasing and construction related services through the Company’s taxable REIT subsidiaries as defined by the Code.  These services are currently provided by the Service Companies.  During the three and six months ended June 30, 2005 and 2004, Reckson Construction & Development LLC (“RCD”) billed approximately $17,000 and $26,000 and $217,000 and $678,000, respectively, of market rate services and Reckson Management Group, Inc. (“RMG”)
    billed approximately $71,000 and $142,000 and $72,000 and $138,000, respectively,
of market rate management fees to the Remaining Option Properties.

RMG leases approximately 26,000
    square feet of office space at a Remaining Option Property located at 225
    Broadhollow Road, Melville, NY for its corporate offices at an annual base
    rent of approximately $780,000. 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
    $79,000. In addition, commencing April 1, 2004, RCD has been leasing approximately
    17,000 square feet of space at a Remaining Option Property, located at 225
    Broadhollow Road, Melville, NY, which is scheduled to terminate on September
    30, 2006. Base rent of approximately $122,000 and $244,000 was paid by RCD
    during the three and six months ended June 30, 2005, respectively, and $121,000
    was paid for the three months ended June 30, 2004. Commencing in April 2005,
    RCD 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.

On March 28, 2005, an entity
    (“REP”) owned by members of the Rechler family (excluding Scott
    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 the 2003 industrial transaction.

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.

During 1997, the Company formed
    FrontLine Capital Group, formerly Reckson Service Industries, Inc. (“FrontLine”), and Reckson Strategic Venture Partners, LLC (“RSVP”).  RSVP is a real estate venture capital fund which invested primarily in real estate and real estate operating companies outside the Company’s core office and industrial / R&D focus and whose common equity is held indirectly by FrontLine.  In connection with the formation and spin-off of FrontLine, the Operating Partnership established an unsecured credit facility with FrontLine (the “FrontLine Facility”) in the amount of $100 million for FrontLine to use in its investment activities, operations and other general corporate purposes.  The
Company advanced approximately $93.4 million under the FrontLine Facility.  The Operating Partnership also approved the funding of investments of up to $110 million relating to RSVP (the “RSVP Commitment”), through RSVP-controlled joint ventures (for REIT-qualified investments) or advances made to FrontLine under an unsecured loan facility (the “RSVP Facility”) having terms similar to the FrontLine Facility (advances made under the RSVP Facility and the FrontLine Facility hereafter, the “FrontLine Loans”).
At March 31, 2005, approximately $109.1 million had been funded through the RSVP
Commitment, of which $59.8 million represents investments by the Company in RSVP-controlled
(REIT-qualified) joint ventures and $49.3 million represents loans made to FrontLine
under the RSVP Facility. Interest accrued (net of reserves) under the FrontLine
Facility and the RSVP Facility was approximately $19.6 million.

19

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

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

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

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

As a result of certain transactions
    including the successful public offering of American Campus Communities,
    a joint venture owned by RSVP and Reckson Operating Partnership, the net
    carrying value of the Company’s investments in the FrontLine Loans and joint venture investments with RSVP, inclusive of the Company’s share of previously accrued GAAP equity in earnings on those investments, is approximately $55.2 million which was reassessed with no change by management as of June 30, 2005.  Such amount has been reflected in investments in affiliate loans and joint ventures on the Company’s
consolidated balance sheet.

Scott H. Rechler, who serves as Chief Executive Officer, President and Chairman of the Board of the Company, serves as CEO and Chairman of the Board of Directors of FrontLine and is its sole board member.  Scott H. Rechler also serves as a member of the management committee of RSVP and serves as a member of the Board of Directors of ACC.

In November 2004, Concord Associates
    LLC and Sullivan Resorts LLC, a joint venture approximately 47% owned by
    RSVP, executed a binding agreement to contribute its Concord and Grossingers
    resort properties (excluding residential land) to Empire Resorts Inc. (NASDAQ:
    NYNY)(“Empire”) for consideration of 18 million shares of common stock of Empire and the right to appoint five members of the Board of Directors.  It is currently anticipated that Scott H. Rechler will be appointed to fill one seat on Empire’s Board.  On March 4, 2005, Empire announced that the agreement had been amended, whereby the parties agreed to waive the condition to closing which required final governmental approval of gaming in the Catskills.  The transaction
is subject to satisfaction of certain conditions and approvals, including the approval of Empire’s
shareholders. There can be no assurances that gaming will be approved in the
Catskills or that the transaction will be completed on its current terms or at
all.

|12. | COMMITMENTS AND  CONTINGENCIES
|--- | ------------------------------

The Company has entered into amended and restated employment and noncompetition agreements with three executive officers.  The agreements are for five years and expire on August 15, 2005.  The Company has also entered into an employment agreement with one additional officer prior to his appointment as an executive officer.  This agreement expires in December 2006.

We had undrawn letters of credit outstanding against our Credit Facility of approximately $1.2 million at June 30, 2005.  On July 8, 2005 we issued a $24.0 million standby letter of credit to secure a deposit obligation for the pending acquisition of a 1.1 million square foot Class A office complex located at 204 EAB Plaza in Uniondale, NY. (See Note 6)

A number of shareholder derivative
    actions have been commenced purportedly on behalf of the Company against
    the Board of Directors relating to the disposition of our Long Island industrial
    portfolio. The complaints allege, among other things, that the process by
    which the directors agreed to the transaction was not sufficiently independent
    of the Rechler family and did not involve a “market check” or third party auction process and, as a result, was not for adequate consideration.  The plaintiffs seek similar relief, including a declaration that the directors violated their fiduciary duties and damages.  On May 25, 2004, the Circuit Court for Baltimore City granted the defendants’ motions to dismiss the three consolidated
Maryland actions on the ground that the plaintiffs in those actions had failed to make a pre-suit demand on the Board of Directors, or to allege facts showing that such a demand would have been futile.  Final judgment was entered on June 8, 2004, and on June 30, 2004, the plaintiffs in the Maryland actions filed a notice of appeal from that judgment to the Maryland Court of Special Appeals.  The Company’s
management believes that the complaints are without merit.

20

---



On April 4, 2005 the Company
    and the other parties to the shareholder derivative actions filed against
    the Company in connection with its disposition of its industrial portfolio
    have agreed to settle such actions pursuant to the Stipulation of Settlement,
    dated as of March 14, 2005 and executed subsequent thereto. The proposed
    settlement includes various changes to the Company’s corporate governance policies to provide for an Affiliate Transaction Committee and to require that the Company’s Board of Directors be comprised of at least two-thirds independent directors (as defined in the Company’s
    Corporate Governance Guidelines), as well as certain other concessions. The
    proposed settlement is subject to court
approval.

On June 16, 2005, Judge Evelyn Omega Connor of the Circuit Court of Baltimore City signed an order regarding preliminary approval and notice with respect to the shareholder derivative actions.  A hearing to consider approval of the proposed settlement has been scheduled for September 20, 2005, at 9:30 a.m., in the Circuit Court for Baltimore City.  There can be no assurance that final court approval will be obtained.

21

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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
    Operating Partnership, L.P. (the "Operating Partnership") and related
notes thereto.

The Operating Partnership 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 Operating Partnership’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 Operating Partnership’s operations, the ability to lease vacant space and the ability to renew or relet space under expiring leases, involve risks and uncertainties.  Many of the forward-looking
statements can be identified by the use of words such as “believes”, “may”, “expects”, “anticipates”, “intends” or similar expressions.  Although the Operating Partnership 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 Operating Partnership can give no assurance that its expectation will be achieved.  Among those risks, trends and uncertainties are:  the general economic climate, including the conditions affecting industries in which our principal tenants compete; changes in the supply of and demand for office in the New York Tri-State area; changes in interest
rate levels; changes in the Operating Partnership’s credit ratings; changes in the Operating Partnership’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 Operating Partnership by third parties; risks associated with joint ventures; liability for uninsured losses or environmental matters; and other risks associated with the development and acquisition of properties, including risks that development may not be completed on schedule,
that the tenants will not take occupancy or pay rent, or that development or operating costs may be greater than anticipated.  Consequently, such forward-looking statements should be regarded solely as reflections of the Operating Partnership’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 Operating Partnership include accounts of the Operating Partnership
    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 Operating Partnership’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 $657,000 and $1.1 million and $700,000 and $1.8 million of bad debt expense, net of discontinued operations, for the three and six month periods ended June 30, 2005 and  2004, respectively, related to tenant receivables which accordingly reduced our total revenues and reported net income during the period.

22

---



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

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

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

Real Estate

Land, buildings and improvements, furniture, fixtures and equipment are recorded at cost.  Tenant improvements, which are included in buildings and improvements, are also stated at cost.  Expenditures for ordinary maintenance and repairs are expensed to operations as 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.

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. 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 the 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 are 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, because recognizing 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 did not have an impact on net income allocable to common shareholders.
Statement No. 144 only impacts the presentation of the results of operations
and gain on sales of real estate assets for those properties sold during the
period within the consolidated statements of income.

23

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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 consolidated
    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 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 the Company for new or modified limited partnership arrangements is effective June 30, 2005 and for existing limited partnership arrangements effective January 1,
2006. We do not expect that we will be required to consolidate our current unconsolidated
joint venture investment nor will Issue 04-05 have a material effect on our consolidated
financial statements.

Overview and Background

The Operating Partnership commenced
    operations on June 2, 1995. Reckson Associates Realty Corp. (the “Company”), which serves as the sole general partner of the Operating Partnership, is a fully integrated, self administered and self managed real estate investment trust (“REIT”).
    The Operating Partnership and the Company were formed for the purpose of
    continuing the commercial real estate business of Reckson Associates, their
predecessor, its affiliated partnerships and other entities.

The Operating Partnership is
    engaged in the ownership, management, operation, leasing and development
    of commercial real estate properties, principally office and to a lesser
    extent industrial buildings and also owns land for future development. The
Operating Partnership’s growth strategy is focused on the commercial real estate markets in and around the New York City tri-state area (the “Tri-State Area”).

The Reckson Group, the predecessor
    to the Company, was engaged in the ownership, management, operation, leasing
    and development of commercial real estate properties, principally office
    and industrial / R&D buildings, and also owned undeveloped land located primarily on Long Island, NY.  In June 1995, the Company completed an initial public offering (the "IPO"), succeeded to the Reckson Group’s
real estate business and commenced operations.

