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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2008.



| ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------

For the Transition Period From to
.

Commission file number 0-50854





THOMAS PROPERTIES GROUP, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 20-0852352                          
|(State or other jurisdiction of incorporation or organization) |  | (IRS employer identification number)
|                                                               | 
|515 South Flower Street, Sixth Floor Los Angeles, CA           |  | 90071                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number, including area code (213) 613-1900





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

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

Large Accelerated Filer   ̈                Accelerated Filer  x                Non-accelerated Filer   ̈

(Do not check if small reporting company)    Smaller reporting company   ̈

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

Indicate the number of shares outstanding of each
of the issuers classes of common stock, as of the latest practicable date.



|                                       |  |                           
|-------------------------------------- |  | --------------------------
|Class                                  |  | Outstanding at May 8, 2007
|Common Stock, $.01 par value per share |  | 23,847,936                









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THOMAS PROPERTIES GROUP, INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2008

TABLE OF CONTENTS



|                              |  |                                                                                                      |  |         
|----------------------------- |  | ---------------------------------------------------------------------------------------------------- |  | --------
|                              |  |                                                                                                      |  | PAGE NO.
|PART I. FINANCIAL INFORMATION |  |                                                                                                     
|                              |  |                                                                                                     
|ITEM 1.                       |  | Consolidated Financial Statements of Thomas Properties Group, Inc.                                   |  |         
|                              |  | Consolidated Balance Sheets as of March 31, 2008 (unaudited) and December 31, 2007                   |  | 1       
|                              |  |                                                                                                     
|                              |  | Consolidated Statements of Operations for the three months ended March 31, 2008 and 2007 (unaudited) |  | 2       
|                              |  |                                                                                                     
|                              |  | Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007 (unaudited) |  | 3       
|                              |  |                                                                                                     
|                              |  | Notes to Consolidated Financial Statements (unaudited)                                               |  |         
|                              |  |                                                                                                     
|ITEM 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                |  | 18      
|                              |  |                                                                                                     
|ITEM 3.                       |  | Quantitative and Qualitative Disclosure about Market Risk                                            |  | 25      
|                              |  |                                                                                                     
|ITEM 4.                       |  | Controls and Procedures                                                                              |  | 26      
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                     
|                              |  |                                                                                                     
|ITEM 1A.                      |  | Risk Factors                                                                                         |  | 26      
|                              |  |                                                                                                     
|ITEM 6.                       |  | Exhibits                                                                                             |  | 37      
|                              |  |                                                                                                     
|Signatures                    |  |                                                                                                      |  | 38      



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PART I. FINANCIAL INFORMATION



|ITEM 1. | CONSOLIDATED FINANCIAL STATEMENTS
|------- | ---------------------------------

THOMAS PROPERTIES GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)



|                                                                                                                                                                             |  |                |          |   |                   |   |          |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | -------- | - | ----------------- | - | -------- | -
|                                                                                                                                                                             |  | March 31, 2008 |          |   | December 31, 2007 |  
|                                                                                                                                                                             |  | (unaudited)    |          |   | (audited)         |  
|ASSETS                                                                                                                                                                       |  |                |          |   |                   |   |          |  
|Investments in real estate:                                                                                                                                                  |  |                |          |   |                   |   |          |  
|Land and improvements                                                                                                                                                        |  | $              | 35,939   |   |                   | $ | 35,499   |  
|Land and improvements - development property                                                                                                                                 |  |                | 91,709   |   |                   |   | 85,253   |  
|Construction in progress                                                                                                                                                     |  |                | 167,787  |   |                   |   | 135,396  |  
|Buildings and improvements                                                                                                                                                   |  |                | 260,893  |   |                   |   | 259,031  |  
|Tenant improvements                                                                                                                                                          |  |                | 57,203   |   |                   |   | 59,804   |  
|                                                                                                                                                                             |  |                |          |   |                   |   |          |  
|                                                                                                                                                                             |  |                | 613,531  |   |                   |   | 574,983  |  
|Less accumulated depreciation                                                                                                                                                |  |                | (110,983 | ) |                   |   | (111,619 | )
|                                                                                                                                                                             |  |                |          |   |                   |   |          |  
|                                                                                                                                                                             |  |                | 502,548  |   |                   |   | 463,364  |  
|Investments in unconsolidated real estate entities                                                                                                                           |  |                | 45,409   |   |                   |   | 49,199   |  
|Cash and cash equivalents                                                                                                                                                    |  |                | 107,380  |   |                   |   | 126,647  |  
|Restricted cash                                                                                                                                                              |  |                | 23,226   |   |                   |   | 26,251   |  
|Rents and other receivables, net                                                                                                                                             |  |                | 2,713    |   |                   |   | 2,352    |  
|Receivablesunconsolidated real estate entities                                                                                                                              |  |                | 6,440    |   |                   |   | 6,640    |  
|Deferred rents                                                                                                                                                               |  |                | 12,931   |   |                   |   | 14,696   |  
|Deferred leasing and loan costs, net                                                                                                                                         |  |                | 15,479   |   |                   |   | 13,051   |  
|Other assets, net                                                                                                                                                            |  |                | 23,400   |   |                   |   | 18,692   |  
|                                                                                                                                                                             |  |                |          |   |                   |   |          |  
|Total assets                                                                                                                                                                 |  | $              | 739,526  |   |                   | $ | 720,892  |  
|                                                                                                                                                                             |  |                |          |   |                   |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                         |  |                |          |   |                   |   |          |  
|Liabilities:                                                                                                                                                                 |  |                |          |   |                   |   |          |  
|Mortgage loans                                                                                                                                                               |  | $              | 256,918  |   |                   | $ | 257,278  |  
|Other secured loans                                                                                                                                                          |  |                | 159,112  |   |                   |   | 134,829  |  
|Unsecured loan                                                                                                                                                               |  |                | 3,900    |   |                   |   | 3,900    |  
|Accounts payable and other liabilities, net                                                                                                                                  |  |                | 72,298   |   |                   |   | 74,733   |  
|Dividends and distributions payable                                                                                                                                          |  |                | 2,364    |   |                   |   | 2,354    |  
|Due to affiliate                                                                                                                                                             |  |                |         |   |                   |   | 2,000    |  
|Prepaid rent                                                                                                                                                                 |  |                | 3,680    |   |                   |   | 3,402    |  
|                                                                                                                                                                             |  |                |          |   |                   |   |          |  
|Total liabilities                                                                                                                                                            |  |                | 498,272  |   |                   |   | 478,496  |  
|                                                                                                                                                                             |  |                |          |   |                   |   |          |  
|Minority interests:                                                                                                                                                          |  |                |          |   |                   |   |          |  
|Unitholders in the Operating Partnership                                                                                                                                     |  |                | 93,852   |   |                   |   | 95,245   |  
|Minority interests in consolidated real estate entities                                                                                                                      |  |                | 4,540    |   |                   |   | 4,581    |  
|                                                                                                                                                                             |  |                |          |   |                   |   |          |  
|Total minority interests                                                                                                                                                     |  |                | 98,392   |   |                   |   | 99,826   |  
|                                                                                                                                                                             |  |                |          |   |                   |   |          |  
|Commitments and contingencies                                                                                                                                                |  |                |          |   |                   |   |          |  
|Stockholders equity:                                                                                                                                                        |  |                |          |   |                   |   |          |  
|Preferred stock, $.01 par value, 25,000,000 shares authorized, none issued or outstanding as March 31, 2008 and December 31, 2007                                            |  |                |         |   |                   |   |         |  
|Common stock, $.01 par value, 75,000,000 shares authorized, 23,847,936 and 23,747,936 shares issued and outstanding as of March 31, 2008
and December 31, 2007, respectively |  |                | 238      |   |                   |   | 237      |  
|Limited voting stock, $.01 par value, 20,000,000 shares authorized, 14,496,666 shares issued and outstanding as of March 31, 2008 and
December 31, 2007                      |  |                | 145      |   |                   |   | 145      |  
|Additional paid-in capital                                                                                                                                                   |  |                | 159,371  |   |                   |   | 157,799  |  
|Retained deficit and dividends including $232 and $201 of other comprehensive loss as of March 31, 2008 and December 31, 2007,
respectively.                                 |  |                | (16,892  | ) |                   |   | (15,611  | )
|                                                                                                                                                                             |  |                |          |   |                   |   |          |  
|Total stockholders equity                                                                                                                                                   |  |                | 142,862  |   |                   |   | 142,570  |  
|                                                                                                                                                                             |  |                |          |   |                   |   |          |  
|Total liabilities and stockholders equity                                                                                                                                   |  | $              | 739,526  |   |                   | $ | 720,892  |  
|                                                                                                                                                                             |  |                |          |   |                   |   |          |  

See accompanying notes to consolidated financial statements.



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THOMAS PROPERTIES GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)



|                                                                                                       |  |                             |            |   |      |   |            |  
|------------------------------------------------------------------------------------------------------ |  | --------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                                       |  | Three Months EndedMarch 31, |           
|                                                                                                       |  | 2008                        |            |   | 2007 |  
|Revenues:                                                                                              |  |                             |            |   |      |   |            |  
|Rental                                                                                                 |  | $                           | 7,833      |   |      | $ | 8,162      |  
|Tenant reimbursements                                                                                  |  |                             | 6,855      |   |      |   | 6,585      |  
|Parking and other                                                                                      |  |                             | 960        |   |      |   | 993        |  
|Investment advisory, management, leasing, and development services                                     |  |                             | 2,065      |   |      |   | 2,203      |  
|Investment advisory, management, leasing, and development servicesunconsolidated real estate entities |  |                             | 5,918      |   |      |   | 4,358      |  
|                                                                                                       |  |                             |            |   |      |   |            |  
|Total revenues                                                                                         |  |                             | 23,631     |   |      |   | 22,301     |  
|                                                                                                       |  |                             |            |   |      |   |            |  
|Expenses:                                                                                              |  |                             |            |   |      |   |            |  
|Rental property operating and maintenance                                                              |  |                             | 6,008      |   |      |   | 5,739      |  
|Real estate taxes                                                                                      |  |                             | 1,600      |   |      |   | 1,475      |  
|Investment advisory, management, leasing, and development services                                     |  |                             | 5,183      |   |      |   | 3,474      |  
|Rentunconsolidated real estate entities                                                               |  |                             | 65         |   |      |   | 60         |  
|Interest                                                                                               |  |                             | 4,077      |   |      |   | 4,261      |  
|Depreciation and amortization                                                                          |  |                             | 2,771      |   |      |   | 3,059      |  
|General and administrative                                                                             |  |                             | 4,097      |   |      |   | 3,976      |  
|                                                                                                       |  |                             |            |   |      |   |            |  
|Total expenses                                                                                         |  |                             | 23,801     |   |      |   | 22,044     |  
|                                                                                                       |  |                             |            |   |      |   |            |  
|Gain on sale of real estate                                                                            |  |                             | 2,519      |   |      |   | 969        |  
|Interest income                                                                                        |  |                             | 1,063      |   |      |   | 839        |  
|Equity in net loss of unconsolidated real estate entities                                              |  |                             | (2,565     | ) |      |   | (3,169     | )
|Minority interests  unitholders in the Operating Partnership                                          |  |                             | (347       | ) |      |   | 593        |  
|Minority interests in consolidated real estate entities                                                |  |                             | 41         |   |      |   | 25         |  
|                                                                                                       |  |                             |            |   |      |   |            |  
|Income (loss) before (provision) benefit for income taxes                                              |  |                             | 541        |   |      |   | (486       | )
|(Provision) benefit for income taxes                                                                   |  |                             | (322       | ) |      |   | 231        |  
|                                                                                                       |  |                             |            |   |      |   |            |  
|Net income (loss)                                                                                      |  | $                           | 219        |   |      | $ | (255       | )
|                                                                                                       |  |                             |            |   |      |   |            |  
|Income (loss) per share  basic                                                                        |  | $                           | 0.01       |   |      | $ | (0.02      | )
|Income (loss) per share  diluted                                                                      |  | $                           | 0.01       |   |      | $ | (0.02      | )
|Weighted average common shares outstanding - basic                                                     |  |                             | 23,658,963 |   |      |   | 14,373,318 |  
|Weighted average common shares outstanding - diluted                                                   |  |                             | 23,658,963 |   |      |   | 14,373,318 |  

See accompanying notes to consolidated financial statements.



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THOMAS PROPERTIES GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                                                               |  |                             |         |   |      |   |         |  
|------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                               |  | Three Months EndedMarch 31, |        
|                                                                                                                               |  | 2008                        |         |   | 2007 |  
|Cash flows from operating activities:                                                                                          |  |                             |         |   |      |   |         |  
|Net income (loss)                                                                                                              |  | $                           | 219     |   |      | $ | (255    | )
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:                             |  |                             |         |   |      |   |         |  
|Gain on sale of real estate                                                                                                    |  |                             | (2,519  | ) |      |   | (969    | )
|Equity in net loss of unconsolidated real estate entities                                                                      |  |                             | 2,565   |   |      |   | 3,169   |  
|Deferred rent                                                                                                                  |  |                             | 1,765   |   |      |   | 1,481   |  
|Depreciation and amortization expense                                                                                          |  |                             | 2,771   |   |      |   | 3,060   |  
|Amortization of loan costs                                                                                                     |  |                             | 81      |   |      |   | 82      |  
|Amortization of above and below market leases, net                                                                             |  |                             | (10     | ) |      |   | (2      | )
|Vesting of incentive units, stock options and restricted stock                                                                 |  |                             | 747     |   |      |   | 709     |  
|Minority interests                                                                                                             |  |                             | 306     |   |      |   | (618    | )
|Distributions from operations of unconsolidated real estate entities                                                           |  |                             | 86      |   |      |   | 1,462   |  
|Changes in assets and liabilities:                                                                                             |  |                             |         |   |      |   |         |  
|Rent and other receivables                                                                                                     |  |                             | (361    | ) |      |   | (307    | )
|Receivablesunconsolidated real estate entities                                                                                |  |                             | 200     |   |      |   | 435     |  
|Deferred leasing costs                                                                                                         |  |                             | (333    | ) |      |   | 735     |  
|Other assets                                                                                                                   |  |                             | (4,915  | ) |      |   | (13,013 | )
|Deferred interest payable                                                                                                      |  |                             | 44      |   |      |   | 44      |  
|Accounts payable and other liabilities                                                                                         |  |                             | (7,686  | ) |      |   | 8,539   |  
|Due to affiliate                                                                                                               |  |                             | (2,000  | ) |      |   |        |  
|Prepaid rent                                                                                                                   |  |                             | 500     |   |      |   | 204     |  
|Deferred tax liability                                                                                                         |  |                             |        |   |      |   | (2,392  | )
|                                                                                                                               |  |                             |         |   |      |   |         |  
|Net cash provided by (used in) operating activities                                                                            |  |                             | (8,540  | ) |      |   | 2,364   |  
|                                                                                                                               |  |                             |         |   |      |   |         |  
|Cash flows from investing activities:                                                                                          |  |                             |         |   |      |   |         |  
|Expenditures for improvements to real estate                                                                                   |  |                             | (36,361 | ) |      |   | (16,271 | )
|Return of capital from unconsolidated real estate entities                                                                     |  |                             | 1,084   |   |      |   | 212     |  
|Contributions to unconsolidated real estate entities                                                                           |  |                             |        |   |      |   | (373    | )
|Change in restricted cash                                                                                                      |  |                             | 3,025   |   |      |   | 2,659   |  
|                                                                                                                               |  |                             |         |   |      |   |         |  
|Net cash used in investing activities                                                                                          |  |                             | (32,252 | ) |      |   | (13,773 | )
|                                                                                                                               |  |                             |         |   |      |   |         |  
|Cash flows from financing activities:                                                                                          |  |                             |         |   |      |   |         |  
|Payment of dividends to common stockholders and distributions to limited partners of the operating partnership                 |  |                             | (2,354  | ) |      |   | (1,916  | )
|Proceeds from mortgage and other secured loans                                                                                 |  |                             | 30,622  |   |      |   | 5,035   |  
|Principal payments of mortgage and other secured loans                                                                         |  |                             | (6,743  | ) |      |   | (2,455  | )
|Proceeds from exercise of stock options                                                                                        |  |                             |        |   |      |   | 102     |  
|                                                                                                                               |  |                             |         |   |      |   |         |  
|Net cash provided by financing activities                                                                                      |  |                             | 21,525  |   |      |   | 766     |  
|                                                                                                                               |  |                             |         |   |      |   |         |  
|Net decrease in cash and cash equivalents                                                                                      |  |                             | (19,267 | ) |      |   | (10,643 | )
|Cash and cash equivalents at beginning of period                                                                               |  |                             | 126,647 |   |      |   | 64,343  |  
|                                                                                                                               |  |                             |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                                                                     |  | $                           | 107,380 |   |      | $ | 53,700  |  
|                                                                                                                               |  |                             |         |   |      |   |         |  
|Supplemental disclosure of cash flow information:                                                                              |  |                             |         |   |      |   |         |  
|Cash paid for interest                                                                                                         |  | $                           | 5,663   |   |      | $ | 5,799   |  
|Supplemental disclosure of non-cash investing and financing activities:                                                        |  |                             |         |   |      |   |         |  
|Accrual for declaration of dividends to common stockholders and distributions to limited partners of the operating partnership |  | $                           | 10      |   |      | $ | 18      |  
|Accrual for real estate improvements                                                                                           |  |                             | 5,033   |   |      |   | 4,040   |  
|Minority interest reclass                                                                                                      |  |                             | 1,016   |   |      |   | 930     |  

See accompanying notes to consolidated financial statements.



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1. Organization and Description of Business

The terms Thomas Properties, us, we and our as used in this report refer to Thomas Properties Group, Inc.
together with our Operating Partnership, Thomas Properties Group, L.P.

We were formed to succeed to certain businesses of the Thomas
Properties predecessor (Thomas Properties Group, Inc. Predecessor, or TPGI Predecessor), which was not a legal entity but rather a combination of real estate entities and operations. We own, manage, lease, acquire and develop real
estate, consisting primarily of office properties and related parking garages, located in Southern California; Sacramento, California; Philadelphia, Pennsylvania; Northern Virginia; Houston, Texas; and Austin, Texas. The owners of TPGI Predecessor
were Mr. James A. Thomas, our Chairman, Chief Executive Officer and President, and certain others who had minor ownership interests.

