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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                    FORM 10-Q


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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004

                         COMMISSION FILE NUMBER: 1-13762



                       RECKSON OPERATING PARTNERSHIP, L.P.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


MARYLAND                                                              11-3233647
--------                                                              ----------
(STATE OR OTHER JURISDICTION                (IRS EMPLOYER IDENTIFICATION NUMBER)
OF INCORPORATION OR ORGANIZATION)

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

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

       INDICATE BY CHECK MARK WHETHER THE  REGISTRANT  (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE  SECURITIES  EXCHANGE  ACT OF
1934  DURING  THE  PRECEDING  12 MONTHS  (OR FOR SUCH  SHORTER  PERIOD  THAT THE
REGISTRANT  WAS  REQUIRED  TO FILE SUCH  REPORTS)  YES X NO__,  AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO__.

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

                               YES ___  NO _X_.


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


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<PAGE>


                       RECKSON OPERATING PARTNERSHIP, L.P.
                                QUARTERLY REPORT
                  FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004

                                TABLE OF CONTENTS


  INDEX                                                                     PAGE
================================================================================
  PART I.   FINANCIAL INFORMATION
================================================================================


  Item 1.   Financial Statements

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

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

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

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

  Item 2.   Management's Discussion and Analysis of Financial
              Condition and Results of Operations...........................  20

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

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

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  PART II.  OTHER INFORMATION
================================================================================

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

  Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.....  44

  Item 3.   Defaults Upon Senior Securities.................................  45

  Item 4.   Submission of Matters to a Vote of Securities Holders...........  45

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

  Item 6.   Exhibits........................................................  45

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  SIGNATURES                                                                  45
================================================================================

| 1
<PAGE>


PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS

                       RECKSON OPERATING PARTNERSHIP, L.P.
                           CONSOLIDATED BALANCE SHEETS
                (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)

                                                     SEPTEMBER 30,  DECEMBER 31,
                                                          2004          2003
                                                      -----------   -----------
                                                      (UNAUDITED)
ASSETS:
Commercial real estate properties, at cost:
  Land .............................................  $   398,790   $   378,479
  Building and improvements ........................    2,664,258     2,211,566
Developments in progress:
  Land .............................................       98,468        90,706
  Development costs ................................       27,889        68,127
Furniture, fixtures and equipment ..................       11,862        11,338
                                                      -----------   -----------
                                                        3,201,267     2,760,216
Less accumulated depreciation ......................     (542,124)     (464,382)
                                                      -----------   -----------
Investment in real estate, net of accumulated
  deprecation ......................................    2,659,143     2,295,834
Properties and related assets held for sale, net
  of accumulated depreciation ......................           --        52,517
Investments in real estate joint ventures ..........        6,574         5,904
Investments in mortgage notes and notes receivable .       53,525        54,986
Investments in affiliate loans and joint ventures ..       65,435        75,544
Cash and cash equivalents ..........................       53,275        22,512
Tenant receivables .................................       10,903        11,929
Deferred rents receivable ..........................      127,672       111,962
Prepaid expenses and other assets ..................       60,864        34,944
Contract and land deposits and pre-acquisition costs           77        20,203
Deferred leasing and loan costs ....................       74,880        64,345
                                                      -----------   -----------
    TOTAL ASSETS ...................................  $ 3,112,348   $ 2,750,680
                                                      ===========   ===========

LIABILITIES:
Mortgage notes payable .............................  $   712,337   $   721,635
Liabilities associated with properties held for sale           --           881
Unsecured credit facility ..........................       90,000       169,000
Senior unsecured notes .............................      697,911       499,445
Accrued expenses and other liabilities .............      108,430        89,979
Distributions payable ..............................       35,174        28,290
                                                      -----------   -----------

TOTAL LIABILITIES ..................................    1,643,852     1,509,230
                                                      -----------   -----------
Minority partners' interests in consolidated
    partnerships ...................................      212,057       233,070
                                                      -----------   -----------
Commitments and contingencies ......................           --            --

PARTNERS' CAPITAL:
Preferred Capital, 5,321,685 and 10,854,162 units
  outstanding, respectively ........................      128,892       281,690

General Partners' Capital:
  Common units, 75,535,562 and 58,275,367 units
    outstanding, respectively ......................    1,076,810       682,172
Limited Partners' Capital:
  Class A common units, 3,118,556 units issued
    and outstanding ................................       44,287        38,613
  Class C common units, 465,854 units issued
    and outstanding ................................        6,450         5,905
                                                      -----------   -----------
  Total Partners' Capital ..........................    1,256,439     1,008,380
                                                      -----------   -----------
    Total Liabilities and Partners' Capital ........  $ 3,112,348   $ 2,750,680
                                                      ===========   ===========

                (see accompanying notes to financial statements)

| 2
<PAGE>


                                 RECKSON OPERATING PARTNERSHIP, L.P.
                                  CONSOLIDATED STATEMENTS OF INCOME
        (UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                            THREE MONTHS ENDED              NINE MONTHS ENDED
                                                                               SEPTEMBER 30,                   SEPTEMBER 30,
                                                                       ----------------------------    ----------------------------
                                                                           2004            2003            2004            2003
                                                                       ------------    ------------    ------------    ------------
<S>                                                                    <C>             <C>             <C>             <C>
PROPERTY OPERATING REVENUES:
  Base rents ........................................................  $    111,260    $     93,225    $    332,060    $    282,110
  Tenant escalations and reimbursements .............................        19,517          16,244          55,110          44,186
                                                                       ------------    ------------    ------------    ------------
    Total property operating revenues ...............................       130,777         109,469         387,170         326,296
                                                                       ------------    ------------    ------------    ------------
EXPENSES:
  Property operating expenses .......................................        54,644          46,222         156,735         132,041
  Marketing, general and administrative .............................         7,681           8,163          22,122          24,527
  Depreciation and amortization .....................................        29,584          25,063          86,496          79,121
                                                                       ------------    ------------    ------------    ------------
    Total operating expenses ........................................        91,909          79,448         265,353         235,689
                                                                       ------------    ------------    ------------    ------------
    Operating Income ................................................        38,868          30,021         121,817          90,607
                                                                       ------------    ------------    ------------    ------------
NON-OPERATING INCOME AND EXPENSES:
Interest income on mortgage notes and notes receivable
  (including $479, $1,100, $1,608 and $3,100, respectively
  from related parties) .............................................         1,963           1,724           5,455           4,814
Investment and other income .........................................         5,358           4,660          10,852          13,717
Interest:
  Expense incurred ..................................................       (24,120)        (19,883)        (74,388)        (60,125)
  Amortization of deferred financing costs ..........................        (1,005)           (807)         (2,831)         (2,513)
                                                                       ------------    ------------    ------------    ------------
  Total non-operating income and expenses ...........................       (17,804)        (14,306)        (60,912)        (44,107)
                                                                       ------------    ------------    ------------    ------------
Income before minority interests, preferred distributions,
  equity (loss) in earnings of real estate joint ventures
  and discontinued operations .......................................        21,064          15,715          60,905          46,500
Minority partners' interests in consolidated partnerships ...........        (4,135)         (4,117)        (14,738)        (12,580)
Equity (loss) in earnings of real estate joint ventures .............           112             134             520             (30)
                                                                       ------------    ------------    ------------    ------------
Income before discontinued operations and preferred distributions ...        17,041          11,732          46,687          33,890
Discontinued operations:
  Gain on sales of real estate ......................................         2,342              --          11,684              --
  Income from discontinued operations ...............................           106           5,068             694          12,209
                                                                       ------------    ------------    ------------    ------------
Net Income ..........................................................        19,489          16,800          59,065          46,099
Preferred unit distributions ........................................        (3,477)         (5,589)        (12,409)        (16,770)
Redemption charges on Series A preferred units ......................        (6,717)             --          (6,717)             --
                                                                       ------------    ------------    ------------    ------------
Net income allocable to common unit holders .........................  $      9,295    $     11,211    $     39,939    $     29,329
                                                                       ============    ============    ============    ============
Net income allocable to:
  Common unit holders ...............................................  $      9,231    $      8,767    $     39,642    $     23,001
  Class B common unit holders .......................................            --           2,396              --           6,280
  Class C common unit holders .......................................            64              48             297              48
                                                                       ------------    ------------    ------------    ------------
Total ...............................................................  $      9,295    $     11,211    $     39,939    $     29,329
                                                                       ============    ============    ============    ============
Net income per weighted average common units:
  Income from continuing operations .................................  $        .10    $        .09    $        .39    $        .25
  Discontinued operations ...........................................           .03             .07             .18             .17
                                                                       ------------    ------------    ------------    ------------
  Basic net income per common unit ..................................  $        .13    $        .16    $        .57    $        .42
                                                                       ============    ============    ============    ============

Class B common - income from continuing operations ..................  $         --    $        .13    $         --    $        .37
Discontinued operations .............................................            --             .11              --             .26
                                                                       ------------    ------------    ------------    ------------
Basic net income per Class B common unit ............................  $         --    $        .24    $         --    $        .63
                                                                       ============    ============    ============    ============

Class C common - income from continuing operations ..................  $        .11    $        .09    $        .45    $        .28
Discontinued operations .............................................           .03             .08             .19             .23
                                                                       ------------    ------------    ------------    ------------
Basic net income per Class C common unit ............................  $        .14    $        .17    $        .64    $        .51
                                                                       ============    ============    ============    ============

Weighted average common units outstanding:
  Common units ......................................................    73,322,905      55,284,829      69,264,042      55,345,702
  Class B common units ..............................................            --       9,915,313              --       9,915,313
  Class C common units ..............................................       465,845         278,494         465,845          93,852
</TABLE>

                (see accompanying notes to financial statements)

| 3
<PAGE>


                       RECKSON OPERATING PARTNERSHIP, L.P.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                          (UNAUDITED AND IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                               NINE MONTHS ENDED
                                                                                                  SEPTEMBER 30,
                                                                                          ----------------------------
                                                                                              2004            2003
                                                                                          ------------    ------------
<S>                                                                                       <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME ............................................................................   $     59,065    $     46,099
Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation and amortization (including discontinued operations) .................         86,496          89,959
    Gain on sales of real estate ......................................................        (13,724)             --
    Minority partners' interests in consolidated partnerships .........................         17,271          13,404
    (Equity) loss in earnings of real estate joint ventures ...........................           (520)             30
Changes in operating assets and liabilities:
    Tenant receivables ................................................................            450            (654)
    Prepaid expenses and other assets .................................................         (1,582)          5,203
    Deferred rents receivable .........................................................        (13,863)        (13,755)
    Accrued expenses and other liabilities ............................................         (3,389)          3,917
                                                                                          ------------    ------------
    Net cash provided by operating activities .........................................        130,204         144,203
                                                                                          ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Additions to developments in progress .............................................        (20,454)        (15,104)
    Purchases of commercial real estate ...............................................       (138,894)        (40,500)
    Additions to commercial real estate properties ....................................        (28,014)        (36,080)
    Additions to furniture, fixtures and equipment ....................................           (528)           (192)
    Payment of leasing costs ..........................................................        (13,951)        (13,185)
    Distributions from (contributions to) investments in real estate joint ventures ...           (150)            243
    Additions to mortgage notes and notes receivable ..................................        (15,619)        (15,000)
    Repayments of mortgage notes and notes receivable .................................         17,658              --
    Proceeds from sales of real estate ................................................         64,337              --
                                                                                          ------------    ------------
    Net cash used in investing activities .............................................       (135,615)       (119,818)
                                                                                          ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Purchases of general partner common units .........................................             --          (4,538)
    Redemption of Series A preferred units ............................................        (47,580)
    Principal payments on secured borrowings ..........................................       (259,298)         (8,932)
    Payment of loan costs .............................................................         (4,232)           (164)
    Proceeds from issuance of senior unsecured notes ..................................        300,000              --
    Repayment of senior unsecured notes ...............................................       (100,000)             --
    Proceeds from unsecured credit facility ...........................................        312,498         112,000
    Repayment of unsecured credit facility ............................................       (391,498)         (5,000)
    Distribution from affiliate joint venture .........................................         10,603              --
    Distributions to minority partners in consolidated partnerships ...................        (29,786)        (16,313)
    Contributions .....................................................................        344,786              74
    Distributions .....................................................................        (99,819)       (106,530)
                                                                                          ------------    ------------
    Net cash provided by (used in) financing activities ...............................         35,674         (29,403)
                                                                                          ------------    ------------

    Net increase (decrease) in cash and cash equivalents ..............................         30,263          (5,018)
    Cash and cash equivalents at beginning of period ..................................         23,012          30,576
                                                                                          ------------    ------------
    Cash and cash equivalents at end of period ........................................   $     53,275    $     25,558
                                                                                          ============    ============
</TABLE>

                (see accompanying notes to financial statements)

| 4
<PAGE>


                       RECKSON OPERATING PARTNERSHIP, L.P.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2004
                                   (UNAUDITED)

1.   ORGANIZATION AND FORMATION OF THE COMPANY

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  (collectively  the
"Company")  were formed for the purpose of continuing the commercial real estate
business of Reckson  Associates,  the predecessor of the Operating  Partnership,
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 was  incorporated  in Maryland in September  1994. In June 1995, the
Company   completed  an  initial  public  offering  (the  "IPO")  and  commenced
operations.

The Company became the sole general  partner of Reckson  Operating  Partnership,
L.P. (the "Operating Partnership") by contributing  substantially all of the net
proceeds of the IPO in exchange for an approximate 73% interest in the Operating
Partnership.  At September 30, 2004, the Company's  ownership  percentage in the
Operating  Partnership was approximately  95.7%. All Properties  acquired by the
Company are held by or through the Operating  Partnership.  In conjunction  with
the  IPO,  the  Operating  Partnership  executed  various  option  and  purchase
agreements whereby it issued common units of limited partnership interest in the
Operating  Partnership ("OP Units") to certain continuing  investors in exchange
for (i)  interests  in  certain  property  partnerships,  (ii)  fee  simple  and
leasehold  interests in properties  and  development  land,  (iii) certain other
business assets and (iv) interests in Reckson Management Group, Inc. and Reckson
Construction Group, Inc.


2.   BASIS OF PRESENTATION

The  accompanying  consolidated  financial  statements  include the consolidated
financial  position of the Operating  Partnership and the Service  Companies (as
defined  below) at  September  30, 2004 and December 31, 2003 and the results of
their  operations  for the three and nine months  ended  September  30, 2004 and
2003,  respectively,  and, their cash flows for the nine months ended  September
30, 2004 and 2003,  respectively.  The Operating  Partnership's  investments  in
majority  owned and  controlled  real estate joint ventures are reflected in the
accompanying  financial  statements on a consolidated basis with a reduction for
the minority partners' interest.  The Operating Partnership also invests in real
estate joint  ventures where it may own less than a controlling  interest.  Such
investments are reflected in the  accompanying  financial  statements  under the
equity method of accounting.  The Service  Companies  which provide  management,
development  and  construction   services  to  the  Company  and  the  Operating
Partnership are Reckson  Management Group,  Inc., RANY Management  Group,  Inc.,
Reckson Construction Group New York, Inc. and Reckson Construction & Development
LLC  (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 Third Avenue,  LLC,  owner of the property  located at 919
Third Avenue, New York, NY.

Reckson Construction Group New York, Inc. and Reckson Construction & Development
LLC   (the   successor   to   Reckson   Construction   Group,   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.

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

| 5
<PAGE>


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

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

The Operating  Partnership  considers highly liquid investments with maturity of
three months or less when purchased to be cash equivalents.

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

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

On July 1, 2001 and January 1, 2002, the Operating Partnership adopted FASB
Statement No.141, "Business Combinations" and FASB Statement No. 142, "Goodwill
and Other Intangibles", respectively. As part of the acquisition of real estate
assets, the fair value of the real estate acquired is allocated to the acquired
tangible assets, consisting of land, building and building improvements, and
identified intangible assets and liabilities, consisting of the value of
above-market and below-market leases, other value of in-place leases, and value
of tenant relationships, based in each case on their fair values.

The Operating  Partnership allocates 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,  the Operating
Partnership assesses 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 the Operating Partnership  incorrectly estimates the
values at  acquisition or the  undiscounted  cash flows,  initial  allocation of
purchase price and future impairment charges may be different.

| 6
<PAGE>


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

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

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

| 7
<PAGE>


3.   MORTGAGE NOTES PAYABLE

As of September 30, 2004, the Operating  Partnership  had  approximately  $712.3
million of mortgage  notes  payable,  which mature at various times between 2005
and 2027.  The notes are secured by 19  properties  with an  aggregate  carrying
value of approximately  $1.5 billion which are pledged as collateral against the
mortgage  notes  payable.  Approximately  $43.2 million of the $712.3 million is
recourse to the Operating  Partnership and certain of the mortgage notes payable
are guaranteed by certain limited partners in the Operating Partnership and / or
the Company.  In addition,  consistent with customary  practices in non-recourse
lending,  certain  non-recourse  mortgages  may be  recourse  to  the  Operating
Partnership under certain limited circumstances  including  environmental issues
and breaches of material representations.

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

<TABLE>
<CAPTION>
                                                Principal         Interest           Maturity          Amortization
Property                                       Outstanding          Rate               Date            Term (Years)
-----------------------------------------    ----------------    ------------     ---------------    ----------------
<C>                                            <C>                  <C>                     <C>        <C>
395 North Service Road, Melville, NY           $    18,995          6.45%          October, 2005       $34 per month
200 Summit Lake Drive, Valhalla, NY                 18,584          9.25%          January, 2006            25
1350 Avenue of the Americas, NY, NY                 73,228          6.52%             June, 2006            30
Landmark Square, Stamford, CT (a)                   43,175          8.02%          October, 2006            25
100 Summit Lake Drive, Valhalla, NY                 16,600          8.50%            April, 2007            15
333 Earle Ovington Blvd, Mitchel Field, NY (b)      52,071          7.72%           August, 2007            25
810 Seventh Avenue, NY, NY (e)                      80,079          7.73%           August, 2009            25
100 Wall Street, NY, NY (e)                         34,701          7.73%           August, 2009            25
6900 Jericho Turnpike, Syosset, NY                   7,132          8.07%             July, 2010            25
6800 Jericho Turnpike, Syosset, NY                  13,514          8.07%             July, 2010            25
580 White Plains Road, Tarrytown, NY                12,308          7.86%        September, 2010            25
919 Third Ave, NY, NY (c)                          242,240          6.87%           August, 2011            30
One Orlando Center, Orlando, FL (d)                 37,275          6.82%         November, 2027            28
120 West 45th Street, NY, NY (d)                    62,435          6.82%         November, 2027            28
                                             ----------------

Total/Weighted Average                          $  712,337          7.24%
                                             ================
</TABLE>


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

(b)  The Operating  Partnership has a 60% general  partnership  interest in this
     property and its proportionate  share of the aggregate  principal amount is
     approximately $31.2 million.

(c)  The Operating  Partnership  has a 51% membership  interest in this property
     and  its  proportionate   share  of  the  aggregate   principal  amount  is
     approximately $123.5 million.

(d)  The mortgage debt on these properties,  which was  cross-collateralized  at
     September 30, 2004, was repaid without penalty on November 1, 2004.

(e)  The debt on these properties is cross-collateralized.


In addition,  the Operating  Partnership has a 60% interest in an unconsolidated
joint venture property.  The Operating  Partnership's share of the mortgage debt
at September 30, 2004 is approximately $7.4 million.  This mortgage note payable
bears interest at 8.85% per annum and matures on September 1, 2005 at which time
the Operating  Partnership's  share of the mortgage  debt will be  approximately
$6.9 million.