In connection with our IPO,
    we were granted ten-year options to acquire ten properties (the “Option Properties”) which were either owned by certain Rechler family members who were also executive officers of the Company, or in which the Rechler family members owned a non-controlling minority interest, at prices based upon an agreed upon formula.  In years prior to 2001, one Option Property was sold by the Rechler family members to a third party and four of the Option Properties were acquired by us for an aggregate purchase price of approximately $35.0 million, which included the issuance of approximately 475,000 common units of limited partnership interest in the Operating Partnership (“OP Units”) valued at approximately
$8.8 million.   During November, 2003, in connection with the sale of our Long Island industrial building portfolio to members of the Rechler family, four of the five remaining options (the “Remaining Option Properties”)
were terminated, along with management contracts relating to three of the properties.

The Operating Partnership conducts
    its management, leasing and construction related services through the Company’s taxable REIT subsidiaries as defined by the Internal Revenue Code of 1986, as amended (the “Code”).  These services are currently provided by Reckson Management Group, Inc. (“RMG”), RANY Management Group, Inc., Reckson Construction and Development LLC (“RCD”) and Reckson Construction Group New York, Inc. (collectively, the “Service Companies”).
    During the three and six months ended June 30, 2005 and 2004, RCD billed
    approximately $17,000 and $26,000 and $217,000 and $678,000 of market rate
    services and RMG billed approximately $71,000 and $142,000 and $72,000 and
    $138,000 of
market rate management fees to the Remaining Option Properties.

24

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RMG leases approximately 26,000
    square feet of office space at a Remaining Option Property located at 225
    Broadhollow Road, Melville, NY for its corporate offices at an annual base
    rent of approximately $780,000. 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
    $79,000. In addition, commencing April 1, 2004, RCD has been leasing approximately
    17,000 square feet of space at a Remaining Option Property, located at 225
    Broadhollow Road, Melville, NY, which is scheduled to terminate on September
    30, 2006. Base rent of approximately $122,000 and $244,000 was paid by RCD
    during the three and six months ended June 30, 2005, respectively, and $121,000
    was paid for the three months ended June 30, 2004. Commencing in April 2005,
    RCD 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.

On March 28, 2005, an entity
    (“REP”) owned by members of the Rechler family (excluding Scott
    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 the 2003 industrial transaction.

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.

As of June 30, 2005 we owned
    and operated 82 office properties (inclusive of eight office properties owned
    through joint ventures), encompassing approximately 16.8 million rentable
    square feet and eight industrial / R&D properties encompassing approximately
863,000 rentable square feet located in the Tri-State Area.

At June 30, 2005, we owned approximately
    341 acres of land in 12 separate parcels of which we can, based on current
    estimates, develop approximately 3.1 million square feet of office space
    (the “Development Parcels”).  During July 2004, we commenced
    the ground-up development on one of the Development Parcels of a 305,000
    square foot Class A office building with a total anticipated investment of
    approximately $61.3 million. This development is located within our existing
    three building executive office park in Melville, NY. In addition, 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 with a total anticipated
    investment of approximately $10.1 million. This development is located within
    our existing six building office park in Stamford, Connecticut. There can
    be no assurances that the actual cost of these ground-up development projects
    will not exceed their anticipated amounts. 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 2006 for aggregate
    consideration of $2.0 million. In addition, as previously discussed, in May
    2005, we entered into a contract to sell approximately 60 acres of vacant
    land in Chatham Township, NJ. As of June 30, 2005, we had invested approximately
    $175.3 million in the Development Parcels. One of the Development Parcels,
    comprising 39.5 acres located in Valhalla, NY, was previously under
contract for sale and was contingent upon obtaining zoning for residential use
    of the land and other customary due diligence and approvals. In May 2005,
the purchaser terminated the contract.

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. We are currently evaluating alternative land uses for certain of the remaining Development Parcels to realize their highest economic value. These alternatives may include rezoning certain Development Parcels from commercial to residential for potential disposition.

We also own a 354,000 square foot office building located in Orlando, Florida.  This non-core real estate holding was acquired in May 1999 in connection with our initial New York City portfolio acquisition.

During January 2005, we acquired, in two separate transactions, two Class A office properties located at One and Seven Giralda Farms in Madison, New Jersey for total consideration of approximately $78.0 million.  One Giralda Farms encompasses approximately 150,000 rentable square feet and Seven Giralda Farms encompasses approximately 203,000 rentable square feet.  We made these acquisitions through borrowings under our Credit Facility.

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, a sub-market of New York City, for approximately $471.0 million, inclusive of transfer taxes and transactional costs.  One Court Square is 100% leased to the seller, Citibank N.A., under a 15-year net lease.  The lease contains partial cancellation options effective during 2011 and 2012 for up to 20% of the leased space and in 2014 and 2015 for up to an additional 20% of the leased space, subject to notice and the payment of early termination penalties.   We are currently negotiating with an institutional joint venture partner to sell between a 60% to 70% interest in this property.

In May 2005, we completed mandatory arbitration proceedings relating to the re-setting of the rent under the ground lease pursuant to which we own an approximately 1.1 million square foot Class A office tower located at 1185 Avenue of the Americas, New York, NY.  The rent was re-set, and is not subject to further increase, for the remaining 37 years of the ground lease (inclusive of a 20-year extension at our option) to approximately $6.9 million per annum. Such re-set is retroactive to June 2004.

On May 26, 2005, we entered into a contract to sell approximately 60 acres of vacant land located in Chatham Township, NJ for up to approximately $30.0 million which is based upon a final approved site plan. The closing is anticipated to occur upon receiving final zoning approvals and other customary due diligence and approvals. The sale is contingent upon due diligence, environmental assessment, zoning and other customary approvals. There can be no assurances that any of the aforementioned contingences will be achieved and the sale ultimately completed.

25

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On June 8, 2005, we sold a three-acre
    vacant land parcel located on Long Island for approximately $1.4 million
    which resulted in a net gain of approximately $175,000, net of limited partner’s
    minority interest. Such gain is reflected as a component of discontinued
operations on our consolidated statements of income.

On June 20, 2005, we acquired
    our joint venture partner’s 40% interest in a 172,000 square foot office property located at 520 White Plains Road, Tarrytown, NY for approximately $8.1 million which consisted of the issuance of 127,510 OP Units valued at $31.37 per OP Unit and the assumption of approximately $4.1 million of secured mortgage indebtedness of the joint venture. Prior to us acquiring this interest, we accounted for the joint venture under the equity method of accounting. In accordance with the equity method of accounting our proportionate share of the joint venture’s
    income was approximately $25,000 and $176,000 and $294,000 and $408,000 for
    the three and six month periods ended June 30, 2005 and 2004,
respectively.

On June 21, 2005, we entered into a contract to sell two suburban office properties, aggregating approximately 69,000 square feet, located at 310 and 333 East Shore Road in Great Neck, Long Island for aggregate consideration of approximately $17.3 million. The sale is scheduled to close within 3 months. There can be no assurances that such sale will occur under the terms anticipated or at all.

On July 8, 2005, we entered
    into a contract to purchase a 1.1 million square foot Class A office complex
    located at 204 EAB Plaza in Uniondale, NY, commonly referred to as “EAB Plaza”,
    for approximately $240 million. The property is encumbered by a long-term
    ground lease which has a remaining term in excess of 75 years, including
    renewal options. Pursuant to the terms of the contract, we provided the seller
    with a down payment in the form of a $24.0 million standby letter of credit.
    Such letter of credit was issued under our unsecured credit facility. We
    currently hold a $27.6 million junior mezzanine loan which is secured by
    a pledge of an indirect ownership interest of an entity which currently owns
    the ground leasehold estate. Prior to closing on the acquisition of EAB Plaza,
    we have the option to purchase an adjoining 8.2-acre development site. If
    we do not exercise this option, we will provide a two-year $10 million loan
    to the seller, secured by the development site and will be retained to provide
    development related consulting services for the site. We anticipate closing
    on this complex in October 2005 through the satisfaction of our junior mezzanine
    loan and a borrowing under our unsecured credit facility. There can be no
    assurances that we will acquire this property or that we will fund the purchase
price as described.

On July 14, 2005, we acquired two adjacent Class A suburban office properties aggregating 228,000 square feet located at 225 High Ridge Road in Stamford, CT for approximately $76.3 million. This acquisition was made through a borrowing under our unsecured credit facility. The buildings are currently 100% leased and we anticipate contributing the property to a to-be-formed joint venture. There can be no assurances that this property will be contributed to the aforementioned joint venture or that such joint venture will be formed.

On July 26, 2005, we announced
    the commencement of marketing of an offering in Australia of A$271 million
    (approximately US$203 million) of units in Reckson New York Property Trust
    (“Reckson LPT”), a newly-formed listed property trust to be traded
    on the Australia Securities Exchange (ASX). It is contemplated that Reckson
    LPT will contribute the net proceeds of the offering in exchange for a 75%
    indirect interest in a newly-formed joint venture in the United States. We
    will transfer 25 of our properties with a value of approximately $563 million
    and containing an aggregate of 3.4 million square feet to the joint venture
    in exchange for a 25% interest and approximately $502 million in cash (inclusive
    of proceeds from mortgage debt). We will arrange for approximately $319 million
    of debt, including approximately $247 million of fixed rate debt and approximately
    $72 million of floating rate debt, that will encumber the properties transferred
    to the joint venture. We will also grant the joint venture options to acquire
    10 additional properties containing an aggregate of approximately 1.2 million
    square feet over a two year period at a price based upon the fair market
 value at the time of transfer to the joint venture.

In accordance with FASB Statement No. 144, it is anticipated that the assets and liabilities of the properties to be contributed to the joint venture will be classified as held for sale on our consolidated balance sheets, for all periods presented, commencing with the quarterly period ended September 30, 2005.

Pursuant to the terms of the offering of the units of Reckson LPT, investors will pay 65% of the price of the units in a closing scheduled to occur in late September 2005 and the remaining 35% in October 2006.  We will transfer the 25 properties to the joint venture in three tranches, with properties having a value of approximately $367 million being transferred in late September 2005, approximately $72 million being transferred in January 2006 (such transfer to be funded entirely from the proceeds of mortgage debt) and approximately $124 million being transferred in October 2006.

26

---



We also announced the formation
    of 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 will include
    three independent directors from Australia. Our affiliates will provide asset
    management, property management, leasing, construction and other services
to the joint venture.

It is anticipated that a portion of the gain relating to the properties transferred to the joint venture will be deferred through an exchange qualifying under Section 1031 of the Internal Revenue Code in connection with our acquisition of EAB Plaza in Uniondale, New York.  We do not currently anticipate that we will make any special distribution to our stockholders with regard to the gain.

Under the terms of the offering we will be entitled to receive certain transaction fees. In addition, it is contemplated that RAML and Reckson Management Group, Inc. will share in certain other ongoing fees related to property management, leasing, construction, acquisition and disposition services.