We were incorporated in the State of Delaware on March 9, 2004. On October 13, 2004, we completed our initial public offering (the Offering). Concurrent with the consummation of the Offering, Thomas Properties and the
Operating Partnership, together with the partners and members of the affiliated partnerships and limited liability companies of TPGI Predecessor and other parties which held direct or indirect ownership interests in the properties engaged in certain
formation transactions. The formation transactions were designed to (i) continue the operations of TPGI Predecessor, (ii) enable us to raise the necessary capital to acquire increased interests in certain of the properties and repay
certain property level indebtedness, (iii) fund joint venture capital commitments, (iv) provide capital for future acquisitions, and (v) fund future development costs at our development properties.

On April 25, 2007, the Company completed the sale of 9.2 million shares of common stock at $16.00 per share. The net proceeds, after deducting
underwriting discounts, commissions and offering expenses were $139.4 million, of which $33.7 million was used to redeem 2,170,000 units in our Operating Partnership held by our CEO and 45,000 units held by another senior executive.

Our operations are carried on through our Operating Partnership. We are the sole general partner in the Operating Partnership. Pursuant to contribution
agreements among the owners of TPGI Predecessor and the Operating Partnership, the Operating Partnership received a contribution of interests in the real estate properties, as well as the investment advisory, property management, leasing and real
estate development operations of TPGI Predecessor in exchange for limited partnership units (Units) in the Operating Partnership issued to the contributors and the assumption of debt and other specified liabilities. As of March 31,
2008, we held a 61.0% interest in the Operating Partnership which we consolidate, as we have control over the major decisions of the Operating Partnership.

As of March 31, 2008, we were invested in the following real estate properties:



|                         |  |                                                                                                     |  |                                                              
|------------------------ |  | --------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------
|Property                 |  | Type                                                                                                |  | Location                                                     
|Consolidated properties: |  |                                                                                                     |  |                                                              
|                         |  |                                                                                                    
|One Commerce Square      |  | High-rise office                                                                                    |  | Philadelphia Central Business District, Pennsylvania (PCBD)
|                         |  |                                                                                                    
|Two Commerce Square      |  | High-rise office                                                                                    |  | PCBD                                                         
|                         |  |                                                                                                    
|Murano                   |  | Construction in progress; Residential condominiums                                                  |  | PCBD                                                         
|                         |  |                                                                                                    
|2100 JFK Boulevard       |  | Undeveloped land; Residential/Office/Retail                                                         |  | PCBD                                                         
|                         |  |                                                                                                    
|Four Points Centre       |  | Construction in progress and undeveloped land; Office/Retail/Research and Development/Hotel         |  | Austin, Texas                                                
|                         |  |                                                                                                    
|Campus El Segundo        |  | Site infrastructure in progress and undeveloped land; Office/Retail/ Research and Development/Hotel |  | El Segundo, California                                       
|                         |  |                                                                                                    
|Metro Studio@Lankershim  |  | Entitlements and pre-development in progress; Office/Studio/Production/Retail                       |  | Los Angeles, California                                      



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|                                  |  |                                      |  |                                                  
|--------------------------------- |  | ------------------------------------ |  | -------------------------------------------------
|Property                          |  | Type                                 |  | Location                                         
|Unconsolidated properties:        |  |                                      |  |                                                  
|2121 Market Street                |  | Residential and Retail               |  | PCBD                                             
|TPG/CalSTRS, LLC:                 |  |                                      |  |                                                  
|City National Plaza               |  | High-rise office                     |  | Los Angeles Central Business District, California
|Reflections I                     |  | Suburban officesingle tenancy       |  | Reston, Virginia                                 
|Reflections II                    |  | Suburban officesingle tenancy       |  | Reston, Virginia                                 
|Four Falls Corporate Center       |  | Suburban office                      |  | Conshohocken, Pennsylvania                       
|Oak Hill Plaza                    |  | Suburban office                      |  | King of Prussia, Pennsylvania                    
|Walnut Hill Plaza                 |  | Suburban office                      |  | King of Prussia, Pennsylvania                    
|San Felipe Plaza                  |  | High-rise office                     |  | Houston, Texas                                   
|2500 City West                    |  | Suburban office                      |  | Houston, Texas                                   
|Brookhollow Central I, II and III |  | Suburban office                      |  | Houston, Texas                                   
|CityWestPlace                     |  | Suburban office and undeveloped land |  | Houston, Texas                                   
|Centerpointe I & II               |  | Suburban office                      |  | Fairfax, Virginia                                
|Fair Oaks Plaza                   |  | Suburban office                      |  | Fairfax, Virginia                                
|San Jacinto Center                |  | High-rise office                     |  | Austin Central Business District, Texas, (ACBD)
|Frost Bank Tower                  |  | High-rise office                     |  | ACBD                                             
|One Congress Plaza                |  | High-rise office                     |  | ACBD                                             
|One American Center               |  | High-rise office                     |  | ACBD                                             
|300 West 6thStreet                |  | High-rise office                     |  | ACBD                                             
|Research Park Plaza I & II        |  | Suburban Office                      |  | Austin, Texas                                    
|Park 22 I-III                     |  | Suburban Office                      |  | Austin, Texas                                    
|Great Hills Plaza                 |  | Suburban Office                      |  | Austin, Texas                                    
|Stonebridge Plaza II              |  | Suburban Office                      |  | Austin, Texas                                    
|Westech 360 I-IV                  |  | Suburban Office                      |  | Austin, Texas                                    

2. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements of our company
include all the accounts of Thomas Properties Group, Inc., the Operating Partnership and the subsidiaries of the Operating Partnership. Property interests contributed to the Operating Partnership by Mr. Thomas and entities majority owned by him
in exchange for Units have been accounted for as a reorganization of entities under common control in a manner similar to a pooling of interests. Accordingly, the contributed assets and assumed liabilities were recorded at TPGI Predecessors
historical cost basis, except for the minority owners share. The pooling-of-interests method of accounting also requires the reporting of results of operations, for the period in which the combination occurred as though the entities had been
combined at either the beginning of the period or inception. Prior to the Offering, Thomas Properties Group, Inc. and the Operating Partnership had no operations. The combination did not require any material adjustments to conform the accounting
policies of the separate entities. The remaining interests, which were acquired for cash and Units, have been accounted for as a purchase, and the excess of the purchase price over the related historical cost basis has been allocated to the assets
acquired and liabilities assumed.

The real estate entities included in the consolidated financial statements have been consolidated only
for the periods that such entities were under control by us or TPGI Predecessor, or were considered a variable interest entity. The equity method of accounting is utilized to account for investments in real estate entities over which we have
significant influence, but not control over major decisions, including the decision to sell or refinance the properties owned by such entities. All significant intercompany balances and transactions have been eliminated in the consolidated financial
statements.

The interests in One Commerce Square (beginning June 1, 2004 through December 30, 2007), and Two Commerce Square
(beginning October 13, 2004), not owned by us are reflected as minority interest. On December 31, 2007, we exercised our option to purchase the remaining 11% interest in One Commerce Square for $2.0 million, resulting in our 100% ownership
of One Commerce Square. For the period from October 13, 2004 through March 31, 2008, no losses of Two Commerce Square have been allocated to Mr. Thomas, as no further contributions are required from Mr. Thomas. The



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unrecognized minority interest in the deficit of Two Commerce Square is $847,000 at March 31, 2008 and December 31, 2007, respectively. Future
income allocable to Mr. Thomas will be reduced by such unrecognized losses.

We have a $20,510,000 preferred equity interest in
Murano. Excluding the preferred equity interest, a third party has a 27.0% ownership interest in Murano.

Earnings (loss) per share

The computation of basic earnings (loss) per share is based on net earnings (loss) and the weighted average number of shares of our common stock
outstanding during the period. The computation of diluted earnings (loss) per share includes the assumed exercise of outstanding stock options and the effect of the vesting of restricted stock that have been granted, all calculated using the
treasury stock method.

Development Activities

Project costs associated with the development and construction of a real estate project are capitalized as construction in progress. In addition, interest, loan fees, real estate taxes, and general and administrative expenses that are
directly associated with and incremental to our development activities and other costs are capitalized during the period in which activities necessary to get the property ready for its intended use are in progress, including the pre-development and
lease-up phases. Once the development and construction of the building shell of a real estate project is completed, the costs capitalized to construction in progress will be transferred to land and improvements and buildings and improvements.
Included in land held for development and construction in progress is capitalized interest of $20.4 and $16.3 million as of March 31, 2008 and December 31, 2007, respectively.

Gains on Dispositions of Real Estate

Gains on sales of real estate are recognized pursuant to the
provisions of FASB Statement No. 66, Accounting for Sales of Real Estate (SFAS 66). The specific timing of a sale is measured against various criteria in SFAS 66 related to the terms of the transaction and any continuing
involvement in the form of management or financial assistance associated with the property. If the sales criteria are not met, we defer gain recognition and account for the continued operations of the property by applying the deposit, finance,
installment, percentage of completion or cost recovery methods, as appropriate.

Recent Accounting Pronouncements

On January 1, 2008 we adopted FASB Statement No. 157 Fair Value Measurement (SFAS 157). SFAS 157 defines fair value,
establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements;
accordingly, the standard does not require any new fair value measurements of reported balances. SFAS 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement
should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, SFAS 157 establishes a fair value
hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting
entitys own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we
have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and
liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.

Currently, we use interest rate capsto manage interest rate risk resulting from variable interest payments on our floating
rate debt. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the
derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities.

To comply with the provisions of FAS 157, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterpartys nonperformance risk in the fair value
measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and
guarantees. We have



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determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. We do not have any fair value
measurements using significant unobservable inputs (Level 3) as of March 31, 2008.

The table below presents the assets and
liabilities measured at fair value on a recurring basis as of March 31, 2008, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands).



|                        |  |                                                                           |   |                                             |   |                                         |  |                          |  |   |      
|----------------------- |  | ------------------------------------------------------------------------- | - | ------------------------------------------- | - | --------------------------------------- |  | ------------------------ |  | - | -----
|                        |  | Quoted Prices inActive Markets forIdenticalAssets andLiabilities (Level1) |   | Significant OtherObservableInputs (Level 2) |   | SignificantUnobservableInputs (Level 3) |  | Balance atMarch 31, 2008
|Assets                  |  |                                                                           |   |                                             |   |                                         |  |                          |  |   |      
|Interest rate contracts |  | $                                                                         |  |                                             | $ | 5                                       |  |                         |  | $ | 5    
|Liabilities             |  |                                                                           |   |                                             |   |                                         |  |                          |  |   |      
|Interest rate contracts |  | $                                                                         |  |                                             | $ | 3,939                                   |  |                          |  | $ | 3,939

In February 2008, the FASB issued FASB Staff Position No. 157-1, Application of FASB
Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13 (SFAS 157-1). SFAS
No. 157-1 amends SFAS 157, to exclude the FASB issued FASB Statement No. 13, Accounting for Leases (SFAS 13), and other accounting pronouncements that address fair value measurements for purposes of lease
classification or measurement under SFAS 13. However, this scope exception does not apply to assets acquired and liabilities assumed in a business combination that are required to be measured at fair value under FASB Statement No. 141 (R),
Business Combinations (SFAS 141R), regardless of whether those assets and liabilities are related to leases. We are evaluating SFAS 157-1 and have not yet determined the impact the adoption will have on our financial position
or results of operations.

In December 2007, FASB issued SFAS 141R, to create greater consistency in the accounting and financial reporting
of business combinations. SFAS 141R requires a company to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity to be measured at their fair values as of the acquisition date. SFAS 141R also
requires companies to recognize the fair value of assets acquired, the liabilities assumed and any noncontrolling interest in acquisitions of less than a one hundred percent interest when the acquisition constitutes a change in control of the
acquired entity. In addition, SFAS 141R requires that acquisition-related costs and restructuring costs be recognized separately from the business combination and expensed as incurred. SFAS 141R is effective for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting period beginning after December 15, 2008. We are evaluating SFAS 141R and have not yet determined the impact the adoption will have on our financial position or results
of operations.

In February 2007, the Financial Accounting Standards Board (FASB) issued FAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115. This standard permits entities to choose to measure many financial instruments and certain other items at fair value and is effective for the
first fiscal year beginning after November 15, 2007, which for us means 2008. We did not elect the fair value measurement option for any financial assets or liabilities during the first quarter of 2008, but are still evaluating whether we
will elect this option for any financial assets or liabilities in the near future.

In December 2007, FASB issued FASB Statement
No. 160, Noncontrolling Interests in Consolidated Financial Statementsan Amendment of Accounting Research Bulletin No. 51 (SFAS 160). SFAS 160 requires all entities to report noncontrolling interests in
subsidiaries within equity in the consolidated financial statements, but separate from the parent shareholders equity. SFAS No. 160 also requires any acquisitions or dispositions of noncontrolling interests that do not result in a change
of control to be accounted for as equity transactions. In addition, SFAS No. 160 requires that a parent company recognize a gain or loss in net income when a subsidiary is deconsolidated upon a change in control. SFAS No. 160 applies to
fiscal years beginning after December 15, 2008 and is adopted prospectively. The presentation and disclosure requirements shall be applied retrospectively for all periods presented. The adoption of SFAS 160 will result in a reclassification of
minority interest to a separate component of total equity and net income attributable to noncontrolling interests will no longer be treated as a reduction to net income but will be shown as a reduction from net income in calculating net income
available to common stockholders. We are evaluating SFAS 160 and have not yet determined the impact the adoption will have on our financial position or results of operations.



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Interim Financial Data

The accompanying interim financial statements are unaudited, but have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and in
conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments
(consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. The results of operations for the interim periods are not necessarily indicative of the
results to be obtained for the full fiscal year. Certain prior period amounts have been reclassified to conform to the current period presentation.

3.
Unconsolidated Real Estate Entities

The unconsolidated real estate entities include the entities that own 2121 Market Street, Harris
Building Associates, and TPG/CalSTRS. TPG/CalSTRS owns the following properties:

City National Plaza (purchased January 2003)

Reflections I (purchased October 2004)

Reflections II (purchased October 2004)

Four Falls Corporate Center (purchased March 2005)

Oak Hill Plaza (purchased March 2005)

Walnut
Hill Plaza (purchased March 2005)

San Felipe Plaza (purchased August 2005)

2500 City West (purchased August 2005)

Brookhollow Central I, II and III (purchased August 2005)

Intercontinental Center (purchased August 2005, sold May 2007)

2500 City West land (purchased December 2005)

CityWestPlace (purchased June 2006)

Centerpointe I & II (purchased January 2007)

Fair Oaks Plaza (purchased January 2007)

TPG/CalSTRS also owns a 25% interest in the Austin Portfolio Joint Venture which owns the following properties (Austin Portfolio Properties):

San Jacinto Center (purchased June 2007)

Frost Bank Tower (purchased June 2007)

One Congress Plaza (purchased June 2007)

One
American Center (purchased June 2007)

300 West 6th Street (purchased June 2007)

Research Park Plaza I & II (purchased June 2007)

Park 22 I-III (purchased June 2007)

Great Hills Plaza (purchased June 2007)

Stonebridge Plaza II (purchased June 2007)

Westech 360 I-IV (purchased June 2007)

Capital contributions, distributions, and profits and losses of the real estate entities
are allocated in accordance with the terms of the applicable partnership and limited liability company agreements. Such allocations may differ from the stated ownership percentage interests in such entities as a result of preferred returns and
allocation formulas as described in the partnership and limited liability company agreements. Following are the stated ownership percentages, prior to any preferred or special allocations, as of March 31, 2008:



|                                                            |  |      |     
|----------------------------------------------------------- |  | ---- | ----
|2121 Market Street                                          |  | 50.0 | %   
|TPG/CalSTRS, LLC:                                           |  |      |     
|City National Plaza                                         |  | 21.3 | %(1)
|All other properties, excluding Austin Portfolio Properties |  | 25.0 | %   
|Austin Portfolio Properties                                 |  | 6.3  | %   



|(1) | During 2005, the accumulated losses and distributions for the minority owner equaled their contribution amount. As such, net income/loss is allocated to the Operating Partnership
and CalSTRS.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Investments in unconsolidated real estate entities as of March 31, 2008 and December 31, 2007
are as follows:



|                                                            |  |               |         |   |                  |   |        |  
|----------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------ | -
|                                                            |  | March 31,2008 |         |   | December 31,2007 |  
|TPG/CalSTRS, LLC:                                           |  |               |         |   |                  |   |        |  
|City National Plaza                                         |  | $             | (10,524 | ) |                  | $ | (9,168 | )
|Reflections I                                               |  |               | 1,440   |   |                  |   | 1,402  |  
|Reflections II                                              |  |               | 1,631   |   |                  |   | 1,609  |  
|Four Falls Corporate Center                                 |  |               | 837     |   |                  |   | 1,069  |  
|Oak Hill Plaza / Walnut Hill Plaza                          |  |               | 577     |   |                  |   | 700    |  
|San Felipe Plaza                                            |  |               | 3,888   |   |                  |   | 4,450  |  
|2500 City West                                              |  |               | 1,915   |   |                  |   | 1,962  |  
|Brookhollow Central I, II and III / Intercontinental Center |  |               | 1,677   |   |                  |   | 1,934  |  
|CityWestPlace                                               |  |               | 21,454  |   |                  |   | 21,280 |  
|Centerpointe I, II                                          |  |               | 6,344   |   |                  |   | 6,526  |  
|Fair Oaks Plaza                                             |  |               | 2,882   |   |                  |   | 2,957  |  
|TPG/CalSTRS                                                 |  |               | 47      |   |                  |   | 42     |  
|Austin Portfolio Investor                                   |  |               | (831    | ) |                  |   | (472   | )
|Frost Bank Tower                                            |  |               | 2,928   |   |                  |   | 3,057  |  
|300 West 6thStreet                                          |  |               | 2,493   |   |                  |   | 2,611  |  
|San Jacinto Center                                          |  |               | 2,009   |   |                  |   | 2,059  |  
|One Congress Plaza                                          |  |               | 2,481   |   |                  |   | 2,587  |  
|One American Center                                         |  |               | 2,291   |   |                  |   | 2,411  |  
|Stonebridge Plaza II                                        |  |               | 724     |   |                  |   | 762    |  
|Park 22 I-III                                               |  |               | 666     |   |                  |   | 671    |  
|Research Park Plaza I & II                                  |  |               | 960     |   |                  |   | 1,002  |  
|Westech 360 I-IV                                            |  |               | 513     |   |                  |   | 540    |  
|Great Hills Plaza                                           |  |               | 377     |   |                  |   | 397    |  
|2121 Market Street and Harris Building Associates           |  |               | (1,370  | ) |                  |   | (1,189 | )
|                                                            |  |               |         |   |                  |   |        |  
|                                                            |  | $             | 45,409  |   |                  | $ | 49,199 |  
|                                                            |  |               |         |   |                  |   |        |  

The following is a summary of the investments in unconsolidated real estate entities for the three
months ended March, 31, 2008:



|                                                          |  |   |        |  
|--------------------------------------------------------- |  | - | ------ | -
|Investment balance December, 31, 2007                     |  | $ | 49,199 |  
|Contributions                                             |  |   |       |  
|Other comprehensive income/(loss)                         |  |   | (52    | )
|Equity in net loss of unconsolidated real estate entities |  |   | (2,565 | )
|Distributions                                             |  |   | (1,173 | )
|                                                          |  |   |        |  
|Investment balance, March, 31, 2008                       |  | $ | 45,409 |  
|                                                          |  |   |        |  

TPG/CalSTRS was formed to acquire office properties on a nationwide basis classified as moderate
risk (core plus) and high risk (value add) properties. Core plus properties consist of under-performing properties that we believe can be brought to market potential through improved management. Value-add properties are characterized by unstable net
operating income for an extended period of time, occupancy less than 90% and/or physical or management problems which we believe can be positively impacted by introduction of new capital and/or management. We are required to use diligent efforts to
sell each joint venture property within five years of that property reaching stabilization, except for certain stabilized properties, as to which, we are required to perform a hold/sell analysis at least annually and make a recommendation to the
TPG/CalSTRS management committee regarding the appropriate holding period.