On August 9, 2004,  the Operating  Partnership  made an advance under its Credit
Facility  (defined  below) in the  amount  of $222.5  million  and,  along  with
cash-on-hand,  paid off the $250  million  balance of the  mortgage  debt on the
property located at 1185 Avenue of the Americas in New York City.

On November 1, 2004, the Operating Partnership exercised its right to prepay the
outstanding  mortgage debt of approximately  $99.6 million,  without penalty, on
the properties  located at One Orlando  Center in Orlando,  Florida and 120 West
45th Street in New York City.  The Operating  Partnership  made an advance under
its Credit Facility to fund such repayment.

4.   SENIOR UNSECURED NOTES

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

| 8
<PAGE>


On March 15, 2004,  the  Operating  Partnership  repaid $100 million of its 7.4%
senior unsecured notes at maturity.  These notes were repaid with funds received
from the Company's March 2004 common equity offering (see Note 7).

On August 13,  2004,  the  Operating  Partnership  issued $150 million of 5.875%
senior  unsecured  notes due  August  15,  2014.  Interest  on the notes will be
payable  semi-annually  on February 15 and August 15,  commencing  February  15,
2005.  The notes were priced at 99.151% of par value to yield  5.989%.  Prior to
the  issuance of these notes,  the  Operating  Partnership  entered into several
anticipatory   interest  rate  hedge   instruments  to  protect  itself  against
potentially  rising  interest  rates.  At the time the notes were issued,  these
instruments were settled and the Operating Partnership received a net benefit of
approximately $1.9 million.  Such benefit will be amortized over the term of the
notes to effectively reduce interest expense. The Operating Partnership used the
net  proceeds  from this  offering  to repay a portion  of the  Credit  Facility
borrowings used to pay off the  outstanding  mortgage debt on 1185 Avenue of the
Americas (see Note 3).

As  of  September  30,  2004,   the  Operating   Partnership   had   outstanding
approximately  $697.9  million (net of issuance  discounts) of senior  unsecured
notes  (the  "Senior  Unsecured  Notes").  The  following  table  sets forth the
Operating  Partnership's Senior Unsecured Notes and other related disclosures by
scheduled maturity date (dollars in thousands):

                          FACE       COUPON
       ISSUANCE          AMOUNT       RATE        TERM          MATURITY
   ----------------    ---------    --------    --------    ----------------
    June 17, 2002      $  50,000      6.00%      5 years     June 15, 2007
   August 27, 1997       150,000      7.20%     10 years    August 28, 2007
    March 26, 1999       200,000      7.75%     10 years     March 15, 2009
   January 22, 2004      150,000      5.15%      7 years    January 15, 2011
   August 13, 2004       150,000     5.875%     10 years    August 15, 2014
                       ---------
                       $ 700,000
                       =========

Interest on the Senior Unsecured Notes are payable  semi-annually with principal
and unpaid interest due on the scheduled maturity dates. In addition, certain of
the Senior  Unsecured Notes were issued at discounts  aggregating  approximately
$2.5 million.  Such  discounts are being  amortized  over the term of the Senior
Unsecured Notes to which they relate.

5.   UNSECURED CREDIT FACILITY

On July 1, 2004,  the  Operating  Partnership  had an  outstanding  $500 million
unsecured  revolving credit facility (the "Credit Facility") from JPMorgan Chase
Bank,  as  administrative  agent,  Wells Fargo Bank,  National  Association,  as
syndication agent, and Citicorp North America,  Inc. and Wachovia Bank, National
Association,  as  co-documentation  agents.  The Credit  Facility,  scheduled to
mature in December 2005, contained options for a one-year extension subject to a
fee of 25 basis points and, upon receiving  additional  lender  commitments,  an
increase to the maximum revolving credit amount to $750 million. In August 2004,
the Operating  Partnership amended and extended the Credit Facility to mature in
August 2007 with substantially  similar terms and conditions as existed prior to
the amendment and extension.  As of September 30, 2004,  based on a pricing grid
of the Operating  Partnership's  unsecured  debt ratings,  borrowings  under the
Credit  Facility  were  priced  off LIBOR  plus 90 basis  points  and the Credit
Facility  carried a facility fee of 20 basis points per annum. In the event of a
change in the  Operating  Partnership's  unsecured  credit  ratings the interest
rates and  facility  fee are  subject to change.  At  September  30,  2004,  the
outstanding  borrowings  under the Credit  Facility  aggregated  $90 million and
carried a weighted average interest rate of 2.64%.

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

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

In accordance  with the provisions of FASB Statement No. 144 and Emerging Issues
Task Force ("EITF") 87-24,  the Operating  Partnership  allocated  approximately
$2.8 million and $7.8 million of its unsecured  interest expense to discontinued
operations for the three and nine month periods ended  September 30, 2003.  EITF
87-24 states that "interest on debt that is required to be repaid as a result of
the  disposal  transaction  should be  allocated  to  discontinued  operations".
Pursuant to the terms of our Credit  Facility,  the  Operating  Partnership  was
required  to repay the Credit  Facility  to the extent of the net  proceeds,  as
defined,  received  from the  sales of  unencumbered  properties.  As such,  the
Operating  Partnership  has allocated to  discontinued  operations  the interest
expense incurred on the portion of its Credit Facility, which was required to be
repaid.  In August  2004,  the  Operating  Partnership  amended and extended its
Credit Facility, whereby such repayment requirement was eliminated.

| 9
<PAGE>


6.   COMMERCIAL REAL ESTATE INVESTMENTS

As of September 30, 2004, the Operating Partnership owned and operated 78 office
properties  (inclusive of eight office  properties owned through joint ventures)
comprising  approximately  14.8  million  square  feet  and 8  industrial  / R&D
properties comprising approximately 863,000 square feet located in the Tri-State
Area.

As of September 30, 2004, the Operating Partnership also owned approximately 313
acres of land in 12 separate  parcels of which the  Operating  Partnership  can,
based on current  estimates,  develop  approximately  3.0 million square feet of
office space. The Operating Partnership is currently evaluating alternative land
uses for certain of the land  holdings to realize  the highest  economic  value.
These  alternatives may include rezoning certain land parcels from commercial to
residential  use for  potential  disposition.  As of  September  30,  2004,  the
Operating  Partnership  had  invested  approximately  $126.4  million  in  these
development projects. Management has made subjective assessments as to the value
and   recoverability   of  these  investments  based  on  current  and  proposed
development plans,  market comparable land values and alternative use values. In
addition,  during the three and nine month periods ended September 30, 2004, the
Operating  Partnership  has  capitalized  approximately  $2.7  million  and $7.8
million, respectively, related to real estate taxes, interest and other carrying
costs related to these  development  projects.  In October  2003,  the Operating
Partnership  entered  into a contract to sell a 113 acre land parcel  located in
New Jersey.  The contract provides for a sales price ranging from $18 million to
$36 million. The sale is contingent upon obtaining zoning for residential use of
the land and other customary  approvals.  The proceeds  ultimately received from
such sale will be based upon the number of  residential  units  permitted by the
rezoning.  The  cost  basis  of the  land  parcel  at  September  30,  2004  was
approximately $5.9 million. The closing is scheduled to occur upon the rezoning,
which is anticipated to occur within 12 to 24 months. There can be no assurances
such rezoning will occur.  During  February 2004, a 3.9 acre land parcel located
on Long Island was condemned by the Town of Oyster Bay. As consideration for the
condemnation  the Operating  Partnership  anticipates it will initially  receive
approximately $1.8 million. The Operating  Partnership's cost basis in this land
parcel was approximately  $1.4 million.  The Operating  Partnership is currently
contesting this valuation and seeking payment of additional  consideration  from
the Town of  Oyster  Bay but  there  can be no  assurances  that  the  Operating
Partnership  will be successful in obtaining any such additional  consideration.
In July 2004, the Operating Partnership commenced the ground-up development of a
277,000 square foot Class A office building with a total anticipated  investment
of approximately $60 million. There can be no assurances that the actual cost of
this  development  will not exceed the anticipated  amount.  This development is
located  within  the  Operating   Partnership's  existing  404,000  square  foot
executive office park in Melville, New York.

During February 2003, the Operating  Partnership,  through Reckson  Construction
Group,  Inc.,  entered into a contract  with an affiliate of First Data Corp. to
sell a 19.3-acre  parcel of land located in Melville,  New York and was retained
by the purchaser to develop a build-to-suit  195,000 square foot office building
for aggregate  consideration  of  approximately  $47 million.  This  transaction
closed on March 11, 2003 and development of the  aforementioned  office building
has been  completed.  In  accordance  with FASB  Statement No. 66, the Operating
Partnership  has  recognized a book gain,  before  taxes,  on this land sale and
build-to-suit  transaction of approximately  $23.8 million, of which $0 and $5.0
million and, $3.3 million and $13.4 million has been recognized during the three
and nine month periods ended September 30, 2004 and 2003,  respectively,  and is
included  in  investment  and  other  income  on the  accompanying  consolidated
statements of income.

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

In January 2004,  the Operating  Partnership  sold a 104,000  square foot office
property, 120 Mineola Boulevard,  located on Long Island for approximately $18.5
million.  Net  proceeds  from the sale were used to repay  borrowings  under the
Credit  Facility.  As a result,  the  Operating  Partnership  recorded a gain of
approximately $5.5 million. In accordance with FASB Statement No. 144, such gain
has been reflected in discontinued  operations on the accompanying  consolidated
statements of income.

In January 2004, the Operating Partnership acquired 1185 Avenue of the Americas,
a 42-story,  1.1 million square foot Class A office tower,  located between 46th
and 47th  Streets in New York,  NY for $321  million.  In  connection  with this
acquisition,  the Operating  Partnership assumed a $202 million mortgage and $48
million of mezzanine debt. The balance of the purchase price was paid through an
advance under the Credit Facility. The floating rate mortgage and mezzanine debt
both matured in August 2004 at which time the  Operating  Partnership  satisfied
the outstanding debt through an advance under its Credit Facility along with the
cash-on-hand. The property is encumbered by a ground lease which has a remaining
term of  approximately  40 years with rent  scheduled to be re-set at the end of
2005 and then remain constant for the balance of the term. Pursuant to the terms
of the ground  lease,  the  Operating  Partnership  and the ground  lessor  have
commenced  arbitration  proceedings  relating  to the  re-setting  of the ground
lease.  There can be no assurances as to the outcome of the rent re-set process.
In  accordance  with  FASB  Statement  No.  141,  "Business  Combinations",  the
Operating  Partnership  allocated  and recorded net  deferred  intangible  lease
income of  approximately  $14.2 million,  representing the net value of acquired
above and below market leases,  assumed lease  origination costs and other value
of  in-place  leases.  The net value of the above  and  below  market  leases is
amortized  over the remaining  terms of the  respective  leases to rental income
which amounted to approximately  $2.0 million and $5.8 million for the three and
nine month periods ended September 30, 2004. In addition,  amortization  expense
on the value of

| 10
<PAGE>


lease  origination  costs was  approximately  $700,000  and $2.0 million for the
three and nine month periods ended  September  30, 2004. At  acquisition,  there
were 31 in-place leases aggregating approximately one million square feet with a
weighted average remaining lease term of approximately 6 years.

In April  2004,  the  Operating  Partnership  sold a 175,000  square foot office
building,  400 Garden City Plaza,  located on Long Island for  approximately $30
million, of which the Operating  Partnership owned a 51% interest,  and a wholly
owned 9,000  square foot retail  property for  approximately  $2.8  million.  In
addition,  the Operating  Partnership completed the sale on two of the remaining
three properties from the Disposition for approximately  $5.8 million.  Proceeds
from  the sale  were  used to  establish  an  escrow  account  with a  qualified
intermediary for a future exchange of real property  pursuant to Section 1031 of
the Code (a "Section 1031  Exchange").  A Section 1031  Exchange  allows for the
deferral of taxes  related to the gain  attributable  to the sale of property if
qualified  replacement  property is identified within 45 days and such qualified
replacement  property is then acquired within 180 days from the initial sale. As
described below, the Operating  Partnership has since identified and acquired an
interest in a qualified replacement property for purposes of this exchange.  The
disposition  of the other  industrial  property,  which is  subject  to  certain
environmental  issues,  was conditioned upon the approval of the buyer's lender,
which was not obtained.  As a result, the Operating Partnership will not dispose
of this property as part of the Disposition.  Management  believes that the cost
to remediate the environmental issues will not have a material adverse effect on
the Operating Partnership, but there can be no assurance in this regard.

In July 2004, the Operating  Partnership  acquired a 141,000 square foot Class A
office property, 3 Giralda Farms, located in Madison, NJ for approximately $22.7
million.  The Operating  Partnership  made this  acquisition  through  available
cash-on-hand.

During September 2004, the Operating  Partnership,  through Reckson Construction
Group,  Inc.,  acquired the remaining 49% interest in the property located at 90
Merrick Avenue, East Meadow, NY, from the Operating  Partnership's joint venture
partner,  Teachers Insurance and Annuity  Association,  for approximately  $14.9
million.  This  acquisition  was financed,  in part,  from the  remaining  sales
proceeds being held by the previously  referenced qualified  intermediary as the
property was an identified,  qualified replacement property. The balance of this
acquisition was financed with cash-on-hand. As a result of this acquisition, the
Operating  Partnership  successfully  completed  the Section  1031  Exchange and
thereby  deferred the taxes related to the gain  recognized on the sale proceeds
received  from  the sale of the two  remaining  industrial  properties  from the
Disposition.

During September 2004, the Operating  Partnership acquired a 215,000 square foot
Class A office property, 44 Whippany Road, located in Morristown, New Jersey for
approximately $30 million. The Operating  Partnership made this acquisition,  in
part,  through funds  received from the Company's  September  2004 common equity
offering,  cash-on-hand and the issuance of approximately  34,000 OP Units which
were priced at $28.70 per OP Unit.

During  September  2004,  the  Operating  Partnership  sold a 92,000 square foot
industrial property,  500 Saw Mill River Road, located in Westchester County for
approximately  $7.3  million.   In  connection  with  this  sale  the  Operating
Partnership  recorded a gain of approximately  $2.3 million.  In accordance with
FASB Statement No. 144, such gain has been reflected in discontinued  operations
on the accompanying consolidated statements of income.

On October 1, 2004,  the Operating  Partnership  acquired a 260,500  square foot
Class A office property, 300 Broadhollow Road, located in Melville, Long Island,
for   approximately   $41.0  million.   The  Operating   Partnership  made  this
acquisition,  in  part,  through  an  advance  under  the  Credit  Facility  and
cash-on-hand.

The Operating  Partnership  holds a $17.0 million note  receivable,  which bears
interest at 12% per annum and is secured by a minority  partnership  interest in
Omni  Partners,  L.P.,  owner of the Omni, a 579,000  square foot Class A office
property  located  in  Uniondale,  New York (the  "Omni  Note").  The  Operating
Partnership currently owns a 60% majority partnership interest in Omni Partners,
L.P. and on March 14, 2007 may exercise an option to acquire the  remaining  40%
interest for a price based on 90% of the fair market value of the property.  The
Operating  Partnership  also holds a $30 million junior  mezzanine loan which is
secured by a pledge of an indirect  ownership  interest of an entity  which owns
the ground  leasehold  estate  under a 1.1 million  square  foot office  complex
located on Long Island,  New York (the "Mezz Note").  At September 30, 2004, the
Mezz Note had an  outstanding  balance  of  approximately  $27.6  million  and a
weighted average interest rate of 12.86% per annum.  Such interest rate is based
on a minimum  spread  over  LIBOR of 1.63% per annum.  The Mezz Note  matures in
September  2005 and the  borrower  has  rights  to  extend  its  term for  three
additional  one-year  periods and, under certain  circumstances,  prepay amounts
outstanding.

The  Operating   Partnership  also  held  three  other  notes  receivable  which
aggregated  $21.5 million which carried  interest at rates ranging from 10.5% to
12% per annum. These notes are secured in part by a minority partner's preferred
unit interest in the Operating  Partnership,  an interest in real property and a
personal  guarantee (the "Other Notes" and  collectively  with the Omni Note and
the  Mezz  Note,  the  "Note  Receivable   Investments").   During  April  2004,
approximately $2.7 million of the Other Notes, including accrued interest,  were
repaid  by the  minority  partner  exchanging,  and  the  Operating  Partnership
redeeming,  approximately  3,081  preferred  units.  The  preferred  units  were
redeemed  at a  par  value  of  $3.1  million.  Approximately  $420,000  of  the
redemption  proceeds was used to offset  interest due from the minority  partner
under the Other  Notes and for  prepaid  interest.  In July 2004,  the  minority
partner delivered notice to the Operating  Partnership  stating his intention to
repay $15.5  million of the 10.5% Other  Notes.  As of September  30, 2004,  the
Operating  Partnership  had  received   approximately  $13.1  million  from  the
preferred unit holder to be applied against amounts owned under the Other Notes,
including  accrued  interest.  Subsequent  to September  30, 2004 the  Operating
Partnership received an additional $2.8 million. As a result,

| 11
<PAGE>


the remaining  Other Notes  aggregate $3.5 million and carry a weighted  average
interest rate of 11.57%. The Operating Partnership has also agreed to extend the
maturity of $2.5 million of such debt through January 31, 2005 and the remaining
$1.0 million through January 31, 2010. As of September 30, 2004,  management has
made subjective assessments as to the underlying security value on the Operating
Partnership's Note Receivable Investments.  These assessments indicate an excess
of market value over the carrying  value related to the Operating  Partnership's
Note  Receivable   Investments.   Based  on  these   assessments  the  Operating
Partnership's  management  believes there is no impairment to the carrying value
related to the Operating Partnership's Note Receivable Investments.

The Operating  Partnership  also owns a 355,000  square foot office  building in
Orlando,  Florida. This non-core real estate holding was acquired in May 1999 in
connection  with the  Operating  Partnership's  initial New York City  portfolio
acquisition.  This  property  was  cross-collateralized  under a  $99.7  million
mortgage  note payable along with one of the  Operating  Partnership's  New York
City  buildings.  On November 1, 2004, the Operating  Partnership  exercised its
right to prepay this note in its entirety, without penalty.

The  Operating  Partnership  also owns a 60%  interest in a 172,000  square foot
office building located at 520 White Plains Road in White Plains,  New York (the
"520JV"),  which is managed by its wholly owned subsidiary.  As of September 30,
2004,  the 520JV had total assets of $20.7  million,  a mortgage note payable of
$11.5 million and other  liabilities  of $726,000.  The Operating  Partnership's
allocable  share of the  520JV  mortgage  note  payable  is  approximately  $7.4
million.  This  mortgage  note  payable  bears  interest  at 8.85% per annum and
matures on  September 1, 2005.  The  operating  agreement of the 520JV  requires
approvals  from members on certain  decisions  including  sale of the  property,
refinancing  of the property's  mortgage  debt, and material  renovations to the
property.  The Operating  Partnership has evaluated the impact of FIN 46R on its
accounting  for the 520JV  and has  concluded  that the 520JV is not a VIE.  The
Operating  Partnership  accounts  for the  520JV  under  the  equity  method  of
accounting.  In accordance  with the equity  method of accounting  the Operating
Partnership's  proportionate  share of the 520JV income (loss) was approximately
$112,000 and $520,000  and $134,000 and  $(30,000)  for the three and nine month
periods ended September 30, 2004 and 2003, respectively.