Although the marketing of the units of Reckson LPT has commenced, the underwriting agreement relating to the offering, contribution agreement relating to the contribution of the properties to the joint venture and other documents have not been executed.  There can be no assurance that the offering will be completed and that the joint venture will be formed on the terms described above or at all.

On March 16, 2005, a wholly owned subsidiary of the Operating Partnership advanced under separate mezzanine loan agreements, each of which bears interest at 9% per annum, (i) approximately $8.0 million which matures in April 2010 and is secured, in part, by indirect ownership interests in ten suburban office properties located in adjacent office parks in Long Island, NY and (ii) approximately $20.4 million which matures in April 2012 and is secured, in part, by indirect ownership interests in twenty-two suburban office properties located in adjacent office parks in Long Island, NY. Each mezzanine loan is additionally secured by other guaranties, pledges and assurances and are pre-payable without penalty after 18 months from the initial funding.
We made these investments through a borrowing under our unsecured credit facility.

In May 2005, we acquired a 65% interest in an $85 million, 15-year loan 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 for approximately $55.3 million.  The loan accrues compounded interest 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 net proceeds derived from such capital event.  This investment replaced our $34.0
million mezzanine loan, including accrued and unpaid interest, to one of the partners owning such condominium interest. We also acquired an approximately 5% indirect ownership interest in the property for a purchase price of approximately $6.2 million.  The property is currently 100% leased. The balance of these investments was funded through a borrowing under our unsecured credit facility and cash on hand.

We hold a $17.0 million note
    receivable, which bears interest at 12% per annum and is secured by a minority
    partnership interest in Omni Partners, L.P., owner of the Omni, a 579,000
    square foot Class A office property located in Uniondale, NY (the “Omni Note”).
    We currently own a 60% majority partnership interest in Omni Partners, L.P.
    and on March 14, 2007 may exercise an option to acquire the remaining 40%
interest for a price based on 90% of the fair market value of the property.

At June 30, 2005, we had invested approximately $111.2 million in mezzanine loans and participating loan 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, other guaranties, pledges and assurances.

The following table sets forth the terms of these investments at June 30, 2005 (in thousands):

|Description        |  | Property                     |  |   | Amount  |  | Interest Rate |       |  | Funding   |  | Maturity      | 
|------------------ |  | ---------------------------- |  | - | ------- |  | ------------- | ----- |  | --------- |  | ------------- | 
|                   |  |                              |  |   |         |  |               |       |  |           |  |              
|Mezzanine loan     |  | EAB Plaza                    |  | $ | 27,592  |  | 14.19         | % (a) |  | Sep, 2003 |  | Sep, 2005 (b) | 
|Participating loan |  | 1166 Avenue of the Americas  |  |   | 55,250  |  | 9.00          | % (c) |  | May, 2005 |  | Dec, 2020     | 
|Mezzanine loan     |  | Long Island office portfolio |  |   | 8,031   |  | 9.00          | %     |  | Mar, 2005 |  | Apr, 2010 (d) | 
|Mezzanine loan     |  | Long Island office portfolio |  |   | 20,356  |  | 9.00          | %     |  | Mar, 2005 |  | Apr, 2012 (d) | 
|                   |  |                              |  |   |         |  |               |       |  |           |  |              
|                   |  |                              |  | $ | 111,229 |  |               |       |  |           |  |               | 
|                   |  |                              |  |   |         |  |               |       |  |           |  |              

|(a) | Weighted average interest rate which is based on a spread over LIBOR, with a LIBOR floor of 1.63% per annum.
|--- | ------------------------------------------------------------------------------------------------------------

|(b) | The borrower has rights to extend the term for three additional one-year periods and, under certain circumstances, prepay amounts outstanding.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Compounded interest rate of 9.0%.  Interest pay rate is at an annual rate of 6.0% through March 2010, 8.5% thereafter through March 2015 and 11.0% thereafter through maturity in 2020.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

As of June 30, 2005, we held
    two other notes receivable, which aggregated approximately $1.9 million and
    carried a weighted average interest rate of 11.21% per annum (the “Other Notes”) and collectively with the Omni Note, our mezzanine loans and preferred loan investments (the “Note Receivable Investments”). The Other Notes are secured in part by a minority partner’s
    preferred unit interest in the Operating Partnership, an interest in real
    property and a personal guarantee. $900,000 of the Other Notes matures on
December 1, 2005 and the remaining $1.0 million matures on January 31, 2010.

As of June 30, 2005, management has made subjective assessments as to the underlying security value on the Note Receivable Investments.  These assessments indicate an excess of market value over the carrying value and, based on these assessments, we believe there is no impairment to their carrying value.

27

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Our market capitalization at
    June 30, 2005 was approximately $4.9 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 $33.55 per share / unit (based on the closing price of the Company’s common stock on June 30, 2005), (ii) the liquidation preference value of the Operating Partnership’s preferred units of $1,000 per unit and (iii) approximately $2.1 billion (net of minority partners’ interests’ share
    of consolidated joint venture debt) of debt outstanding at June 30, 2005.
    As a result, our total debt to total market capitalization ratio at June
30, 2005 equaled approximately 42.0%.

During 1997, the Company formed
    FrontLine Capital Group, formerly Reckson Service Industries, Inc. (“FrontLine”), and Reckson Strategic Venture Partners, LLC (“RSVP”).  RSVP is a real estate venture capital fund which invested primarily in real estate and real estate operating companies outside the Company’s core office and industrial / R&D focus and whose common equity is held indirectly by FrontLine.  In connection with the formation and spin-off of FrontLine, the Operating Partnership established an unsecured credit facility with FrontLine (the “FrontLine Facility”) in the amount of $100 million for FrontLine to use in its investment activities, operations and other general corporate purposes.  The
Company advanced approximately $93.4 million under the FrontLine Facility.  The Operating Partnership also approved the funding of investments of up to $110 million relating to RSVP (the “RSVP Commitment”), through RSVP-controlled joint ventures (for REIT-qualified investments) or advances made to FrontLine under an unsecured loan facility (the “RSVP Facility”) having terms similar to the FrontLine Facility (advances made under the RSVP Facility and the FrontLine Facility hereafter, the “FrontLine Loans”).
At March 31, 2005, approximately $109.1 million had been funded through the RSVP
Commitment, of which $59.8 million represents investments by the Company in RSVP-controlled
(REIT-qualified) joint ventures and $49.3 million represents loans made to FrontLine
under the RSVP Facility. Interest accrued (net of reserves) under the FrontLine
Facility and the RSVP Facility was approximately $19.6 million.

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

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

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

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

As a result of certain transactions
    including the successful public offering of American Campus Communities,
    a joint venture owned by RSVP and Reckson Operating Partnership, the net
    carrying value of the Company’s investments in the FrontLine Loans and joint venture investments with RSVP, inclusive of the Company’s share of previously accrued GAAP equity in earnings on those investments, is approximately $55.2 million which was reassessed with no change by management as of June 30, 2005.  Such amount has been reflected in investments in affiliate loans and joint ventures on the Company’s
consolidated balance sheet.

Scott H. Rechler, who serves as Chief Executive Officer, President and Chairman of the Board of the Company, serves as CEO and Chairman of the Board of Directors of FrontLine and is its sole board member.  Scott H. Rechler also serves as a member of the management committee of RSVP and serves as a member of the Board of Directors of ACC.

28

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In November 2004, Concord Associates
    LLC and Sullivan Resorts LLC, a joint venture approximately 47% owned by
    RSVP, executed a binding agreement to contribute its Concord and Grossingers
    resort properties (excluding residential land) to Empire Resorts Inc. (NASDAQ:
    NYNY)(“Empire”) for consideration of 18 million shares of common stock of Empire and the right to appoint five members of the Board of Directors.  It is currently anticipated that Scott H. Rechler will be appointed to fill one seat on Empire’s Board.  On March 4, 2005, Empire announced that the agreement had been amended, whereby the parties agreed to waive the condition to closing which required final governmental approval of gaming in the Catskills.  The transaction
is subject to satisfaction of certain conditions and approvals, including the approval of Empire’s
shareholders. There can be no assurances that gaming will be approved in the
Catskills or that the transaction will be completed on its current terms or at
all.

Results of Operations

The following table is a comparison of the
results of operations for the three month period ended June 30, 2005 to the three month period
ended June 30, 2004 (dollars in thousands):

|                                             | Three
    months ended June 30, |        
|-------------------------------------------- | ------------------------------- | -------
|                                             |                                 |        
|                                             |                                 |        
|                                             |                                 |        
|                                             | 2005                            |        
|                                             |                                 |        
|Property
    Operating Revenues:             |                                 |        
|Base
    rents                               | $                               | 123,804
|Tenant
    escalations and reimbursements    |                                 | 17,998 
|                                             |                                 |        
|                                             |                                 |        
|Total
    property operating revenues        | $                               | 141,802
|                                             |                                 |        
|                                             |                                 |        
|Property
    Operating Expenses:             |                                 |        
|Operating
    expenses                       | $                               | 31,430 
|Real
    estate taxes                        |                                 | 22,565 
|                                             |                                 |        
|Total
    property operating expenses        | $                               | 53,995 
|                                             |                                 |        
|Interest
    and Investment Income and Other | $                               | 3,819  
|                                             |                                 |        
|Other
    Expenses:                          |                                 |        
|Interest
    expense incurred                | $                               | 27,257 
|Amortization
    of deferred financing costs |                                 | 1,021  
|Marketing,
    general and administrative    |                                 | 8,477  
|                                             |                                 |        
|Total other expenses                         | $                               | 36,755 
|                                             |                                 |        

Our property operating revenues,
    which include base rents and tenant escalations and reimbursements (“Property Operating Revenues”),
    increased by $15.1 million for the three months ended June 30,2005 as compared
    to the 2004 period. Property Operating Revenues increased by $8.6 million
    attributable to newly acquired properties during 2005 and $6.9 million in
    built in rent increases and straight line rental revenue increases in our
    same store properties. These increases were offset by $0.5.million decrease
in termination fees.

Our property operating expenses,
    real estate taxes and ground rents (“Property Expenses”) increased
    by $3.6 million for the three months ended June 30, 2005 as compared to the
    2004 period. The increase is due to a $1.1 million increase in real estate
    taxes and operating expenses related to our same store properties. Newly
    acquired properties in 2005 increased property expenses by $2.5 million.
    The increase in real estate taxes is attributable to the increases levied
    by certain municipalities, particularly in New York City and Westchester
County, New York.