The total capital commitment to the joint venture was
$348.3 million as of December 31, 2007, of which approximately $3.25 million and $1.15 million was unfunded by CalSTRS and us, respectively. On February 1, 2008, we revised our agreement with CalSTRS providing for $25 million in additional
capital commitments, $18.75 million and $6.25 million from CalSTRS and us, respectively. As of March 31, 2008, there were unfunded capital commitments of approximately $22.0 million and $7.4 million by CalSTRS and us, respectively.



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A buy-sell provision may be exercised by either CalSTRS or us. Under this provision, the initiating party sets a price
for its interest in the joint venture, and the other party has a specified time to either elect to buy the initiating partys interest, or to sell its own interest to the initiating party. Upon the occurrence of certain events, CalSTRS also has
a buy-out option to purchase our interest in the joint venture. The buyout price is based upon a 3% discount to the appraised fair market value. In addition, the minority owner of City National Plaza has the option to require the joint venture to
purchase its interests for an amount equal to what would be payable to it upon liquidation of the asset at fair market value.



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Summarized Balance Sheets



|                                                                                                                                 |  |                |           |                  |   |          
|-------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | --------- | ---------------- | - | ---------
|                                                                                                                                 |  | March, 31,2008 |           | December 31,2007
|ASSETS                                                                                                                          
|Investments in real estate, net                                                                                                  |  | $              | 2,325,687 |                  | $ | 2,326,679
|Land held for sale                                                                                                               |  |                | 3,602     |                  |   | 3,418    
|Assets associated with discontinued operations                                                                                   |  |                | 22        |                  |   | 28       
|Receivables including deferred rent                                                                                              |  |                | 64,566    |                  |   | 62,954   
|Other assets                                                                                                                     |  |                | 312,124   |                  |   | 330,537  
|                                                                                                                                 |  |                |           |                  |   |          
|Total assets                                                                                                                     |  | $              | 2,706,001 |                  | $ | 2,723,616
|                                                                                                                                 |  |                |           |                  |   |          
|LIABILITIES AND OWNERS EQUITY                                                                                                  
|Mortgage and other secured loans                                                                                                 |  | $              | 2,199,594 |                  | $ | 2,162,556
|Other liabilities                                                                                                                |  |                | 178,940   |                  |   | 208,977  
|Liabilities associated with discontinued operations                                                                              |  |                | 25        |                  |   | 23       
|                                                                                                                                 |  |                |           |                  |   |          
|Total liabilities                                                                                                                |  |                | 2,378,559 |                  |   | 2,371,556
|                                                                                                                                 |  |                |           |                  |   |          
|Owners equity:                                                                                                                  |  |                |           |                  |   |          
|Thomas Properties, including $324 and $272 of other comprehensive loss as of March, 31, 2008 and December 31, 2007,
respectively |  |                | 50,599    |                  |   | 54,041   
|Other owners, including $4,279 and $2,612 of other comprehensive loss as of March, 31, 2008 and December 31, 2007,
respectively  |  |                | 276,843   |                  |   | 298,019  
|                                                                                                                                 |  |                |           |                  |   |          
|Total owners equity                                                                                                             |  |                | 327,442   |                  |   | 352,060  
|                                                                                                                                 |  |                |           |                  |   |          
|Total liabilities and owners equity                                                                                             |  | $              | 2,706,001 |                  | $ | 2,723,616
|                                                                                                                                 |  |                |           |                  |   |          

Summarized Statements of Operations



|                                     |  |                             |         |   |      |   |         |  
|------------------------------------ |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                     |  | Three monthsended March 31, |        
|                                     |  | 2008                        |         |   | 2007 |  
|Revenues                             |  | $                           | 79,660  |   |      | $ | 45,279  |  
|                                     |  |                             |         |   |      |   |         |  
|Expenses:                            |  |                             |         |   |      |   |         |  
|Operating and other expenses         |  |                             | 39,852  |   |      |   | 26,030  |  
|Interest expense                     |  |                             | 32,580  |   |      |   | 18,909  |  
|Depreciation and amortization        |  |                             | 31,653  |   |      |   | 15,210  |  
|                                     |  |                             |         |   |      |   |         |  
|Total expenses                       |  |                             | 104,085 |   |      |   | 60,149  |  
|                                     |  |                             |         |   |      |   |         |  
|Loss from continuing operations      |  |                             | (24,425 | ) |      |   | (14,870 | )
|Minority interest                    |  |                             |        |   |      |   | (26     | )
|Loss from discontinued operations    |  |                             | (8      | ) |      |   | (204    | )
|                                     |  |                             |         |   |      |   |         |  
|Net loss                             |  | $                           | (24,433 | ) |      | $ | (15,100 | )
|                                     |  |                             |         |   |      |   |         |  
|Thomas Properties share of net loss |  | $                           | (2,565  | ) |      | $ | (3,169  | )
|                                     |  |                             |         |   |      |   |         |  

Included in the preceding summarized balance sheets as of March, 31, 2008 and December 31,
2007, are the following balance sheets of TPG/CalSTRS, LLC:



|                                                   |  |                |           |                  |   |          
|-------------------------------------------------- |  | -------------- | --------- | ---------------- | - | ---------
|                                                   |  | March, 31,2008 |           | December 31,2007
|ASSETS                                            
|Investments in real estate, net                    |  | $              | 1,200,320 |                  | $ | 1,194,028
|Land held for sale                                 |  |                | 3,602     |                  |   | 3,418    
|Assets associated with discontinued operations     |  |                | 22        |                  |   | 28       
|Receivables including deferred rent                |  |                | 59,057    |                  |   | 55,582   
|Investments in unconsolidated real estate entities |  |                | 57,724    |                  |   | 61,662   



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|                                                                                                                                 |  |                |           |                  |   |          
|-------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | --------- | ---------------- | - | ---------
|                                                                                                                                 |  | March, 31,2008 |           | December 31,2007
|Other assets                                                                                                                     |  |                | 185,654   |                  |   | 174,383  
|                                                                                                                                 |  |                |           |                  |   |          
|Total assets                                                                                                                     |  | $              | 1,506,379 |                  | $ | 1,489,101
|                                                                                                                                 |  |                |           |                  |   |          
|LIABILITIES AND MEMBERS EQUITY                                                                                                 
|Mortgage and other secured loans                                                                                                 |  | $              | 1,273,046 |                  | $ | 1,235,932
|Other liabilities                                                                                                                |  |                | 76,914    |                  |   | 83,914   
|Liabilities associated with discontinued operations                                                                              |  |                | 25        |                  |   | 23       
|                                                                                                                                 |  |                |           |                  |   |          
|Total liabilities                                                                                                                |  |                | 1,349,985 |                  |   | 1,319,869
|                                                                                                                                 |  |                |           |                  |   |          
|Members equity:                                                                                                                 |  |                |           |                  |   |          
|Thomas Properties, including $324 and $272 of other comprehensive loss as of March, 31, 2008 and December 31, 2007,
respectively |  |                | 50,661    |                  |   | 54,250   
|CalSTRS, including $1,274 and $1,171 of other comprehensive loss as of March, 31, 2008 and December 31, 2007,
respectively       |  |                | 105,733   |                  |   | 114,982  
|                                                                                                                                 |  |                |           |                  |   |          
|Total members equity                                                                                                            |  |                | 156,394   |                  |   | 169,232  
|                                                                                                                                 |  |                |           |                  |   |          
|Total liabilities and members equity                                                                                            |  | $              | 1,506,379 |                  | $ | 1,489,101
|                                                                                                                                 |  |                |           |                  |   |          

Following is summarized financial information by real estate entity for the unconsolidated real
estate entities for the three months ended March, 31, 2008 and 2007:



|                                                          |  |                                                 |       |   |                 |   |         |                            |  |   |              |   |       |   |       |  |   |         |  
|--------------------------------------------------------- |  | ----------------------------------------------- | ----- | - | --------------- | - | ------- | -------------------------- |  | - | ------------ | - | ----- | - | ----- |  | - | ------- | -
|                                                          |  | Three months ended March, 31, 2008              |      
|                                                          |  | 2121 Market Streetand Harris BuildingAssociates |       |   | TPG/CalSTRS,LLC |   |         | Austin PortfolioProperties |  |   | Eliminations |   | Total |  
|Revenues                                                  |  | $                                               | 937   |   |                 | $ | 49,959  |                            |  | $ | 28,764       |   |       | $ |      |  | $ | 79,660  |  
|                                                          |  |                                                 |       |   |                 |   |         |                            |  |   |              |   |       |   |       |  |   |         |  
|Expenses:                                                 |  |                                                 |       |   |                 |   |         |                            |  |   |              |   |       |   |       |  |   |         |  
|Operating and other                                       |  |                                                 | 343   |   |                 |   | 26,654  |                            |  |   | 12,855       |   |       |   |      |  |   | 39,852  |  
|Interest                                                  |  |                                                 | 292   |   |                 |   | 17,052  |                            |  |   | 15,236       |   |       |   |      |  |   | 32,580  |  
|Depreciation and amortization                             |  |                                                 | 651   |   |                 |   | 15,510  |                            |  |   | 15,492       |   |       |   |      |  |   | 31,653  |  
|                                                          |  |                                                 |       |   |                 |   |         |                            |  |   |              |   |       |   |       |  |   |         |  
|Total expenses                                            |  |                                                 | 1,286 |   |                 |   | 59,216  |                            |  |   | 43,583       |   |       |   |      |  |   | 104,085 |  
|                                                          |  |                                                 |       |   |                 |   |         |                            |  |   |              |   |       |   |       |  |   |         |  
|Income (loss) from continuing operations                  |  |                                                 | (349  | ) |                 |   | (9,257  | )                          |  |   | (14,819      | ) |       |   |      |  |   | (24,425 | )
|Discontinued operations                                   |  |                                                 |      |   |                 |   | (8      | )                          |  |   |             |   |       |   |      |  |   | (8      | )
|Equity in net loss of unconsolidated real estate entities |  |                                                 |      |   |                 |   | (3,418  | )                          |  |   |             |   |       |   | 3,418 |  |   |        |  
|                                                          |  |                                                 |       |   |                 |   |         |                            |  |   |              |   |       |   |       |  |   |         |  
|Net loss                                                  |  | $                                               | (349  | ) |                 | $ | (12,683 | )                          |  | $ | (14,819      | ) |       | $ | 3,418 |  | $ | (24,433 | )
|                                                          |  |                                                 |       |   |                 |   |         |                            |  |   |              |   |       |   |       |  |   |         |  
|Thomas Properties share of net loss                      |  | $                                               | (175  | ) |                 | $ | (2,287  | )                          |  | $ | (926         | ) |       | $ |      |  | $ | (3,388  | )
|                                                          |  |                                                 |       |   |                 |   |         |                            |  |   |              |   |       |   |       |  |   |         |  
|Intercompany eliminations                                 |  |                                                 |       |   |                 |   |         |                            |  |   |              |   |       |   |       |  |   | 823     |  
|                                                          |  |                                                 |       |   |                 |   |         |                            |  |   |              |   |       |   |       |  |   |         |  
|Equity in net loss of unconsolidated real estate entities |  |                                                 |       |   |                 |   |         |                            |  |   |              |   |       |   |       |  | $ | (2,565  | )
|                                                          |  |                                                 |       |   |                 |   |         |                            |  |   |              |   |       |   |       |  |   |         |  



|                                         |  |                                                 |       |   |                 |   |         |       |  |   |         |  
|---------------------------------------- |  | ----------------------------------------------- | ----- | - | --------------- | - | ------- | ----- |  | - | ------- | -
|                                         |  | Three months ended March, 31, 2007              |      
|                                         |  | 2121 Market Streetand Harris BuildingAssociates |       |   | TPG/CalSTRS,LLC |   |         | Total | 
|Revenues                                 |  | $                                               | 1,398 |   |                 | $ | 43,881  |       |  | $ | 45,279  |  
|                                         |  |                                                 |       |   |                 |   |         |       |  |   |         |  
|Expenses:                                |  |                                                 |       |   |                 |   |         |       |  |   |         |  
|Operating and other                      |  |                                                 | 899   |   |                 |   | 25,131  |       |  |   | 26,030  |  
|Interest                                 |  |                                                 | 293   |   |                 |   | 18,616  |       |  |   | 18,909  |  
|Depreciation and amortization            |  |                                                 | 240   |   |                 |   | 14,970  |       |  |   | 15,210  |  
|                                         |  |                                                 |       |   |                 |   |         |       |  |   |         |  
|Total expenses                           |  |                                                 | 1,432 |   |                 |   | 58,717  |       |  |   | 60,149  |  
|                                         |  |                                                 |       |   |                 |   |         |       |  |   |         |  
|Income (loss) from continuing operations |  |                                                 | (34   | ) |                 |   | (14,836 | )     |  |   | (14,870 | )
|Minority interest                        |  |                                                 | (26   | ) |                 |   |        |       |  |   | (26     | )
|Discontinued operations                  |  |                                                 |      |   |                 |   | (204    | )     |  |   | (204    | )
|                                         |  |                                                 |       |   |                 |   |         |       |  |   |         |  



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|                                                          |  |                                                 |     |   |                 |   |         |       |  |   |         |  
|--------------------------------------------------------- |  | ----------------------------------------------- | --- | - | --------------- | - | ------- | ----- |  | - | ------- | -
|                                                          |  | Three months ended March, 31, 2007              |    
|                                                          |  | 2121 Market Streetand Harris BuildingAssociates |     |   | TPG/CalSTRS,LLC |   |         | Total | 
|Net loss                                                  |  | $                                               | (60 | ) |                 | $ | (15,040 | )     |  | $ | (15,100 | )
|                                                          |  |                                                 |     |   |                 |   |         |       |  |   |         |  
|Thomas Properties share of net loss                      |  | $                                               | (30 | ) |                 | $ | (3,760  | )     |  | $ | (3,790  | )
|                                                          |  |                                                 |     |   |                 |   |         |       |  |   |         |  
|Intercompany eliminations                                 |  |                                                 |     |   |                 |   |         |       |  |   | 621     |  
|                                                          |  |                                                 |     |   |                 |   |         |       |  |   |         |  
|Equity in net loss of unconsolidated real estate entities |  |                                                 |     |   |                 |   |         |       |  | $ | (3,169  | )
|                                                          |  |                                                 |     |   |                 |   |         |       |  |   |         |  

Following is a reconciliation of our share of owners equity of the unconsolidated real
estate entities as shown above to amounts recorded by us as of March, 31, 2008 and December 31, 2007:



|                                                                            |  |                |        |   |                  |   |        |  
|--------------------------------------------------------------------------- |  | -------------- | ------ | - | ---------------- | - | ------ | -
|                                                                            |  | March, 31,2008 |        |   | December 31,2007 |  
|Our share of owners equity recorded by unconsolidated real estate entities |  | $              | 50,599 |   |                  | $ | 54,041 |  
|Intercompany eliminations and other adjustments                             |  |                | (5,190 | ) |                  |   | (4,842 | )
|                                                                            |  |                |        |   |                  |   |        |  
|Investments in unconsolidated real estate entities                          |  | $              | 45,409 |   |                  | $ | 49,199 |  
|                                                                            |  |                |        |   |                  |   |        |  

4. Mortgage and Other Secured Loans

A summary of the outstanding mortgage and other secured loans as of March 31, 2008 is as follows:



|                                                            |  |                            |  |                               |         |              |           
|----------------------------------------------------------- |  | -------------------------- |  | ----------------------------- | ------- | ------------ | ----------
|Secured debt                                                |  | Interest Rate              |  | OutstandingDebt (inthousands) |         | Maturitydate
|One Commerce Square mortgage loan (1)                       |  | 5.67%                      |  | $                             | 130,000 |              | 1/6/2016  
|Two Commerce Square:                                        |  |                            |  |                               |         |              |           
|Mortgage Loan (2)                                           |  | 6.30                       |  |                               | 109,659 |              | 5/9/2013  
|Senior mezzanine loan (3) (4)                               |  | 18.76                      |  |                               | 33,729  |              | 1/9/2010  
|Junior mezzanine loan (3) (5)                               |  | 15.00                      |  |                               | 4,329   |              | 1/9/2010  
|Campus El Segundo mortgage loan (6)                         |  | Prime Rate or LIBOR + 2.25 |  |                               | 17,259  |              | 10/10/2008
|Four Points Centre Construction Loan (7)                    |  | Prime Rate or LIBOR + 1.50 |  |                               | 15,766  |              | 6/11/2010 
|Murano construction loan (8)                                |  | 7.00 or LIBOR + 3.25       |  |                               | 99,072  |              | 7/31/2009 
|Loan secured by our preferred equity interest in Murano (9) |  | LIBOR + 4.00               |  |                               | 6,216   |              | 7/7/2008  
|                                                            |  |                            |  |                               |         |              |           
|Total mortgage loans and other secured loans                |  |                            |  | $                             | 416,030 |              |           
|                                                            |  |                            |  |                               |         |              |           



|(1) | The mortgage loan is subject to interest only payments for the first five years, and thereafter, principal and interest payments are due based on a thirty-year amortization
schedule. The loan is subject to yield maintenance payments for any prepayments prior to October 2015, and beginning January 2009, may be defeased.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The mortgage loan may be defeased, and beginning February 2012, may be prepaid.
|--- | -------------------------------------------------------------------------------



|(3) | These loans are guaranteed by Mr. Thomas up to an aggregate maximum of $7.5 million. We have agreed to indemnify Mr. Thomas in the event his guarantees are called
upon.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | The senior mezzanine loan bears interest at a rate such that the weighted average of the rate on this loan and the rate on the mortgage loan secured by Two Commerce Square equals
9.2% per annum. The effective interest rate on this loan as of March 31, 2008 was 18.8% per annum. The loan may not be prepaid prior to August 9, 2009, and thereafter is subject to yield maintenance payments unless the loan is
prepaid within 60 days of maturity. The loan is secured by our ownership interest in the real estate entities that own Two Commerce Square.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Interest at a rate of 10% per annum is payable currently, and additional interest of 5% per annum is deferred until maturity. The loan is subject to a prepayment penalty
in the amount of the greater of 3% of the principal amount or a yield maintenance premium. The loan is secured by our ownership interest in the real estate entities that own Two Commerce Square.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | The weighted average interest rate as of March 31, 2008 was 6.5% per annum. The loan has two one-year extension options at our election.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------



|(7) | The interest rate as of March 31, 2008 was 5.55% per annum. The loan has two one-year extension options at our election subject to certain conditions. The first extension
option and the second extension option are subject to achievement of 75% and 90% occupancy levels, respectively, and certain other conditions.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|(8) | We may borrow an additional $43.4 million under this construction loan. This loan has two six-month extension options. The first extension option is conditional on the closing
of 100 residential units. The interest rate for this loan as of March 31, 2008 was 7.95%.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(9) | A subsidiary of our Operating Partnership pledged its preferred equity interest in Murano to a lender for $17,434,000. The loan requires monthly payments of $1.6 million. The loan
will be fully amortized by the maturity date. The Operating Partnership has guaranteed this loan.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The loan agreement for Two
Commerce Square requires that all receipts collected from this property be deposited in lockbox accounts under the control of the lenders to fund reserves, debt service and operating expenditures. Included in restricted cash at March 31, 2008
and December 31, 2007 is $7,678,000 and $3,263,000, respectively, which has been deposited in the lockbox account.