During  September  2000, the Operating  Partnership  formed a joint venture (the
"Tri-State  JV") with Teachers  Insurance and Annuity  Association  ("TIAA") and
contributed nine Class A suburban office  properties  aggregating  approximately
1.5  million  square  feet  to the  Tri-State  JV for a 51%  majority  ownership
interest. TIAA contributed  approximately $136 million for a 49% interest in the
Tri-State JV which was then distributed to the Operating Partnership.  In August
2003,  the Operating  Partnership  acquired  TIAA's 49% interest in the property
located at 275 Broadhollow Road, Melville,  NY, for approximately $12.4 million.
During April 2004, the Tri-State JV sold a 175,000  square foot office  building
located on Long Island for  approximately  $30 million.  Net proceeds  from this
sale were  distributed  to the members of the Tri-State JV. In addition,  during
September  2004, the Operating  Partnership  acquired TIAA's 49% interest in the
property located at 90 Merrick Avenue,  East Meadow, NY for approximately  $14.9
million.  As a result of these  transactions,  the Tri-State JV owns six Class A
suburban office properties  aggregating  approximately  943,000 square feet. The
Operating  Partnership is responsible for managing the day-to-day operations and
business  affairs  of the  Tri-State  JV and has  substantial  rights  in making
decisions affecting the properties such as leasing, marketing and financing. The
minority member has certain rights primarily intended to protect its investment.
For purposes of its financial statements the Operating Partnership  consolidates
the Tri-State JV.

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

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 September  30,  2004,  the
Operating  Partnership had issued and outstanding 3,118,556 Class A OP Units and
465,845  Class C OP Units.  The Class A OP Units  currently  receive a quarterly
distribution of $.4246 per unit. 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 September  16, 2004,  the  Operating  Partnership  declared a quarterly  cash
distribution on the Operating  Partnership's Class A OP Units of $.4246 per unit
which was paid on October 20, 2004 to its unitholders of record as of October 7,
2004. The  distribution is based on an annualized  distribution  rate of $1.6984
per unit.

On November  25, 2003 the Company  exchanged  all of its  9,915,313  outstanding
shares  of Class B common  stock for an equal  number  of  shares of its  common
stock.  The Board of Directors  declared a final cash  dividend on the Company's
Class B common  stock to holders of record on November 25, 2003 in the amount of
$.1758 per share which was paid on January 12, 2004.  This  payment  covered the
period from  November  1, 2003  through  November  25, 2003 and was based on the
previous  quarterly  Class B common stock dividend rate of $.6471 per share.  In
order to align the regular  quarterly  dividend  payment  schedule of the former
holders of Class B common stock with the schedule of the holders of common stock
for periods  subsequent to the exchange  date for the Class B common stock,  the
Board of

                                      | 12
<PAGE>


Directors  also  declared a cash  dividend  with  regard to the common  stock to
holders of record on October  14,  2003 in the amount of $.2585 per share  which
was paid on January 12, 2004.  This  payment  covered the period from October 1,
2003  through  November 25, 2003 and was based on the current  quarterly  common
stock  dividend  rate of $.4246 per share.  As a result,  the  Company  declared
dividends  through  November 25, 2003 to all holders of common stock and Class B
common  stock.  The Board of  Directors  also  declared  the  common  stock cash
dividend for the portion of the fourth quarter  subsequent to November 25, 2003.
The holders of record of common stock on January 2, 2004,  giving  effect to the
exchange  transaction,  received a dividend on the common stock in the amount of
$.1661 per share on January  12,  2004.  This  payment  covered  the period from
November  26,  2003  through  December  31,  2003 and was  based on the  current
quarterly common stock dividend rate of $.4246 per share. In connection with the
Company's  exchange  of its  Class B common  stock,  the  Operating  Partnership
exchanged its Class B common units held by the Company for an equal number of OP
Units. Further,  with respect to the foregoing  declarations on dividends on the
Company's  common  and Class B common  stock,  the  Operating  Partnership  made
distributions  on its OP Units and Class B common  units in like  amounts on the
same dates.

During the nine month period ended September 30, 2004, approximately 2.5 million
shares of the Company's  common stock was issued in connection with the exercise
of outstanding  options to purchase stock under its stock option plans resulting
in proceeds to the Company of  approximately  $57.8 million.  Such proceeds were
then contributed to the Operating Partnership in exchange for an equal number of
OP Units.

In March 2004, the Company completed an equity offering of 5.5 million shares of
its common stock raising  approximately  $149.5 million,  net of an underwriting
discount,  or $27.18 per share. Net proceeds received from this transaction were
used to repay  outstanding  borrowings  under the  Credit  Facility,  repay $100
million of the  Operating  Partnership's  7.4%  senior  unsecured  notes and for
general  purposes  including the redemption of the Company's  Series A preferred
stock, discussed below.

On September 14, 2004, the Company  completed an equity offering of five million
shares of its common  stock  raising  approximately  $137.5  million,  net of an
underwriting  discount,  or $27.39 per share.  Net proceeds  received  from this
transaction  were used to redeem the Company's Series A preferred stock (defined
below) and for general purposes.

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

The  Company  had issued and  outstanding  8,834,500  shares of 7.625%  Series A
Convertible  Cumulative  Preferred Stock (the "Series A preferred  stock").  The
Series A  preferred  stock was  redeemable  by the Company on or after April 13,
2004 at a price of  $25.7625  per share  with such price  decreasing,  at annual
intervals,  to $25.00 per share on April 13,  2008.  In  addition,  the Series A
preferred  stock, at the option of the holder,  was convertible at any time into
the Company's  common stock at a price of $28.51 per share. On May 13, 2004, the
Company  purchased on the open market and retired 140,600 shares of the Series A
preferred stock for approximately $3.4 million or $24.45 per share.  During July
2004, the Company completed an exchange with a holder of 1,350,000 shares of the
Series A preferred  stock for  1,304,602  shares of common  stock.  In addition,
during August 2004, the Company  announced the redemption of 2,000,000 shares of
its then outstanding shares of Series A preferred stock at a redemption price of
$25.7625 per share plus accumulated and unpaid dividends. On September 20, 2004,
the Company redeemed  1,841,905 of such shares for approximately  $47.9 million,
including  accumulated  and unpaid  dividends.  The remaining  158,095 shares of
Series A preferred  stock were exchanged into common stock of the Company at the
election of the Series A preferred  shareholders.  During  September  2004,  the
Company announced the redemption of all of its then outstanding shares of Series
A preferred stock aggregating 5,343,900 shares at a redemption price of $25.7625
per share plus  accumulated  and unpaid  dividends.  On October  15,  2004,  the
Company redeemed  4,965,062 shares of Series A preferred stock for approximately
$129.9  million,  including  accumulated  and unpaid  dividends.  The  remaining
378,838  shares of Series A preferred  stock were exchanged into common stock of
the  Company,  at the  election  of the  Series  A  preferred  shareholders.  In
connection  with the Company  purchasing  and  exchanging its Series A preferred
stock, the Operating  Partnership purchased and exchanged its Series A preferred
units  with the  Company.  As a result of the 100%  retirement  of the  Series A
preferred units with the Company annual preferred distributions will decrease by
approximately  $16.8  million.  In  accordance  with  the  EITF  Topic  D-42 the
Operating  Partnership incurred an accounting charge during the third quarter of
2004 of approximately $6.7 million in connection with the July 2004 exchange and
September  2004  redemption of the Series A preferred  units.  In addition,  the
Operating  Partnership will incur a charge of approximately  $9.1 million during
the fourth quarter of 2004 in connection with the October 2004 redemption.

On January 1, 2004, the Company had issued and outstanding two million shares of
Series B  Convertible  Cumulative  Preferred  Stock  (the  "Series  B  preferred
stock").  The Series B preferred stock was redeemable by the Company as follows:
(i) on or after June 3, 2003 to and including  June 2, 2004, at $25.50 per share
and (ii) on or after  June 3, 2004 and  thereafter,  at $25.00  per  share.  The
Series B preferred  stock,  at the option of the holder,  was convertible at any
time into the Company's  common stock at a price of $26.05 per share. On January
16, 2004,  the Company  exercised its option to redeem the two million shares of
outstanding  Series B preferred stock for approximately  1,958,000 shares of its
common stock. In connection with the Company exercising its option to redeem the
Series B  Preferred  Stock,  the  Operating  Partnership  redeemed  its Series B
preferred units with the Company for approximately 1,958,000 OP Units.

| 13
<PAGE>


As a result of this redemption annual preferred  distributions  will decrease by
approximately $4.4 million.

The  Operating  Partnership  had issued  and  outstanding  approximately  19,662
preferred units of limited  partnership  interest with a liquidation  preference
value of $1,000 per unit and an annualized  distribution of $55.60 per unit (the
"Preferred  Units").  The Preferred Units were issued in 1998 in connection with
the  contribution  of real property to the Operating  Partnership.  On April 12,
2004, the Operating Partnership redeemed approximately 3,081 Preferred Units, at
the election of the holder,  for approximately  $3.1 million,  including accrued
and unpaid dividends which is being applied to amounts owed from the unit holder
under  the  Other  Notes.   In  addition,   during  July  2004,  the  holder  of
approximately 15,381 of the outstanding  Preferred Units exercised his rights to
exchange them into OP Units. The Operating  Partnership  converted the Preferred
Units,  including accrued and unpaid dividends,  into  approximately  531,000 OP
Units,  which  were  valued at  approximately  $14.7  million at the time of the
conversion.  Subsequent to the  conversion,  the OP Units were  exchanged for an
equal number of shares of the  Company's  common stock.  In connection  with the
July 2004 exchange and conversion, the preferred unit holder delivered notice to
the  Operating  Partnership  of his intent to repay $15.5 million of the amounts
owed from the  preferred  unit holder  under the Other Notes (see Note 6). As of
September 30, 2004, there remain 1,200 Preferred Units outstanding with a stated
distribution  rate of 7.0%,  which is subject to  reduction  based upon terms of
their  initial  issuance.  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. Due to this  reduction,  the Preferred  Units are currently
not entitled to receive a distribution.

The Company had historically  structured long term incentive  programs  ("LTIP")
using  restricted  stock and stock loans.  In July 2002,  as a result of certain
provisions  of  the  Sarbanes  Oxley  legislation,   the  Operating  Partnership
discontinued  the use of stock loans in its LTIP. In connection with LTIP grants
made prior to the enactment of the Sarbanes Oxley  legislation  the Company made
stock loans to certain  executive and senior officers to purchase 487,500 shares
of its common stock at market prices ranging from $18.44 per share to $27.13 per
share.  The stock  loans were set to bear  interest at the  mid-term  Applicable
Federal  Rate and  were  secured  by the  shares  purchased.  Such  stock  loans
(including accrued interest) were scheduled to vest and be ratably forgiven each
year on the  anniversary  of the grant date based upon vesting  periods  ranging
from four to ten  years  based on  continued  service  and in part on  attaining
certain annual performance measures.  These stock loans had an initial aggregate
weighted average vesting period of approximately nine years. As of September 30,
2004, there remains 222,429 shares of common stock subject to the original stock
loans  which  are  anticipated  to vest  between  2005 and  2011.  Approximately
$290,000 and $846,000 of  compensation  expense were  recorded for the three and
nine month periods ended September 30, 2004, respectively, related to these LTIP
grants.  Such amount has been included in marketing,  general and administrative
expenses on the accompanying consolidated statements of income.

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

In  November  2002 and March  2003 an award of rights  was  granted  to  certain
executive  officers  of the  Company  (the  "2002  Rights"  and  "2003  Rights",
respectively,  and collectively,  the "Rights"). Each Right represents the right
to receive, upon vesting, one share of common stock if shares are then available
for grant under one of the Company's stock option plans or, if shares are not so
available,  an  amount  of cash  equivalent  to the  value of such  stock on the
vesting date. The 2002 Rights vest in four equal annual  installments  beginning
on November 14, 2003 (and shall be fully vested on November 14, 2006).  The 2003
Rights will be earned as of March 13,  2005 and will vest in three equal  annual
installments beginning on March 13, 2005 (and shall be fully vested on March 13,
2007).  Dividends  on the shares will be held by the  Company  until such shares
become vested, and will be distributed thereafter to the applicable officer. The
2002 Rights also entitle the holder thereof to cash payments in respect of taxes
payable by the holder  resulting  from the  Rights.  The 2002  Rights  aggregate
62,835 shares of the Company's common stock and the 2003 Rights aggregate 26,042
shares of common stock.  As of September 30, 2004,  there remains,  reserved for
future  issuance,  47,126  shares of common stock related to the 2002 Rights and
26,042 shares of common stock  related to the 2003 Rights.  During the three and
nine month periods ended September 30, 2004 the Company  recorded  approximately
$101,000 and $302,000,  respectively,  of  compensation  expense  related to the
Rights.  Such amount has been included in marketing,  general and administrative
expenses on the accompanying consolidated statements of income.

In March 2003,  the Company  established a new LTIP for its executive and senior
officers.  The four-year plan has a core award,  which provides for annual stock
based  compensation  based upon continued service and in part based on attaining
certain annual performance measures.  The plan also has a special outperformance
award,  which provides for  compensation  to be earned at the end of a four-year
period if the Company attains certain four-year cumulative performance measures.
Amounts  earned  under the special  outperformance  award may be paid in cash or
stock at the discretion of the Compensation Committee of the Board.  Performance
measures  are based on total  shareholder  returns  on a relative  and  absolute
basis.  On March 13, 2003,  the Company  made  available  827,776  shares of its
common stock under one of its existing stock option plans in connection with the
core award of this LTIP for eight of its executive and senior officers. On March
13,  2004,  the Company met its annual  performance  measure with respect to the
prior annual period. As a result, the Company issued to the participants 206,944
shares of its common stock  related to the core  component  of this LTIP.  As of
September 30, 2004,  there remains  620,832  shares of common stock reserved for
future  issuance  under the core  award of this LTIP.  With  respect to the core
award of this LTIP, the Company recorded approximately $699,000 and $2.1 million
of compensation expense for the three and nine month periods ended September 30,
2004,  respectively.  Such amount has been  included in  marketing,  general and
administrative

| 14
<PAGE>


expenses on the  accompanying  consolidated  statements of income.  Further,  no
provision will be made for the special  outperformance  award of this LTIP until
such time as achieving  the requisite  performance  measures is determined to be
probable.

The Board of Directors  has approved an amendment to the 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 limit 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 LTIP from the  anniversary of the date of grant
to December  31st 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.

As of September 30, 2004,  the Company had  approximately  3.1 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 $23.17
per option.  In addition,  the Company has  approximately  807,000 shares of its
common stock reserved for future issuance under its stock option plans.

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.

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.

| 15
<PAGE>


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

                                                         NINE MONTHS ENDED
                                                           SEPTEMBER 30,
                                                     ------------------------
                                                        2004          2003
                                                     ----------    ----------

     Cash paid during the period for interest ...    $   83,781    $   79,193
                                                     ==========    ==========


     Interest capitalized during the period .....    $    6,008    $    5,804
                                                     ==========    ==========

9.   SEGMENT DISCLOSURE

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

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

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

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

<TABLE>
<CAPTION>
                                                                                THREE MONTHS ENDED
                                                 -------------------------------------------------------------------------------
                                                      SEPTEMBER 30, 2004                            SEPTEMBER 30, 2003
                                                 ---------------------------------------  --------------------------------------
                                                    Core                    CONSOLIDATED     Core                   CONSOLIDATED
                                                  Portfolio       Other        TOTALS      Portfolio      Other        TOTALS
                                                 -----------   ----------   ------------  -----------   ---------   ------------
<S>                                              <C>           <C>          <C>           <C>           <C>         <C>
PROPERTY OPERATING REVENUES:
Base rents, tenant
   escalations and reimbursements .............  $   130,719   $       58   $   130,777   $   107,931   $   1,538   $   109,469
                                                 -----------   ----------   -----------   -----------   ---------   -----------


EXPENSES:
Property operating expenses ...................       53,975          669        54,644        45,388         834        46,222
Marketing, general and administrative .........        4,220        3,461         7,681         3,819       4,344         8,163
Depreciation and amortization .................       28,513        1,071        29,584        24,037       1,026        25,063
                                                 -----------   ----------   -----------   -----------   ---------   -----------
Total Operating Expenses ......................       86,708        5,201        91,909        73,244       6,204        79,448
                                                 -----------   ----------   -----------   -----------   ---------   -----------
Operating Income (loss)........................       44,011       (5,143)       38,868        34,687      (4,666)       30,021
                                                 -----------   ----------   -----------   -----------   ---------   -----------
NON-OPERATING INCOME AND EXPENSES
Interest, investment and other income .........        5,578        1,743         7,321           670       5,714         6,384
Interest:
   Expense incurred ...........................      (13,857)     (10,263)      (24,120)      (12,285)     (7,598)      (19,883)
   Amortization of deferred financing costs ...         (271)        (734)       (1,005)         (262)       (545)         (807)
                                                 -----------   ----------   -----------   -----------   ---------   -----------
Total Non-Operating Income and Expenses .......       (8,550)      (9,254)      (17,804)      (11,877)     (2,429)      (14,306)
                                                 -----------   ----------   -----------   -----------   ---------   -----------
Income (loss) before minority interests,
   preferred dividends and distributions,
   equity in earnings of real estate joint
   ventures and discontinued operations .......  $    35,461   $  (14,397)  $    21,064   $    22,810   $  (7,095)  $    15,715
                                                 ===========   ==========   ===========   ===========   =========   ===========
</TABLE>

| 16
<PAGE>


<TABLE>
<CAPTION>
                                                                                 NINE MONTHS ENDED
                                                 ---------------------------------------------------------------------------------
                                                      SEPTEMBER 30, 2004                            SEPTEMBER 30, 2003
                                                 ---------------------------------------   ---------------------------------------
                                                    Core                    CONSOLIDATED      Core                     CONSOLIDATED
                                                  Portfolio       Other        TOTALS       Portfolio       Other         TOTALS
                                                 -----------   -----------  ------------   -----------   -----------   -----------
<S>                                              <C>           <C>           <C>           <C>           <C>           <C>
PROPERTY OPERATING REVENUES:
Base rents, tenant
   escalations and reimbursements .............  $   383,201   $     3,969   $   387,170   $   321,151   $     5,145   $   326,296
                                                 -----------   -----------   -----------   -----------   -----------   -----------

EXPENSES:
Property operating expenses ...................      154,457         2,278       156,735       129,305         2,736       132,041
Marketing, general and administrative .........       12,499         9,623        22,122        11,827        12,700        24,527
Depreciation and amortization .................       83,327         3,169        86,496        76,037         3,084        79,121
                                                 -----------   -----------   -----------   -----------   -----------   -----------
Total Operating Expenses ......................      250,283        15,070       265,353       217,169        18,520       235,689
                                                 -----------   -----------   -----------   -----------   -----------   -----------
Operating Income (loss)........................      132,918       (11,101)      121,817       103,982       (13,375)       90,607
                                                 -----------   -----------   -----------   -----------   -----------   -----------
NON-OPERATING INCOME AND EXPENSES
Interest, investment and other income .........        7,565         8,742        16,307         2,468        16,063        18,531
Interest:
   Expense incurred ...........................      (45,334)      (29,054)      (74,388)      (36,857)      (23,268)      (60,125)
   Amortization of deferred financing costs ...         (858)       (1,973)       (2,831)         (896)       (1,617)       (2,513)
                                                 -----------   -----------   -----------   -----------   -----------   -----------
Total Non-Operating Income and Expenses .......      (38,627)      (22,285)      (60,912)      (35,285)       (8,822)      (44,107)
                                                 -----------   -----------   -----------   -----------   -----------   -----------
Income (loss) before minority interests,
   preferred dividends and distributions,
   equity (loss) in earnings of real
   estate joint ventures and discontinued
   operations .................................  $    94,291   $   (33,386)  $    60,905   $    68,697   $   (22,197)  $    46,500
                                                 -----------   -----------   -----------   -----------   -----------   -----------
Total Assets ..................................  $ 2,898,666   $   213,682   $ 3,112,348   $ 2,426,455   $   519,031   $ 2,945,486
                                                 ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>


10.  NON-CASH INVESTING AND FINANCING ACTIVITIES

During January 2004, in connection with the Operating Partnership's  acquisition
of 1185 Avenue of the Americas,  New York, NY, the Operating Partnership assumed
a $202 million mortgage note payable and $48 million of mezzanine debt.