Interest and Investment income and other increased by $501,000 or 15.1% for the three months ended June 30, 2005 as compared to the 2004 period.  This increase is primarily a result of an increase in interest income of approximately $1.5 million due to a weighted average increase in our Note Receivable Investments of approximately $56.8 million from the 2004 period. This increase was offset by a decrease of $400,000 in the gain recognized on a land sale and build-to-suit transaction earned in 2004 with no such gain recognized in the 2005 period and a decrease of approximately $550,000 related to real estate tax and other non-tenant related recoveries.

Interest expense incurred increased
    by $2.7 million or 10.8 % for the three months ended June 30, 2005 as compared
    to the 2004 period. Approximately $2.3 million of the increase is attributable
    to the Operating Partnership’s senior unsecured notes issued in August
    2004 which were not outstanding during the 2004 period and the issuance of
    $287.5 million of senior unsecured debentures in June 2005. Interest expense
    also increased by $2.7 million incurred under our unsecured bridge facility,
    which was funded in May 2005, and $3.3 million incurred under our unsecured
    revolving credit facility. The increase in interest expense incurred under
    our unsecured credit facility is a result of an increase in the weighted
    average balance outstanding and an increase in the weighted average interest
    rate from 3.2% to 4.2%. The weighted average balance outstanding under our
    unsecured credit facility was $381.5 million for the three months ended June
    30, 2005 as compared to $90.0 million for the three months ended June 30,
    2004. During the 2005 period we also incurred approximately $200,000 of interest
    ineffective costs related to our anticipatory interest rate hedge agreements
    with no such costs incurred during the 2004 period. These aggregate increases
    of $8.5 million were off-set by decreases in interest expense of approximately
    $472,000 incurred under our same store mortgage portfolio and a decrease
    in interest expense of approximately $5.1 million incurred during the 2004
period from two mortgage notes which were subsequently satisfied.

29

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Marketing, general and administrative expenses increased by $1.1 million for the three months ended June 30, 2005 as compared to the 2004 period.  This overall net increase is attributable to increased costs of maintaining offices and infrastructure in each of our five divisional markets, higher compensation costs including amortization expense related to restricted stock awards to non-executive officers and increases in charitable contributions to organizations that operate within our market places. Marketing, general and administrative costs represented 5.8% of total revenues from continuing operations (excluding gains on sales of depreciable real estate assets) in the 2005 period as compared to 5.6% in the 2004 period.

Discontinued operations net of minority interests decreased by approximately $3.5 million for the three months ended June 30, 2005 as compared to the 2004 period. This decrease is primarily attributable to a decrease in the gain on sales related to those properties sold, including their income from discontinued operations in the 2004 period of $3.7 million as compared to $175,000 for the 2005 period.

The following table is a comparison of the results of operations for the six month period ended June 30, 2005 to the six month period ended June 30, 2004
(dollars in thousands):

|                                             | Three
    months ended June 30, |        
|-------------------------------------------- | ------------------------------- | -------
|                                             |                                 |        
|                                             |                                 |        
|                                             |                                 |        
|                                             | 2005                            |        
|                                             |                                 |        
|Property
    Operating Revenues:             |                                 |        
|Base
    rents                               | $                               | 242,095
|Tenant
    escalations and reimbursements    |                                 | 36,576 
|                                             |                                 |        
|                                             |                                 |        
|Total
    property operating revenues        | $                               | 278,671
|                                             |                                 |        
|                                             |                                 |        
|Property
    Operating Expenses:             |                                 |        
|Operating
    expenses                       | $                               | 64,522 
|Real
    estate taxes                        |                                 | 44,958 
|                                             |                                 |        
|Total
    property operating expenses        | $                               | 109,480
|                                             |                                 |        
|Interest
    and Investment Income and Other | $                               | 6,998  
|                                             |                                 |        
|Other
    Expenses:                          |                                 |        
|Interest
    expense incurred                | $                               | 50,825 
|Amortization
    of deferred financing costs |                                 | 2,059  
|Marketing,
    general and administrative    |                                 | 16,692 
|                                             |                                 |        
|Total other expenses                         | $                               | 69,576 
|                                             |                                 |        

Property Operating Revenues increased by $23.3 million for the six months ended June 30,2005 as compared to the 2004 period. Property Operating Revenues increased by $15.6 million attributable to newly acquired properties during 2005 and $13.2 million in built in rent increases and straight line rental revenue increases in our same store properties. These increases were offset by $5.5 million decrease in termination fees.

30

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Property Expenses increased by $7.9 million for the six months ended June 30, 2005 as compared to the 2004 period. The increase is due to a $3.3 million increase in real estate taxes and operating expenses related to our same store properties. Newly acquired properties in 2005 increased property expenses by $4.6 million. The increase in real estate taxes is attributable to the increases levied by certain municipalities, particularly in New York City and Westchester County, New York.

Interest and Investment income and other decreased by $2.0 million or 22.1% for the six months ended June 30, 2005 as compared to the 2004 period.  This decrease is primarily attributable to a decrease of $3.1 million in the gain recognized and related tenant work on a  land sale and build-to-suit transaction earned in 2004 with no such gain recognized in the 2005 period, a decrease of approximately $1.3 million related to real estate tax and other non-tenant related recoveries. These aggregate decreases of $4.4 million were mitigated by an increase of $2.3 million in interest income due to a weighted average increase in our Note Receivable Investments of approximately $57.9 million from the 2004 period.

Interest expense incurred increased
    by $557,000 for the six months ended June 30, 2005 as compared to the 2004
    period. This increase is attributable to a net increase in interest expense
    of $3.4 million attributable a net increase of $50.0 million in the Operating
    Partnership’s senior unsecured notes and its issuance of $287.5 million
    of senior unsecured debentures in June 2005. Interest expense also increased
    by $2.7 million incurred under our unsecured bridge facility, which was funded
    in May 2005, and $5.4 million incurred under our unsecured revolving credit
    facility. The increase in interest expense incurred under our unsecured credit
    facility is a result of an increase in the weighted average balance outstanding
    and an increase in the weighted average interest rate from 3.3% to 4.1%.
    The weighted average balance outstanding under our unsecured credit facility
    was $351.0 million for the six months ended June 30, 2005 as compared to
    $104.9 million for the six months ended June 30, 2004. During the 2005 period
    we also incurred approximately $200,000 of interest ineffective costs related
    to our anticipatory interest rate hedge agreements with no such costs incurred
    during the 2004 period. These aggregate increases of $11.7 million were off-set
    by decreases in interest expense of approximately $1.0 million incurred under
    our same store mortgage portfolio and a decrease in interest expense of approximately
    $9.9 million incurred during the 2004 period from two mortgage notes which
were subsequently satisfied.

Marketing, general and administrative expenses increased by $2.3 million for the six months ended June 30, 2005 as compared to the 2004 period.  This overall net increase is attributable to increased costs of maintaining offices and infrastructure in each of our five divisional markets, higher compensation costs including amortization expense related to restricted stock awards to non-executive officers, increases in charitable contributions to organizations that operate within our market places and higher accounting fees related to maintaining compliance with the requirements of the Sarbanes-Oxley Act of 2002. Marketing, general and administrative costs represented 5.8% of total revenues from continuing operations (excluding gains on sales of
depreciable real estate assets) in the 2005 period as compared to 5.4% in the 2004 period.

Discontinued operations net of minority interests decreased by approximately $9.2 million for the six months ended June 30, 2005 as compared to the 2004 period.  This decrease is primarily attributable to a decrease in the gain on sales related to those properties sold, including their income from discontinued operations in the 2004 period of $9.4 million as compared to $175,000 for 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 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 recent quarterly periods, we have incurred significant leasing costs
    as a result of market demands from tenants and high levels of leasing transactions
    that result from the re-tenanting of scheduled expirations or space vacated
    as a result of early terminations of leases. We are also expending costs
    on tenants that are renewing or extending their leases earlier than scheduled.
    We have recently experienced high tenanting costs including tenant improvement
    costs, leasing commissions and free rent in all of our markets. For the three
    month period ended June 30, 2005, we paid or accrued approximately $13.5
    million for tenanting costs including tenant improvement costs and leasing
    commissions. As a result of these and / or other operating factors, our cash
    available for distribution from operating activities was not sufficient to
    pay 100% of the dividends paid on our common equity. However, we are beginning
    to see a moderation in the cost of retenanting our properties, particularly
    in terms of free rent concessions and costs to renew
existing tenants.  To meet the short-term funding requirements relating to the
    higher leasing costs, we have used proceeds of property sales or borrowings
    under our Credit Facility. Based on our forecasted leasing, we anticipate
    that we will continue to incur shortfalls during 2005. We currently intend
    to fund any shortfalls with proceeds from non-income producing asset sales
    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. There can be no assurance that we will maintain the current
quarterly distribution level on our common equity.

We expect to meet most of our
    financing requirements through long-term unsecured borrowings and the issuance
    of debt and equity securities of the Operating Partnership or the Company.
    In certain situations, primarily in joint venture transactions, we use secured
    debt in connection with the acquisition of properties. During the year ended
    December 31, 2004, the Company issued approximately $436.2 million of common
    stock and the Operating Partnership issued $300 million of senior unsecured
    debt securities. In addition, during June 2005, the Operating Partnership
    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 certain land inventory to realize value and profit created.  We will then seek opportunities to reinvest the capital realized from these dispositions back into value-added assets in our core Tri-State Area markets.  However, there can be no assurances that we will be able to identify such opportunities that meet our underwriting criteria.  Additionally, we are actively seeking joint venture relationships to access
new sources of equity capital.  We anticipate that we may sell assets or interests in assets to establish such joint ventures.  We may realize cash proceeds from these sales.  We would also seek to utilize these joint ventures to acquire assets where we would own a joint venture interest.  There can be no assurances that we will be able to successfully execute this strategy.  We will refinance existing mortgage indebtedness, senior unsecured notes or indebtedness under our Credit Facility at maturity or retire such debt through the issuance of additional 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.

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Our markets are currently experiencing
    a recovery in the economic cycle. As a result of current economic conditions,
    we have experienced higher renewal rates and a lower number of lease terminations.
    Our results reflect decreased vacancy rates in our markets and our asking
    rents in our markets have stabilized and in some instances have begun to
    trend higher. Landlords are still required to grant concessions such as free
    rent and tenant improvements but at a lower rate than had been experienced
    in the prior year. Our markets continue to experience higher real estate
    taxes and utility rates. We believe that trends are moving positively from
    a landlord’s perspective and that the above average tenant costs relating
    to leasing are decreasing. This trend is supported by increased occupancy
    and reduced vacancy rates in all of our markets, by the general economic
    recovery in the market resulting in job growth and the limited new supply
of office space.