As of
March 31, 2008, principal payments due for the secured and unsecured outstanding debt are as follows:



|           |  |   |        
|---------- |  | - | -------
|2008       |  | $ | 25,875 
|2009       |  |   | 103,472
|2010       |  |   | 52,971 
|2011       |  |   | 1,971  
|2012       |  |   | 2,160  
|Thereafter |  |   | 233,481
|           |  |   |        
|           |  | $ | 419,930
|           |  |   |        

5. Unsecured Loan

In October 2005, we purchased the entire interest of our unaffiliated minority partner in TPG-El Segundo Partners, LLC, $3,900,000 of which was financed with an unsecured loan from the former minority partner. The
loan bears interest at 5% per annum. Principal and interest is payable at maturity on October 12, 2009.



14



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6. Earnings (Loss) per Share and Dividends Declared

The following is a summary of the components used in calculating basic and diluted earnings (loss) per share for the three months ended March, 31, 2008
and 2007 (in thousands except share and per share amounts):



|                                                              |  |                             |            |      |   |            |  
|------------------------------------------------------------- |  | --------------------------- | ---------- | ---- | - | ---------- | -
|                                                              |  | Three Months EndedMarch 31, |           
|                                                              |  | 2008                        |            | 2007 |  
|Earnings (loss) available to common shares                    |  | $                           | 219        |      | $ | (255       | )
|                                                              |  |                             |            |      |   |            |  
|Weighted average common shares outstanding  basic            |  |                             | 23,658,963 |      |   | 14,373,318 |  
|Potentially dilutive common shares (1)                        |  |                             |            |      |   |            |  
|Stock options                                                 |  |                             |           |      |   |           |  
|Unvested restricted stock                                     |  |                             |           |      |   |           |  
|Unvested incentive units                                      |  |                             |           |      |   |           |  
|                                                              |  |                             |            |      |   |            |  
|Adjusted weighted average common shares outstanding  diluted |  |                             | 23,658,963 |      |   | 14,373,318 |  
|                                                              |  |                             |            |      |   |            |  
|Earnings (loss) per share  basic                             |  | $                           | 0.01       |      | $ | (0.02      | )
|                                                              |  |                             |            |      |   |            |  
|Earnings (loss) per share  diluted                           |  | $                           | 0.01       |      | $ | (0.02      | )
|                                                              |  |                             |            |      |   |            |  
|Dividends declared per share                                  |  | $                           | 0.06       |      | $ | 0.06       |  
|                                                              |  |                             |            |      |   |            |  



|(1) | For the three months ended March 31, 2008, and 2007, the potentially dilutive shares were not included in the income (loss) per share calculation as their effect is
antidilutive.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7. Stockholders Equity

A Unit and a share of our common stock have essentially the same economic characteristics as they share equally in the total net income or loss and distributions of the Operating Partnership. A Unit may be redeemed
for cash, or exchanged for shares of common stock at our election, on a one-for-one basis. We have issued 1,193,336 incentive units to certain employees. Incentive units represent a profits interest in the Operating Partnership and generally will be
treated as regular Units in the Operating Partnership and rank pari passu with the Units as to payment of distributions, including distributions of assets upon liquidation. Incentive units are subject to vesting, forfeiture and additional
restrictions on transfer as may be determined by us as general partner of the Operating Partnership. The holder of an incentive unit has the right to convert all or a part of his vested incentive units into Units, but only to the extent of the
incentive units economic capital account balance. As general partner, we may also cause any number of vested incentive units to be converted into Units to the extent of the incentive units economic capital account balance. We had
23,847,936 shares of common stock, and 14,496,666 Units outstanding as of March, 31, 2008, and 1,148,336 incentive units outstanding which were issued under our Incentive Plan, defined below.

We adopted the 2004 Equity Incentive Plan of Thomas Properties Group, Inc. (the Incentive Plan) effective upon the closing of our initial
public offering. The Incentive Plan provides incentives to our employees and is designed to attract, reward and retain personnel. Our Incentive Plan permits the granting of awards in the form of options to purchase common stock, restricted shares of
common stock and restricted incentive units in our Operating Partnership. We may issue up to 2,361,906 shares as either stock option awards, restricted stock awards or incentive unit awards. In addition, under our Non-Employee Directors Restricted
Stock Plan (the Non-Employee Directors Plan) a total of 60,000 shares are reserved for grant.

Shares of newly issued common
stock will be issued upon exercise of stock options.



15



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##### Table of Contents

Restricted Stock

Under the Incentive Plan, we have issued the following restricted shares to Mr. Thomas:



|                                        |  |         |  |                 |      
|--------------------------------------- |  | ------- |  | --------------- | -----
|                                        |  | Shares  |  | Aggregate Value
|Issued in October 2004                  |  | 46,667  |  | $               | 560  
|Issued in February 2006                 |  | 60,000  |  |                 | 740  
|Issued in March 2007                    |  | 100,000 |  |                 | 1,580
|Issued in March 2008                    |  | 100,000 |  |                 | 855  
|                                        |  |         |  |                 |      
|Issued from Inception to March 31, 2008 |  | 306,667 |  |                 | 3,735
|                                        |  |         |  |                 |      

Vesting for the 60,000, 100,000 and 100,000 shares commenced as of February 22,
2006, March 7, 2007 and March 19, 2008 respectively. The restricted shares will vest in full on the third anniversary of the vesting commencement date, provided that vesting could occur on the second anniversary of the vesting
commencement date if certain performance goals are met. Mr. Thomas has full voting rights and will receive any dividends paid. The October 2004 grant of 46,667 shares has fully vested.

Under the Non-Employee Directors Plan, we have issued the following outstanding restricted shares to our non-employee directors:



|                                        |  |        |  |                 |    
|--------------------------------------- |  | ------ |  | --------------- | ---
|                                        |  | Shares |  | Aggregate Value
|Issued in October 2004                  |  | 10,000 |  | $               | 120
|Issued in 2005                          |  | 4,984  |  |                 | 60 
|Issued in 2006                          |  | 6,419  |  |                 | 83 
|Issued in 2007                          |  | 3,564  |  |                 | 60 
|                                        |  |        |  |                 |    
|Issued from Inception to March 31, 2008 |  | 24,967 |  | $               | 323
|                                        |  |        |  |                 |    

Vesting for the 10,000, 4,984, 6,419 and 3,564 shares commenced as of October 13,
2004, June 15, 2005, May 24, 2006 and May 30, 2007 respectively. The 10,000 and 4,984 shares vested following the 2006 Annual Meeting of Stockholders on May 24, 2006. Of the 6,419 shares, 3,501 shares vested following the
2007 Annual Meeting of Stockholders on May 31, 2007 and 2,918 will vest subject to the continued service of one of the directors following the 2008 Annual Meeting of Stockholders. The 3,564 shares granted will vest subject to the continued
service of the directors following the 2008 Annual Meeting of Stockholders. The holders of these shares have full voting rights and will receive any dividends paid.

As of March 31, 2008, there was $2,094,000 of total unrecognized compensation cost related to the nonvested restricted stock under both the Incentive Plan and Non-Employees Directors Plan. The cost is expected to
be recognized over a weighted average period of 2.2 years. The weighted-average grant date fair value of restricted stock granted during the three months ended March 31, 2008 was $8.55.

We recorded compensation expense totaling $223,000 and $158,000 for the vesting of the restricted stock grants for the three months ended March 31,
2008 and 2007, respectively. The total income tax benefit recognized in the statement of operations related to this compensation expense was $96,000 and $64,000 for the three months ended March 31, 2008 and 2007, respectively.

Incentive Units

Under our Incentive Plan, we issued
to certain executives 730,003 incentive units upon consummation of our initial public offering in October 2004, which fully vested on October 13, 2007. On February 2006 we issued 120,000 incentive units to certain executives, these units vest
on the third anniversary of the grant date. In March 2007 we issued an additional 183,336 incentive units to certain executives, these units vest over a three year period, with one third vesting each on the first, second, and third anniversary dates
of the grant. In March 2008 we issued an additional 160,000 incentive units to certain executives, these units vest over a three year period, with one third vesting each on the first, second, and third anniversary dates of the grant.



16



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##### Table of Contents

For the three months ended March 31, 2008 and 2007, we recorded compensation expense of $482,000 and
$501,000, respectively, relating to the incentive units. As of March 31, 2008, there was $2,745,000 of unrecognized compensation cost related to incentive units. The weighted-average grant date fair value of incentive units granted in March
2008 was $8.10.

Stock options

Under
our Incentive Plan, we have 670,609 stock options outstanding as of March 31, 2008. The options vest at the rate of one third per year over three years and expire ten years after the date of commencement of vesting. The fair market value of
each option granted was estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions for grants in 2008 and 2007:



|                                |  |              |   |  |              |  
|------------------------------- |  | ------------ | - |  | ------------ | -
|                                |  | 2008         |   |  | 2007         |  
|Expected dividend yield         |  | 2.9          | % |  | 2.0          | %
|Expected life of option         |  | 5 to 8 years |   |  | 2 to 4 years |  
|Risk-free interest rate         |  | 3.2          | % |  | 4.40         | %
|Expected stock price volatility |  | 11           | % |  | 15           | %

The following is a summary of stock option activity under our Incentive Plan as of March 31,
2008 and for the three months ended March 31, 2008:



|                                      |  |         |  |                               |       |                                                    |     |                         |   |  
|------------------------------------- |  | ------- |  | ----------------------------- | ----- | -------------------------------------------------- | --- | ----------------------- | - | -
|                                      |  | Shares  |  | WeightedAverageExercise Price |       | WeightedAverageRemainingContractualTerm (in years) |     | AggregateIntrinsicValue
|Outstanding at January 1, 2008        |  | 501,197 |  | $                             | 13.44 |                                                    |     |                         |   |  
|Granted                               |  | 169,412 |  |                               | 10.45 |                                                    |     |                         |   |  
|Forfeitures                           |  |        |  |                               |      |                                                    |     |                         |   |  
|Exercised                             |  |        |  |                               |      |                                                    |     |                         |   |  
|                                      |  |         |  |                               |       |                                                    |     |                         |   |  
|Outstanding at March 31, 2008         |  | 670,609 |  | $                             | 12.78 |                                                    | 7.5 |                         | $ | 
|                                      |  |         |  |                               |       |                                                    |     |                         |   |  
|Options exercisable at March 31, 2008 |  | 339,658 |  | $                             | 12.72 |                                                    | 7.6 |                         | $ | 
|                                      |  |         |  |                               |       |                                                    |     |                         |   |  

As of March 31, 2008, there was $289,000 of total unrecognized compensation cost related to
the nonvested stock options. The cost is expected to be recognized over a weighted average period of 1.6 years. The weighted-average grant date fair value of options granted during the three months ended March 31, 2008 was $0.93. There were no
options exercised during the three months ended March 31, 2008.

We recorded compensation expense totaling $42,000 and $49,000 related
to the stock options for the three months ended March 31, 2008 and 2007, respectively. The total income tax benefit recognized in the statements of operations related to this compensation expense was $18,000 and $20,000 for the three months
ended March 31, 2008 and 2007, respectively.

8. Income Taxes

All operations are carried on through the Operating Partnership and its subsidiaries. The Operating Partnership is not subject to income tax, and all of the taxable income, gains, losses, deductions and credits are
passed through to its partners. We are responsible for our share of taxable income or loss of the Operating Partnership allocated to us in accordance with the Operating Partnerships Agreement of Limited Partnership. As of March 31, 2008,
we held a 61.0% capital interest in the Operating Partnership. For the three months ended March 31, 2008, we were allocated a blended rate of 60.9% of the income and losses from the Operating Partnership.

Our effective tax rate is 59.57% for the three months ended March 31, 2008. The higher effective tax rate compared to the federal
statutory rate of 35% is primarily due to the amortization of the incentive units granted to certain executives and the interest expense recorded during the quarter related to the Companys unrecognized tax benefits.

The provision for income taxes is based on reported income before income taxes. Deferred income tax assets and liabilities reflect the impact of
temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amount recognized for tax purposes, as measured by applying the currently enacted tax laws.

FASB Statement No. 109, Accounting for Income Taxes (SFAS No. 109), requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some or all of the deferred tax asset will not be realized.



17



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##### Table of Contents

Realization of the deferred tax asset is dependent on us generating sufficient taxable income in future years as the deferred income tax charges become
currently deductible for tax reporting purposes. Although realization is not assured, management believes that it is more likely than not that the net deferred income tax asset will be realized.

Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48) clarifies the accounting for uncertainty in income
taxes recognized in a companys financial statements in accordance with SFAS No. 109. The interpretation prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The Companys policy is to recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. For the three
months ended March 31, 2008, we recorded $149,000 ($97,000, net of federal benefit), of interest related to unrecognized tax benefits as a component of income tax expense.

For the three months ended March 31, 2008, the Company has recorded $877,000 of accrued interest with respect to unrecognized tax benefits. We have
not recorded any penalties with respect to unrecognized tax benefits.

We do not anticipate any significant increases or decreases to the
amounts of unrecognized tax benefits within the next twelve months.

9. Fair Value of Financial Instruments

SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires us to disclose fair value information about all financial instruments,
whether or not recognized in the balance sheets, for which it is practicable to estimate fair value.

Our estimates of the fair value of
financial instruments at March 31, 2008 were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different
market assumptions or estimation methods may have a material effect on the estimated fair value amounts.

The carrying amounts for cash and
cash equivalents, restricted cash, rent and other receivables, due from affiliate, accounts payable and other liabilities approximate fair value because of the short-term nature of these instruments.

As of March 31, 2008, the fair value of our mortgage and other secured loans and unsecured loan aggregates $431.8 million, compared to the aggregate
carrying value of $419.9 million.



|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. This report
includes statements that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this report entitled Forward-Looking Statements.
Certain risks may cause our actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a discussion of such risks, see the section in this report entitled Risk
Factors.

When you read the financial statements and the information included in this report, you should be aware that our operations
are significantly affected by both macro and micro economic forces. Our operations are directly affected by actual and perceived trends in various national and regional economic conditions that affect national and regional markets for commercial
real estate services, including interest rates, the availability of credit to finance commercial real estate transactions, and the impact of tax laws affecting real estate. Periods of economic slowdown or recession, rising interest rates, tightening
of the credit markets, declining demand for or increased supply of real estate, or the public perception that any of these events may occur can adversely affect our business. These conditions could result in a general decline in rents, which in turn
would reduce revenue from property management fees and brokerage commissions derived from leases. In addition, these conditions could lead to a decline in property values as well as a decline in funds invested in commercial real estate and related
assets, which in turn may reduce revenues from investment advisory, property management, leasing and development fees.

Forward-Looking Statements

Forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from those
anticipated and you should not rely on them as predictions of future events. Although information is



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based on our current estimations, forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise. You are cautioned
not to place undue reliance on this information as we cannot guarantee that any future expectations and events described will happen as described or that they will happen at all. You can identify forward-looking statements by the use of
forward-looking terminology such as believes, expects, may, should, seeks, approximately, intends, plans, pro forma, estimates or
anticipates or the negative of these words and phrases or similar words or phrases. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

Overview and Background

We are a full-service real
estate operating company that owns, acquires, develops and manages primarily office, as well as mixed-use and residential properties on a nationwide basis. We conduct our business through our Operating Partnership, of which we own 61.0% and have
control over the major decisions of the Operating Partnership.

Results of Operations

The results of operations reflect the consolidation of the affiliates that own One Commerce, Two Commerce Square, Murano, 2100 JFK Boulevard, Four Points
Centre, Campus El Segundo and our investment advisory, property management, leasing and real estate development operations. The following properties are accounted for using the equity method of accounting:

2121 Market Street

City National Plaza (as
of January 2003, the date of acquisition)

Reflections I (as of October 2004, the date of acquisition)

Reflections II (as of October 2004, the date of acquisition)

Four Falls Corporate Center (as of March 2005, the date of acquisition)

Oak Hill Plaza (as of March 2005,
the date of acquisition)

Walnut Hill Plaza (as of March 2005, the date of acquisition)

San Felipe Plaza (as of August 2005, the date of acquisition)

2500 City West (as of August 2005, the date of acquisition)

Brookhollow Central I, II, and III (as of
August 2005, the date of acquisition)

Intercontinental Center (as of August 2005, the date of acquisition through May 2007, the date of
disposition)

2500 City West land (as of December 2005, the date of acquisition)

CityWestPlace (as of June 2006, the date of acquisition)

CityWestPlace land (as of June 2006, the date of acquisition)

Centerpointe I & II (as of January 2007,
the date of acquisition)

Fair Oaks Plaza (as of January 2007, the date of acquisition)

TPG/CalSTRS, LLC also owns a 25% interest in the Austin Portfolio Joint Venture which owns the following properties (Austin Portfolio
Properties):

San Jacinto Center (purchased June 2007)

Frost Bank Tower (purchased June 2007)

One Congress Plaza (purchased June 2007)

One American Center (purchased June 2007)

300 West 6th Street (purchased June 2007)

Research Park Plaza I & II (purchased June 2007)

Park 22 I-III (purchased June 2007)

Great
Hills Plaza (purchased June 2007)

Stonebridge Plaza II (purchased June 2007)

Westech 360 I-IV (purchased June 2007)

Comparison of
three months ended March 31, 2008 to three months ended March 31, 2007

Rental revenues. Rental revenue remained
consistent at approximately $8 million for each of the three month periods ended March 31, 2008 and 2007.