During January 2004, as a result of the Company redeeming its Series B preferred
stock,  the Operating  Partnership  redeemed its outstanding  Series B preferred
units for approximately 1,958,000 OP Units.

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

During July 2004, the Operating  Partnership  exchanged  approximately 15,381 of
the  Preferred  Units,  with an aggregate  stated value of  approximately  $15.4
million into approximately 531,000 OP Units.  Subsequent to this exchange the OP
Units  were  exchanged  for an equal  number of shares of the  Company's  common
stock.

During July 2004, the Operating  Partnership  exchanged  1,350,000 shares of its
Series A preferred units, with a par value of approximately  $33.8 million,  for
1,304,602  OP Units with a fair  market  value,  on the date of the  exchange of
approximately  $36.1 million.  In addition,  as a result of this  exchange,  the
Operating  Partnership  incurred a non-cash  accounting  charge of approximately
$3.4 million.

On September 20, 2004,  the Operating  Partnership  redeemed  approximately  1.8
million shares of its Series A preferred units resulting in an accounting charge
of approximately $3.4 million of which approximately $2.0 million was non-cash.

During September 2004,  181,510 shares of the Operating  Partnership's  Series A
preferred units was exchanged by the Series A preferred unitholders into 159,134
OP Units which was valued at approximately $4.5 million or $28.47 per OP Unit.

During   September  2004,  in  connection   with  the  Operating   Partnership's
acquisition  of a 215,000  square foot Class A office  property,  the  Operating
Partnership issued approximately 34,000 OP Units for a total non-cash investment
of approximately $1 million.

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11.  RELATED PARTY TRANSACTIONS

In connection  with the  Disposition,  four of the five  remaining  options (the
"Remaining Option Properties")  granted to the Company at the time of the IPO to
purchase   interests  in  properties   owned  by  Rechler  family  members  were
terminated. In return the Company received an aggregate payment from the Rechler
family  members of $972,000.  Rechler  family members have also agreed to extend
the term of the  remaining  option on the  property  located at 225  Broadhollow
Road, Melville, New York (the Company's current headquarters) for five years and
to release the Company from approximately  15,500 square feet under its lease at
this property.  In connection with the restructuring of the remaining option the
Rechler  family  members paid the Company $1 million in return for the Company's
agreement not to exercise the option during the next three years. As part of the
agreement, the exercise price of the option payable by the Company was increased
by $1 million. In addition,  in exchange for the right to terminate its existing
lease at 225  Broadhollow  Road eighteen  months early,  the Company amended the
terms of its option to acquire such property by providing certain Rechler family
members with  customary tax  protection in the event the Company were to acquire
the  property  and then  dispose of it within five  years.  This  amendment  was
negotiated and approved by the Independent Directors of the Company.

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

As part of the Company's REIT structure it is provided  management,  leasing and
construction  related services  through taxable REIT  subsidiaries as defined by
the Code.  During the three and nine month periods ended  September 30, 2004 and
2003, Reckson Construction Group, Inc. or its successor,  Reckson Construction &
Development,  LLC billed  approximately  $170,000  and  $848,000 and $86,000 and
$317,000,  respectively,  of market rate services and Reckson  Management Group,
Inc.  billed  approximately  $68,000 and  $206,000  and  $67,000  and  $207,000,
respectively, of market rate management fees to the Remaining Option Properties.

Reckson Management Group, Inc. leases approximately 26,000 square feet of office
space  at  the  Remaining  Option  Property  located  at 225  Broadhollow  Road,
Melville,  New  York  for  its  corporate  offices  at an  annual  base  rent of
approximately $750,000.  Reckson Management Group, Inc., had also entered into a
short term license  agreement at the property for 6,000 square feet of temporary
space which expired in January 2004.  Reckson Management Group, Inc. also leases
10,722  square  feet of  warehouse  space  used  for  equipment,  materials  and
inventory  storage at a property owned by certain  members of the Rechler family
at an annual base rent of approximately  $75,000. In addition,  commencing April
1, 2004,  Reckson  Construction  &  Development,  LLC ("RCD")  has been  leasing
approximately  17,000  square feet of space at the  Remaining  Option  Property,
located at 225 Broadhollow Road, Melville, New York, which was formerly occupied
by an affiliate  of First Data Corp.  through  September  30, 2006 (see Note 6).
Base rent of approximately  $287,000 was paid by RCD during the six month period
ended  September 30, 2004. RCD  anticipates it will mitigate this  obligation by
sub-letting the space to a third party. However, there can be no assurances that
RCD will be successful in sub-leasing  the  aforementioned  space and mitigating
its aggregate costs.

A company  affiliated with an Independent  Director of the Company leases 15,566
square feet in a property  owned by the Operating  Partnership at an annual base
rent of  approximately  $445,000.  This lease has recently  been extended for an
additional  sixteen month period at market terms. Such extension was approved by
the disinterested members of the Company's Board of Directors.

During 1997, the Operating  Partnership 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  Operating  Partnership'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 Operating Partnership has advanced approximately
$93.4 million  under the FrontLine  Facility.  The  Operating  Partnership  also
approved the funding of investments of up to $100 million  relating to RSVP (the
"RSVP Commitment"),  through  RSVP-controlled joint ventures (for REIT-qualified
investments) or advances made to FrontLine under an unsecured loan facility (the
"RSVP Facility") having terms similar to the FrontLine  Facility  (advances made
under the RSVP Facility and the FrontLine  Facility  hereafter,  the  "FrontLine
Loans").  During  March  2001,  the  Operating  Partnership  increased  the RSVP
Commitment  to $110 million and as of September  30, 2004  approximately  $109.1
million had been  funded  through the RSVP  Commitment,  of which $59.8  million
represents   investments  by  the  Operating   Partnership  in   RSVP-controlled
(REIT-qualified)  joint  ventures  and $49.3  million  represents  loans made to
FrontLine under the RSVP Facility.  As of September 30, 2004,  interest  accrued
(net of  reserves)  under  the  FrontLine  Facility  and the RSVP  Facility  was
approximately $19.6 million.

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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 Operating Partnership has discontinued the accrual
of  interest  income  with  respect  to  the  FrontLine   Loans.  The  Operating
Partnership has also reserved  against its share of GAAP equity in earnings from
the RSVP controlled joint ventures funded through the RSVP Commitment until such
income is realized through cash distributions.

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

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

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

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

In August 2004,  American Campus  Communities,  Inc. ("ACC"),  a student housing
company owned by RSVP and the joint venture between RSVP and a subsidiary of the
Operating Partnership completed an initial public offering ("IPO") of its common
stock. RSVP and the joint venture between RSVP and a subsidiary of the Operating
Partnership sold its entire ownership position in ACC in connection with the IPO
transaction.  The Operating  Partnership  through its ownership  position in the
joint venture and outstanding  advances made under the RSVP facility anticipates
realizing approximately $30 million in the aggregate from the sale. To date, the
Operating Partnership has received approximately $10.6 million of such proceeds.
The remaining amount is expected to be received  subsequent to the United States
Bankruptcy Court's approval of a Plan of re-organization of FrontLine. There can
be no assurances as to the final outcome of such Plan of re-organization.

As a  result  of  the  foregoing,  the  net  carrying  value  of  the  Operating
Partnership's  investments in the FrontLine Loans and joint venture  investments
with RSVP, inclusive of the Operating  Partnership'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 September 30, 2004. Such
amount has been reflected in  investments in affiliate  loans and joint ventures
on the Operating Partnership's consolidated balance sheet.

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

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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;  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
(including  FrontLine  Capital  Group);  risks  associated  with joint ventures;
liability  for  uninsured  losses or  environmental  matters;  and  other  risks
associated with the  development and acquisition of properties,  including risks
that  development  may not be completed  on schedule,  that the tenants will not
take  occupancy  or pay rent,  or that  development  or  operating  costs may be
greater than anticipated.  Consequently,  such forward-looking statements should
be  regarded  solely  as  reflections  of the  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  subsidiaries.  The
preparation of financial  statements in conformity  with  accounting  principles
generally  accepted in the United States  ("GAAP")  requires  management to make
estimates and assumptions in certain  circumstances that affect amounts reported
in the Operating  Partnership'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 the
Operating  Partnership's  balance sheets.  The leases also typically provide for
tenant  reimbursements  of common area maintenance and other operating  expenses
and real estate taxes. Ancillary and other property related income is recognized
in the period earned.

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

The Operating Partnership incurred  approximately $1.3 million and $3.1 million,
and  $373,000  and $3.7  million of bad debt  expense  during the three and nine
month periods ended September 30, 2004 and 2003, respectively, related to tenant
receivables  and deferred  rents  receivable  which  accordingly  reduced  total
revenues and reported net income during the periods presented.

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<PAGE>


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

Reckson  Construction & 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.

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

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

REAL ESTATE

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

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

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

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

On July 1, 2001 and January 1, 2002,  the  Operating  Partnership  adopted  FASB
Statement No.141,  "Business Combinations" and FASB Statement No. 142, "Goodwill
and Other Intangibles",  respectively. As part of the acquisition of real estate
assets,  the fair value of the real estate acquired is allocated to the acquired
tangible assets,  consisting of land,  building and building  improvements,  and
identified  intangible  assets  and  liabilities,  consisting  of the  value  of
above-market and below-market  leases, other value of in-place leases, and value
of tenant relationships, based in each case on their fair values.

The Operating  Partnership allocates 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,  the Operating
Partnership assesses 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 the Operating Partnership  incorrectly estimates the
values at  acquisition or the  undiscounted  cash flows,  initial  allocation of
purchase price and future impairment charges may be different.

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<PAGE>


LONG LIVED ASSETS

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

The  Operating  Partnership  is required to make  subjective  assessments  as to
whether there are  impairments  in the value of its real estate  properties  and
other  investments.  These  assessments  have a direct  impact on the  Operating
Partnership's  net  income  because  recognizing  an  impairment  results  in an
immediate negative adjustment to net income. In determining impairment,  if any,
the Operating  Partnership  has adopted FASB Statement No. 144,  "Accounting for
the Impairment or Disposal of Long Lived Assets."

In accordance with the provisions of Statement No. 144, and Emerging Issues Task
Force ("EITF") 87-24, the Operating  Partnership  allocated  approximately  $2.8
million  and $7.8  million of its  unsecured  interest  expense to  discontinued
operations  for the three and nine months ended  September 30, 2003.  EITF 87-24
states that  "interest  on debt that is required to be repaid as a result of the
disposal transaction should be allocated to discontinued  operations".  Pursuant
to the terms of our Credit Facility,  the Operating  Partnership was required to
repay the  Credit  Facility  to the  extent  of the net  proceeds,  as  defined,
received  from the sales of  unencumbered  properties.  As such,  the  Operating
Partnership  has  allocated to  discontinued  operations  the  interest  expense
incurred on the portion of its Credit Facility, which was required to be repaid.
In August  2004,  the  Operating  Partnership  amended and  extended  its Credit
Facility, whereby such repayment requirement was eliminated.

CASH AND CASH EQUIVALENTS

The Operating Partnership considers highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

OVERVIEW AND BACKGROUND

The  Operating  Partnership,  which  commenced  operations  on June 2, 1995,  is
engaged in the ownership, operation, acquisition, leasing, financing, management
and development of office and to a lesser extent industrial  properties and also
owns land for future  development  located in the commercial real estate markets
in and around the New York City tri-state area (the "Tri-State  Area").  Reckson
Associates  Realty Corp. ("the Company"),  is a self  administered  self managed
real estate  investment  trust ("REIT"),  and serves the sole general partner of
the Operating  Partnership.  The Operating  Partnership conducts its management,
leasing,  construction  and development  related  services through the Company's
taxable REIT  subsidiaries.  Reckson  Management  Group,  Inc.,  RANY Management
Group, Inc. and Reckson Construction & Development LLC (the "Service Companies")
currently  provide these  services.  The Operating  Partnership  and the Company
(collectively  the  "Company")  were  formed for the purpose of  continuing  the
commercial  real estate business of Reckson  Associates,  the predecessor of the
Operating Partnership, its affiliated partnerships and other entities.

As of September 30, 2004,  the Company  owned and operated 78 office  properties
(inclusive of eight office  properties owned through joint ventures)  comprising
approximately  14.8  million  square  feet  and 8  industrial  / R&D  properties
comprising approximately 863,000 square feet located in the Tri-State Area.

As of September 30, 2004, the Operating Partnership also owned approximately 313
acres of land in 12 separate  parcels of which the  Operating  Partnership  can,
based on current  estimates,  develop  approximately  3.0 million square feet of
office space. The Operating Partnership is currently evaluating alternative land
uses for certain of the land  holdings to realize  the highest  economic  value.
These  alternatives may include rezoning certain land parcels from commercial to
residential  use for  potential  disposition.  As of  September  30,  2004,  the
Operating  Partnership  had  invested  approximately  $126.4  million  in  these
development projects. Management has made subjective assessments as to the value
and   recoverability   of  these  investments  based  on  current  and  proposed
development plans,  market comparable land values and alternative use values. In
addition,  during the three and nine month periods ended September 30, 2004, the
Operating  Partnership  has  capitalized  approximately  $2.7  million  and $7.8
million, respectively, related to real estate taxes, interest and other carrying
costs related to these  development  projects.  In October  2003,  the Operating
Partnership  entered  into a contract to sell a 113 acre land parcel  located in
New Jersey.  The contract provides for a sales price ranging from $18 million to
$36 million. The sale is contingent upon obtaining zoning for residential use of
the land and other customary  approvals.  The proceeds  ultimately received from
such sale will be based upon the number of  residential  units  permitted by the
rezoning.  The  cost  basis  of the  land  parcel  at  September  30,  2004  was
approximately $5.9 million. The closing is scheduled to occur upon the rezoning,
which is anticipated to occur within 12 to 24 months. There can be no assurances
such rezoning will occur.  During  February 2004, a 3.9 acre land parcel located
on Long Island was  condemned by the Town of Oyster Bay. As  consideration  from
the condemnation the Operating Partnership anticipates it will initially receive
approximately $1.8 million. The Operating  Partnership's cost basis in this land
parcel was approximately  $1.4 million.  The Operating  Partnership is currently
contesting this valuation and seeking payment of additional  consideration  from
the Town of  Oyster  Bay but  there  can be no  assurances  that  the  Operating
Partnership  will be successful in obtaining any such additional  consideration.
In July 2004, the Operating Partnership commenced the ground-up development of a
277,000 square foot Class A office building with a total

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<PAGE>


anticipated  investment of approximately $60 million. There can be no assurances
that the actual cost of this development will not exceed the anticipated amount.
This development is located within the Operating  Partnership's existing 404,000
square foot executive office park in Melville, New York.

During February 2003, the Operating  Partnership,  through Reckson  Construction
Group,  Inc.,  entered into a contract  with an affiliate of First Data Corp. to
sell a 19.3-acre  parcel of land located in Melville,  New York and was retained
by the purchaser to develop a build-to-suit  195,000 square foot office building
for aggregate  consideration  of  approximately  $47 million.  This  transaction
closed on March 11, 2003 and development of the  aforementioned  office building
has been  completed.  In  accordance  with FASB  Statement No. 66, the Operating
Partnership  has  recognized a book gain,  before  taxes,  on this land sale and
build-to-suit  transaction of approximately  $23.8 million, of which $0 and $5.0
million and $3.3 million and $13.4 million has been recognized  during the three
and nine month periods ended September 30, 2004 and 2003,  respectively,  and is
included  in  investment  and  other  income  on  the  Operating   Partnership's
consolidated statements of income.

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

In connection  with the  Disposition,  four of the five  remaining  options (the
"Remaining Option Properties")  granted to the Company at the time of the IPO to
purchase   interests  in  properties   owned  by  Rechler  family  members  were
terminated. In return the Company received an aggregate payment from the Rechler
family  members of $972,000.  Rechler  family members have also agreed to extend
the term of the  remaining  option on the  property  located at 225  Broadhollow
Road, Melville, New York (the Company's current headquarters) for five years and
to release the Company from approximately  15,500 square feet under its lease at
this property.  In connection with the restructuring of the remaining option the
Rechler  family  members paid the Company $1 million in return for the Company's
agreement not to exercise the option during the next three years. As part of the
agreement, the exercise price of the option payable by the Company was increased
by $1 million.  Also, in exchange for the right to terminate its existing  lease
at 225 Broadhollow  Road eighteen months early, the Company amended the terms of
its option to acquire such property by providing  certain Rechler family members
with  customary  tax  protection  in the event the  Company  were to acquire the
property and then dispose of it within five years. This amendment was negotiated
and approved by the Independent Directors of the Company.

In January 2004,  the Operating  Partnership  sold a 104,000  square foot office
property, 120 Mineola Boulevard,  located on Long Island for approximately $18.5
million.  Net  proceeds  from the sale were used to repay  borrowings  under the
Company's  unsecured credit  facility.  As a result,  the Operating  Partnership
recorded a gain of approximately $5.5 million. In accordance with FASB Statement
No.  144,  such  gain has  been  reflected  in  discontinued  operations  on the
Operating Partnership's consolidated statements of income.

In January 2004, the Operating Partnership acquired 1185 Avenue of the Americas,
a 42-story,  1.1 million square foot Class A office tower,  located between 46th
and 47th  Streets in New York,  NY for $321  million.  In  connection  with this
acquisition,  the Operating  Partnership assumed a $202 million mortgage and $48
million of mezzanine debt. The balance of the purchase price was paid through an
advance under the Credit Facility. The floating rate mortgage and mezzanine debt
both matured in August 2004 at which time the  Operating  Partnership  satisfied
the  outstanding  debt through an advance  under its unsecured  credit  facility
along with cash on hand.  The property is encumbered by a ground lease which has
a remaining term of  approximately  40 years with rent scheduled to be re-set at
the end of 2005 and then remain  constant for the balance of the term.  Pursuant
to the terms of the  ground  lease,  the  Operating  Partnership  and the ground
lessor have commenced  arbitration  proceedings related to the re-setting of the
ground  lease.  There can be no  assurances as to the outcome of the rent re-set
process. In accordance with FASB Statement No. 141, "Business Combinations", the
Operating  Partnership  allocated  and recorded net  deferred  intangible  lease
income of  approximately  $14.2 million,  representing the net value of acquired
above and below market leases,  assumed lease  origination costs and other value
of  in-place  leases.  The net value of the above  and  below  market  leases is
amortized  over the remaining  terms of the  respective  leases to rental income
which amounted to approximately  $2.0 million and $5.8 million for the three and
nine month periods ended September 30, 2004. In addition,  amortization  expense
on the value of lease  origination  costs was  approximately  $700,000  and $2.0
million  for the  three  and  nine  month  periods  ended  September  30,  2004,
respectively.  At  acquisition,   there  were  31  in-place  leases  aggregating
approximately  one million square feet with a weighted  average  remaining lease
term of approximately 6 years.