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 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. Our current property insurance coverage, which expires on June 2, 2006,
    provides for full replacement cost of our properties, including for acts
    of terrorism up to $540 million on a per occurrence
basis.

The potential impact of terrorist attacks in the New York City and Tri-State Area 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.

On May 13, 2005, we obtained
    a $470.0 million unsecured bridge facility (the “Bridge Facility”) from Citibank, N.A. The Bridge Facility is for an initial term of six months and we have the option for a six-month extension upon paying a one-time fee of 7.5 basis points on the amount then outstanding. The Bridge Facility has terms, including interest rates and financial covenants, substantially similar to our unsecured $500 million revolving credit facility (the “Credit Facility”),
    and was amended in June 2005 in the same manner as our Credit Facility as
    described below. As of June 30, 2005, there was $470.0 million outstanding
    under the Bridge Facility at an interest rate of 4.04%. On August 3, 2005,
    net proceeds received from the secured financing of the property located
    at One Court Square in Queens, NY of approximately $303.5 million were used
to repay amounts outstanding under the Bridge Facility.

During the three months ended June 30, 2005, we amended our Credit Facility to, among other things, extend the maturity for one year, modify a financial covenant to increase the percentage that our total indebtedness can represent when compared to the total value of our assets from 55% to 60% and on a temporary basis to 65% upon an acquisition of a material property, reduce the rate of interest on borrowings by 0.10%, modify the capitalization rates used to value our properties for purposes of the financial covenants contained in the Credit Facility, increase the portion of assets and net operating income that may come from minority joint ventures from 5% to 10% and certain other matters.

We currently maintain our $500
    million Credit Facility from JPMorgan Chase Bank, as administrative agent,
    Wells Fargo Bank, National Association as syndication agent and Citicorp,
    North America, Inc. and Wachovia Bank, National Association as co-documentation
    agents. The Credit Facility matures in August 2008, contains options for
    a one-year extension subject to a fee of 25 basis points and, upon receiving
    additional lender commitments, increasing the maximum revolving credit amount
    to $750 million. In addition, borrowings under the Credit Facility are currently
    priced off LIBOR plus 80 basis points and 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, 2005, the outstanding borrowings under the Credit Facility
    aggregated $128.0 million and carried a weighted average interest rate of
4.04% per annum.

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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, 2005, we had availability under the Credit Facility to borrow approximately an additional $370.8 million, subject to compliance with certain financial covenants.  Such amount is net of approximately $1.2 million in outstanding undrawn standby letters of credit, which are 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 outstanding balances on our Credit Facility.

We continue to seek opportunities
    to acquire real estate assets in our markets. We have historically sought
    to acquire properties where we could use our real estate expertise to create
    additional value subsequent to acquisition. 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
    2003, we sold assets or interests in assets with aggregate sales prices of
    approximately $350.6 million. In addition, during 2004, we sold assets or
    interests in assets with aggregate sales prices of approximately $51.4 million,
    net of minority partner’s joint venture interest. 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. During
    2005 we sold, have under contract to sell or are negotiating to sell approximately
$771 million of our real estate properties.

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, 2005, the Operating Partnership had issued and
    outstanding 1,617,675 Class A OP Units and 465,845 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.

On June 20, 2005, as part of
    the consideration to acquire our joint venture partner’s 40% interest
    in the property located at 520 White Plains Road, Tarrytown, NY, we issued
127,510 OP Units valued at $31.37 per OP Unit.

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, and also under certain circumstances, at an initial
    exchange rate of 24.6124 common shares per $1,000 of principal amount of
    debentures. 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 terms of 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, prior to June 15, 2010.

During the three month period
    ended June 30, 2005, 53,410 shares of the Company’s common stock were issued in connection with the exercise of outstanding options to purchase stock under its stock option plans resulting in proceeds to us of approximately $800,000.  In addition, a limited partner in the Operating Partnership exchanged 841,992 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, effected in accordance with the safe harbor provisions of the Securities Exchange Act of 1934 and may be terminated by the Company at any time.  Since the Board’s initial authorization, the Company has purchased 3,318,600 shares of its common stock for an aggregate purchase price of approximately $71.3 million.  In June 2004, the Board of Directors re-set the Company’s
    common stock repurchase program back to 5.0 million shares. No purchases
have been made since March, 2003.

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 of June 30, 2005, the Company
    had approximately 1.8 million shares of its common stock reserved for issuance
    under its stock option plans, in certain cases subject to vested terms, at
    a weighted average exercise price of $24.97 per option. In addition, the
    Company has approximately 2.8 million shares of its common stock reserved
    for future issuance under its stock option plans.

33

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The Operating Partnership issues
    additional units to the Company, and thereby increases the Company’s general partnership interest in the Operating Partnership, with terms similar to the terms of any securities (i.e., common stock or preferred stock) issued by the Company (including any securities issued by the Company upon the exercise of stock options).  Any consideration received by the Company in respect of the issuance of its securities is contributed to the Operating Partnership.  In addition, the Operating Partnership or a subsidiary funds the compensation of personnel, including any amounts payable under the Company’s
LTIP (as described below).

Capitalization

Our indebtedness at June 30,
    2005 totaled approximately $2.1 billion (net of minority partners’ interests’ share of consolidated joint venture debt) and was comprised of $598.0 million outstanding under the Credit Facility and Bridge Facility, approximately $979.9 million of senior unsecured notes and approximately $476.7 million of mortgage indebtedness with a weighted average interest rate of approximately 7.43% and a weighted average maturity of approximately 3.4 years.  Based on our total market capitalization of approximately $4.9 billion at June 30, 2005 (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 $2.1 billion of debt), our debt
represented approximately 42.0% of our total market capitalization.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

On June 20, 2005, in connection
    with the acquisition of our joint venture partner’s 40% interest in
    the property located at 520 White Plains Road, Tarrytown, NY, we assumed
    approximately $4.1 million of secured mortgage indebtedness of the joint
    venture. As a result, our total secured debt related to this property at
    June 30, 2005 was approximately $11.1 million. This mortgage note bears interest
    at 8.85% per annum and matures on September 1, 2005 at which time the balance
    will be approximately $10.9 million. We anticipate making a borrowing under
    our Credit Facility to satisfy the mortgage note at its scheduled maturity
date.

During the quarterly period ended June 30, 2005 we entered into anticipatory interest rate hedge instruments totaling $250.0 million to protect ourselves against potentially rising interest rates. These instruments were settled prior to their maturity in exchange for a mortgage rate lock agreement in connection with a 15 year permanent financing on the property located at One Court Square in Queens, NY which closed on August 3, 2005. Costs related to the terminated instruments of approximately $1.4 million were incorporated into the final fixed mortgage rate of 4.905%. At June 30, 2005, the fair value of the mortgage rate lock approximated its carrying value.

We also entered into an additional $200.0 million of anticipatory interest rate hedge instruments during the quarterly period ended June 30, 2005, which are scheduled to coincide with certain secured debt we anticipate incurring on a group of our office properties.  These properties are anticipated to be included in a joint venture transaction in the latter part of 2005. As of June 30, 2005, we incurred approximately $207,000 of ineffectiveness related to these hedge instruments, which has been included in interest expense on our consolidated statements of income. At June 30, 2005, the carrying value of these hedge instruments exceeded their fair value by approximately $2.0 million, which has been reflected as accumulated other comprehensive loss
with a corresponding increase in accrued expenses and other liabilities on our balance sheet. These instruments were settled on August 1, 2005, at which time their fair value exceeded their carrying value by approximately $1.1 million.  Such amount will be classified as an offset to deferred loan costs and amortized against deferred financing costs over the term of the secured debt.

During June 2005, the Operating
    Partnership issued $287.5 million aggregate principal amount of 4.00% exchangeable
    senior debentures due June 15, 2025. Interest on the debentures will be payable
    semi-annually on June 15 and December 15, commencing December 15, 2005. The
    debentures 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 and at par,
    on June 15, 2010, 2015 and 2020. The net proceeds from the offering, after
    the underwriter’s discounts and expenses, were approximately $281 million and were used for repayment of amounts outstanding under our Credit Facility. (See “Liquidity and Capital Resources” for information regarding the terms of the
debenture’s exchange into our common stock).

34

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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, 2005 (in thousands):

|                             | Maturity
    Date |        |      |  
|---------------------------- | ----------------- | ------ | ---- | -
|                             |                   |        |      |  
|                             | 2005              |        | 2006 |  
|                             |                   |        |      |  
|Mortgage notes payable (1)   | $                 | 6,449  |      | $
|Mortgage notes payable (2)   |                   | 29,444 |      |  
|Senior unsecured notes       |                   |       |      |  
|Credit Facility              |                   |       |      |  
|Bridge Facility              |                   |       |      |  
|Land lease obligations (3)   |                   | 2,516  |      |  
|Air rights lease obligations |                   | 181    |      |  
|Operating leases             |                   | 742    |      |  
|                             |                   |        |      |  
|                             | $                 | 39,332 |      | $
|                             |                   |        |      |  

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

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

|(3) | We lease, pursuant to noncancellable operating leases, the land on which eleven 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.

As indicated above, on June
    30, 2005, we had approximately $2.1 billion of debt outstanding (net of minority
    partners’ interests’ share of consolidated joint venture debt).
    During the three month period ended June 30, 2005, we incurred interest costs
    related to our debt, including capitalized interest and amortization of deferred
    finance costs, of approximately $30.7 million. 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.

At June 30, 2005, we had approximately $1.2 million in outstanding undrawn standby letters of credit issued under our Credit Facility.  On July 8, 2005, we issued a $24.0 million standby letter of credit to secure a deposit obligation for the pending acquisition of a 1.1 million Class A office complex located at 204 EAB Plaza in Uniondale, NY.  In addition, approximately $42.3 million, or 6.9%, of our mortgage debt is recourse to us.

On August 3, 2005, we placed
    a first mortgage in the amount of $315.0 million on the property located
    at One Court Square in Queens, NY. The mortgage note bears interest at a
    fixed rate of 4.905%, requires monthly payments of interest only through
    September 1, 2015, the anticipated repayment date (“ARD”).  After the ARD, all excess cash flow, as defined, shall be applied to amortize the loan and the interest rate shall be reset to 2% plus the greater of 4.905% and the then-current ten-year U.S. Treasury yield.  The final maturity date of the loan is May 1, 2020. The mortgage note is secured by the property and is otherwise non-recourse except in limited circumstances regarding breaches of material representations. As additional
collateral for the loan, we may be required to post letters of credit for the benefit of the lender, in the amount of $10.0 million each, during September 2013, March 2014 and September 2014 if Citibank, N.A., the property’s
current sole tenant, exercises its second cancellation option for up to 20% of
its leased space during 2014 and 2015. Net proceeds received of approximately
$303.5 million were used to re-pay a portion of our Bridge Facility.