Tenant
reimbursements.Tenant reimbursements remained consistent at approximately $7 million for each of the three month periods ended March 31, 2008 and 2007.

Parking and other revenues.Parking and other revenues remained consistent at $1 million for each of the three month periods ended March 31, 2008 and 2007.



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Investment advisory, management, leasing and development services revenues.This caption
represents revenues earned from services provided to unaffiliated entities in which we have no ownership interest. Revenues from these services remained consistent at approximately $2 million for each of the three month periods ended
March 31, 2008 and 2007.

Investment advisory, management, leasing and development services revenues  unconsolidated real
estate entities. This caption represents revenues earned from services provided to entities in which we use the equity method to account for our ownership interest since we have significant influence, but not control over the entities. Revenues
from these services from unconsolidated real estate entities increased by $1.5 million, or 34.1%, to $5.9 million for the three months ended March 31, 2008 compared to $4.4 million for the three months ended March 31, 2007. This increase
was primarily a result of an increase in fee income of $2.2 million related to the Austin Portfolio Properties acquired in June 2007. The increase was partially offset by a decrease in acquisition fees of $624,000 related to the property investment
in Fairfax, Virginia acquired in January 2007 by our joint venture with CalSTRS.

Rental property operating and maintenance expense.Rental property operating and maintenance remained consistent at approximately $6 million for each of the three month periods ended March 31, 2008 and 2007.

Real estate taxes.Real estate taxes remained consistent for each of the three month periods ended March 31, 2008 and 2007.

Investment advisory, management, leasing and development services expenses.Expenses for these services increased by $1.7 million, or 49%, to $5.2 million for the three months ended March 31, 2008 compared
to $3.5 million for the three months ended March 31, 2007, primarily as a result of an increase in salaries and employment related costs related to the Austin Portfolio Properties acquired in June 2007.

Rent  unconsolidated entities. Rent  unconsolidated entities remained consistent for each of the three month periods ended
March 31, 2008 and 2007.

Interest expense. Interest expense remained consistent at approximately $4 million for each of
the three month periods ended March 31, 2008 and 2007.

Depreciation and amortization expense. Depreciation and amortization
expense remained consistent at approximately $3 million for each of the three month periods ended March 31, 2008 and 2007.

General and administrative. General and administrative expense remained consistent at approximately $4 million for each of the three month periods ended March 31, 2008 and 2007.

Gain on sale of real estate.Gain on sale of real estate was $2.5 million for the three months ended March 31, 2008 due to the recognition of
deferred gain on infrastructure costs incurred related to the sale of a 14.1 acre parcel at Campus El Segundo in 2006. The parcel was sold for $24.6 million resulting in a total gain of $18.4 million. We are obligated to fund certain infrastructure
improvements of approximately $2.7 million with respect to the development of the sold parcel; therefore we recorded a deferred gain of $8.1 million. The remaining deferred gain as of March 31, 2008 was $833,000, which will be recognized as we
complete infrastructure improvements on a percentage of completion basis.

Interest income. Interest income remained consistent at
approximately $1 million for each of the three month periods ended March 31, 2008 and 2007.

Equity in net loss of
unconsolidated real estate entities.Set forth below is a summary of the unconsolidated condensed financial information for the unconsolidated real estate entities and our share of net loss and equity in net loss for the three months ended
March 31, 2008 and 2007 (in thousands):



|                                  |  |      |         |   |      |   |         |  
|--------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                  |  | 2008 |         |   | 2007 |  
|Revenue                           |  | $    | 79,660  |   |      | $ | 45,279  |  
|Operating and other expenses      |  |      | (39,852 | ) |      |   | (26,030 | )
|Interest expense                  |  |      | (32,580 | ) |      |   | (18,909 | )
|Depreciation and amortization     |  |      | (31,653 | ) |      |   | (15,210 | )
|Minority interest                 |  |      |        |   |      |   | (26     | )
|Loss from discontinued operations |  |      | (8      | ) |      |   | (204    | )
|                                  |  |      |         |   |      |   |         |  
|Net loss                          |  | $    | (24,433 | ) |      | $ | (15,100 | )
|                                  |  |      |         |   |      |   |         |  



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|                                                          |  |      |        |   |      |   |        |  
|--------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                                          |  | 2008 |        |   | 2007 |  
|Thomas Properties share of net loss                      |  | $    | (3,388 | ) |      | $ | (3,790 | )
|Intercompany eliminations                                 |  |      | 823    |   |      |   | 621    |  
|                                                          |  |      |        |   |      |   |        |  
|Equity in net loss of unconsolidated real estate entities |  | $    | (2,565 | ) |      | $ | (3,169 | )
|                                                          |  |      |        |   |      |   |        |  

Aggregate revenue, operating and other expenses, interest expense and depreciation and
amortization for unconsolidated real estate entities for the three months ended March 31, 2008 compared to the three months ended March 31, 2007 increased primarily due to the acquisition of the Austin Portfolio Properties in June 2007.

Liquidity and Capital Resources

Analysis of liquidity and capital resources

As of March 31, 2008, we have unrestricted cash and
cash equivalents of $107.4 million. Our management believes that our company will have sufficient capital to satisfy our liquidity needs over the next 12 months through working capital and net cash provided by operations. We expect to meet our
long-term liquidity requirements, including property and undeveloped land acquisitions and additional future development and redevelopment activity, through cash flow from operations, additional secured and unsecured long-term borrowings,
dispositions of non-strategic assets, and the potential issuance of common units of our Operating Partnership or additional debt, common or preferred equity securities, including convertible securities. We do not have any present intent to reserve
funds to retire existing debt upon maturity. We will instead seek to refinance this debt at maturity or retire the long-term debt through the issuance of securities, as market conditions permit.

As of March 31, 2008, we have an unfunded capital commitment to our joint venture with CalSTRS of $7.4 million and to the green fund, an investment
fund formed by us, CalSTRS and other institutional investors, of $50.0 million. Our requirement to fund all or a portion of these commitments is subject to our identifying properties to acquire that are mutually acceptable to us, CalSTRS and other
institutional investors.

We intend to declare and pay annual dividends on our common stock. The availability of funds to pay dividends is
impacted by property-level restrictions on cash flows. Two Commerce Square is subject to debt financing covenants containing lock-box arrangements. Funds generated by Two Commerce Square cannot be distributed to us under the terms of the lock-box
arrangements established for the existing lenders for the property. In addition, all of our properties held in our joint venture with CalSTRS are subject to debt financing with a lockbox arrangement. With respect to our joint venture properties, we
do not control decision making with respect to these properties, and may not be able to obtain monies from these properties even if funds are available for distribution to us. In addition, future financing arrangements we may enter into may contain
restrictions on our use of cash generated from our properties.

Development and Redevelopment Projects

We currently own interests in four development projects and our joint venture with CalSTRS includes six redevelopment properties and two development
sites. The construction of Murano, a 302-unit high-rise residential condominium project, commenced in the second quarter of 2006. We expect that approximately 50% of the condominium units will be completed in the second quarter of 2008 and the
remaining units are expected to be completed in the third quarter of 2008. We commenced construction of two buildings totaling approximately 192,000 square feet at Four Points Centre in the second quarter of 2007. We expect construction to be
substantially complete in the third quarter of 2008. We are presently entitling approximately 14.4 acres in Los Angeles, California, for office, production facility, residential and retail uses. The project, called Metro Studio@Lankershim, will
include approximately 1.5 million square feet. Upon completion of entitlements, we expect to enter into a long-term ground lease with the Los Angeles Metropolitan Transportation Authority, which owns the land. Also, we have been engaged by
NBC/Universal to entitle 124 acres located adjacent to Universal City in Los Angeles for the development of a residential and retail town center. We anticipate completing the development of these projects as market feasibility permits. We also
anticipate seeking to mitigate development risk by obtaining significant pre-leasing and guaranteed maximum cost construction contracts. There can be no assurance we will be able to successfully implement these risk mitigation measures.

The amount and timing of costs associated with our development and redevelopment projects is inherently uncertain due to market and economic
conditions. We presently intend to fund development and redevelopment expenditures primarily through construction or refurbishment financing. In 2006, we refinanced the loan for City National Plaza, which provides proceeds to cover the estimated
future redevelopment costs for this property. Construction of the Murano is financed in part with a $142.5 million construction loan. Repayment of this loan is expected to be made with proceeds from the sales of condominium units. The development at
Four Points is financed in part with a $42.7 million construction loan. Presently, we have not obtained construction financing for the development at Campus El Segundo. If we finance these development projects through construction loans and are



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unable to obtain permanent financing on advantageous terms or at all, we would need to fund these obligations from cash flow from operations or seek
alternative capital sources. If unsuccessful, this could adversely impact our financial condition and results of operations and impair our ability to satisfy our debt service obligations. If we are successful in obtaining construction or
refurbishment financing and permanent financing, we anticipate that the corresponding interest costs would represent both a significant use of our cash flow and a material component of our results of operations.

Leasing, Tenant Improvement and Capital Needs

In
addition to our development and redevelopment projects, we also own One Commerce Square and a majority interest in Two Commerce Square. These properties are substantially leased and have significant stabilized cash flows. These properties require
routine capital maintenance in the ordinary course of business. The properties also require that we incur expenditures for leasing commissions and tenant improvement costs. The level of these expenditures varies from year to year based on several
factors, including lease expirations. Based upon historical expenditure levels, the leasing activity for the properties and the current rent roll, we anticipate incurring expenditures of approximately $2.7 million in capital improvements, tenant
improvements, and leasing costs for the One Commerce Square and Two Commerce Square properties collectively during 2008 through 2010.

Annual capital expenditures may fluctuate in response to the nature, extent and timing of improvements required to maintain our properties. Tenant improvements and leasing costs may also fluctuate depending upon other factors, including the
type of property involved, the existing tenant base, terms of leases, types of leases, the involvement of leasing agents and overall market conditions.

Contractual Obligations

A summary of our contractual obligations at March 31, 2008 is as
follows (in thousands):



|                                                         |  |                        |        |      |   |         |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|-------------------------------------------------------- |  | ---------------------- | ------ | ---- | - | ------- |  | ---- | ------ | ---- | - | ---------- |  | ----- | ------ |  | - | ------- |  | - | -------
|                                                         |  | Payments Due by Period
|                                                         |  | Remainderof 2008       |        | 2009 |   | 2010    |  | 2011 |        | 2012 |   | Thereafter |  | Total
|Regularly scheduled principal payments                   |  | $                      | 2,400  |      | $ | 500     |  | $    | 492    |      | $ | 1,971      |  | $     | 2,160  |  | $ | 5,826   |  | $ | 13,349 
|Balloon principal payments due at maturity               |  |                        | 23,475 |      |   | 102,972 |  |      | 52,479 |      |   |           |  |       |       |  |   | 227,655 |  |   | 406,581
|Interest paymentsfixed rate debt                        |  |                        | 15,928 |      |   | 21,786  |  |      | 14,918 |      |   | 14,290     |  |       | 14,205 |  |   | 24,806  |  |   | 105,933
|Interest paymentsvariable rate debt (1)                 |  |                        |       |      |   |        |  |      |       |      |   |           |  |       |       |  |   |        |  |   |       
|Capital commitments (2)                                  |  |                        | 15,382 |      |   | 19,130  |  |      | 17,524 |      |   | 8,333      |  |       |       |  |   |        |  |   | 60,369 
|Operating lease (3)                                      |  |                        | 95     |      |   | 53      |  |      |       |      |   |           |  |       |       |  |   |        |  |   | 148    
|FIN 48 obligations, including interest and penalties (4) |  |                        |       |      |   |        |  |      |       |      |   |           |  |       |       |  |   |        |  |   |       
|                                                         |  |                        |        |      |   |         |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|Total                                                    |  | $                      | 57,280 |      | $ | 144,441 |  | $    | 85,413 |      | $ | 24,594     |  | $     | 16,365 |  | $ | 258,287 |  | $ | 586,380
|                                                         |  |                        |        |      |   |         |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        



|(1) | As of March 31, 2008, 67.1% of our debt was contractually fixed. The information in the table above reflects our projected interest rate obligations for the fixed-rate payments
based on the contractual interest rates and scheduled maturity dates. The remaining 32.9% of our debt consists of variable debt that bears interest at variable rates based on the prime rate or LIBOR plus a spread that ranges from 1.5% to 4.0%. The
interest payments on the variable rate debt have not been reported in the table above because we cannot reasonably determine the future interest obligations on our variable rate debt as we cannot predict what prime and LIBOR rates will be in the
future. As of March 31, 2008, the one-month LIBOR was 2.70% and the prime rate was 5.25%
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Capital commitments of our company and consolidated subsidiaries include approximately $2.5 million of tenant improvement allowances and leasing commissions for certain tenants in
One Commerce Square and Two Commerce Square and building improvements of $0.2 million for One Commerce Square. As part of the sale of two parcels at El Segundo in 2006, we were obligated to fund $3 million in infrastructure improvements. We expect
that the remaining obligation of approximately $0.3 million will be incurred in 2009. We have an unfunded capital commitment of $7.4 million to TPG/CalSTRS, which we estimate we will fund $5.2 million in 2008 and $2.2 million in 2009. Additionally,
we have an unfunded capital commitment of $50.0 million to the green fund, an investment fund formed by us, CalSTRS and other institutional investors which we estimate we will fund $8.3 million, $16.7 million, $16.7 million, and $8.3 million in
2008, 2009, 2010, and 2011, respectively, subject to the identification and approval of projects. These cash requirements could be reduced by contributions to the green fund by us of assets in which we have an interest.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Represents the future minimum lease payments on our long-term operating lease for our corporate office at City National Plaza. The table does not reflect available maturity
extension options.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | The FIN 48 obligations in the table above should represent amounts associated with uncertain tax positions related to temporary differences. However, reasonable estimates cannot be
made about the amount and timing of payment for these obligations. As of March 31, 2008, $16.3 million of unrecognized tax benefits have been recorded as liabilities in accordance with FIN 48, and we are uncertain as to if and when such amounts
may be settled. We have recorded $877,000 of accrued interest with respect to unrecognized tax benefits. We have not recorded any penalties with respect to unrecognized tax benefits.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Off-Balance Sheet Arrangements  Indebtedness of Unconsolidated Real Estate Entities

As of March 31, 2008, our company had investments in entities owning unconsolidated properties with stated ownership percentages ranging from 6.25%
to 50.0%. We do not have control of these entities, and none of the entities are considered variable interest entities. Therefore, we account for them using the equity method of accounting. The table below summarizes the outstanding debt for the
properties as of March 31, 2008 (in thousands). We have not guaranteed any of the debt.