In April  2004,  the  Operating  Partnership  sold a 175,000  square foot office
building,  400 Garden City Plaza,  located on Long Island for  approximately $30
million, of which the Operating  Partnership owned a 51% interest,  and a wholly
owned 9,000  square foot retail  property for  approximately  $2.8  million.  In
addition,  the Operating  Partnership completed the sale on two of the remaining
three properties from the Disposition for approximately  $5.8 million.  Proceeds
from  the sale  were  used to  establish  an  escrow  account  with a  qualified
intermediary for a future exchange of real property  pursuant to Section 1031 of
the Code (a "Section 1031  Exchange").  A Section 1031  Exchange  allows for the
deferral of taxes  related to the gain  attributable  to the sale of property if
qualified  replacement  property is identified within 45 days and such qualified
replacement  property is then acquired within 180 days from the initial sale. As
described below, the Operating  Partnership has since identified and acquired an
interest in a qualified replacement property for purposes of this exchange.  The
disposition


| 23
<PAGE>


of the other  industrial  property,  which is subject  to certain  environmental
issues,  was conditioned upon the approval of the buyer's lender,  which was not
obtained.  As a result,  the  Operating  Partnership  will not  dispose  of this
property  as part of the  Disposition.  Management  believes  that  the  cost to
remediate the  environmental  issues will not have a material  adverse effect on
the Operating Partnership, but there can be no assurance in this regard.

In July 2004, the Operating  Partnership  acquired a 141,000 square foot Class A
office property, 3 Giralda Farms, located in Madison, NJ for approximately $22.7
million.  The Operating  Partnership  made this  acquisition  through  available
cash-on-hand.  The building is 100%  occupied by a tenant which intends to fully
vacate  the  premises  by June  2005.  On  September  30,  2004,  the  Operating
Partnership signed a lease with an international pharmaceutical company to lease
100% of the building for 12 years,  commencing on July 1, 2005,  with options to
renew for two additional 5 year periods.

During September 2004, the Operating  Partnership,  through Reckson Construction
Group,  Inc.,  acquired the remaining 49% interest in the property located at 90
Merrick Avenue, East Meadow, NY, from the Operating  Partnership's joint venture
partner,  Teachers Insurance and Annuity  Association,  for approximately  $14.9
million.  This  acquisition  was financed,  in part,  from the  remaining  sales
proceeds being held by the previously  referenced qualified  intermediary as the
property was an identified,  qualified replacement property. The balance of this
acquisition was financed with cash-on-hand. As a result of this acquisition, the
Operating  Partnership  successfully  completed  the Section  1031  Exchange and
thereby  deferred the taxes related to the gain  recognized on the sale proceeds
received  from  the sale of the two  remaining  industrial  properties  from the
Disposition.

During September 2004, the Operating  Partnership acquired a 215,000 square foot
Class A office property, 44 Whippany Road, located in Morristown, New Jersey for
approximately $30 million. The Operating  Partnership made this acquisition,  in
part,  through funds  received from the Company's  September  2004 common equity
offering,  cash-on-hand and the issuance of approximately  34,000 OP Units which
were priced at $28.70 per OP Unit.

During  September  2004,  the  Operating  Partnership  sold a 92,000 square foot
industrial property,  500 Saw Mill River Road, located in Westchester County for
approximately  $7.3  million.   In  connection  with  this  sale  the  Operating
Partnership  recorded a gain of approximately  $2.3 million.  In accordance with
FASB Statement No. 144, such gain has been reflected in discontinued  operations
on the Operating Partnership's consolidated statements of income.

On October 1, 2004,  the Operating  Partnership  acquired a 260,500  square foot
Class A office property, 300 Broadhollow Road, located in Melville, Long Island,
for   approximately   $41.0  million.   The  Operating   Partnership  made  this
acquisition,  in  part,  through  an  advance  under  the  Credit  Facility  and
cash-on-hand.

The Operating  Partnership  holds a $17.0 million note  receivable,  which bears
interest at 12% per annum and is secured by a minority  partnership  interest in
Omni  Partners,  L.P.,  owner of the Omni, a 579,000  square foot Class A office
property  located  in  Uniondale,  New York (the  "Omni  Note").  The  Operating
Partnership currently owns a 60% majority partnership interest in Omni Partners,
L.P. and on March 14, 2007 may exercise an option to acquire the  remaining  40%
interest for a price based on 90% of the fair market value of the property.  The
Operating  Partnership  also holds a $30 million junior  mezzanine loan which is
secured by a pledge of an indirect  ownership  interest of an entity  which owns
the ground  leasehold  estate  under a 1.1 million  square  foot office  complex
located on Long Island,  New York (the "Mezz Note").  At September 30, 2004, the
Mezz Note had an  outstanding  balance  of  approximately  $27.6  million  and a
weighted average interest rate of 12.86% per annum.  Such interest rate is based
on a minimum  spread  over  LIBOR of 1.63% per annum.  The Mezz Note  matures in
September  2005 and the  borrower  has  rights  to  extend  its  term for  three
additional  one-year  periods and, under certain  circumstances,  prepay amounts
outstanding.

The Operating  Partnership  held three other notes  receivable  which aggregated
$21.5  million  which  carried  interest at rates  ranging from 10.5% to 12% per
annum.  These notes are secured in part by a minority  partner's  preferred unit
interest  in the  Operating  Partnership,  an interest  in real  property  and a
personal  guarantee (the "Other Notes" and  collectively  with the Omni Note and
the  Mezz  Note,  the  "Note  Receivable   Investments").   During  April  2004,
approximately $2.7 million of the Other Notes, including accrued interest,  were
repaid  by the  minority  partner  exchanging,  and  the  Operating  Partnership
redeeming,  approximately  3,081  preferred  units.  The  preferred  units  were
redeemed  at a  par  value  of  $3.1  million.  Approximately  $420,000  of  the
redemption  proceeds was used to offset  interest due from the minority  partner
under the Other  Notes and for  prepaid  interest.  In July 2004,  the  minority
partner delivered notice to the Operating  Partnership  stating his intention to
repay $15.5  million of the 10.5% Other  Notes.  As of September  30, 2004,  the
Operating  Partnership  had  received   approximately  $13.1  million  from  the
preferred unit holder to be applied  against amounts owed under the Other Notes,
including  accrued  interest.  Subsequent  to September  30, 2004 the  Operating
Partnership  received an  additional  $2.8 million.  As a result,  the remaining
Other Notes aggregate $3.5 million and carry a weighted average interest rate of
11.57%. The Operating Partnership has also agreed to extend the maturity of $2.5
million of such debt  through  January 31, 2005 and the  remaining  $1.0 million
through  January  31,  2010.  As of  September  30,  2004,  management  has made
subjective  assessments  as to the  underlying  security  value on the Operating
Partnership's Note Receivable Investments.  These assessments indicate an excess
of market value over the carrying  value related to the Operating  Partnership's
Note  Receivable   Investments.   Based  on  these   assessments  the  Operating
Partnership's  management  believes there is no impairment to the carrying value
related to the Operating Partnership's Note Receivable Investments.

                                      | 24
<PAGE>


The Operating  Partnership  also owns a 355,000  square foot office  building in
Orlando,  Florida. This non-core real estate holding was acquired in May 1999 in
connection  with the  Operating  Partnership's  initial New York City  portfolio
acquisition.  This  property  was  cross-collateralized  under a  $99.7  million
mortgage  note payable along with one of the  Operating  Partnership's  New York
City  buildings.  On November 1, 2004, the Operating  Partnership  exercised its
right to prepay this note in its entirety, without penalty.


The  Operating  Partnership  also owns a 60%  interest in a 172,000  square foot
office building located at 520 White Plains Road in White Plains,  New York (the
"520JV"),  which is managed by its wholly owned subsidiary.  As of September 30,
2004,  the 520JV had total assets of $20.7  million,  a mortgage note payable of
$11.5 million and other  liabilities  of $726,000.  The Operating  Partnership's
allocable  share of the  520JV  mortgage  note  payable  is  approximately  $7.4
million.  This  mortgage  note  payable  bears  interest  at 8.85% per annum and
matures on  September 1, 2005.  The  operating  agreement of the 520JV  requires
approvals  from members on certain  decisions  including  sale of the  property,
refinancing  of the property's  mortgage  debt, and material  renovations to the
property.  The Operating  Partnership has evaluated the impact of FIN 46R on its
accounting  for the 520JV  and has  concluded  that the 520JV is not a VIE.  The
Operating  Partnership  accounts  for the  520JV  under  the  equity  method  of
accounting.  In accordance  with the equity  method of accounting  the Operating
Partnership's  proportionate  share of the 520JV income (loss) was approximately
$112,000 and $520,000  and $134,000 and  $(30,000)  for the three and nine month
periods ended September 30, 2004 and 2003, respectively.

As part of the Company's REIT structure it is provided  management,  leasing and
construction  related services  through taxable REIT  subsidiaries as defined by
the Code.  During the three and nine months ended  September  30, 2004 and 2003,
Reckson  Construction  Group,  Inc. or its  successor,  Reckson  Construction  &
Development,  LLC billed  approximately  $170,000  and  $848,000 and $86,000 and
$317,000,  respectively,  of market rate services and Reckson  Management Group,
Inc.  billed  approximately  $68,000 and  $206,000  and  $67,000  and  $207,000,
respectively, of market rate management fees to the Remaining Option Properties.

Reckson Management Group, Inc. leases approximately 26,000 square feet of office
space  at  the  Remaining  Option  Property  located  at 225  Broadhollow  Road,
Melville,  New  York  for  its  corporate  offices  at an  annual  base  rent of
approximately  $750,000.  Reckson Management Group, Inc. had also entered into a
short term license  agreement at the property for 6,000 square feet of temporary
space which expired in January 2004.  Reckson Management Group, Inc. also leases
10,722  square  feet of  warehouse  space  used  for  equipment,  materials  and
inventory  storage at a property owned by certain  members of the Rechler family
at an annual base rent of approximately  $75,000. In addition,  commencing April
1, 2004,  Reckson  Construction  &  Development,  LLC ("RCD")  has been  leasing
approximately  17,000  square feet of space at the  Remaining  Option  Property,
located at 225 Broadhollow Road, Melville, New York, which was formerly occupied
by an affiliate of First Data Corp.  through  September  30, 2006.  Base rent of
approximately  $287,000  was  paid by RCD  during  the six  month  period  ended
September  30,  2004.  RCD  anticipates  it will  mitigate  this  obligation  by
sub-letting the space to a third party. However, there can be no assurances that
RCD will be successful in sub-leasing  the  aforementioned  space and mitigating
its aggregate costs.

A company  affiliated with an Independent  Director of the Company leases 15,566
square feet in a property  owned by the Operating  Partnership at an annual base
rent of  approximately  $445,000.  This lease has recently  been extended for an
additional  sixteen-month period at market terms. Such extension was approved by
the disinterested members of the Company's Board of Directors.

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

During  September  2000, the Operating  Partnership  formed a joint venture (the
"Tri-State  JV") with Teachers  Insurance and Annuity  Association  ("TIAA") and
contributed nine Class A suburban office  properties  aggregating  approximately
1.5  million  square  feet  to the  Tri-State  JV for a 51%  majority  ownership
interest. TIAA contributed  approximately $136 million for a 49% interest in the
Tri-State JV which was then distributed to the Operating Partnership.  In August
2003,  the Operating  Partnership  acquired  TIAA's 49% interest in the property
located at 275 Broadhollow Road, Melville,  NY, for approximately $12.4 million.
During April 2004, the Tri-State JV sold a 175,000  square foot office  building
located on Long Island for  approximately  $30 million.  Net proceeds  from this
sale were  distributed  to the members of the Tri-State JV. In addition,  during
September  2004, the Operating  Partnership  acquired TIAA's 49% interest in the
property located at 90 Merrick Avenue,  East Meadow, NY for approximately  $14.9
million.  As a result of these  transactions,  the Tri-State JV owns six Class A
suburban office properties  aggregating  approximately  943,000 square feet. The
Operating  Partnership is responsible for managing the day-to-day operations and
business  affairs  of the  Tri-State  JV and has  substantial  rights  in making
decisions affecting the properties such as leasing, marketing and financing. The
minority member has certain rights primarily intended to protect its investment.
For purposes of its financial statements the Operating Partnership  consolidates
the Tri-State JV.

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

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<PAGE>


The total market  capitalization  of the Operating  Partnership at September 30,
2004 was approximately $3.8 billion.  The Operating  Partnership's  total market
capitalization  is based  on the sum of (i) the  market  value of the  Operating
Partnership's  OP Units  (assuming  conversion) of $28.75 per unit (based on the
closing  price of the Company's  common stock on September  30, 2004),  (ii) the
liquidation  preference value of the Operating  Partnership's Series A preferred
units of $25 per unit,  (iii) the liquidation  preference value of the Operating
Partnership's preferred units of $1,000 per unit and (iv) the approximately $1.4
billion  (including its share of consolidated and  unconsolidated  joint venture
debt and net of minority partners' interests share of consolidated joint venture
debt) of debt  outstanding  at September  30, 2004.  As a result,  the Operating
Partnership's total debt to total market  capitalization  ratio at September 30,
2004 equaled approximately 36.2%.

During 1997, the Operating  Partnership 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  Operating  Partnership'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 Operating Partnership has advanced approximately
$93.4 million  under the FrontLine  Facility.  The  Operating  Partnership  also
approved the funding of investments of up to $100 million  relating to RSVP (the
"RSVP Commitment"),  through  RSVP-controlled joint ventures (for REIT-qualified
investments) or advances made to FrontLine under an unsecured loan facility (the
"RSVP Facility") having terms similar to the FrontLine  Facility  (advances made
under the RSVP Facility and the FrontLine  Facility  hereafter,  the  "FrontLine
Loans").  During  March  2001,  the  Operating  Partnership  increased  the RSVP
Commitment  to $110 million and as of September 30, 2004,  approximately  $109.1
million had been  funded  through the RSVP  Commitment,  of which $59.8  million
represents   investments  by  the  Operating   Partnership  in   RSVP-controlled
(REIT-qualified)  joint  ventures  and $49.3  million  represents  loans made to
FrontLine under the RSVP Facility.  As of September 30, 2004,  interest  accrued
(net of  reserves)  under  the  FrontLine  Facility  and the RSVP  Facility  was
approximately $19.6 million.

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

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

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

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

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  Operating  Partnership  in
respect  of its  joint  ventures  with  RSVP.  The  management  agreement  has a
three-year term, subject to early termination in the event of the disposition of
all of the assets of RSVP.

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

| 26
<PAGE>


In August 2004,  American Campus  Communities,  Inc. ("ACC"),  a student housing
company owned by RSVP and the joint venture between RSVP and a subsidiary of the
Operating Partnership completed an initial public offering ("IPO") of its common
stock. RSVP and the joint venture between RSVP and a subsidiary of the Operating
Partnership sold its entire ownership position in ACC in connection with the IPO
transaction.  The Operating  Partnership  through its ownership  position in the
joint venture and outstanding  advances made under the RSVP facility anticipates
realizing approximately $30 million in the aggregate from the sale. To date, the
Operating Partnership has received approximately $10.6 million of such proceeds.
The  remaining  amount is expected to be received  subsequent  the United States
Bankruptcy Court's approval of a Plan of re-organization of FrontLine. There can
be no assurances as to the final outcome of such Plan of re-organization.

As a  result  of  the  foregoing,  the  net  carrying  value  of  the  Operating
Partnership's  investments in the FrontLine Loans and joint venture  investments
with RSVP, inclusive of the Operating  Partnership'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 September 30, 2004. Such
amount has been reflected in  investments in affiliate  loans and joint ventures
on the Operating Partnership's consolidated balance sheet.

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

RESULTS OF OPERATIONS

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

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

                                                    2004           2003          DOLLARS        PERCENT
                                                ------------   ------------   ------------    -----------
<S>                                             <C>            <C>            <C>                 <C>
PROPERTY OPERATING REVENUES:
 Base rents .................................   $    111,260   $     93,225   $     18,035        19.3%
 Tenant escalations and reimbursements ......         19,517         16,244          3,273        20.1%
                                                ------------   ------------   ------------

 TOTAL PROPERTY OPERATING REVENUES ..........   $    130,777   $    109,469   $     21,308        19.5%
                                                ============   ============   ============

PROPERTY OPERATING EXPENSES:
 Operating expenses .........................   $     32,779   $     27,517   $      5,262        19.1%
 Real estate taxes ..........................         21,865         18,705          3,160        16.9%
                                                ------------   ------------   ------------

 TOTAL PROPERTY OPERATING EXPENSES ..........   $     54,644   $     46,222   $      8,422        18.2%
                                                ============   ============    ============

INVESTMENT AND OTHER INCOME .................   $      7,321   $      6,384   $        937        14.7%
                                                ============   ============   ============

OTHER EXPENSES:
 Interest expense incurred ..................   $     24,120   $     19,883   $      4,237        21.3%
 Amortization of deferred financing costs ...          1,005            807            198        24.5%
 Marketing, general and administrative ......          7,681          8,163           (482)       (5.9)%
                                                ------------   ------------   ------------

 TOTAL OTHER EXPENSES .......................   $     32,806   $     28,853   $      3,953        13.7%
                                                ============   ============   ============
</TABLE>

The Operating Partnership's property operating revenues, which include
base-rents and tenant escalations and reimbursements ("Property Operating
Revenues") increased by $21.3 million for the three months ended September 30,
2004 as compared to the 2003 period. Property Operating Revenues increased $14.7
million attributable to lease up of redeveloped properties and from the
acquisitions of 3 Girlada Farms in July 2004, 1185 Avenue of the Americas in
January 2004 and 1055 Washington Boulevard in August 2003. In addition, Property
Operating Revenues increased by $1.3 million from built-in rent increases for
existing tenants in our "same store" properties and by a $2.0 million increase
in termination fees. Property Operating Revenues also increased by approximately
$1.8 million due to a weighted average occupancy increase in our "same store"
properties. Tenant escalations and reimbursements increased $2.1 million
attributable to increased operating expense and real estate tax costs being
passed through to tenants. These increases in Property Operating Revenues were
offset by approximately $600,000 in same space rental rate decreases and an
increase in reserves against certain tenant receivables.

| 27
<PAGE>


The Operating  Partnership's property operating expenses,  real estate taxes and
ground rents ("Property  Expenses")  increased by approximately $8.4 million for
the three months ended  September  30, 2004 as compared to the 2003 period.  The
increase is primarily attributable the Operating Partnership's acquisitions of 3
Girlada  Farms,  1185  Avenue  of the  Americas  and 1055  Washington  Boulevard
amounting to  approximately  $7.7 million.  The  remaining  increase in property
operating  expenses  is  attributable  to  $700,000  in real  estate  taxes  and
operating  expenses from the Operating  Partnership's  "same store"  properties.
Increases  in real estate taxes is  attributable  to the  significant  increases
levied by  certain  municipalities,  particularly  in New York  City and  Nassau
County, New York which have experienced fiscal budget issues.

Investment  and other income  increased by $937,000 or 14.7%.  This  increase is
primarily  attributable to the increase in successful real estate tax certiorari
proceedings  in the third  quarter of 2004 in the amount of  approximately  $1.3
million,  income tax refunds  through a Service  Company of  approximately  $1.0
million  and  approximately  $2.8  million  received  as  consideration  for the
assignment of certain mortgage indebtedness. These increases were off-set by the
gain  recognized  in the  third  quarter  of 2003  related  to a land  sale  and
build-to-suit  transaction of  approximately  $4.2 million with no corresponding
gain in 2004.