We have given notice to the mortgagee with respect to the mortgage debt on the property located at 200 Summit Lake Drive in Valhalla, NY to pre-pay the mortgage debt during the third calendar quarter of 2005. Pursuant to the terms of the mortgage note, the mortgage may be pre-paid without penalty subsequent to September 1, 2005 and upon notice. The balance of the mortgage note will be approximately $18.1 million on September 1, 2005. We anticipate making a borrowing under our Credit Facility to satisfy this mortgage note on the prepayment date.

Our mortgage debt on the property located at 395 North Service Road in Melville, NY matures on October 28, 2005.  We have given notice to the mortgagee to prepay the mortgage debt on September 30, 2005, at which time the balance will be approximately $18.6 million. We anticipate making a borrowing under our Credit Facility to satisfy the mortgage note at its scheduled maturity.

Corporate Governance

A number of shareholder derivative
    actions have been commenced purportedly on behalf of the Company against
    the Board of Directors relating to the disposition of our Long Island industrial
    portfolio. The complaints allege, among other things, that the process by
    which the directors agreed to the transaction was not sufficiently independent
    of the Rechler family and did not involve a “market check” or third party auction process and, as a result, was not for adequate consideration.  The plaintiffs seek similar relief, including a declaration that the directors violated their fiduciary duties and damages.  On May 25, 2004, the Circuit Court for Baltimore City granted the defendants’ motions to dismiss the three consolidated
Maryland actions on the ground that the plaintiffs in those actions had failed to make a pre-suit demand on the Board of Directors, or to allege facts showing that such a demand would have been futile.  Final judgment was entered on June 8, 2004, and on June 30, 2004, the plaintiffs in the Maryland actions filed a notice of appeal from that judgment to the Maryland Court of Special Appeals.  The Company’s
management believes that the complaints are without merit.

35

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On April 4, 2005 the Company
    and the other parties to the shareholder derivative actions filed against
    the Company in connection with its disposition of its industrial portfolio
    have agreed to settle such actions pursuant to the Stipulation of Settlement,
    dated as of March 14, 2005 and executed subsequent thereto. The proposed
    settlement includes various changes to the Company’s corporate governance policies to provide for an Affiliate Transaction Committee and to require that the Company’s Board of Directors be comprised of at least two-thirds independent directors (as defined in the Company’s
    Corporate Governance Guidelines), as well as certain other concessions. The
    proposed settlement is subject to court
approval.

On June 16, 2005, Judge Evelyn Omega Connor of the Circuit Court of Baltimore City signed an order regarding preliminary approval and notice with respect to the shareholder derivative actions.  A hearing to consider approval of the proposed settlement has been scheduled for September 20, 2005, at 9:30 a.m., in the Circuit Court for Baltimore City.  There can be no assurance that final court approval will be obtained.

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, 2005, there remains 180,714 shares of common stock
    subject to the original stock loans which are anticipated to vest between
    2006 and 2011. Approximately $276,000 and $507,000 and $248,000 and $556,000
    of compensation expense was recorded for the three and six month periods
    ended June 30, 2005 and 2004, respectively, related to these LTIP. Such amounts
    have been included in marketing, general and administrative expenses on our
consolidated statements of income.

The outstanding stock loan balances due from executive officers aggregated approximately $3.8 million and $4.7 million at June 30, 2005 and December 31, 2004, respectively, and have been included as a reduction of additional paid in capital on our consolidated balance sheets.  Other outstanding loans to executive and senior officers at June 30, 2005 and December 31, 2004 amounted to approximately $1.8 million and $2.7 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, 2005, there remains 31,417 shares of common stock reserved related
to the 2002 Rights and 17,360 shares of common stock reserved related to the
2003 Rights. Approximately $120,000 and $224,000 and $100,000 and $201,000 of
compensation expense was recorded for the three and six month periods ended June
30, 2005 and 2004, respectively, related to the Rights. Such amounts have been
included in marketing, general and administrative expenses on our 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 60th percentile 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.

36

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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.

On March 13, 2005 and March 13, 2004, with respect to the 2003 LTIP, the Company met its annual performance measure with respect to the 2004 and 2003 annual measurement periods, respectively. As a result, the Company has issued to the participants of the 2003 LTIP 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,” 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.  After two years from the date of grant, if such parity is reached, vested LTIP Units may be redeemed for cash in an amount equal to the then fair market value of an equal number of REIT Shares or converted into an equal number of OP Units, as determined by the
Company’s Compensation Committee.  However, there are circumstances under
which 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,
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. 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. 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.

In March 2005, following the
    recommendation of the Compensation Committee of the Board of Directors, eight
    senior and executive officers of the Company were awarded, in the aggregate,
    272,100 LTIP Units to continue to incentivize them for the long-term (the “2005 LTIP Unit Grants”). Each such 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. The terms of the 2005 LTIP Unit Grants are generally consistent with
    the terms of the 2003 LTIP, including with respect to the impact upon vesting
in the event of a change in control.

As of June 30, 2005, and as
    a result of the foregoing, there remains 155,553 shares of common stock reserved
    for future issuance under the core award of the 2003 LTIP and 530,443 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 and $699,000 and $1.4 million of compensation
    expense for the three and six month periods ended June 30, 2005 and 2004,
    respectively. In addition, with respect to the LTIP Units and the 2005 LTIP
    Unit Grants, the Company recorded compensation expense of approximately $822,000
    and $1.3 million for the three and six month periods ended June 30, 2005,
    respectively. Such amounts have been included in marketing, general and administrative
    expenses on our consolidated statements of income. No accrual has been made
    with respect to the Special Outperformance Pool of the 2003 LTIP due to the
    uncertainty of the outcome of achieving the requisite performance measures.

37

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Compensation expense with respect
    to the core component of the 2003 LTIP, which relates to the Company attaining
    certain annual performance measures, is recognized in accordance with paragraph
    26 of Statement No. 123 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 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 in accordance with Statement No. 123 in which compensation expense is recognized 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 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.

We expect to adopt Statement No. 123R on January 1, 2006; however, we have not yet been able to determine the impact of Statement No. 123R on our consolidated financial statements at this time.

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.

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.

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

Eight 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.

38

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Off Balance Sheet Arrangements

Our only off-balance sheet arrangements
    are our approximate 5% indirect ownership interest in a joint venture that
    owns an investment in a New York City Class A office tower and our joint
    venture interest in RSVP. (For a more detailed description of these arrangements
see “Overview and Background” of this Item.)

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.

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

|                                                                                 |  | Three months
        endedJune 30, |        | Six months
        ended,June 30, |  
|-------------------------------------------------------------------------------- |  | ---------------------------------- | ------ | --------------------------------- | -
|                                                                                 |  |                                    |        |                                   |  
|                                                                                 |  | 2005                               |        | 2004                              |  
|                                                                                 |  |                                    |        |                                   |  
|Net
    income allocable to common unitholders                                   |  | $                                  | 18,336 |                                   | $
|Adjustments
    for basic Funds From Operations                                  |  |                                    |        |                                   |  
|Add:                                                                             |  |                                    |        |                                   |  
|Real
    estate depreciation and amortization                                    |  |                                    | 30,175 |                                   |  
|Minority
    partners’ interests in consolidated partnerships                    |  |                                    | 6,791  |                                   |  
|                                                                                 |  |                                    |        |                                   |  
|Deduct:                                                                          |  |                                    |        |                                   |  
|Gain
    on sales of depreciable real estate                                     |  |                                    |       |                                   |  
|Amounts
      distributable to minority partners’ in
  consolidated partnerships |  |                                    | 5,478  |                                   |  
|                                                                                 |  |                                    |        |                                   |  
|Basic
    Funds From Operations                                                  |  |                                    | 49,824 |                                   |  
|                                                                                 |  |                                    |        |                                   |  
|Weighted
    Average units outstanding                                           |  |                                    | 84,464 |                                   |  
|                                                                                 |  |                                    |        |                                   |  

Inflation

The office leases generally
    provide for fixed base rent increases or indexed escalations. In addition,
    the office leases provide for separate escalations of real estate taxes,
    operating expenses and electric costs over a base amount. The industrial
    / R&D leases generally provide for fixed base rent increases, direct
    pass through of certain operating expenses and separate real estate tax escalations
    over a base amount. 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 believes they are collectible.
    To the extent our properties contain vacant space, we will bear such inflationary
increases in expenses.

The Credit Facility, Bridge 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.

39

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 accumulated other comprehensive income (“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.

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, 2005 (dollars in thousands):

|                                   |      | For the Year Ended December 31 |      |   |         |   |      |         |      |   |            |  
|---------------------------------- | ---- | ------------------------------ | ---- | - | ------- | - | ---- | ------- | ---- | - | ---------- | -
|                                   |      |                                |      |   |         |   |      |         |      |   |           
|                                   | 2005 |                                | 2006 |   | 2007    |   | 2008 |         | 2009 |   | Thereafter |  
|                                   |      |                                |      |   |         |   |      |         |      |   |            |  
|Long term debt:                    |      |                                |      |   |         |   |      |         |      |   |            |  
|Fixed
    rate                     | $    | 35,893                         |      | $ | 141,405 |   | $    | 269,370 |      | $ | 7,705      |  
|Weighted
    average interest rate |      | 7.39                           | %    |   | 7.38    | % |      | 7.14    | %    |   | 7.35       | %
|Variable
    rate                  | $    |                               |      | $ | 470,000 |   |      | $       |      | $ | 128,000    |  
|Weighted
    average interest rate |      |                               |      |   | 4.04    | % |      | %       |      |   | 4.04       | %

|    |                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------
|(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 an approximate $6.0 million annual increase in interest expense based on $598.0 million of variable rate debt outstanding at June 30, 2005.

40

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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, 2005 (dollars in thousands):

|                                     | For the Year Ended December
    31 |        |      |   |      |  |      |       
|------------------------------------ | ---------------------------------- | ------ | ---- | - | ---- |  | ---- | ------
|                                     |                                    |        |      |   |      |  |      |       
|                                     | 2005                               |        | 2006 |   | 2007 |  | 2008 |       
|                                     |                                    |        |      |   |      |  |      |       
|Note
      Receivable
  Investments: |                                    |        |      |   |      |  |      |       
|Fixed rate                           | $                                  | 900    |      | $ |     |  | $    | 16,990
|Weighted
      average
interest rate |                                    | 12.00  | %    |   |     |  |      | 12.00 
|                                     |                                    |        |      |   |      |  |      |       
|Variable
    rate                    | $                                  | 27,592 |      | $ |     |  | $    |      
|Weighted
      average
interest rate |                                    | 14.19  | %    |   |     |  |      |      

|    |                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes interest receivables and unamortized
    acquisition costs aggregating approximately $4.8 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, 2005.