|                                      |  |               |  |   |                 |      |              |  |   |           |  |          
|------------------------------------- |  | ------------- |  | - | --------------- | ---- | ------------ |  | - | --------- |  | ---------
|                                      |  | Interest Rate |  |   | PrincipalAmount |      | MaturityDate
|City National Plaza (1)               |  |               |  |   |                 |      |              |  |   |           |  |          
|Senior mortgage loan                  |  | LIBOR         |  | + |                 | 1.07 | % (2)(3)     |  | $ | 355,300   |  | 7/14/2008
|Senior mezzanine loan-Note A (4)      |  | LIBOR         |  | + |                 | 2.59 | % (2)(3)     |  |   | 48,938    |  | 7/14/2008
|Senior mezzanine loan-Note B          |  | LIBOR         |  | + |                 | 1.90 | % (2)(3)     |  |   | 24,000    |  | 7/14/2008
|Senior mezzanine loan-Note C          |  | LIBOR         |  | + |                 | 2.25 | % (2)(3)     |  |   | 24,000    |  | 7/14/2008
|Senior mezzanine loan-Note D          |  | LIBOR         |  | + |                 | 2.50 | % (2)(3)     |  |   | 24,000    |  | 7/14/2008
|Senior mezzanine loan-Note E          |  | LIBOR         |  | + |                 | 3.05 | % (2)(3)     |  |   | 22,700    |  | 7/14/2008
|Junior mezzanine loan (5)             |  | LIBOR         |  | + |                 | 5.00 | % (2)(3)     |  |   | 41,947    |  | 7/14/2008
|CityWestPlace                         |  |               |  |   |                 |      |              |  |   |           |  |          
|Fixed                                 |  |               |  |   |                 | 6.16 | %            |  |   | 121,000   |  | 7/6/2016 
|Floating                              |  | LIBOR         |  | + |                 | 1.25 | % (2)(6)     |  |   | 82,400    |  | 7/1/2008 
|Floating                              |  | LIBOR         |  | + |                 | 1.25 | % (6)        |  |   | 8,169     |  | 7/1/2008 
|San Felipe Plaza                      |  |               |  |   |                 |      |              |  |   |           |  |          
|Mortgage loan-Note A                  |  |               |  |   |                 | 5.28 | %            |  |   | 101,500   |  | 8/11/2010
|Mortgage loan-Note B (7)              |  | LIBOR         |  | + |                 | 3.00 | %            |  |   | 12,624    |  | 8/11/2010
|2500 City West                        |  |               |  |   |                 |      |              |  |   |           |  |          
|Mortgage loan-Note A                  |  |               |  |   |                 | 5.28 | %            |  |   | 70,000    |  | 8/11/2010
|Mortgage loan-Note B (8)              |  | LIBOR         |  | + |                 | 3.00 | %            |  |   | 10,363    |  | 8/11/2010
|Brookhollow Central I, II and III     |  |               |  |   |                 |      |              |  |   |           |  |          
|Mortgage loan-Note B                  |  | LIBOR         |  | + |                 | 0.44 | % (2)(3)     |  |   | 24,154    |  | 8/9/2008 
|Mortgage loan-Note C                  |  | LIBOR         |  | + |                 | 4.25 | % (2)(3)     |  |   | 21,600    |  | 8/9/2008 
|Mortgage loan-Note D                  |  | LIBOR         |  | + |                 | 4.86 | % (2)(3)     |  |   | 16,746    |  | 8/9/2008 
|Four Falls Corporate Center           |  |               |  |   |                 |      |              |  |   |           |  |          
|Mortgage loan-Note A                  |  |               |  |   |                 | 5.31 | %            |  |   | 42,200    |  | 3/6/2010 
|Mortgage loan-Note B (9) (10)         |  | LIBOR         |  | + |                 | 3.25 | % (2)(11)    |  |   | 9,867     |  | 3/6/2010 
|Oak Hill Plaza/Walnut Hill Plaza      |  |               |  |   |                 |      |              |  |   |           |  |          
|Mortgage loan-Note A                  |  |               |  |   |                 | 5.31 | %            |  |   | 35,300    |  | 3/6/2010 
|Mortgage loan-Note B (10) (12)        |  | LIBOR         |  | + |                 | 3.25 | % (2)(11)    |  |   | 9,152     |  | 3/6/2010 
|2121 Market Street mortgage loan (13) |  |               |  |   |                 | 6.05 | %            |  |   | 19,048    |  | 8/1/2033 
|Reflections I mortgage loan           |  |               |  |   |                 | 5.23 | %            |  |   | 22,438    |  | 4/1/2015 
|Reflections II mortgage loan          |  |               |  |   |                 | 5.22 | %            |  |   | 9,348     |  | 4/1/2015 
|Centerpointe I & II                   |  |               |  |   |                 |      |              |  |   |           |  |          
|Senior mortgage loan                  |  | LIBOR         |  | + |                 | .60  | % (2)(19)    |  |   | 55,000    |  | 1/31/2009
|Mezzanine loan (Note A) (14) (15)     |  | LIBOR         |  | + |                 | 1.51 | % (2)(19)    |  |   | 13,085    |  | 1/31/2009
|Mezzanine loan (Note B) (14) (16)     |  | LIBOR         |  | + |                 | 4.79 | % (2)(19)    |  |   | 11,315    |  | 1/31/2009
|Mezzanine loan (Note C) (14) (17)     |  | LIBOR         |  | + |                 | 3.26 | % (2)(19)    |  |   | 11,600    |  | 1/31/2009
|Fair Oaks Plaza (18)                  |  |               |  |   |                 | 5.52 | %            |  |   | 44,300    |  | 2/9/2017 
|Austin Portfolio Properties:          |  |               |  |   |                 |      |              |  |   |           |  |          
|San Jacinto Center                    |  |               |  |   |                 |      |              |  |   |           |  |          
|Mortgage loan-Note A                  |  |               |  |   |                 | 6.05 | %            |  |   | 43,000    |  | 6/11/2017
|Mortgage loan-Note B                  |  |               |  |   |                 | 6.05 | %            |  |   | 58,000    |  | 6/11/2017
|Frost Bank Tower                      |  |               |  |   |                 |      |              |  |   |           |  |          
|Mortgage loan-Note A                  |  |               |  |   |                 | 6.06 | %            |  |   | 61,300    |  | 6/11/2017
|Mortgage loan-Note B                  |  |               |  |   |                 | 6.06 | %            |  |   | 88,700    |  | 6/11/2017
|One Congress Plaza                    |  |               |  |   |                 |      |              |  |   |           |  |          
|Mortgage loan-Note A                  |  |               |  |   |                 | 6.08 | %            |  |   | 57,000    |  | 6/11/2017
|Mortgage loan-Note B                  |  |               |  |   |                 | 6.08 | %            |  |   | 71,000    |  | 6/11/2017
|One American Center                   |  |               |  |   |                 |      |              |  |   |           |  |          
|Mortgage loan-Note A                  |  |               |  |   |                 | 6.03 | %            |  |   | 50,900    |  | 6/11/2017
|Mortgage loan-Note B                  |  |               |  |   |                 | 6.03 | %            |  |   | 69,100    |  | 6/11/2017
|300 West 6th Street                   |  |               |  |   |                 | 6.01 | %            |  |   | 127,000   |  | 6/11/2017
|Research Park Plaza I & II            |  |               |  |   |                 |      |              |  |   |           |  |          
|Senior mortgage loan                  |  | LIBOR         |  | + |                 | .55  | % (2)(19)    |  |   | 23,560    |  | 6/9/2009 
|Mezzanine loan                        |  | LIBOR         |  | + |                 | 2.01 | % (2)(19)    |  |   | 27,940    |  | 6/9/2009 
|Stonebridge Plaza II                  |  |               |  |   |                 |      |              |  |   |           |  |          
|Senior mortgage loan                  |  | LIBOR         |  | + |                 | .63  | % (2)(19)    |  |   | 19,800    |  | 6/9/2009 
|Mezzanine loan                        |  | LIBOR         |  | + |                 | 1.76 | % (2)(19)    |  |   | 17,700    |  | 6/9/2009 
|Austin Bank Term Loan                 |  | LIBOR         |  | + |                 | 3.25 | % (20)(21)   |  |   | 192,500   |  | 6/1/2013 
|Revolving Credit Facility             |  | LIBOR         |  | + |                 | 3.25 | % (22)       |  |   |          |  | 6/1/2012 
|Subtotal  Austin, TX Portfolio       |  |               |  |   |                 |      |              |  | $ | 907,500   |  |          
|                                      |  |               |  |   |                 |      |              |  |   |           |  |          
|                                      |  |               |  |   |                 |      |              |  | $ | 2,199,594 |  |          
|                                      |  |               |  |   |                 |      |              |  |   |           |  |          



The LIBOR rate for the loans above was 2.7% at March 31, 2008.



|(1) | The City National Plaza loans collectively have maximum borrowings of $580 million. The senior mortgage loan and Notes B, C, D and E under the senior mezzanine loans are subject to
exit fees equal to .25% of the loan amounts. Note A under the senior mezzanine loan and the junior mezzanine loan are subject to an exit fee equal to .50% of the loan amount. Under certain circumstances all of the exit fees will be waived. All of
the City National Plaza loans have two one-year extension options at our election. We have notified the lender of our intent to exercise the first option.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(2) | The partnership that owns each property has purchased interest rate cap agreements for the funded portion of these loans.
|--- | -------------------------------------------------------------------------------------------------------------------------



|(3) | These loans have two one-year extension options at our election. We have notified the lender of our intent to exercise the first option.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------



|(4) | TPG/CalSTRS may borrow an additional $21.0 million.
|--- | ---------------------------------------------------



|(5) | TPG/CalSTRS may borrow an additional $18.0 million.
|--- | ---------------------------------------------------



|(6) | These loans have three one-year extension options at our election. We have notified the lender of our intent to exercise the first option.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------



|(7) | TPG/CalSTRS may borrow an additional $3.5 million under this loan.
|--- | ------------------------------------------------------------------



|(8) | TPG/CalSTRS may borrow an additional $5.1 million under this loan.
|--- | ------------------------------------------------------------------



|(9) | TPG/CalSTRS may borrow an additional $3.0 million under this loan.
|--- | ------------------------------------------------------------------



|(10) | These loans are subject to exit fees equal to 1% of the loan amounts, however, under certain circumstances the exit fees will be waived.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------



|(11) | These loans bear interest at the greater of the one month LIBOR or 2.25% per annum, plus the applicable margin. As of March 31, 2008, one month LIBOR exceeds
2.25%, per annum.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(12) | TPG/CalSTRS may borrow an additional $4.2 million under this loan.
|---- | ------------------------------------------------------------------





|(13) | The 2121 Market Street mortgage loan is prepayable without penalty after May 1, 2013, at which date the outstanding principal amount of this loan will be approximately $17.2
million. The interest rate will increase to the greater of 8.1% or the treasury rate plus 2.0% on August 1, 2013. Any amounts over the initial interest rate may be deferred to the extent excess cash is not available to make such payments.
Provided there is no deferred interest, the loan balance will be fully amortized on August 1, 2033, the maturity date of the loan.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(14) | The loans are subject to exit fees of up to 1.0% through February 9, 2009. The Centerpointe I & II senior mortgage loan bears interest at a rate equal to one month LIBOR
plus 0.60%. The mezzanine loans bear interest at a rate such that the weighted average of the rate on these loans and the rate on the senior mortgage loan secured by Centerpointe I & II equals LIBOR plus 1.59% per annum. The effective
interest rate on the mezzanine loans as of March 31, 2008 was 6.63% per annum. The weighted average interest rate on all of the loans was 4.29% per annum. All of these loans have three one-year extension options at our election.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(15) | TPG/CalSTRS may borrow an additional $11.9 million under this loan.
|---- | -------------------------------------------------------------------



|(16) | TPG/CalSTRS may borrow an additional $10.3 million under this loan.
|---- | -------------------------------------------------------------------



|(17) | TPG/CalSTRS may borrow an additional $10.6 million under this loan.
|---- | -------------------------------------------------------------------



|(18) | This loan may be defeased in full after three years, or prepaid in full after 9 years and 8 months.
|---- | ---------------------------------------------------------------------------------------------------



|(19) | These loans have three one-year extension options at our election.
|---- | ------------------------------------------------------------------



|(20) | The Austin Portfolio Joint Venture entered into an interest rate collar agreement for 50% of the loan balance, or $96.25 million, in which we bought a cap and sold a floor.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(21) | The margin above LIBOR on the bank term loan is subject to adjustment under certain circumstances. The term loan is secured by mortgages on three of the Austin Portfolio Properties,
a pledge of equity interests in the remaining seven Austin Portfolio Properties and guarantees of certain other Austin Portfolio Properties.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(22) | The Austin Portfolio Joint Venture has obtained a $100 million secured revolving credit commitment to fund future capital requirements, bearing interest at LIBOR plus 3.25%. The
margin above LIBOR on this facility is subject to adjustment under certain circumstances. As of March 31, 2008, this revolving credit facility was undrawn.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







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Cash Flows

Comparison of three months ended March 31, 2008 to three months ended March 31, 2007

Cash and cash equivalents
were $107.4 million as of March 31, 2008 and $53.7 million as of March 31, 2007.

Operating Activities - Net cash (used in)
provided by operating activities decreased by $10.9 million to $(8.5) million for the three months ended March 31, 2008 compared to $2.4 million for the three months ended March 31, 2007. The decrease was primarily the result of a decrease
in non cash items of $2.5 million primarily related to the recognition of deferred gain on infrastructure costs incurred related to the sale of a 14.1 acre parcel at Campus El Segundo in 2006, and a change in assets and liabilities of $(8.8) million
primarily related to an increase in payments made for accounts payable, and year-end accrued expenses and bonuses, offset by an increase in net income of $474,000, from $(255,000) for the three months ended March 31, 2007 to $219,000 for the
three months ended March 31, 2008.

Investing Activities - Net cash used in investing activities increased by $18.5 million to $32.3
million for the three months ended March 31, 2008 compared to $13.8 million for the three months ended March 31, 2007. The increase was primarily the result of an increase in real estate improvements of $20.1 million.

Financing Activities - Net cash provided by financing activities increased by $20.8 million to $21.5 million for the three months ended March 31,
2008 compared to $766,000 for the three months ended March 31, 2007. The increase was primarily the result of draws on the Murano construction loan of approximately $18.0 million.

Inflation

Substantially all of our office leases provide for tenants to reimburse us for increases
in real estate taxes and operating expenses related to the leased space at the applicable property. In addition, many of the leases provide for increases in fixed base rent. We believe that inflationary increases may be partially offset by the
contractual rent increases and expense reimbursements as described above. We have one multi-family residential rental property and are in construction on Murano, a high-rise residential tower in Philadelphia. The existing residential property is
located in the Philadelphia central business district and subject to short-term leases. Inflationary increases can often be offset by increased rental rates, however, a weak economic environment may restrict our ability to raise rental rates.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

A primary market risk faced by our company is interest rate risk. Our strategy is to match as closely as possible the expected holding periods and income streams of our assets with the terms of our debt. In general, we use floating rate
debt on assets with higher growth prospects and less stability to their income streams. Correspondingly, with respect to stabilized assets with lower growth rates, we will generally use longer-term fixed-rate debt. As of March 31, 2008, our
company had $138.3 million of outstanding consolidated floating rate debt, which is not subject to an interest rate cap.

The
unconsolidated real estate entities have total debt of $2.2 billion, of which $1.1 billion bears interest at floating rates. As of March 31, 2008, interest rate caps have been purchased for $1.1 billion of the floating rate loans.



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Our fixed and variable rate consolidated long-term debt at March 31, 2008 consisted of the following
(in thousands):



|                               |  |            |         |   |               |   |         |       |  |   |         |  
|------------------------------ |  | ---------- | ------- | - | ------------- | - | ------- | ----- |  | - | ------- | -
|Year of Maturity               |  | Fixed Rate |         |   | Variable Rate |   |         | Total | 
|2008                           |  | $          | 2,400   |   |               | $ | 23,475  |       |  | $ | 25,875  |  
|2009                           |  |            | 4,400   |   |               |   | 99,072  |       |  |   | 103,472 |  
|2010                           |  |            | 37,205  |   |               |   | 15,766  |       |  |   | 52,971  |  
|2011                           |  |            | 1,971   |   |               |   |        |       |  |   | 1,971   |  
|2012                           |  |            | 2,160   |   |               |   |        |       |  |   | 2,160   |  
|Thereafter                     |  |            | 233,481 |   |               |   |        |       |  |   | 233,481 |  
|                               |  |            |         |   |               |   |         |       |  |   |         |  
|Total                          |  | $          | 281,617 |   |               | $ | 138,313 |       |  | $ | 419,930 |  
|                               |  |            |         |   |               |   |         |       |  |   |         |  
|Weighted average interest rate |  |            | 7.6     | % |               |   | 6.7     | %     |  |   | 7.3     | %

We utilize sensitivity analyses to assess the potential effect of our variable rate debt. At
March 31, 2008, our variable rate long-term debt represents 11.2% of our total long-term debt. If interest rates were to increase by 75 basis points, or by approximately 10% of the weighted average variable rate at March 31, 2008, the net
impact would be increased interest costs of $1.0 million per year.

As of March 31, 2008, the fair value of our mortgage and other
secured loans and unsecured loan aggregate $431.8 million million, compared to the aggregate carrying value of $419.9 million.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Evaluation of Disclosure Controls and
Procedures

We have adopted and maintain disclosure controls and procedures that are designed to ensure that information required to be
disclosed in the reports that we file or submit under the Securities Exchange Act, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities
and Exchange Commission (SEC) and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired
control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b), promulgated by the SEC under the Exchange Act, we have carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized,
and reported within the time periods specified in the SECs rules and forms.

Internal Controls over Financial Reporting

There was no change in our internal control over financial reporting as defined in Rules 13a-15(f) or 15(d)-15(f) under the Exchange Act that occurred
during the three months ended March 31, 2008 that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting. From time to time, we may make changes in our companys internal control
processes in the future.

PART II. OTHER INFORMATION



|ITEM 1A. | RISK FACTORS
|-------- | ------------

Risks Related to Our Properties and Our Business

We generate a significant portion of our revenues as a result of our relationships with CalSTRS. If we were to lose these relationships, our
financial results and growth prospects would be significantly negatively affected.

Our relationships with CalSTRS are a significant
factor in our ability to achieve our intended business growth. Our separate account and joint venture relationships with CalSTRS, including our Austin Portfolio Joint Venture in which we invested through our joint venture with CalSTRS, provide us
with substantial fee revenues. For the three months ended March 31, 2008, approximately 28.2% of our revenue has been derived from fees earned from these relationships. We expect in the future to earn fee revenues from the Green Fund as a
result of CalSTRS investment in that partnership.



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We cannot assure you that our relationships with CalSTRS will continue and we may not be able to replace
these relationships with other strategic alliances that would provide comparable revenues. Our interest in TPG/CalSTRS is subject to a buy-sell provision, and is subject to purchase by CalSTRS upon the occurrence of certain events. Under the
buy-sell provision either our Operating Partnership or CalSTRS can initiate a buy-out by delivering a notice to the other specifying a purchase price for all the joint ventures assets; the other venture partner then has the option to sell its
joint venture interest or purchase the interest of the initiating venture partner. The purchase price is based on what each venture partner would receive on liquidation if the joint ventures assets were sold for the specified price and the
joint ventures liabilities paid and the remaining assets distributed to the joint venture partners. In addition, CalSTRS has the ability to initiate this provision upon an event of default by us under the joint venture agreement or related
management and development agreements or upon bankruptcy of our Operating Partnership, or upon the death or disability of either James A. Thomas, our Chairman, President and CEO, or John R. Sischo, one of our Executive Vice Presidents, or the
failure of either of them to devote the necessary time to perform their duties (unless replaced by an individual approved by CalSTRS) (a Buyout Default), or upon any transfer of stock of our company or limited partnership units in our
Operating Partnership resulting in Mr. Thomas, his immediate family and controlled entities owning less than 30% of our securities entitled to vote for the election of directors. Our Operating Partnership has the ability to initiate the
buy-sell provision upon an event of default of CalSTRS, such as a failure to contribute capital in accordance with capital calls. Upon the occurrence of a Buyout Default, the non-defaulting member may elect to purchase the other members joint
venture interest based on a three percent discount to the appraised fair market value.

Most of our fee arrangements under our separate
account relationship with CalSTRS are terminable on 30 days notice. Termination of either our joint venture or separate account relationship with CalSTRS could adversely affect our revenue and profitability and our ability to achieve our
business plan by reducing our fee income and access to co-investment capital to acquire additional properties.

Our joint venture investments may be
adversely affected by our lack of control or input on decisions or shared decision-making authority or disputes with our co-venturers.