Interest expense incurred  increased by $4.2 million or 21.3%.  This increase is
attributable to the net increase in the Operating Partnership's senior unsecured
notes  of  $200  million,  which  resulted  in  approximately  $1.3  million  of
additional  interest  expense.  Interest  expense  incurred  also  increased  by
approximately $1.4 million from the mortgage debt on 1185 Avenue of the Americas
which was acquired in January 2004 and  approximately  $2.8 million of corporate
interest expense allocable to discontinued operations for the three month period
ended  September 30, 2003 with no such  allocation in the current  period.  This
allocation   resulted  in  an  additional  increase  in  interest  expense  from
continuing  operations.  These  increases  were offset by  decreases in interest
expense of  approximately  $383,000  incurred under the Operating  Partnership's
"same  store"  mortgage   portfolio  and  a  decrease  in  interest  expense  of
approximately  $920,000  incurred  under the Operating  Partnership's  unsecured
credit  facility  as a result of a  decrease  in the  weighted  average  balance
outstanding.  The  weighted  average  balance  outstanding  under the  Operating
Partnership's  unsecured  credit  facility  was $90 million for the three months
ended  September  30, 2004 as compared  to $352.2  million for the three  months
ended September 30, 2003.

Marketing,  general and  administrative  expenses decreased by $482,000 or 5.9%.
This overall net decrease is  attributable  to the  efficiencies  the  Operating
Partnership  achieved as a result of its  November  2003  restructuring  and the
related  termination  of certain  employees  and  settlement  of the  employment
contracts of certain  former  executive  officers of the Company.  These overall
cost savings were impacted by additional  professional  fees incurred during the
three  month  period  ended   September  30,  2004  relating  to  the  Operating
Partnership's initiative to comply with the provisions of the Sarbanes-Oxley Act
of 2002 in the amount of approximately $200,000 with no such costs applicable to
the comparative period of 2003.

Discontinued operations,  net of minority interests,  decreased by approximately
$2.6 million.  This net decrease is attributable to the gain on sales related to
those properties sold during the current period of  approximately  $2.3 million,
which was off-set by the  decrease of income from  discontinued  operations  for
those properties sold between October 1, 2003 and June 30, 2004.

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

<TABLE>
<CAPTION>
                                                             NINE MONTHS ENDED SEPTEMBER 30,
                                                ---------------------------------------------------------
                                                                                        CHANGE
                                                                              ---------------------------
                                                    2004           2003          DOLLARS        PERCENT
                                                ------------   ------------   ------------    -----------
<S>                                             <C>            <C>            <C>                <C>
PROPERTY OPERATING REVENUES:
 Base rents .................................   $    332,060   $    282,110   $     49,950       17.7%
 Tenant escalations and reimbursements ......         55,110         44,186         10,924       24.7%
                                                ------------   ------------   ------------

 TOTAL PROPERTY OPERATING REVENUES ..........   $    387,170   $    326,296   $     60,874       18.7%
                                                ============   ============   ============

PROPERTY OPERATING EXPENSES:
 Operating expenses .........................   $     94,185   $     79,307   $     14,878       18.8%
 Real estate taxes ..........................         62,550         52,734          9,816       18.6%
                                                ------------   ------------   ------------

 TOTAL PROPERTY OPERATING EXPENSES ..........   $    156,735   $    132,041   $     24,694       18.7%
                                                ============   ============   ============

INVESTMENT AND OTHER INCOME .................   $     16,307   $     18,531   $     (2,224)     (12.0)%
                                                ============   ============   ============

OTHER EXPENSES:
 Interest expense ...........................   $     74,388   $     60,125   $     14,263       23.7%
 Amortization of deferred financing costs ...          2,831          2,513            318       12.7%
 Marketing, general and administrative ......         22,122         24,527         (2,405)      (9.8)%
                                                ------------   ------------   ------------

 TOTAL OTHER EXPENSES .......................   $     99,341   $     87,165   $     12,176       14.0%
                                                ============   ============   ============
</TABLE>

| 28
<PAGE>


The  Operating  Partnership's  Property  Operating  Revenues  increased by $60.9
million for the nine  months  ended  September  30, 2004 as compared to the 2003
period.  Property  Operating  Revenues  increased $39.3 million  attributable to
lease up of redeveloped  properties and from the acquisitions of 3 Giralda Farms
in July 2004,  1185 Avenue of the Americas in January  2004 and 1055  Washington
Boulevard in August 2003. In addition,  Property Operating Revenues increased by
$4.1 million from  built-in  rent  increases  for existing  tenants in our "same
store" properties and by a $7.1 million increase in termination  fees.  Property
Operating  Revenues  also  increased  by  approximately  $4.4 million due to the
reduction in tenant  receivable  write-offs and to a weighted average  occupancy
increase in our "same store"  properties.  Tenant escalations and reimbursements
increased  $6.5 million  attributable  to increased  operating  expense and real
estate tax costs being passed through to tenants. These increases were offset by
approximately $500,000 in same space rental rate decreases.

The Operating  Partnership's  Property Expenses increased by approximately $24.7
million for the nine  months  ended  September  30, 2004 as compared to the 2003
period. The increase is primarily  attributable to the Company's acquisitions of
3 Giralda  Farms,  1185 Avenue of the  Americas  and 1055  Washington  Boulevard
amounting to  approximately  $21.5 million.  The remaining  increase in Property
Expenses is attributable to approximately  $3.2 million in real estate taxes and
operating  expenses from the Operating  Partnership's  "same store"  properties.
Increases  in real estate taxes is  attributable  to the  significant  increases
levied by  certain  municipalities,  particularly  in New York  City and  Nassau
County, New York which have experienced fiscal budget issues.

Investment  and other  income  decreased by $2.2 million or 12.0 % from the nine
month  period ended  September  30, 2003 as compared to the same period of 2004.
The decrease is primarily  attributable  to a decrease in the gain recognized on
the  Operating   Partnership's  land  sale  and  build-to-suit   transaction  of
approximately  $8.3  million.  These  decreases  were  off-set by  increases  in
successful real estate tax certiorari  proceedings  during 2004 of approximately
$1.9 million, income tax refunds through a Service Company of approximately $1.0
million, approximately $2.8 million received as consideration for the assignment
of certain mortgage indebtedness,  and approximately $360,000 in interest income
due to net increases in the Operating Partnership's weighted average balances on
its investments in mortgage notes and notes receivable.

Interest  expense  incurred  increased  by $14.3  million or 23.7% from the nine
month  period ended  September  30, 2003 as compared to the same period of 2004.
The  increase  is  attributable  to the  net  increase  of $200  million  in the
Operating  Partnership's  senior unsecured notes which resulted in approximately
$2.6 million of additional  interest expense and  approximately  $8.0 million of
interest  expense  incurred on the mortgage  debt on 1185 Avenue of the Americas
which was acquired in January  2004.  In addition,  during the nine month period
ended September 30, 2003, the Operating Partnership allocated approximately $7.8
million  of its  interest  expense  to  discontinued  operations  with  no  such
allocation  in the current  period.  This  allocation  resulted in an additional
increase in interest  expense from continuing  operations.  These increases were
offset by decreases in interest expense of approximately $634,000 incurred under
the  Operating  Partnership's  "same  store"  mortgage  portfolio,  increases in
capitalized  interest  expense  of  approximately  $201,000  attributable  to an
increase  in  development  projects  and  a  decrease  in  interest  expense  of
approximately $3.3 million incurred under the Operating  Partnership's unsecured
credit  facility  as a result of a  decrease  in the  weighted  average  balance
outstanding.  The  weighted  average  balance  outstanding  under the  Operating
Partnership's  unsecured  credit  facility was $99.9 million for the nine months
ended September 30, 2004 as compared to $319.7 million for the nine months ended
September 30, 2003.

Marketing, general and administrative expenses decreased by $2.4 million or 9.8%
from the nine month  period  ended  September  30,  2003 as compared to the same
period of 2004.  This  overall net  decrease is  primarily  attributable  to the
efficiencies the Operating Partnership achieved as a result of its November 2003
restructuring and the related termination of certain employees and settlement of
the employment contracts of certain former executive officers of the Company. In
addition, the Operating Partnership had an overall decrease in contributions and
sponsorships of approximately  $250,000 from the nine month period ended 2003 as
compared  to the 2004  period.  These  overall  cost  savings  were  impacted by
additional  professional  fees  incurred  during  the nine  month  period  ended
September 30, 2004 relating to the Operating Partnership's  initiative to comply
with the  provisions  of section  404 of the  Sarbanes-Oxley  Act of 2002 in the
amount  of  approximately   $200,000  with  no  such  costs  applicable  to  the
comparative period of 2003.

Discontinued operations,  net of minority interests,  increased by approximately
$169,000.  This net increase is attributable to the gain on sales of real estate
for those  properties  sold during the  current  period of  approximately  $11.7
million,  which  was  off-set  by  the  decrease  of  income  from  discontinued
operations for those  properties  sold between  October 1, 2003 and December 31,
2003.

| 29
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

Historically,  rental  revenue  has been the  principal  source  of funds to pay
operating expenses,  debt  service  and  non-incremental  capital  expenditures,
excluding  incremental capital  expenditures of the Operating  Partnership.  The
Operating Partnership  expects to meet  its  short-term  liquidity  requirements
generally  through its net cash provided by operating  activities along with its
unsecured credit facility  described below. The credit facility contains several
financial  covenants with which the Operating  Partnership must be in compliance
in order to borrow  funds  thereunder.  During  recent  quarterly  periods,  the
Operating  Partnership  has incurred  significant  leasing  costs as a result of
increased market  demands from tenants  and high levels of leasing  transactions
that result from the re-tenanting of scheduled expirations or space vacated as a
result of early  terminations  of  leases.  The  Operating  Partnership  is also
expending  costs on tenants that are renewing or extending  their leases earlier
than  scheduled.  The  Operating  Partnership  is  currently  experiencing  high
tenanting costs including tenant improvement costs, leasing commissions and free
rent in all of its markets. For the three and nine month periods ended September
30,  2004,  the  Operating  Partnership  paid $12.8  million and $34.4  million,
respectively, for tenanting costs including tenant improvement costs and leasing
commissions.  As a  result  of  these  and / or  other  operating  factors,  the
Operating  Partnership's cash flow from operating  activities was not sufficient
to pay  100%  of the  distributions  paid  on its  common  units.  To  meet  the
short-term funding  requirements  relating to these leasing costs, the Operating
Partnership  has used proceeds of property sales or borrowings  under its credit
facility.   Based  on  the  Operating   Partnership's   forecasted  leasing,  it
anticipates  that it will  continue to incur similar  shortfalls.  The Operating
Partnership  currently  intends  to  fund  any  shortfalls  with  proceeds  from
non-income  producing asset sales or borrowings under its credit  facility.  The
Operating Partnership  periodically reviews its distribution policy to determine
the appropriateness of the Operating Partnership's distribution rate relative to
the Operating  Partnership's cash flows. The Operating  Partnership  adjusts its
distribution rate based on such factors as leasing  activity,  market conditions
and  forecasted  increases  and  decreases  in its cash flow as well as required
distributions of the Company's  taxable income to maintain its status as a REIT.
There can be no  assurance  that the  Operating  Partnership  will  maintain the
current quarterly distribution level on its common units.

The Operating Partnership expects to meet certain of its financing  requirements
through long-term secured and unsecured  borrowings and the issuance of debt and
equity  securities  of the Operating  Partnership.  During the nine months ended
September 30, 2004,  the Company  issued $287.5  million of common stock and the
Operating  Partnership  issued $300 million of senior unsecured debt securities.
There can be no assurance  that there will be adequate  demand for the Company's
equity at the time or at the price in which the Operating Partnership 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, the Operating  Partnership  will seek to sell certain land
inventory to realize value and profit created.  The Operating  Partnership  will
then seek opportunities to reinvest the capital realized from these dispositions
back into value-added assets in the Operating  Partnership's core Tri-State Area
markets. However, there can be no assurances that the Operating Partnership will
be able to identify such  opportunities  that meet the  Operating  Partnership's
underwriting   criteria.  The  Operating  Partnership  will  refinance  existing
mortgage  indebtedness,  senior unsecured notes or indebtedness under its credit
facility at maturity or retire such debt through the issuance of additional debt
securities  or  additional   equity   securities.   The  Operating   Partnership
anticipates that the current balance of cash and cash equivalents and cash flows
from operating activities,  together with cash available from borrowings, equity
offerings and proceeds from sales of land and non-income  producing assets, will
be  adequate to meet the capital and  liquidity  requirements  of the  Operating
Partnership in both the short and long-term.  The Operating Partnership's senior
unsecured  debt is currently  rated "BBB-" by Fitch,  "BBB-" by Standard & Poors
and "Ba1" by Moody's.  The rating  agencies  review the  ratings  assigned to an
issuer such as the Operating  Partnership on an ongoing basis.  Negative changes
in  the  Operating  Partnership's  ratings  would  result  in  increases  in the
Operating   Partnership's   borrowing  costs,  including  borrowings  under  the
Operating Partnership's unsecured credit facility.

As a result of current  economic  conditions,  certain  tenants  have either not
renewed their leases upon  expiration or have paid the Operating  Partnership to
terminate their leases. In addition,  a number of U.S.  companies have filed for
protection under federal bankruptcy laws. Certain of these companies are tenants
of the Operating  Partnership.  The Operating Partnership is subject to the risk
that other companies that are tenants of the Operating  Partnership may file for
bankruptcy protection.  This may have an adverse impact on the financial results
and condition of the Operating Partnership. Our results reflect vacancy rates in
our markets that are at the higher end of the range of historical  cycles and in
some  instances our asking rents in our markets have trended lower and landlords
have been  required to grant  greater  concessions  such as free rent and tenant
improvements.  Our markets have also been experiencing  higher real estate taxes
and utility  rates.  The  Operating  Partnership  believes that these trends are
beginning to adjust, 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.

The  Operating  Partnership  carries  comprehensive  liability,  fire,  extended
coverage  and  rental  loss  insurance  on  all of  its  properties.  Six of the
Operating Partnership's  properties are located in New York City. As a result of
the events of September 11, 2001, insurance companies were limiting coverage for
acts of terrorism in "all risk"  policies.  In November 2002, the Terrorism Risk
Insurance Act of 2002 was signed into law, which,  among other things,  requires
insurance companies to offer coverage for losses resulting from defined "acts of
terrorism" through 2005. The Operating  Partnership's current insurance coverage
provides for full  replacement  cost of its  properties,  including  for acts of
terrorism up to $500  million on a per  occurrence  basis,  except for one asset
which is insured up to $393 million.

| 30
<PAGE>


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

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

On July 1, 2004,  the  Operating  Partnership  had an  outstanding  $500 million
unsecured  revolving credit facility (the "Credit Facility") from JPMorgan Chase
Bank,  as  administrative  agent,  Wells Fargo Bank,  National  Association,  as
syndication agent, and Citicorp North America,  Inc. and Wachovia Bank, National
Association,  as  co-documentation  agents.  The Credit  Facility,  scheduled to
mature in December 2005, contained options for a one-year extension subject to a
fee of 25 basis points and, upon receiving  additional  lender  commitments,  an
increase to the maximum revolving credit amount to $750 million. In August 2004,
the Operating  Partnership amended and extended the Credit Facility to mature in
August 2007 with substantially  similar terms and conditions as existed prior to
the amendment and extension.  As of September 30, 2004,  based on a pricing grid
of the Operating  Partnership's  unsecured  debt ratings,  borrowings  under the
Credit  Facility  were  priced  off LIBOR  plus 90 basis  points  and the Credit
Facility  carried a facility fee of 20 basis points per annum. In the event of a
change in the  Operating  Partnership's  unsecured  credit  ratings the interest
rates and  facility  fee are  subject to change.  At  September  30,  2004,  the
outstanding  borrowings  under the Credit  Facility  aggregated  $90 million and
carried a weighted average interest rate of 2.64%.

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

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

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

On March 15, 2004,  the  Operating  Partnership  repaid $100 million of its 7.4%
senior unsecured notes at maturity.  These notes were repaid with funds received
from the Company's March 2004 common equity offering.

On August 9, 2004,  the Operating  Partnership  made an advance under its Credit
Facility in the amount of $222.5 million and, along with cash-on-hand,  paid off
the $250 million  balance of the mortgage  debt on the property  located at 1185
Avenue of the Americas in New York City.

On November 1, 2004, the Operating Partnership exercised its right to prepay the
outstanding  mortgage debt of approximately  $99.6 million,  without penalty, on
the properties  located at One Orlando  Center in Orlando,  Florida and 120 West
45th Street in New York City.  The Operating  Partnership  made an advance under
its Credit Facility to fund such repayment.

On August 13,  2004,  the  Operating  Partnership  issued $150 million of 5.875%
senior  unsecured  notes due  August  15,  2014.  Interest  on the notes will be
payable  semi-annually  on February 15 and August 15,  commencing  February  15,
2005.  The notes were priced at 99.151% of par value to yield  5.989%.  Prior to
the  issuance of these notes the  Operating  Partnership  entered  into  several
anticipatory   interest  rate  hedge   instruments  to  protect  itself  against
potentially  rising  interest  rates.  At the time the notes were issued,  these
instruments were settled and the Operating Partnership received a net benefit of
approximately $1.9 million.  Such benefit will be amortized over the term of the
notes to effectively reduce interest expense. The Operating Partnership used the
net  proceeds  from this  offering  to repay a portion  of the  Credit  Facility
borrowings used to pay off the  outstanding  mortgage debt on 1185 Avenue of the
Americas.

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<PAGE>


The Operating Partnership continues to seek opportunities to acquire real estate
assets in its markets.  The Operating  Partnership  has  historically  sought to
acquire  properties  where it could  use its real  estate  expertise  to  create
additional  value  subsequent to  acquisition.  As a result of increased  market
values for the  Operating  Partnership's  commercial  real  estate  assets,  the
Operating  Partnership  has sold certain  non-core assets or interests in assets
where significant value has been created. During 2003, the Operating Partnership
sold assets or interests in assets with aggregate sales prices of  approximately
$350.6  million.  In addition,  during the nine months ended September 30, 2004,
the Operating  Partnership has sold assets or interests in assets with aggregate
sales prices of  approximately  $51.4 million,  net of minority  partner's joint
venture interest.  The Operating  Partnership used the proceeds from these sales
primarily to pay down borrowings under the Credit Facility, for general purposes
and to invest in short-term  liquid  investments  until such time as alternative
real estate investments can be made.