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 $2.8 million annual increase in interest income based on $28.1 million of variable rate receivables outstanding at June 30, 2005.

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.

41

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SELECTED PORTFOLIO INFORMATION

The following table sets forth our schedule of top 25 tenants based on base rental revenue as of June 30, 2005:

|  | Tenant Name(1) (2) (3)      |  | Wtd. Avg.
Term Remaining
(years) |  | Total
Square Feet |  | Percent of Pro Rata
Share of Annualized
Base Rental Revenue |   | Percent of Consolidated 
Annualized Base
Rental Revenue |  
|- | --------------------------- |  | -------------------------------- |  | ----------------- |  | ----------------------------------------------------------- | - | ------------------------------------------------------- | -
|  |                             |  |                                  |  |                   |  |                                                             |   |                                                         |  
|* | Citigroup / Citibank        |  | 13.4                             |  | 1,603,194         |  | 8.5                                                         | % | 7.9                                                     | %
|* | Debevoise & Plimpton        |  | 16.5                             |  | 586,528           |  | 3.7                                                         | % | 6.4                                                     | %
|  | King & Spalding             |  | 6.6                              |  | 180,391           |  | 2.1                                                         | % | 1.8                                                     | %
|  | Verizon Communications Inc. |  | 2.1                              |  | 266,404           |  | 1.8                                                         | % | 1.6                                                     | %
|* | American Express            |  | 8.2                              |  | 129,818           |  | 1.6                                                         | % | 1.5                                                     | %
|* | Schulte Roth & Zabel        |  | 15.4                             |  | 279,746           |  | 1.5                                                         | % | 2.6                                                     | %
|  | Amerada Hess Corporation    |  | 22.5                             |  | 127,300           |  | 1.4                                                         | % | 1.2                                                     | %
|* | Bank of America/Fleet Bank  |  | 5.1                              |  | 215,061           |  | 1.2                                                         | % | 1.1                                                     | %
|* | Fuji Photo Film USA         |  | 7.2                              |  | 194,984           |  | 1.2                                                         | % | 1.1                                                     | %
|  | D.E. Shaw                   |  | 9.1                              |  | 144,005           |  | 1.2                                                         | % | 1.1                                                     | %
|* | MCI                         |  | 1.6                              |  | 244,730           |  | 1.1                                                         | % | 1.0                                                     | %
|  | Dun & Bradstreet Corp.      |  | 7.3                              |  | 123,000           |  | 1.0                                                         | % | 0.9                                                     | %
|  | Arrow Electronics Inc.      |  | 8.5                              |  | 163,762           |  | 1.0                                                         | % | 0.9                                                     | %
|* | Schering-Plough Corporation |  | 1.0                              |  | 152,970           |  | 0.9                                                         | % | 0.9                                                     | %
|  | T.D. Waterhouse             |  | 2.1                              |  | 103,381           |  | 0.9                                                         | % | 0.8                                                     | %
|  | Westdeutsche Landesbank     |  | 10.8                             |  | 53,000            |  | 0.9                                                         | % | 0.8                                                     | %
|  | North Fork Bank             |  | 13.5                             |  | 126,770           |  | 0.8                                                         | % | 0.7                                                     | %
|  | Practicing Law Institute    |  | 8.7                              |  | 77,500            |  | 0.8                                                         | % | 0.7                                                     | %
|* | State Farm                  |  | 3.3                              |  | 189,310           |  | 0.8                                                         | % | 1.2                                                     | %
|  | Vytra Healthcare            |  | 2.5                              |  | 105,613           |  | 0.8                                                         | % | 0.7                                                     | %
|* | Banque Nationale De Paris   |  | 11.1                             |  | 145,834           |  | 0.8                                                         | % | 1.3                                                     | %
|  | Laboratory Corp. Of America |  | 1.9                              |  | 108,000           |  | 0.7                                                         | % | 0.6                                                     | %
|  | P.R. Newswire Associates    |  | 2.9                              |  | 67,000            |  | 0.7                                                         | % | 0.6                                                     | %
|* | HQ Global                   |  | 3.3                              |  | 126,487           |  | 0.7                                                         | % | 0.7                                                     | %
|  | County of Nassau            |  | 16.3                             |  | 219,066           |  | 0.7                                                         | % | 0.6                                                     | %

|    |                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------
|(1) | Ranked by pro rata share of annualized base rental revenue adjusted for pro rata share of joint venture interests.
|(2) | Excludes One Orlando Centre in Orlando, Florida.                                                                  
|(3) | 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 51% or more owned joint venture building.                         

Historical Non-Incremental Revenue-Generating Capital Expenditures, Tenant Improvement Costs and Leasing Commissions

The following table sets forth
    annual and per square foot non-incremental revenue-generating capital expenditures
    in which we paid or accrued, during the respective periods, to retain revenues
    attributable to existing leased space (at 100% of cost) for the years 2001
    through 2004 and for the six month period ended June 30, 2005 for our consolidated
    office and industrial / R&D properties other than One Orlando Centre
in Orlando, FL:

|                           |  |      |           |      |   |           |  |      |           |           |   |           |      |   | Average   |  |  | YTD
|-------------------------- |  | ---- | --------- | ---- | - | --------- |  | ---- | --------- | --------- | - | --------- | ---- | - | --------- |  |  | ---
|                           |  | 2001 |           | 2002 |   | 2003      |  | 2004 |           | 2001-2004 |   |           | 2005 |  
|                           |  |      |           |      |   |           |  |      |           |           |   |           |      |  
|Suburban Office Properties |  |      |           |      |   |           |  |      |           |           |   |           |      |   |           |  |  |    
|Total                      |  | $    | 4,606,069 |      | $ | 5,283,674 |  | $    | 6,791,336 |           | $ | 7,034,154 |      | $ | 5,928,783 |  |  | $  
|Per
    Square Foot        |  | $    | 0.45      |      | $ | 0.53      |  | $    | 0.67      |           | $ | 0.69      |      | $ | 0.58      |  |  | $  
|                           |  |      |           |      |   |           |  |      |           |           |   |           |      |   |           |  |  |    
|NYC Office Properties      |  |      |           |      |   |           |  |      |           |           |   |           |      |   |           |  |  |    
|Total                      |  | $    | 1,584,501 |      | $ | 1,939,111 |  | $    | 1,922,209 |           | $ | 2,515,730 |      | $ | 1,990,388 |  |  | $  
|Per
    Square Foot        |  | $    | 0.45      |      | $ | 0.56      |  | $    | 0.55      |           | $ | 0.56      |      | $ | 0.53      |  |  | $  
|                           |  |      |           |      |   |           |  |      |           |           |   |           |      |   |           |  |  |    
|Industrial Properties      |  |      |           |      |   |           |  |      |           |           |   |           |      |   |           |  |  |    
|Total                      |  | $    | 711,666   |      | $ | 1,881,627 |  | $    | 1,218,401 | (1)       | $ | 207,028   |      | $ | 1,004,681 |  |  | $  
|Per
    Square Foot        |  | $    | 0.11      |      | $ | 0.28      |  | $    | 0.23      |           | $ | 0.23      |      | $ | 0.21      |  |  | $  
|                           |  |      |           |      |   |           |  |      |           |           |   |           |      |   |           |  |  |    

|    |                                                                                                                                                                             | 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|(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. | 

42

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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 2001 through 2004 and for the six month period
    ended June 30, 2005 for our consolidated office and industrial / R&D
properties other than One Orlando Centre in Orlando, FL:

|                                          |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|----------------------------------------- | ---- | --------- | ---- | - | --------- | ---- | - | - | --------- | -- | ---- | ------------------------ | --------- | -- | -------------- | - | --------- | --- |  | - | --------- | --
|                                          | 2001 |           | 2002 |   |           | 2003 |   |   | 2004      |    |      | Average 
      2001-2004 |           |    | YTD
      2005 |   |           | New |  |   | Renewal   |   
|                                          |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|Long Island
          Office Properties   |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|Tenant
    Improvements                   | $    | 2,722,457 |      | $ | 1,917,466 |      |   | $ | 3,774,722 |    |      | $                        | 4,856,604 |    |                | $ | 3,317,812 |     |  | $ | 2,709,674 |   
|Per
    Square Foot Improved              | $    | 8.47      |      | $ | 7.81      |      |   | $ | 7.05      |    |      | $                        | 8.78      |    |                | $ | 8.03      |     |  | $ | 10.89     |   
|Leasing
    Commissions                   | $    | 1,444,412 |      | $ | 1,026,970 |      |   | $ | 2,623,245 |    |      | $                        | 2,345,325 |    |                | $ | 1,859,988 |     |  | $ | 963,552   |   
|Per
    Square Foot Leased                | $    | 4.49      |      | $ | 4.18      |      |   | $ | 4.90      |    |      | $                        | 4.24      |    |                | $ | 4.45      |     |  | $ | 3.87      |   
|                                          |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|Total
    Per Square Foot                 | $    | 12.96     |      | $ | 11.99     |      |   | $ | 11.95     |    |      | $                        | 13.02     |    |                | $ | 12.48     |     |  | $ | 14.76     |   
|                                          |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|                                          |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|Westchester
          Office Properties   |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|Tenant
    Improvements                   | $    | 2,584,728 |      | $ | 6,391,589 | (1   | ) | $ | 3,732,370 |    |      | $                        | 6,323,134 |    |                | $ | 4,757,955 |     |  | $ | 2,097,017 |   
|Per
    Square Foot Improved              | $    | 5.91      |      | $ | 15.05     |      |   | $ | 15.98     |    |      | $                        | 11.95     |    |                | $ | 12.22     |     |  | $ | 13.73     |   
|Leasing
    Commissions                   | $    | 1,263,012 |      | $ | 1,975,850 | (1   | ) | $ | 917,487   |    |      | $                        | 2,671,548 |    |                | $ | 1,706,974 |     |  | $ | 689,636   |   
|Per
    Square Foot Leased                | $    | 2.89      |      | $ | 4.65      |      |   | $ | 3.93      |    |      | $                        | 5.05      |    |                | $ | 4.13      |     |  | $ | 4.51      |   
|                                          |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|Total
    Per Square Foot                 | $    | 8.80      |      | $ | 19.70     |      |   | $ | 19.91     |    |      | $                        | 17.00     |    |                | $ | 16.35     |     |  | $ | 18.24     |   
|                                          |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|                                          |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|Connecticut
          Office Properties   |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|Tenant
    Improvements                   | $    | 213,909   |      | $ | 491,435   |      |   | $ | 588,087   |    |      | $                        | 3,051,833 |    |                | $ | 1,086,316 |     |  | $ | 2,897,613 |   
|Per
    Square Foot Improved              | $    | 1.46      |      | $ | 3.81      |      |   | $ | 8.44      |    |      | $                        | 12.71     |    |                | $ | 6.60      |     |  | $ | 16.53     |   
|Leasing
    Commissions                   | $    | 209,322   |      | $ | 307,023   |      |   | $ | 511,360   |    |      | $                        | 1,493,664 |    |                | $ | 630,342   |     |  | $ | 782,007   |   
|Per
    Square Foot Leased                | $    | 1.43      |      | $ | 2.38      |      |   | $ | 7.34      |    |      | $                        | 6.22      |    |                | $ | 4.34      |     |  | $ | 4.46      |   
|                                          |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|Total
    Per Square Foot                 | $    | 2.89      |      | $ | 6.19      |      |   | $ | 15.78     |    |      | $                        | 18.93     |    |                | $ | 10.94     |     |  | $ | 20.99     |   
|                                          |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|                                          |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|New Jersey
          Office Properties    |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|Tenant
    Improvements                   | $    | 1,146,385 |      | $ | 2,842,521 |      |   | $ | 4,327,295 |    |      | $                        | 1,379,362 |    |                | $ | 2,423,891 |     |  | $ | 744,766   |   
|Per
    Square Foot Improved              | $    | 2.92      |      | $ | 10.76     |      |   | $ | 11.57     |    |      | $                        | 7.12      |    |                | $ | 8.09      |     |  | $ | 11.09     |   
|Leasing
    Commissions                   | $    | 1,602,962 |      | $ | 1,037,012 |      |   | $ | 1,892,635 |    |      | $                        | 832,658   |    |                | $ | 1,341,317 |     |  | $ | 545,651   |   
|Per
    Square Foot Leased                | $    | 4.08      |      | $ | 3.92      |      |   | $ | 5.06      |    |      | $                        | 4.30      |    |                | $ | 4.34      |     |  | $ | 8.12      |   
|                                          |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|Total
    Per Square Foot                 | $    | 7.00      |      | $ | 14.68     |      |   | $ | 16.63     |    |      | $                        | 11.42     |    |                | $ | 12.43     |     |  | $ | 19.21     |   
|                                          |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|                                          |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|New York
          City Office Properties |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|Tenant
    Improvements                   | $    | 788,930   |      | $ | 4,350,106 |      |   | $ | 5,810,017 | (2 | )(3) | $                        | 9,809,822 | (3 | )(4)           | $ | 5,189,719 |     |  | $ | 5,128,847 | (2
|Per
    Square Foot Improved              | $    | 15.69     |      | $ | 18.39     |      |   | $ | 32.84     |    |      | $                        | 23.21     |    |                | $ | 22.53     |     |  | $ | 26.44     |   
|Leasing
    Commissions                   | $    | 1,098,829 |      | $ | 2,019,837 |      |   | $ | 2,950,330 | (2 | )    | $                        | 3,041,141 | (4 | )              | $ | 2,277,534 |     |  | $ | 2,001,046 | (2
|Per
    Square Foot Leased                | $    | 21.86     |      | $ | 8.54      |      |   | $ | 16.68     |    |      | $                        | 7.19      |    |                | $ | 13.57     |     |  | $ | 10.32     |   
|                                          |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|Total
    Per Square Foot                 | $    | 37.55     |      | $ | 26.93     |      |   | $ | 49.52     |    |      | $                        | 30.40     |    |                | $ | 36.10     |     |  | $ | 36.76     |   
|                                          |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|                                          |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|Industrial
          Properties           |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|Tenant
    Improvements                   | $    | 1,366,488 |      | $ | 1,850,812 |      |   | $ | 1,249,200 |    |      | $                        | 310,522   |    |                | $ | 1,194,256 |     |  | $ | 85,293    |   
|Per
    Square Foot Improved              | $    | 1.65      |      | $ | 1.97      |      |   | $ | 2.42      |    |      | $                        | 2.27      |    |                | $ | 2.08      |     |  | $ | 14.60     |   
|Leasing
    Commissions                   | $    | 354,572   |      | $ | 890,688   |      |   | $ | 574,256   |    |      | $                        | 508,198   |    |                | $ | 581,928   |     |  | $ | 0         |   
|Per
    Square Foot Leased                | $    | 0.43      |      | $ | 0.95      |      |   | $ | 1.11      |    |      | $                        | 3.71      |    |                | $ | 1.55      |     |  | $ | 0.00      |   
|                                          |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|Total
    Per Square Foot                 | $    | 2.08      |      | $ | 2.92      |      |   | $ | 3.53      |    |      | $                        | 5.98      |    |                | $ | 3.63      |     |  | $ | 14.60     |   
|                                          |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   
|                                          |      |           |      |   |           |      |   |   |           |    |      |                          |           |    |                |   |           |     |  |   |           |   

|(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 new 121,108 square foot lease to Debevoise and Plimpton that was signed during the third quarter of 2003 with a lease commencement date of May 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 second quarter of 2004.

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | Excludes 86,800 square feet related to Westpoint Stevens early renewal.  There were no tenant improvements 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.

43

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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.

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, |       
|-------------------------------------------------- | ------------------------ | ------
|                                                   |                          |       
|                                                   | 2005                     |       
|                                                   |                          |       
|Capital
    expenditures:                          |                          |       
|Non-incremental                                    | $                        | 4,864 
|Incremental                                        |                          | 5,059 
|Tenant
    improvements:                           |                          |       
|Non-incremental                                    |                          | 11,871
|Incremental                                        |                          | 8,697 
|                                                   |                          |       
|Additions
    to commercial real estate properties | $                        | 30,491
|                                                   |                          |       
|                                                   |                          |       
|Leasing
    costs:                                 |                          |       
|Non-incremental                                    | $                        | 6,833 
|Incremental                                        |                          | 2,275 
|                                                   |                          |       
|Payment
    of deferred leasing costs              | $                        | 9,108 
|                                                   |                          |       
|                                                   |                          |       
|Acquisition
    and development costs              | $                        | 22,590
|                                                   |                          |       

44

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The following table sets forth our lease expiration table, as adjusted for pre-leased space, at July 1, 2005 for our Total Portfolio of properties, our Office Portfolio and our Industrial / R&D Portfolio:

|Total Portfolio            
|---------------------------
|                           
|                           
|Year of                    
|Expiration                 
|                           
|2005                       
|2006                       
|2007                       
|2008                       
|2009                       
|2010 and thereafter        
|                           
|Total/Weighted Average     
|                           
|Total Portfolio Square Feet
|                           



|Office Portfolio                  
|----------------------------------
|                                  
|                                  
|Year of                           
|Expiration                        
|                                  
|2005                              
|2006                              
|2007                              
|2008                              
|2009                              
|2010 and thereafter               
|                                  
|Total/Weighted Average            
|                                  
|Total Office Portfolio Square Feet
|                                  



|Industrial/R&D
    Portfolio              
|------------------------------------------
|                                          
|                                          
|Year of                                   
|Expiration                                
|                                          
|2005                                      
|2006                                      
|2007                                      
|2008                                      
|2009                                      
|2010 and thereafter                       
|                                          
|Total/Weighted Average                    
|                                          
|Total Industrial/R&D Portfolio Square Feet
|                                          

45

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Back to Contents

Part II  Other Information

Item 1. Legal Proceedings

On April 4, 2005 the Company
    and the other parties to the shareholder derivative actions filed against
    the Company in connection with its disposition of its industrial portfolio
    have agreed to settle such actions pursuant to the Stipulation of Settlement,
    dated as of March 14, 2005 and executed subsequent thereto. The proposed
    settlement includes various changes to the Company’s corporate governance policies to provide for an Affiliate Transaction Committee and to require that the Company’s Board of Directors be comprised of at least two-thirds independent directors (as defined in the Company’s
    Corporate Governance Guidelines), as well as certain other concessions. The
    proposed settlement is subject to court
approval.

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

On June 16, 2005, Judge Evelyn Omega Connor of the Circuit Court of Baltimore City signed an order regarding preliminary approval and notice with respect to the shareholder derivative actions.  A hearing to consider approval of the proposed settlement has been scheduled for September 20, 2005, at 9:30 a.m., in the Circuit Court for Baltimore City.

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  None

Item 5. Other information

| | a) | None
| | -- | ----

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

46

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Back to Contents

Item 6. Exhibits

| | Exhibits
| | --------
| |         

|           | 10.1 | Reckson Associates Realty Corp. 2005 Stock Option Plan.                                                                                                                                                                                                                
|---------- | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|           | 10.2 | Contract of Sale, made as of July 8, 2005, between Galaxy LI Associates LLC, as seller, and Reckson EAB LLC, as buyer.                                                                                                                                                 
|           | 10.3 | Note, dated August 3, 2005 by Reckson Court Square, LLC (Borrower), in favor of German American Capital Corporation (Lender).                                                                                                                                          
|           | 10.4 | Loan and Security Agreement, dated as of August 3, 2005 between Reckson Court Square, LLC and German American Capital Corporation.                                                                                                                                     
|           | 31.1 | Certification of Scott H. Rechler, Chairman of the Board, Chief
Executive Officer, President and Director of Reckson Associates Realty Corp.,
the sole general partner of the Registrant, pursuant to Rule 13a  14(a) or Rule 15(d)  14(a).                          
|           | 31.2 | Certification of Michael Maturo, Executive Vice President, Treasurer
and Chief Financial Officer of Reckson Associates Realty Corp., the sole general
partner 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, President and Director of Reckson Associates Realty Corp., the sole general partner of the Registrant, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.
|           | 32.2 | Certification of Michael Maturo, Executive Vice President, Treasurer and Chief Financial Officer of Reckson Associates Realty Corp., the sole general partner 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.

Reckson Operating Partnership,
L. P.

|By:      /s/
    Scott H. Rechler                     |  | By:      /s/
    Michael Maturo                    
|----------------------------------------------------- |  | ---------------------------------------------------
|Scott H. Rechler                                      |  | Michael
    Maturo                                 
|Chairman of the Board, Chief                          |  | Executive
    Vice President,                      
|Executive Officer, President
    and Director         |  | Treasurer
    and Chief Financial Officer          
|of Reckson Associates Realty Corp., the
      general |  | of
    Reckson Associates Realty Corp., the general
|partner of the Registrant                             |  | partner of the Registrant                          

Date: August 8, 2005

47

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