We hold interests in each of our operating properties in a joint venture or partnership. As a result, we do not exercise sole decision-making authority regarding the property, joint venture or other entity, including with respect to cash
distributions or the sale of the property. Furthermore, we expect to co-invest in the future through other partnerships, joint ventures or other entities, acquiring non-controlling interests or in sharing responsibility for managing the affairs of a
property, partnership or joint venture. Investments in partnerships, joint ventures or other entities may, under certain circumstances, involve risks including partners who may have economic or other business interests or goals which are
inconsistent with our business interests or goals and may be in a position to take actions contrary to our policies or objectives. These investments may also have the risk of impasses on significant decisions, because neither we nor our partner or
co-venturer would have full control over the partnership or joint venture. Disputes between us and our partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from
focusing their full time and effort on our business. In addition, under the principles of agency and partnership law, we may in certain circumstances be liable for the actions of our third-party partners or co-venturers such as if a partner or
co-venturer were to become bankrupt and default on its reimbursement and contribution obligations to us, were to subject property owned by the partnership or joint venture to liabilities in excess of those contemplated by the partnership or joint
venture agreement or were to incur debts or liabilities on behalf of the partnership or joint venture in excess of the authority otherwise granted by the partnership or joint venture agreement. In some joint ventures or other investments we make, if
the entity in which we invest is a limited partnership, we have acquired and may acquire in the future all or a portion of our interest in such partnership as a general partner. In such event, we may be liable for all the liabilities of the
partnership, although we attempt to limit such liability to our investment in the partnership by investing through a subsidiary.

Our joint venture
partners have rights under our joint venture agreements that could adversely affect us.

As of March 31, 2008, we hold interests in
22 of our properties through TPG/CalSTRS, 10 of which are held indirectly through TPG/CalSTRS interest in the Austin Portfolio Joint Venture. TPG/CalSTRS requires a unanimous vote of the joint ventures management committee on certain
major decisions, including approval of annual business plans and budgets, financings and refinancings, and additional capital calls not in compliance with an approved annual plan. All other decisions, including sales of properties, are made based
upon a majority decision of the management committee, which currently consists of two members appointed by CalSTRS and one member appointed by us. Thus CalSTRS has the ability to control certain decisions for the joint venture that may result in an
outcome contrary to our interests. In addition to CalSTRS ability to control certain decisions relating to the joint venture, our joint venture agreement with CalSTRS includes provisions



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negotiated for the benefit of CalSTRS that could adversely affect us. Unless otherwise determined by the management committee of the joint venture, we are
required to use diligent efforts to sell each joint venture property generally within five years of that property reaching stabilization, except that the holding period for Reflections I and Reflections II, both of which are 100% leased, will be
separately determined by the joint venture management committee. With respect to these two properties, we are required to perform a hold/sell analysis at least annually, and make a recommendation to the management committee regarding the appropriate
holding period, which could be less than five years. We have a right of first offer to purchase a joint venture property upon a required sale at a price we propose, and if CalSTRS accepts our offer we must close within 90 days. If we do not exercise
the right of first offer and we subsequently fail to effect a sale by the end of the specified holding period, CalSTRS has the right to assume control of the sale process. This may require us to sell a substantial portion of our assets at an
inopportune time, or for prices that are lower than could be achieved if we had more flexibility in the timing for effecting sales.

TPG/CalSTRS is the general partner of the partnership that owns ten properties in Austin, Texas. The limited partners in this partnership have certain approval rights similar to CalSTRS rights described above. These rights include but
are not limited to the right to approve annual business plans and budgets, financings and refinancings, sales of properties, additional capital calls not in compliance with an approved annual plan, and agreements with affiliates. The limited
partners also have the right to remove the general partner under certain circumstances. These rights could adversely affect us.

We may not be able to
find syndication investors for the Austin Portfolio Joint Venture.

TPG/CalSTRS has entered into a partnership agreement and syndication
agreement with Lehman in relation to the Austin Portfolio Joint Venture that requires us to assist Lehman in syndicating a significant portion of Lehmans current equity position by June 1, 2008. As of March 31, 2008, 33% of
Lehmans original equity in the joint venture had been sold to an unrelated institutional investor. There is a likely risk that we and Lehman will be unable to successfully sell Lehmans remaining equity to investors during the syndication
period, or that Lehman will extend the syndication period. The consequences of a failed syndication, which depend on Lehmans ability to sell any of their equity subsequent to June 1, 2008, and the consideration they receive, are that certain
expected fees on any unsold equity, such as a promote and administration fees, could be reduced or eliminated for us, and Lehman will retain control rights with respect to major decisions of the joint venture.

We depend on significant tenants, and their failure to pay rent could seriously harm our operating results and financial condition.

As of March 31, 2008, the 20 largest tenants for properties in which we hold an ownership interest collectively leased 35.7% of the rentable square
feet of space, representing 58.1% of the total annualized rent generated by these properties. Consolidated Rail Corporation, together with its wholly-owned subsidiary New York Central Lines, LLC (Conrail), leases the substantial majority
of space at Two Commerce Square and accounted for approximately 14.5% of the total annualized rent generated by all of our consolidated and unconsolidated properties as of March 31, 2008. In addition, Conrails rental revenues and tenant
reimbursements accounted for approximately 27.6% of total consolidated revenue for the three months ended March 31, 2008.

We rely on
rent payments from our tenants as a source of cash to finance our business. Any of our tenants may experience a downturn in its business that may weaken its financial condition. As a result, a tenant may delay lease commencement, fail to make rental
payments when due, decline to extend a lease upon its expiration, become insolvent or declare bankruptcy. Any tenant bankruptcy or insolvency, leasing delay or failure to make rental payments when due could result in the termination of the
tenants lease and material losses to our company.

In particular, if any of our significant tenants becomes insolvent, suffers a
downturn in its business and decides not to renew its lease or vacates a property, it may seriously harm our business. Failure on the part of a tenant to comply with the terms of a lease may give us the right to terminate the lease, repossess the
applicable property and enforce the payment obligations under the lease. In those circumstances, we would be required to find another tenant. We cannot assure you that we would be able to find another tenant without incurring substantial costs, or
at all, or that if another tenant were found, we would be able to enter into a new lease on favorable terms. We are not aware of an insolvency issue with any of our significant tenants.

Bankruptcy filings by or relating to one of our tenants could bar us from collecting pre-bankruptcy debts from that tenant or their property. A tenant
bankruptcy would delay our efforts to collect past due balances under the relevant leases, and could ultimately preclude full collection of these amounts. If a lease is assumed by the tenant in bankruptcy, all pre-bankruptcy amounts due under the
lease must be paid to us in full. However, if a lease is rejected by a tenant in bankruptcy, we would have only a general unsecured claim for damages. Any unsecured claim we hold against a bankrupt entity may be paid only to the extent that funds
are available and only in the same percentage as is paid to all other holders of unsecured claims. We may recover substantially less than the full value of any unsecured claims in the event of the bankruptcy of a large tenant, which would adversely
impact our financial condition.



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Our operating results depend upon the regional economies in which our properties are located and the demand for office
and other mixed-use space, and an economic downturn in these regions could harm our operating results.

Our operating and development
properties are located in three geographic regions of the United States: the West Coast, Southwest and Mid-Atlantic regions. Historically, the largest part of our revenues has been derived from our ownership and management of properties consisting
primarily of office buildings. A decrease in the demand for office space in these geographic regions, and Class A office space in particular, may have a greater adverse effect on our business and financial condition than if we owned a more
diversified real estate portfolio. We are susceptible to adverse developments in these regions and in the national office market, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics, terrorist
targeting of high-rise structures, infrastructure quality, increases in real estate and other taxes, costs of complying with government regulations or increased regulation and other factors, and oversupply of or reduced demand for office space. Some
of the regional issues we face include the more highly regulated and taxed economy of Southern California and high local and municipal taxes for our Philadelphia properties. Any adverse economic or real estate developments in a local region, or any
decrease in demand for office space resulting from the local regulatory environment, business climate or energy or fiscal problems, could adversely impact our revenue and profitability, thereby causing a significant downturn in our financial
condition, results of operations, cash flow, the trading price of our common stock and impairing our ability to satisfy our debt service obligations.

Our debt service obligations reduce cash available to fund business growth and may expose us to the risk of default under our debt obligations.

As of March 31, 2008, our total consolidated indebtedness is approximately $419.9 million. In addition, we own interests in unconsolidated entities subject to total indebtedness in the amount of $2.2 billion as
of March 31, 2008. Mortgage loans, which comprise a portion of both the consolidated and unconsolidated indebtedness, are secured by first deeds of trust in the related real property. Mezzanine loans and other secured loans are secured by our
direct or indirect ownership interest in the entity that owns the related real property. We may need to incur significant additional debt to finance future acquisition and development activities. It is possible the required payments of principal and
interest on borrowings may leave us with insufficient cash to operate our properties profitably. Our need for debt financing, our existing level of debt and the limitations imposed on us by our debt agreements could have significant adverse
consequences, including the following:



| |  |  | our cash flow may be insufficient to meet our required principal and interest payments or to pay dividends;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | we may be unable to borrow additional funds as needed or on favorable terms;
| | - |  | ----------------------------------------------------------------------------



| |  |  | we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may be unable to distribute funds from a property to our Operating Partnership or apply such funds to cover expenses related to another property;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we could be required to dispose of one or more of our properties, possibly on disadvantageous terms and/or at disadvantageous times;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we could default on our obligations and the lenders or mortgagees may foreclose on our properties that secure their loans and receive an assignment of rents and
leases;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we could violate covenants in our loan documents, including provisions that may limit our ability to further mortgage a property, make distributions, acquire
additional properties, repay indebtedness prior to a set date without payment of a premium or other pre-payment penalties, all of which would entitle the lenders to accelerate our debt obligations;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a default under any one of our mortgage loans with cross default provisions could result in a default on other indebtedness; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | because we have agreed to use commercially reasonable efforts to maintain certain debt levels to provide the ability for Mr. Thomas and entities controlled by
him to guarantee debt of $210 million, including $11 million of debt available for guarantee by Mr. Edward Fox, one of our non-employee directors, and by Mr. Richard Gilchrist, an individual formerly affiliated with Maguire Thomas
Partners, we may not be able to refinance our debt when it would otherwise be advantageous to do so or to reduce our indebtedness when our board of directors thinks it is prudent.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If any one of these events were to occur, our revenue and profitability could be adversely impacted, causing a significant downturn in our financial
condition, results of operations, cash flow, and the trading price of our common stock and impairing our ability to satisfy our debt service obligations.



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We have a substantial amount of debt which bears interest at variable rates. Our failure to hedge effectively against
interest rate changes may adversely affect our results of operations.

As of March 31, 2008, $138.3 million of our consolidated
debt and $1.1 billion of our unconsolidated debt was at variable interest rates. As of March 31, 2008, interest rate caps have been purchased for $1.1 billion of the unconsolidated floating rate loans.

We intend to generally limit our exposure to interest rate volatility by using interest rate hedging arrangements and swap agreements to cap our interest
rate exposure. These arrangements involve risks, including that our hedging or swap transactions might not achieve the desired effect in eliminating the impact of interest rate fluctuations, or that counterparties may fail to honor their obligations
under these arrangements. As a result, these arrangements may not be effective in reducing our exposure to interest rate fluctuations and this could reduce our revenue, require us to modify our leverage strategy, and adversely affect our expected
investment returns.

We may be unable to complete acquisitions necessary to grow our business, and even if consummated, we may fail to successfully
operate these acquired properties.

Our planned growth strategy includes the acquisition of additional properties as opportunities
arise. We regularly evaluate approximately 20 markets in the United States for office, mixed-use and other properties for strategic opportunities. Our ability to acquire properties on favorable terms and successfully operate them is subject to
the following significant risks:



| |  |  | we may be unable to acquire a desired property because of competition from other real estate investors with more available capital, including other real estate
operating companies, real estate investment trusts and investment funds;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may be unable to generate sufficient cash from operations, or obtain the necessary debt or equity to consummate an acquisition or, if obtainable, it may not be
on favorable terms;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may need to spend more than budgeted amounts to make necessary improvements or renovations to acquired properties;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | competition from other potential acquirers may significantly increase the purchase price, even if we are able to acquire a desired property;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | agreements for the acquisition of office properties are typically subject to customary conditions to closing, including satisfactory completion of due diligence
investigations, and we may spend significant time and money on a potential acquisition we eventually decide not to pursue;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | we may acquire properties subject to liabilities without any recourse, or with only limited recourse, for unknown liabilities such as clean-up of undisclosed
environmental contamination, claims by tenants, vendors or other persons dealing with the former owners of the properties and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the
properties.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If we cannot complete property acquisitions on favorable terms, or operate acquired properties to meet our
expectations, our revenue and profitability could be adversely impacted, causing a significant downturn in our financial condition, results of operations, trading price of our common stock, and impairing our ability to satisfy our debt service
obligations.

Our real estate acquisitions may result in disruptions to our business as a result of the burden in integrating operations placed on our
management.

Our business strategy includes acquisitions and investments in real estate on an ongoing basis. These acquisitions may
cause disruptions in our operations and divert managements attention from day-to-day operations, which could impair our relationships with our current tenants and employees. In addition, if we acquire real estate by acquiring another entity,
we may be unable to effectively integrate the operations and personnel of the acquired business. In addition, we may be unable to train, retain and motivate any key personnel from the acquired business. If our management is unable to effectively
implement our acquisition strategy, we may experience disruptions to our business.



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As a result of the limited time during which we have to perform due diligence of many of our acquired properties, we
may become subject to significant unexpected liabilities and our properties may not meet projections.

When we enter into an agreement
to acquire a property or portfolio of properties, we often have limited time to complete our due diligence prior to acquiring the property. To the extent we underestimate or fail to investigate or identify risks and liabilities associated with the
properties we acquire, we may incur unexpected liabilities or the property may fail to perform as we expected. If we do not accurately assess the liabilities associated with properties prior to their acquisition, we may pay a purchase price that
exceeds the current fair value of the net identifiable assets of the acquired property. As a result, intangible assets would be required to be recorded, which could result in significant accounting charges in future periods. These charges, in
addition to the financial impact of significant liabilities that we may assume, could adversely impact our revenue and profitability, causing a significant downturn in our financial condition, results of operations, trading price of our common stock
and impairing our ability to satisfy our debt service obligations.

We may be unable to successfully complete and operate properties under development,
which would impair our financial condition and operating results.

A significant part of our business is devoted to the development of
office, mixed-use and other properties, including the redevelopment of core plus and value-add properties. Our development, construction and redevelopment activities involve the following significant risks:



| |  |  | we may be unable to obtain construction or redevelopment financing on favorable terms or at all;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | if we finance development projects through construction loans, we may be unable to obtain permanent financing at all or on advantageous terms;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may not complete development projects on schedule or within budgeted amounts;
| | - |  | --------------------------------------------------------------------------------



| |  |  | we may underestimate the expected costs and time necessary to achieve the desired result with a redevelopment project;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | we may discover structural, environmental or other feasibility issues with properties acquired as redevelopment projects following our acquisition, which may render
the redevelopment as planned not possible;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may encounter delays or refusals in obtaining all necessary zoning, land use, building, occupancy, and other required governmental permits and authorizations;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | occupancy rates and rents at newly developed or renovated properties may fluctuate depending on a number of factors, including market and economic conditions, and
may result in our investment not being profitable;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | adverse weather that damages the project or causes delays;
| | - |  | ----------------------------------------------------------



| |  |  | changes to the plans or specifications;
| | - |  | ---------------------------------------



| |  |  | shortages of materials and skilled labor;
| | - |  | -----------------------------------------



| |  |  | increases in material and labor costs;
| | - |  | --------------------------------------



| |  |  | shortages of qualified employees;
| | - |  | ---------------------------------



| |  |  | fire, flooding and other natural disasters; and
| | - |  | -----------------------------------------------



| |  |  | inability to sell or close on the sale of condominium units at Murano.
| | - |  | ----------------------------------------------------------------------

If we are not successful in our property development initiatives, it could adversely impact our revenue and profitability, causing a significant downturn
in our business, including our financial condition, results of operations, trading price of our common stock and impairing our ability to satisfy our debt service obligations. Further, our Murano project is the development of a high-rise residential
condominium building. Historically, our development and property management activities have centered on office properties. In developing a residential project, we may encounter unfamiliar problems that adversely impact our ability to complete the
project on a timely basis. During 2007 and 2008 the residential housing market has experienced a decline and we could experience difficulties in selling or closing on the sale of condominium units at Murano.

Our efforts to expand our geographic presence and diversify into other regional real estate markets may not be successful, thereby constraining our growth to markets
in which we currently operate.

We intend to expand our business to new geographic regions where we expect the development, ownership
and management of property to result in favorable risk-adjusted investment returns. In order for us to achieve economies of scale, we generally target ownership of 500,000 or more rentable square feet in a market. It may be difficult for us to
achieve this level of ownership and our initial entry into a particular market may result in higher administrative expenses for us initially. Presently, we do not possess the same level of familiarity with the development, ownership and management
of properties in locations other than the West Coast, Southwest and Mid-Atlantic regions in the United States, which could adversely affect our ability to develop properties outside these regions successfully or at all or to achieve expected
performance.



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We face significant competition, which may decrease or prevent increases of the occupancy and rental rates of our
properties.

We face significant competition from other developers, managers and owners of office and mixed-use real estate, many of
which own properties similar to ours in the same regional markets in which our properties are located. We also compete with other diversified real estate companies and companies focused solely on offering property investment management and brokerage
services. A number of our competitors are larger and better able to take advantage of efficiencies created by size, and have better financial resources, or increased access to capital at lower costs, and may be better known in regional markets in
which we compete. Our smaller size as compared to some of our competition may increase our susceptibility to economic downturns and pressures on rents. Our failure to compete successfully in our industry would materially affect our business
prospects.

We may be unable to renew leases, lease vacant space or re-lease space as leases expire resulting in increased vacancy rates, lower revenue
and an adverse effect on our operating results.

As of March 31, 2008, leases representing 12.1% and 8.0% of the rentable square
feet of the office and mixed-use properties in which we hold an ownership interest will expire in 2008 and 2009, respectively. Further, an additional 11.8.% of the square feet of these properties was available for lease as of March 31, 2008.
Rental rates on existing leases above the current market rate at some of the properties in our office and mixed-use portfolio may require us to renew or re-lease some expiring leases at lower rates. If the rental rates for our properties decrease,
our existing tenants do not renew their leases or we do not re-lease a significant portion of our available space and space for which leases will expire, our revenue and profitability could be adversely impacted, causing a significant downturn in
our financial condition, results of operations, cash flow, and the trading price of our common stock and impairing our ability to satisfy our debt service obligations. In particular, a significant amount of space at our Two Commerce Square property
has historically been leased to Conrail. This lease expires in two stages in 2008 and 2009. Conrail currently subleases substantially all of its space to a number of subtenants. While we have entered into agreements with many of the subtenants for
direct leases once their sublease term expires, the rental rates are lower than paid by the current tenant. As a result, we currently expect our aggregate revenues from this property will be lower following the expiration of the Conrail lease in
2008 and 2009. If we are unable to lease the remaining portion of the space currently leased by Conrail in Two Commerce Square prior to the expiration of the lease and assuming all subtenants to the Conrail lease exercise no renewal options and
exercise all early termination options, our rental revenue (excluding tenant reimbursements revenue) computed in accordance with accounting principles generally accepted in the United States of America (GAAP) would decrease by $1.5
million in 2008 as compared to 2007, $2.8 million in 2009 as compared to 2008, and $1.4 million in 2010 as compared to 2009.