A  Class  A  OP  Unit  and  a  share  of  common  stock  have  similar  economic
characteristics  as they effectively share equally in the net income or loss and
distributions  of the  Operating  Partnership.  As of September  30,  2004,  the
Operating  Partnership had issued and outstanding 3,118,556 Class A OP Units and
465,845  Class C OP Units.  The Class A OP Units  currently  receive a quarterly
distribution of $.4246 per unit. 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 November 25, 2003,  the Company  exchanged all of its  9,915,313  outstanding
shares  of Class B common  stock for an equal  number  of  shares of its  common
stock.  The Board of Directors  declared a final cash  dividend on the Company's
Class B common  stock to holders of record on November 25, 2003 in the amount of
$.1758 per share which was paid on January 12, 2004.  This  payment  covered the
period from  November  1, 2003  through  November  25, 2003 and was based on the
previous  quarterly  Class B common stock dividend rate of $.6471 per share.  In
order to align the regular  quarterly  dividend  payment  schedule of the former
holders of Class B common stock with the schedule of the holders of common stock
for periods  subsequent to the exchange  date for the Class B common stock,  the
Board of Directors also declared a cash dividend with regard to the common stock
to holders of record on October 14, 2003 in the amount of $.2585 per share which
was paid on January 12, 2004.  This  payment  covered the period from October 1,
2003  through  November 25, 2003 and was based on the current  quarterly  common
stock  dividend  rate of $.4246 per share.  As a result,  the  Company  declared
dividends  through  November 25, 2003 to all holders of common stock and Class B
common  stock.  The Board of  Directors  also  declared  the  common  stock cash
dividend for the portion of the fourth quarter  subsequent to November 25, 2003.
The holders of record of common stock on January 2, 2004,  giving  effect to the
exchange  transaction,  received a dividend on the common stock in the amount of
$.1661 per share on January  12,  2004.  This  payment  covered  the period from
November  26,  2003  through  December  31,  2003 and was  based on the  current
quarterly common stock dividend rate of $.4246 per share. In connection with the
Company's  exchange  of its  Class B common  stock,  the  Operating  Partnership
exchanged its Class B common units held by the Company for an equal number of OP
Units. Further,  with respect to the foregoing  declarations on dividends on the
Company's  common  and Class B common  stock,  the  Operating  Partnership  made
distributions  on its OP Units and Class B common  units in like  amounts on the
same dates.

During the nine month period ended September 30, 2004, approximately 2.5 million
shares of the Company's  common stock was issued in connection with the exercise
of outstanding  options to purchase stock under its stock option plans resulting
in proceeds to the Company of  approximately  $57.8 million.  Such proceeds were
then contributed to the Operating Partnership in exchange for an equal number of
OP Units.

In March 2004, the Company completed an equity offering of 5.5 million shares of
its common stock raising  approximately  $149.5 million,  net of an underwriting
discount,  or $27.18 per share. Net proceeds received from this transaction were
used to repay  outstanding  borrowings  under the  Credit  Facility,  repay $100
million of the  Operating  Partnership's  7.4%  senior  unsecured  notes and for
general  purposes  including the redemption of the Company's  Series A preferred
stock, discussed below.

On September 14, 2004, the Company  completed an equity offering of five million
shares  of its  common  stock  raising  approximately  $137  million,  net of an
underwriting  discount,  or $27.39 per share.  Net proceeds  received  from this
transaction  were used to redeem the Company's Series A preferred stock (defined
below) and for general purposes.


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

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<PAGE>


The  Company  had issued and  outstanding  8,834,500  shares of 7.625%  Series A
Convertible  Cumulative  Preferred Stock (the "Series A preferred  stock").  The
Series A  preferred  stock was  redeemable  by the Company on or after April 13,
2004 at a price of  $25.7625  per share  with such price  decreasing,  at annual
intervals,  to $25.00 per share on April 13,  2008.  In  addition,  the Series A
preferred  stock, at the option of the holder,  was convertible at any time into
the Company's  common stock at a price of $28.51 per share. On May 13, 2004, the
Company  purchased on the open market and retired 140,600 shares of the Series A
preferred stock for approximately $3.4 million or $24.45 per share.  During July
2004, the Company completed an exchange with a holder of 1,350,000 shares of the
Series A preferred  stock for  1,304,602  shares of common  stock.  In addition,
during August 2004, the Company  announced the redemption of 2,000,000 shares of
its then outstanding shares of Series A preferred stock at a redemption price of
$25.7625 per share plus accumulated and unpaid dividends. On September 20, 2004,
the Company redeemed  1,841,905 of such shares for approximately  $47.9 million,
including  accumulated  and unpaid  dividends.  The remaining  158,095 shares of
Series A preferred  stock were exchanged into common stock of the Company at the
election of the Series A preferred  shareholders.  During  September  2004,  the
Company announced the redemption of all of its then outstanding shares of Series
A preferred stock aggregating 5,343,900 shares at a redemption price of $25.7625
per share plus  accumulated  and unpaid  dividends.  On October  15,  2004,  the
Company redeemed  4,965,062 shares of Series A preferred stock for approximately
$129.9  million,  including  accumulated  and unpaid  dividends.  The  remaining
378,838  shares of Series A preferred  stock were exchanged into common stock of
the  Company,  at the  election  of the  Series  A  preferred  shareholders.  In
connection  with the Company  purchasing  and  exchanging its Series A preferred
stock, the Operating  Partnership purchased and exchanged its Series A preferred
units  with the  Company.  As a result of the 100%  retirement  of the  Series A
preferred units with the Company annual preferred distributions will decrease by
approximately  $16.8  million.  In  accordance  with  the  EITF  Topic  D-42 the
Operating  Partnership incurred an accounting charge during the third quarter of
2004 of approximately $6.7 million in connection with the July 2004 exchange and
September  2004  redemption of the Series A preferred  units.  In addition,  the
Operating  Partnership will incur a charge of approximately  $9.1 million during
the fourth quarter of 2004 in connection with the October 2004 redemption.

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

The  Operating  Partnership  had issued  and  outstanding  approximately  19,662
preferred units of limited  partnership  interest with a liquidation  preference
value of $1,000 per unit and an annualized  distribution of $55.60 per unit (the
"Preferred  Units").  The Preferred Units were issued in 1998 in connection with
the  contribution  of real property to the Operating  Partnership.  On April 12,
2004, the Operating Partnership redeemed approximately 3,081 Preferred Units, at
the election of the holder,  for approximately  $3.1 million,  including accrued
and unpaid  dividends,  which is being  applied  to  amounts  owed from the unit
holder  under the Other  Notes.  In  addition,  during July 2004,  the holder of
approximately 15,381 of the outstanding  Preferred Units exercised his rights to
exchange them into OP Units. The Operating  Partnership  converted the Preferred
Units,  including accrued and unpaid dividends,  into  approximately  531,000 OP
Units,  which  were  valued at  approximately  $14.7  million at the time of the
conversion.  Subsequent to the  conversion,  the OP Units were  exchanged for an
equal number of shares of the  Company's  common stock.  In connection  with the
July 2004 exchange and conversion, the preferred unit holder delivered notice to
the  Operating  Partnership  of his intent to repay $15.5 million of the amounts
owed from the preferred  unit holder under the Other Notes.  As of September 30,
2004, there remain 1,200 Preferred Units outstanding with a stated  distribution
rate of 7.0%,  which is subject to reduction  based upon terms of their  initial
issuance.  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. Due
to this  reduction,  the Preferred Units are currently not entitled to receive a
distribution.

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.

The   Operating   Partnership   indebtedness   at  September  30,  2004  totaled
approximately   $1.4  billion   (including   its  share  of   consolidated   and
unconsolidated  joint venture debt and net of minority partners' interests share
of consolidated joint venture debt) and was comprised of $90 million outstanding
under the Credit  Facility,  approximately  $697.9  million of senior  unsecured
notes and approximately  $580.3 million of mortgage  indebtedness.  Based on the
Operating  Partnership's  total  market  capitalization  of  approximately  $3.8
billion at  September  30, 2004  (calculated  based on the sum of (i) the market
value of the OP Units,  assuming  conversion,  (ii) the  liquidation  preference
value of the Operating Partnership preferred units and (iii) the $1.4 billion of
debt), the Operating  Partnership's debt represented  approximately 36.2% of its
total market capitalization.

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<PAGE>


CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

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

<TABLE>
<CAPTION>
                                                                    MATURITY DATE
                                   ----------------------------------------------------------------------------------
                                     2004           2005          2006           2007           2008       THEREAFTER      TOTAL
                                   ----------    -----------    ----------     ----------    ----------    ----------    ----------
<S>                                  <C>           <C>           <C>             <C>           <C>          <C>          <C>
Mortgage notes payable (1)           $ 3,555       $ 13,887      $ 13,478       $ 10,969       $ 9,989     $ 105,178     $ 157,056
Mortgage notes payable (2) (3)            --         18,553       129,920         60,539            --       346,269       555,281
Senior unsecured notes                    --             --            --        200,000            --       500,000       700,000
Unsecured credit facility                 --             --            --         90,000            --            --        90,000
Land lease obligations (4)               943          3,776         3,828          3,753         3,753        78,672        94,725
Operating leases                         317          1,282         1,198            844           359            --         4,000
Air rights lease obligations              83            333           333            333           333         3,680         5,095
                                   ----------    -----------    ----------     ----------    ----------    ----------    ----------
                                     $ 4,898       $ 37,831      $148,757       $366,438       $14,434     $1,033,799    $1,606,157
                                   ==========    ===========    ==========     ==========    ==========    ==========    ==========
</TABLE>

(1)  Scheduled principal amortization payments.

(2)  Principal payments due at maturity.

(3)  In  addition,   the  Operating   Partnership  has  a  60%  interest  in  an
     unconsolidated joint venture property. The Operating Partnership's share of
     the mortgage debt at September 30, 2004 is approximately $7.4 million. This
     mortgage note bears interest at 8.85% per annum and matures on September 1,
     2005 at which time the Operating  Partnership's  share of the mortgage debt
     will be approximately $6.9 million.

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

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

On September 30, 2004, the Operating  Partnership had approximately $1.5 billion
of debt  outstanding  consisting of  approximately  $712.3 million of fixed rate
mortgage  notes  payable,  approximately  $697.9  million of fixed  rate  senior
unsecured  notes  payable and $90 million of variable rate debt under its Credit
Facility.  The $1.5  billion of debt had a  weighted  average  interest  rate of
approximately  6.65% per annum and a weighted average term of approximately  6.2
years.  During the three and nine month  periods  ended  September  30, 2004 and
2003, the Operating  Partnership incurred interest costs,  including capitalized
interest,  of $27.1  million  and  $83.2  million  and $25.6  million  and $76.7
million,  respectively.  The  Operating  Partnership's  rental  revenues are its
principal  source  of  funds  along  with  its net cash  provided  by  operating
activities to meet these and future interest obligations.

On November 1, 2004, the Operating Partnership exercised its right to prepay the
outstanding mortgage debt of approximately $99.6 million, which was due in 2027,
without  penalty,  on the  properties  located at One Orlando Center in Orlando,
Florida and 120 West 45th Street in New York City.

At September 30, 2004, the Operating  Partnership had approximately  $940,000 in
outstanding  undrawn standby letters of credit issued under the Credit Facility.
In  addition,   approximately   $43.2   million,   or  6.1%,  of  the  Operating
Partnership's   consolidated   mortgage   debt  is  recourse  to  the  Operating
Partnership.

CORPORATE GOVERNANCE

Eight of the Operating  Partnership's  office  properties which were acquired by
the  issuance  of OP Units are  subject to  agreements  limiting  the  Operating
Partnership's  ability to transfer  them prior to agreed upon dates  without the
consent of the limited partner who  transferred  the respective  property to the
Operating  Partnership.  In the event the Operating Partnership transfers any of
these  properties  prior to the expiration of these  limitations,  the Operating
Partnership may be required to make a payment  relating to taxes incurred by the
limited partner. These limitations expire between 2007 and 2014.

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

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

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

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<PAGE>


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

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

OTHER MATTERS

The Company had historically  structured long term incentive  programs  ("LTIP")
using  restricted  stock and stock loans.  In July 2002,  as a result of certain
provisions  of  the  Sarbanes  Oxley  legislation,   the  Operating  Partnership
discontinued  the use of stock loans in its LTIP. In connection with LTIP grants
made prior to the enactment of the Sarbanes Oxley  legislation  the Company made
stock loans to certain  executive and senior officers to purchase 487,500 shares
of its common stock at market prices ranging from $18.44 per share to $27.13 per
share.  The stock  loans were set to bear  interest at the  mid-term  Applicable
Federal  Rate and  were  secured  by the  shares  purchased.  Such  stock  loans
(including accrued interest) were scheduled to vest and be ratably forgiven each
year on the  anniversary  of the grant date based upon vesting  periods  ranging
from four to ten  years  based on  continued  service  and in part on  attaining
certain annual performance measures.  These stock loans had an initial aggregate
weighted average vesting period of approximately nine years. As of September 30,
2004, there remains 222,429 shares of common stock subject to the original stock
loans  which  are  anticipated  to vest  between  2005 and  2011.  Approximately
$290,000 and $846,000 of  compensation  expense were  recorded for the three and
nine month periods ended September 30, 2004, respectively, related to these LTIP
grants.  Such amount has been included in marketing,  general and administrative
expenses on the Company's consolidated statements of income.

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

In  November  2002 and March  2003 an award of rights  was  granted  to  certain
executive  officers  of the  Company  (the  "2002  Rights"  and  "2003  Rights",
respectively,  and collectively,  the "Rights"). Each Right represents the right
to receive, upon vesting, one share of common stock if shares are then available
for grant under one of the Company's stock option plans or, if shares are not so
available,  an  amount  of cash  equivalent  to the  value of such  stock on the
vesting date. The 2002 Rights vest in four equal annual  installments  beginning
on November 14, 2003 (and shall be fully vested on November 14, 2006).  The 2003
Rights will be earned as of March 13,  2005 and will vest in three equal  annual
installments beginning on March 13, 2005 (and shall be fully vested on March 13,
2007).  Dividends  on the shares will be held by the  Company  until such shares
become vested, and will be distributed thereafter to the applicable officer. The
2002 Rights also entitle the holder thereof to cash payments in respect of taxes
payable by the holder  resulting  from the  Rights.  The 2002  Rights  aggregate
62,835 shares of the Company's common stock and the 2003 Rights aggregate 26,042
shares of common stock.  As of September 30, 2004,  there remains,  reserved for
future  issuance,  47,126  shares of common stock related to the 2002 Rights and
26,042 shares of common stock  related to the 2003 Rights.  During the three and
nine month periods ended September 30, 2004 the Company  recorded  approximately
$101,000 and $302,000,  respectively,  of  compensation  expense  related to the
Rights.  Such amount has been included in marketing,  general and administrative
expenses on the Company's consolidated statements of income.

In March 2003,  the Company  established a new LTIP for its executive and senior
officers.  The four-year plan has a core award,  which provides for annual stock
based  compensation  based upon continued service and in part based on attaining
certain annual performance measures.  The plan also has a special outperformance
award,  which provides for  compensation  to be earned at the end of a four-year
period if the Company attains certain four-year cumulative performance measures.
Amounts  earned  under the special  outperformance  award may be paid in cash or
stock at the discretion of the Compensation Committee of the Board.  Performance
measures  are based on total  shareholder  returns  on a relative  and  absolute
basis.  On March 13, 2003,  the Company  made  available  827,776  shares of its
common stock under one of its existing stock option plans in connection with the
core award of this LTIP for eight of its executive and senior officers. On March
13,  2004,  the Company met its annual  performance  measure with respect to the
prior annual period. As a result, the Company issued to the participants 206,944
shares of its common stock  related to the core  component  of this LTIP.  As of
September 30, 2004,  there remains  620,832  shares of common stock reserved for
future  issuance  under the core  award of this LTIP.  With  respect to the core
award of this LTIP, the Company recorded approximately $699,000 and $2.1 million
of compensation expense for the three and nine month periods ended September 30,
2004,  respectively.  Such amount has been  included in  marketing,  general and
administrative  expenses on the  Company's  consolidated  statements  of income.
Further, no provision will be made for the special  outperformance award of this
LTIP  until  such  time as  achieving  the  requisite  performance  measures  is
determined to be probable.

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<PAGE>


The Board of Directors  has approved an amendment to the 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 limit 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 LTIP from the  anniversary of the date of grant
to December  31st 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.

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

All of the Operating  Partnership's  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 the
Operating Partnership's business.

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

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

| 36
<PAGE>


FUNDS FROM OPERATIONS

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.  The  Operating  Partnership  presents  FFO because it considers it an
important  supplemental  measure  of  the  Operating   Partnership's   operating
performance and believes 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.

The  Operating  Partnership  computes  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 the  Operating  Partnership's  operating  performance  or as an
alternative  to cash flow as a measure of  liquidity.  Since all  companies  and
analysts do not calculate FFO in a similar fashion, the Operating  Partnership's
calculation  of FFO presented  herein may not be comparable to similarly  titled
measures as reported by other companies.

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

<TABLE>
<CAPTION>
                                                                                     THREE MONTHS ENDED         NINE MONTHS ENDED
                                                                                         SEPTEMBER 30,            SEPTEMBER 30,
                                                                                   -----------------------   -----------------------
                                                                                      2004         2003         2004         2003
                                                                                   ----------   ----------   ----------   ----------
<S>                                                                                <C>          <C>          <C>          <C>
Net income allocable to common unitholders ......................................  $    9,295   $   11,211   $   39,939   $   29,329
Adjustments for basic funds from operations:
   Add:
      Real estate depreciation and amortization .................................      26,758       24,407       78,100       78,249
      Minority partners' interests in consolidated partnerships .................       7,117        7,437       23,931       23,074
   Less:
      Gain on sales of real estate ..............................................       2,381           --       11,322           --
      Amounts distributable to minority partners in consolidated partnerships ...       6,070        6,339       20,985       19,914
                                                                                   ----------   ----------   ----------   ----------

Funds From Operations ("FFO") ...................................................  $   34,719   $   36,716   $  109,663   $  110,738
                                                                                   ==========   ==========   ==========   ==========

Weighted average units outstanding ..............................................      73,789       65,479       69,730       65,355
                                                                                   ==========   ==========   ==========   ==========
</TABLE>

| 37
<PAGE>


INFLATION

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

The Credit  Facility and the Mezz Note bear  interest at variable  rates,  which
will be influenced by changes in short-term interest rates, and are sensitive to
inflation.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

The Operating Partnership will recognize all derivatives on the balance sheet at
fair  value.  Derivatives  that are not hedges  will be  adjusted  to fair value
through  income.  If a  derivative  is a hedge,  depending  on the nature of the
hedge, changes in the fair value of the derivative will either be offset against
the change in fair  value of the hedged  asset,  liability,  or firm  commitment
through earnings,  or recognized in other comprehensive  income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. On March 19, 2004, the
Operating   Partnership  entered  into  two  anticipatory  interest  rate  hedge
instruments  which were scheduled to coincide with an August 2004 debt maturity,
totaling $100 million,  to protect itself against  potentially  rising  interest
rates.  On August 13, 2004,  the  Operating  Partnership  issued $150 million of
senior  unsecured notes due August 15, 2014 and  simultaneously  settled certain
interest  rate hedge  instruments  resulting  in a net benefit to the  Operating
Partnership  of  approximately  $1.9  million.  Such  benefit  will be amortized
against  interest  expense  over the term of the  notes  to  effectively  reduce
interest expense.

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

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

<TABLE>
<CAPTION>
                                         For the Year Ended December 31,
                          ------------------------------------------------------------
                              2004        2005        2006         2007        2008     Thereafter   Total (1)      FMV
                          --------------------------------------------------------------------------------------------------
<S>                         <C>        <C>         <C>          <C>          <C>        <C>         <C>          <C>
Long term debt:
    Fixed rate.......       $  3,555   $  32,440   $ 143,398    $ 271,508    $  9,989   $ 951,447   $ 1,412,337  $1,486,609
    Weighted average
      interest rate.....       7.45%       6.90%       7.37%        7.14%       7.23%       7.45%         7.37%

    Variable rate.......    $     --   $      --   $      --    $  90,000    $     --   $      --   $    90,000  $   90,000
    Weighted average
      interest rate.....          --          --          --        2.64%          --          --         2.64%
</TABLE>

(1)  Includes  aggregate  unamortized  issuance  discounts of approximately $2.1
     million on certain of the senior unsecured notes which are due at maturity.

In  addition,  a one  percent  increase  in the LIBOR rate would have a $900,000
annual increase in interest expense on the $90 million of variable rate debt due
in 2007.

| 38
<PAGE>


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

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

Fixed rate.............    $   1,250    $  2,500      $     --   $ 16,990      $     --    $   2,500   $  23,240      $ 24,159
    Weighted average
     interest rate......      10.50%      12.00%            --     12.00%            --       10.50%      11.76%

Variable rate...........   $      --    $ 27,592      $     --    $    --      $     --    $      --   $  27,592      $ 27,592
    Weighted average
    interest rate.......          --      12.86%            --         --            --           --      12.86%
</TABLE>

(1)  Excludes interest receivables and unamortized acquisition costs aggregating
     approximately $2.7 million dollars.


ITEM 4. CONTROLS AND PROCEDURES


We  maintain   disclosure  controls  and  procedures  designed  to  ensure  that
information  required  to be  disclosed  in our  filings  under  the  Securities
Exchange Act of 1934 is reported within the time periods  specified in the SEC's
rules  and  forms.  In this  regard,  the  Operating  Partnership  has  formed a
Disclosure  Committee  currently  comprised  of all of the  Company's  executive
officers as well as certain other members of 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 the Operating
Partnership with the SEC and supports the Company's Chief Executive  Officer and
Chief Financial Officer in connection with their certifications contained in the
Operating  Partnership's SEC reports.  The Committee meets regularly and reports
to the Audit  Committee on a quarterly or more  frequent  basis.  The  Company's
Chief  Executive  Officer and Chief Financial  Officer have evaluated,  with the
participation of the Operating  Partnership's 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,  the Company's Chief Executive
Officer and Chief Financial Officer concluded that such disclosure  controls and
procedures are effective.


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

| 39
<PAGE>


SELECTED PORTFOLIO INFORMATION

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

<TABLE>
<CAPTION>
                                              WTD. AVG.                            PERCENT OF PRO-RATA     PERCENT OF CONSOLIDATED
                                           TERM REMAINING          TOTAL           SHARE OF ANNUALIZED         ANNUALIZED BASE
 TENANT NAME (1) (2)                           (YEARS)          SQUARE FEET        BASE RENTAL REVENUE          RENTAL REVENUE
 --------------------------------------- ------------------ -------------------- ----------------------- ---------------------------
<S>                                             <C>               <C>                      <C>                       <C>
*Debevoise & Plimpton                           17.3              465,420                  3.2%                      5.5%
 King & Spalding                                 7.5              180,391                  2.2%                      2.0%
 Verizon Communications Inc.                     2.4              263,569                  1.9%                      1.7%
*American Express                                9.0              129,818                  1.8%                      1.6%
*Schulte Roth & Zabel                           16.2              279,746                  1.7%                      2.8%
*Fuji Photo Film USA                             7.9              194,984                  1.3%                      1.2%
 United Distillers                               0.5              137,918                  1.3%                      1.1%
*WorldCom/MCI                                    2.3              244,730                  1.2%                      1.1%
*Bank of America/Fleet Bank                      6.1              162,050                  1.2%                      1.1%
 Dun & Bradstreet Corp.                          8.0              123,000                  1.2%                      1.0%
 Arrow Electronics Inc.                          9.3              163,762                  1.1%                      1.0%
 Amerada Hess Corporation                        8.3              127,300                  1.1%                      0.9%
 Atlantic Mutual Insurance Co., Inc. (3)         0.5              158,157                  1.0%                      0.9%
 T.D. Waterhouse                                 2.9              103,381                  1.0%                      0.8%
 Westdeutsche Landesbank                        11.6               53,000                  1.0%                      0.8%
 D.E. Shaw                                      11.3               79,515                  0.9%                      0.8%
 Practicing Law Institute                        9.4               77,500                  0.9%                      0.8%
*Banque Nationale De Paris                      11.8              145,834                  0.9%                      1.5%
 North Fork Bank                                14.3              126,770                  0.9%                      0.7%
*Kramer Levin Nessen Kamin                       0.6              158,144                  0.8%                      1.4%
 Heller Ehrman White                             0.7               64,526                  0.8%                      0.7%
 Vytra Healthcare                                3.2              105,613                  0.8%                      0.7%
*State Farm                                      4.1              189,310                  0.8%                      1.1%
 P.R. Newswire Associates                        3.6               67,000                  0.8%                      0.7%
 Laboratory Corp. Of America                     2.7              108,000                  0.7%                      0.7%
</TABLE>

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

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

(3)  Daiichi  Pharmaceutical  Corporation  has  signed a long-term lease to take
     141,000 square feet at 3 Giralda Farms that is currently leased to Atlantic
     Mutual Insurance Company.

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

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

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

<TABLE>
<CAPTION>
                                                                                         Average         YTD
                                2000          2001          2002          2003          2000-2003       2004
                          --------------------------------------------------------------------------------------
<S>                         <C>           <C>           <C>           <C>              <C>           <C>
Suburban Office Properties
  Total .................   $ 3,289,116   $ 4,606,069   $ 5,283,674   $ 6,791,336      $ 4,992,549   $ 4,491,046
  Per Square Foot .......   $      0.33   $      0.45   $      0.53   $      0.67      $      0.49   $      0.44

NYC Office Properties
     Total ..............   $   946,718   $ 1,584,501   $ 1,939,111   $ 1,922,209      $ 1,598,135   $ 1,797,457
     Per Square Foot ....   $      0.38   $      0.45   $      0.56   $      0.55      $      0.48   $      0.40

Industrial Properties
  Total .................   $   813,431   $   711,666   $ 1,881,627   $ 1,218,401(1)   $ 1,156,281   $    81,389
  Per Square Foot .......   $      0.11   $      0.11   $      0.28   $      0.23      $      0.18   $      0.09
                            -----------   -----------   -----------   -----------      -----------   -----------

TOTAL PORTFOLIO
  Total .................   $ 5,049,265   $ 6,902,236   $ 9,104,412   $ 9,931,946      $ 7,746,965   $ 6,369,892
  Per Square Foot .......   $      0.25   $      0.34   $      0.45   $      0.52      $      0.39   $      0.41
</TABLE>

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

| 40
<PAGE>


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

<TABLE>
<CAPTION>

                                         2000                 2001                 2002             2003
                                     -----------          -----------          ------------         ------------
<S>                                  <C>                  <C>                  <C>                  <C>
Long Island Office Properties
  Tenant Improvements                $ 2,853,706          $ 2,722,457          $  1,917,466         $  3,774,722
  Per Square Foot Improved           $      6.99          $      8.47          $       7.81         $       7.05
  Leasing Commissions                $ 2,208,604          $ 1,444,412          $  1,026,970         $  2,623,245
  Per Square Foot Leased             $      4.96          $      4.49          $       4.18         $       4.90
                                     -----------          -----------          ------------         ------------
   Total Per Square Foot             $     11.95          $     12.96          $      11.99         $      11.95
                                     ===========          ===========          ============         ============

Westchester Office Properties
  Tenant Improvements                $ 1,860,027          $ 2,584,728          $  6,391,589(2)      $  3,732,370
  Per Square Foot Improved           $      5.72          $      5.91          $      15.05         $      15.98
  Leasing Commissions                $   412,226          $ 1,263,012          $  1,975,850(2)      $    917,487
  Per Square Foot Leased             $      3.00          $      2.89          $       4.65         $       3.93
                                     -----------          -----------          ------------         ------------
   Total Per Square Foot             $      8.72          $      8.80          $      19.70         $      19.91
                                     ===========          ===========          ============         ============

Connecticut Office Properties
  Tenant Improvements                $   385,531          $   213,909          $    491,435         $    588,087
  Per Square Foot Improved           $      4.19          $      1.46          $       3.81         $       8.44
  Leasing Commissions                $   453,435          $   209,322          $    307,023         $    511,360
  Per Square Foot Leased             $      4.92          $      1.43          $       2.38         $       7.34
                                     -----------          -----------          ------------         ------------
   Total Per Square Foot             $      9.11          $      2.89          $       6.19         $      15.78
                                     ===========          ===========          ============         ============

New Jersey Office Properties
  Tenant Improvements                $ 1,580,323          $ 1,146,385          $  2,842,521         $  4,327,295
  Per Square Foot Improved           $      6.71          $      2.92          $      10.76         $      11.57
  Leasing Commissions                $ 1,031,950          $ 1,602,962          $  1,037,012         $  1,892,635
  Per Square Foot Leased             $      4.44          $      4.08          $       3.92         $       5.06
                                     -----------          -----------          ------------         ------------
   Total Per Square Foot             $     11.15          $      7.00          $      14.68         $      16.63
                                     ===========          ===========          ============         ============

New York City Office Properties
  Tenant Improvements                $    65,267          $   788,930          $  4,350,106         $  5,810,017(3)
  Per Square Foot Improved           $      1.79          $     15.69          $      18.39         $      32.84
  Leasing Commissions                $   418,185          $ 1,098,829          $  2,019,837         $  2,950,330(3)
  Per Square Foot Leased             $     11.50          $     21.86          $       8.54         $      16.68
                                     -----------          -----------          ------------         ------------
   Total Per Square Foot             $     13.29          $     37.55          $      26.93         $      49.52
                                     ===========          ===========          ============         ============

Industrial Properties
  Tenant Improvements                $   650,216          $ 1,366,488          $  1,850,812         $  1,249,200
  Per Square Foot Improved           $      0.95          $      1.65          $       1.97         $       2.42
  Leasing Commissions                $   436,506          $   354,572          $    890,688         $    574,256
  Per Square Foot Leased             $      0.64          $      0.43          $       0.95         $       1.11
                                     -----------          -----------          ------------         ------------
   Total Per Square Foot             $      1.59          $      2.08          $       2.92         $       3.53
                                     ===========          ===========          ============         ============

--------------------------------------------------------------------------------------------------------------------
TOTAL PORTFOLIO
  Tenant Improvements                $ 7,395,070          $ 8,822,897          $ 17,843,929         $ 19,481,691
  Per Square Foot Improved           $      4.15          $      4.05          $       7.96         $      10.22
  Leasing Commissions                $ 4,960,906          $ 5,973,109          $  7,257,380         $  9,469,313
  Per Square Foot Leased             $      3.05          $      2.75          $       3.24         $       4.97
                                     -----------          -----------          ------------         ------------
   Total Per Square Foot             $      7.20          $      6.80          $      11.20         $      15.19
                                     ===========          ===========          ============         ============


<CAPTION>
                                       Average                 YTD
                                      2000-2003               2004(1)              New                 Renewal
                                     ------------          ------------        ------------          -----------
<S>                                  <C>                   <C>                 <C>                   <C>
Long Island Office Properties
  Tenant Improvements                $  2,817,088          $  3,912,154        $  2,012,053          $ 1,900,101
  Per Square Foot Improved           $       7.58          $       8.22        $      14.37          $      5.66
  Leasing Commissions                $  1,825,808          $  1,822,373        $    756,282          $ 1,066,091
  Per Square Foot Leased             $       4.63          $       3.83        $       5.40          $      3.18
                                     ------------          ------------        ------------          -----------
   Total Per Square Foot             $      12.21          $      12.05        $      19.77          $      8.84
                                     ============          ============        ============          ===========

Westchester Office Properties
  Tenant Improvements                $  3,642,178          $  5,516,541        $  4,593,189          $   923,352
  Per Square Foot Improved           $      10.66          $      13.46        $      21.15          $      4.79
  Leasing Commissions                $  1,142,144          $  2,099,540        $  1,667,746          $   431,794
  Per Square Foot Leased             $       3.62          $       5.12        $       7.68          $      2.25
                                     ------------          ------------        ------------          -----------
   Total Per Square Foot             $      14.28          $      18.58        $      28.83          $      7.04
                                     ============          ============        ============          ===========

Connecticut Office Properties
  Tenant Improvements                $    419,740          $  2,910,018        $  1,326,598          $ 1,583,420
  Per Square Foot Improved           $       4.47          $      12.44        $      26.53          $      8.61
  Leasing Commissions                $    370,285          $  1,448,056        $    380,444          $ 1,067,612
  Per Square Foot Leased             $       4.02          $       6.19        $       7.61          $      5.80
                                     ------------          ------------        ------------          -----------
   Total Per Square Foot             $       8.49          $      18.63        $      34.14          $     14.41
                                     ============          ============        ============          ===========

New Jersey Office Properties
  Tenant Improvements                $  2,474,131          $  1,194,305        $  1,141,315          $    52,990
  Per Square Foot Improved           $       7.99          $       7.36        $      16.83          $      0.56
  Leasing Commissions                $  1,391,140          $    692,593        $    460,177          $   232,416
  Per Square Foot Leased             $       4.38          $       4.27        $       6.79          $      2.46
                                     ------------          ------------        ------------          -----------
   Total Per Square Foot             $      12.37          $      11.63        $      23.62          $      3.02
                                     ============          ============        ============          ===========

New York City Office Properties
  Tenant Improvements                $  2,753,580          $  6,098,113(3)(4)  $  4,041,654          $ 2,056,459(3)(4)
  Per Square Foot Improved           $      17.18          $      21.88        $      29.19          $     14.66
  Leasing Commissions                $  1,621,795          $  1,915,195(3)(4)  $    970,691          $   944,504(3)(4)
  Per Square Foot Leased             $      14.64          $       6.87        $       7.01          $      6.73
                                     ------------          ------------        ------------          -----------
   Total Per Square Foot             $      31.82          $      28.75        $      36.20          $     21.39
                                     ============          ============        ============          ===========

Industrial Properties
  Tenant Improvements                $  1,279,179          $    205,104        $    157,661          $    47,443
  Per Square Foot Improved           $       1.75          $       2.11        $       1.73          $      7.46
  Leasing Commissions                $    564,005          $    225,539        $    225,539          $         0
  Per Square Foot Leased             $       0.78          $       2.32        $       2.48          $      0.00
                                     ------------          ------------        ------------          -----------
   Total Per Square Foot             $       2.53          $       4.43        $       4.21          $      7.46
                                     ============          ============        ============          ===========

----------------------------------------------------------------------------------------------------------------
TOTAL PORTFOLIO
  Tenant Improvements                $ 13,385,896          $ 19,836,235        $ 13,272,470          $ 6,563,765
  Per Square Foot Improved           $       6.66          $      11.96        $      18.84          $      6.88
  Leasing Commissions                $  6,915,177          $  8,203,296        $  4,460,879          $ 3,742,417
  Per Square Foot Leased             $       3.54          $       4.95        $       6.33          $      3.93
                                     ------------          ------------        ------------          -----------
   Total Per Square Foot             $      10.20          $      16.91        $      25.17          $     10.81
                                     ============          ============        ============          ===========
</TABLE>


(1)  Excludes  $3.2  million of deferred  leasing  costs  attributable  to space
     marketed but not yet leased.

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

(3)  Excludes  $5.8 million of tenant  improvements  and $2.2 million of leasing
     commissions  related to a new 121,108 square foot lease to Debevoise with a
     lease commencement date in 2004. Sandler O'Neil leasing costs are reflected
     in 2Q04 numbers.

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

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

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<PAGE>


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

                                TOTAL PORTFOLIO
--------------------------------------------------------------------------------
                          Number of     Square     % of Total     Cumulative
Year of                     Leases       Feet       Portfolio     % of Total
Expiration                 Expiring    Expiring       Sq Ft     Portfolio Sq Ft
--------------------------------------------------------------------------------
2004                          64        318,657      2.0%            2.0%
2005                         170       1,308,031     8.4%           10.4%
2006                         193       1,713,654    10.9%           21.3%
2007                         117       1,288,378     8.2%           29.6%
2008                         117       1,056,558     6.7%           36.3%
2009                         111       1,195,610     7.6%           43.9%
2010 and thereafter          343       7,684,935    49.1%           93.0%
--------------------------------------------------------------------------------
Total/Weighted Average      1,115     14,565,823    93.0%
--------------------------------------------------------------------------------
Total Portfolio Square Feet           15,657,275
--------------------------------------------------------------------------------

                                OFFICE PORTFOLIO
--------------------------------------------------------------------------------
                          Number of     Square     % of Total     Cumulative
Year of                     Leases       Feet        Office       % of Total
Expiration                 Expiring    Expiring       Sq Ft     Portfolio Sq Ft
--------------------------------------------------------------------------------
2004                          61        287,037      1.9%            1.9%
2005                         168       1,260,881     8.5%           10.5%
2006                         189       1,616,688    10.9%           21.4%
2007                         113       1,218,886     8.2%           29.6%
2008                         114       1,013,715     6.9%           36.5%
2009                         110       1,150,629     7.8%           44.3%
2010 and thereafter          338       7,339,071    49.6%           93.9%
--------------------------------------------------------------------------------
Total/Weighted Average      1,093     13,886,907    93.9%
--------------------------------------------------------------------------------
Total Office Portfolio Square Feet    14,793,880
--------------------------------------------------------------------------------

                            INDUSTRIAL/R&D PORTFOLIO
--------------------------------------------------------------------------------
                          Number of     Square     % of Total     Cumulative
Year of                     Leases       Feet    Industrial/R&D   % of Total
Expiration                 Expiring    Expiring       Sq Ft     Portfolio Sq Ft
--------------------------------------------------------------------------------
2004                          3         31,620       3.7%            3.7%
2005                          2         47,150       5.5%            9.1%
2006                          4         96,966      11.2%           20.4%
2007                          4         69,492       8.0%           28.4%
2008                          3         42,843       5.0%           33.4%
2009                          1         44,981       5.2%           38.6%
2010 and thereafter           5         345,864     40.1%           78.6%
--------------------------------------------------------------------------------
Total/Weighted Average        22        678,916     78.6%
--------------------------------------------------------------------------------
Total Industrial/R&D Portfolio
Square Feet                             863,395
--------------------------------------------------------------------------------

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<PAGE>


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

                                                           NINE MONTHS ENDED
                                                             SEPTEMBER 30,
                                                       -------------------------
                                                           2004          2003
                                                       -----------   -----------
Capital expenditures:
  Non-incremental ..................................   $     6,370   $     7,523
  Incremental ......................................         2,690         1,674
Tenant improvements:
  Non-incremental ..................................        15,405        23,410
  Incremental ......................................         3,549         3,473
                                                       -----------   -----------
Additions to commercial real estate properties .....   $    28,014   $    36,080
                                                       ===========   ===========

Leasing costs:
  Non-incremental ..................................   $    12,007   $     9,952
  Incremental ......................................         1,944         3,233
                                                       -----------   -----------
Payment of deferred leasing costs ..................   $    13,951   $    13,185
                                                       ===========   ===========

Acquisition and development costs ..................   $   159,348   $    55,604
                                                       ===========   ===========

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<PAGE>


PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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

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

Except as provided above, the Operating  Partnership is not presently subject to
any material litigation nor, to the Operating  Partnership's  knowledge,  is any
litigation  threatened  against the  Operating  Partnership,  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 Operating Partnership.

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


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<PAGE>


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.

Item 6.   Exhibits

Exhibits

31.1      Certification  of  Scott  H.  Rechler,  Chief  Executive  Officer  and
          President 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,  Chief  Executive  Officer  and
          President 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, Chief Executive              Michael Maturo, Executive
Officer and President of                       Vice President, Treasurer and
Reckson Associates Realty Corp.,               Chief Financial Officer of
the sole general partner of                    Reckson Associates Realty Corp.,
the Registrant                                 the sole general partner of
                                               the Registrant


DATE: November 2, 2004

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