Our growth depends on
external sources of capital, some of which are outside of our control. If we are unable to access capital from external sources, we may not be able to implement our business strategy.

Our business strategy requires us to rely significantly on third-party sources to fund our capital needs. We may not be able to obtain debt or equity on
favorable terms or at all. During the second half of 2007 and first quarter of 2008, we experienced a significant tightening of the credit markets, and we may experience difficulty refinancing existing debt or obtaining new debt to complete
acquisitions. Any additional debt we incur will increase our leverage. Any issuance of equity by our company will cause dilution to our existing stockholders, and could have a negative impact on our stock price. Our access to third-party sources of
capital depends, in part, on:



| |  |  | our current debt levels, which were $419.9 million of consolidated debt and $2.2 billion of unconsolidated debt as of March 31, 2008;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our current cash flow from operating activities, which reflects a use of cash of $8.5 million for the three months ended March 31, 2008;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our current and expected future earnings;
| | - |  | -----------------------------------------



| |  |  | the markets perception of our growth potential;
| | - |  | ------------------------------------------------



| |  |  | the market price per share of our common stock;
| | - |  | -----------------------------------------------



| |  |  | the perception of the value of an investment in our common stock; and
| | - |  | ---------------------------------------------------------------------



| |  |  | general market conditions.
| | - |  | --------------------------

If we
cannot obtain capital from third-party sources, we may not be able to acquire or develop properties when strategic opportunities exist, satisfy our debt service obligations or continue to fund operations.



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We could incur significant costs related to government regulation and private litigation over environmental matters,
including with respect to clean-up of contaminated properties and litigation from any harm caused by environmental hazards on our properties.

Under various federal, state and local environmental laws and regulations, a current or previous owner, manager or tenant of real estate may be required to investigate and clean up hazardous or toxic substances at the property, and may be
held liable to a government entity or to third parties for property damage and for investigation, clean-up and monitoring costs incurred by the parties in connection with the actual or threatened contamination. These laws typically impose clean-up
responsibility and liability without regard to fault, or whether or not the owner, operator or tenant knew of or caused the presence of the contamination. The liability under the laws may be joint and several for the full amount of the
investigation, clean-up and monitoring costs incurred or to be incurred or actions to be undertaken, although a party held jointly and severally liable may obtain contributions from other identified, solvent, responsible parties of their fair share
toward these costs to the extent such contributions are possible to obtain. These costs may be substantial, and may exceed the value of the property. The presence of contamination, or the failure to properly remediate contamination on a property may
limit the ability of the owner, operator or tenant to sell or rent that property or to borrow using the property as collateral, and may cause our investment in that property to decline in value.

Federal regulations require building owners and those exercising control over a buildings management to identify and warn of, by signs and labels,
potential hazards posed by workplace exposure to installed asbestos-containing materials and potentially asbestos-containing materials in their building. The regulations also set forth employee training, record keeping and due diligence requirements
pertaining to asbestos-containing materials and potentially asbestos-containing materials. Significant fines can be assessed for violation of these regulations. Building owners and managers may be subject to an increased risk of personal injury
lawsuits by workers and others exposed to asbestos-containing materials and potentially asbestos-containing materials as a result of these regulations. The regulations may affect the value of a building incorporating asbestos-containing materials or
potentially asbestos-containing materials that we own or manage.

We are aware of potentially environmentally hazardous or toxic materials
at three of our properties in which we hold an ownership interest. Prior to commencing construction at our Murano development property, we engaged in remediation efforts as a result of a gasoline spill that occurred on the premises in April 2002,
due to an accident caused by the former tenants agent. All soil remediation work has been completed. We are operating under a regulatory requirement to monitor the ground water to achieve four consecutive quarters of acceptable sample results.

With respect to asbestos-containing materials present at our City National Plaza and Brookhollow properties, these materials have been
removed or abated from certain tenant and common areas of the building structures. We continue to remove or abate asbestos-containing materials from various areas of the building structures and as of March 31, 2008, have accrued $2.3 million
and $0.2 million for estimated future costs of such removal or abatement at City National Plaza and Brookhollow, respectively.

Federal,
state and local laws and regulations also govern the removal, encapsulation, disturbance, handling and/or disposal of asbestos-containing materials and potentially asbestos-containing materials. These laws may impose liability for improper handling
or a release to the environment of asbestos-containing materials and potentially asbestos-containing materials. In addition, fines may be imposed on owners or managers of real properties for personal injury or improper work exposure associated with
asbestos-containing materials and potentially asbestos-containing materials.

Tax indemnification obligations that may arise in the event we or our
Operating Partnership sell an interest in either of two of our properties could limit our operating flexibility.

We and our Operating
Partnership have agreed to indemnify Mr. Thomas against adverse direct and indirect tax consequences in the event that our Operating Partnership or the underlying property joint venture directly or indirectly sells, exchanges or otherwise
disposes (including by way of merger, sale of assets or otherwise) of any portion of its interests, in a taxable transaction, in either One Commerce Square or Two Commerce Square. These two properties represented 27.5% of annualized rent for
properties in which we hold an ownership interest as of March 31, 2008. This indemnification period will expire in October 2008, unless Mr. Thomas and related entities contribute the remaining 11% minority interest in Two Commerce Square
to us prior to October 13, 2008 for not more than $2 million, in which event the indemnification period will expire on October 13, 2013, which may be extended to October 13, 2016 provided Mr. Thomas and his controlled entities
collectively retain at least 50% of the Operating Partnership units received by them in connection with our formation transactions at the time of our initial public offering.

We have also agreed to use commercially reasonable efforts to make approximately $210 million of debt available to be guaranteed by entities controlled
by Mr. Thomas, by Mr. Fox, a non-employee member of our board of directors, and by Mr. Gilchrist, an individual formerly affiliated with Maguire Thomas Partners. We agreed to make this debt available for guarantee in order to assist
Mr. Thomas and these other persons in preserving their tax position after their contributions at the time of our initial public offering.



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Risks Related to the Real Estate Industry

Illiquidity of real estate investments and the susceptibility of the real estate industry to economic conditions could significantly impede our ability to respond to adverse changes in the performance of our
properties.

Our ability to achieve desired and projected results for growth of our business depends on our ability to generate revenues
in excess of expenses, and make scheduled principal payments on debt and fund capital expenditure requirements. Events and conditions generally applicable to owners and operators of real property that are beyond our control may adversely impact
results of operations and the value of our properties. These events include:



| |  |  | vacancies or our inability to rent space on favorable terms;
| | - |  | ------------------------------------------------------------



| |  |  | inability to collect rent from tenants;
| | - |  | ---------------------------------------



| |  |  | difficulty in accessing credit in the present economic environment, in particular for larger mortgage loans;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | inability to finance property development and acquisitions on favorable terms;
| | - |  | ------------------------------------------------------------------------------



| |  |  | increased operating costs, including real estate taxes, insurance premiums and utilities;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | local oversupply, increased competition or reduction in demand for office space;
| | - |  | --------------------------------------------------------------------------------



| |  |  | costs of complying with changes in governmental regulations;
| | - |  | ------------------------------------------------------------



| |  |  | the relative illiquidity of real estate investments;
| | - |  | ----------------------------------------------------



| |  |  | changing submarket demographics; and
| | - |  | ------------------------------------



| |  |  | the significant transaction costs related to property sales, including a high transfer tax rate in the City of Philadelphia.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------

In addition, periods of economic slowdown or recession, rising interest rates or declining demand for real estate, or the public perception that any of
these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases. If any of these events were to happen, our revenue and profitability could be impaired, causing a significant downturn in
our financial condition, results of operations, cash flow, and trading price of our common stock and our ability to satisfy our debt service obligations could be impaired.

Compliance with the Americans with Disabilities Act and fire, safety and other regulations may require us to make unintended expenditures that adversely impact our financial condition.

All of our commercial properties are required to comply with the Americans with Disabilities Act, or ADA. The ADA has separate compliance requirements for
public accommodations and commercial facilities, but generally requires that buildings be made accessible to people with disabilities. The obligation to make readily achievable accommodations is an ongoing one, and we assess
our properties and make alterations as appropriate. Compliance with the ADA requirements could require removal of access barriers. Non-compliance could result in imposition of fines by the U.S. government or an award of damages to private litigants,
or both. Typically, we are responsible for changes to a building structure that are required by the ADA, which can be costly. In addition, we are required to operate our properties in compliance with fire and safety regulations, building codes and
other land use regulations. We may be required to make substantial capital expenditures to comply with these requirements thereby limiting the funds available to operate, develop and redevelop our properties and acquire additional properties. As a
result, these expenditures could negatively impact our revenue and profitability.

Potential losses may not be covered by insurance and may result in
our inability to repair damaged properties and we could lose invested capital.

We carry comprehensive liability, fire, flood, extended
coverage, wind, earthquake, terrorism, pollution legal liability, business interruption and rental loss insurance under our blanket policy covering all of the properties which we own an interest in or manage for third parties, including our
development properties (although we carry only liability insurance for the CalEPA headquarters building under our blanket policy because the tenant has the right to provide all other forms of coverage it deems necessary, and it has elected to do
so). We believe the policy specifications and insured limits are appropriate and adequate given the relative risk of loss, the cost of the coverage and industry practice. We carry earthquake insurance on our properties located in seismically active
areas, which includes our Southern California properties, and terrorism insurance on all of our properties. Our terrorism insurance is subject to exclusions for loss or damage caused by nuclear substances, pollutants, contaminants, and biological
and chemical weapons as more specifically excluded under the actual terrorism policies. Some of our policies, like those covering losses due to earthquakes and terrorism, are subject to limitations involving deductibles and policy limits which may
not be sufficient to cover losses. We either own or have interests in a number of properties in Southern California, an area especially prone to earthquakes.



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Under their leases, tenants are generally required to indemnify us from liabilities resulting from injury
to persons, air, water, land or property, on or off the premises due to activities conducted by them on our properties. There is an exception for claims arising from the negligence or intentional misconduct by us or our agents. Additionally, tenants
are generally required, with the exception of governmental entities and other entities that are self-insured, to obtain and keep in force during the term of the lease liability and property damage insurance policies issued by companies holding
ratings at a minimum level at their own expense.

Although we have not experienced such a loss to date, if we experience a loss that is
uninsured or that exceeds policy limits, we could lose the capital invested in the damaged property as well as the anticipated future cash flows from that property, including lost revenue from unpaid rent from tenants. In addition, if the damaged
property is subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if this property was irreparably damaged. In the event of a significant loss at one or more of the properties covered by the blanket policy, the
remaining insurance under our policy, if any, could be insufficient to adequately insure our remaining properties. In this event, securing additional insurance, if possible, could be significantly more expensive than our current policy.

Risks Related to Our Organization and Structure

Our senior
management has existing conflicts of interest with us and our public stockholders that could result in decisions adverse to our company.

As of March 31, 2008, Mr. Thomas owns or controls a significant interest in our Operating Partnership consisting of 14,496,666 units, or a 37.1% interest (including units beneficially owned by other senior executive officers) as
of such date. In addition, our senior executive officers, excluding Mr. Thomas, collectively hold an interest in Operating Partnership units and incentive units (vested and unvested) aggregating a 4.7% interest in our company.

The various terms of these equity and incentive interests could create conflicts of interest with our public stockholders. Members of executive
management could be required to make decisions that could have different implications for our Operating Partnership and for us, including:



| |  |  | potential acquisitions or sales of properties;
| | - |  | ----------------------------------------------



| |  |  | the issuance or disposition of shares of our common stock or units in our Operating Partnership; and
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | the payment of dividends by us.
| | - |  | -------------------------------

For
example, an acquisition in exchange for the issuance by our Operating Partnership of additional Operating Partnership units would dilute the interests of members of our management team as limited partners in our Operating Partnership. Dispositions
could trigger our tax indemnification obligations with respect to Mr. Thomas. Dividends paid by us to our public stockholders decrease our funds available to reinvest in our business.

We have a holding company structure and rely upon funds received from our Operating Partnership to pay liabilities.

We are a holding company. Our primary asset is our general partnership interest in our Operating Partnership. We have no independent means of generating
revenues. To the extent we require funds to pay taxes or other liabilities incurred by us, to pay dividends or for any other purpose, we must rely on funds received from our Operating Partnership. If our Operating Partnership should become unable to
distribute funds to us, we would be unable to continue operations after a short period. Most of the properties owned by our subsidiaries and joint ventures are encumbered by loans that restrict the distribution of funds to our Operating Partnership.
The loans generally contain lockbox arrangements, reserve requirements, financial covenants and other restrictions and provisions that prior to an event of default may prevent the distribution of funds from the subsidiaries who own these properties
to our Operating Partnership. In the event of a default under these loans, the defaulting subsidiary or joint venture would be prohibited from distributing cash to our Operating Partnership. As a result, our Operating Partnership may be unable to
distribute funds to us and we may be unable to use funds from one property to support the operation of another property. As we acquire new properties and refinance our existing properties, we may finance these properties with new loans that contain
similar provisions. Some of the loans to our subsidiaries and joint ventures may contain provisions that restrict us from loaning funds to our subsidiaries or joint ventures. If we are permitted to loan funds to our subsidiaries or joint ventures,
our loans generally will be subordinated to the existing debt on our properties.

Mr. Thomas has a significant vote in certain matters as a result
of his control of 100% of our limited voting stock.

Each entity that received Operating Partnership units in our formation transactions
received shares of our limited voting stock that are paired with units in our Operating Partnership on a one-for-one basis. All of these entities are directly or



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indirectly controlled by Mr. Thomas, and, as a result, Mr. Thomas controls 100% of our outstanding limited voting stock, or 38.3% of our
outstanding voting stock (including outstanding shares of common stock owned by Mr. Thomas and his affiliates) as of March 31, 2008. These limited voting shares are entitled to vote in the election of directors, for the approval of certain
extraordinary transactions including any merger or sale of the company, amendments to our certificate of incorporation and any other matter required to be submitted to a separate class vote under Delaware law. Mr. Thomas may have interests that
differ from that of our public stockholders, including by reason of his interests held in Operating Partnership units, and may accordingly vote as a stockholder in ways that may not be consistent with the interests of our public stockholders. This
significant voting influence over certain matters may have the effect of delaying, preventing or deterring a change of control of our company, or could deprive our stockholders of an opportunity to receive a premium for their common stock as part of
a sale of our company.

Our success depends on key personnel, the loss of whom could impair our ability to operate our business successfully.

We depend on the efforts of key personnel, particularly Mr. Thomas, our Chairman, Chief Executive Officer, and President. Among
the reasons that Mr. Thomas is important to our success is that he has an industry reputation developed over more than 25 years in the real estate industry that attracts business and investment opportunities and assists us in negotiations with
lenders, existing and potential tenants and industry personnel. If we lost his services, our relationships with these parties could diminish. Mr. Thomas is 71 and, although he has informed us that he does not currently plan to retire, we cannot
be certain how long he will continue working on a full-time basis.

Many of our other senior executives also have significant real estate
industry experience. Mr. Scott has extensive development and management experience on several large-scale projects, including the development, construction and management of One Commerce Square and Two Commerce Square. Mr. Sischo and
Mr. Scott are jointly responsible for oversight of our relationship with CalSTRS. Mr. Sischo is responsible for our acquisition efforts. Mr. Ricci has been extensively involved in the development of large, mixed-use and commercial
projects. Ms. Laing has served as chief financial officer of two publicly-traded real estate investment trusts. While we believe that we could find acceptable replacements for these executives, the loss of their services could materially and
adversely affect our operations because of diminished relationships with lenders, existing and prospective tenants and industry personnel. A departure of either Mr. Thomas or Mr. Sischo could also have adverse effects on our joint venture
relationship with CalSTRS, including the possible sale of our joint venture interest to CalSTRS at 97% of fair value.

Some provisions of our
certificate of incorporation and bylaws may deter takeover attempts, which may limit the opportunity of our stockholders to sell their shares at a favorable price.

Some of the provisions of our certificate of incorporation and bylaws could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders by providing them with the
opportunity to possibly sell their shares at a premium over the then market price. Our certificate of incorporation and bylaws contain provisions including the following:



| |  |  | vacancies on our board of directors may only be filled by the remaining directors;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | only the board of directors can change the number of directors;
| | - |  | ---------------------------------------------------------------



| |  |  | there is no provision for cumulative voting for directors;
| | - |  | ----------------------------------------------------------



| |  |  | directors may only be removed for cause; and
| | - |  | --------------------------------------------



| |  |  | our stockholders are not permitted to act by written consent.
| | - |  | -------------------------------------------------------------

In addition, our certificate of incorporation authorizes the board of directors to issue up to 25,000,000 shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which will be
determined at the time of issuance by our board of directors without further action by the stockholders. These terms may include voting rights, including the right to vote as a series on particular matters, preferences as to dividends and
liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce the value of our common stock. In addition,
specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of our board of directors to issue preferred stock could make it more difficult, delay,
discourage, prevent or make it more costly to acquire or effect a change in control, thereby preserving the current stockholders control of our company.

Finally, we are also subject to Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that the stockholder became an interested stockholder.



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The provisions of our certificate of incorporation and bylaws, described above, as well as
Section 203 of the Delaware General Corporation Law, could discourage potential acquisition proposals, delay or prevent a change of control and prevent changes in our management, even if these events would be in the best interests of our
stockholders.

We could authorize and issue stock without stockholder approval, which could cause our stock price to decline and dilute the holdings of
our existing stockholders.

Our certificate of incorporation authorizes our board of directors to issue authorized but unissued shares
of our common stock or preferred stock and to classify or reclassify any unissued shares of our common stock or preferred stock and to set the preferences, rights and other terms of the classified or unclassified shares. Although our board of
directors has no intention at the present time, it could establish a series of preferred stock that could, depending on the terms of the series, delay, defer or prevent a transaction or a change of control that might involve a premium price for our
common stock or otherwise be in the best interest of our stockholders.



|ITEM 6. | EXHIBITS
|------- | --------



|     |  |                                                                                                    
|---- |  | ---------------------------------------------------------------------------------------------------
|     | 
|(a)  |  | Exhibits                                                                                           
|     | 
|31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|     | 
|31.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|     | 
|32.1 |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|     | 
|32.2 |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



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SIGNATURES

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

Dated: May 12, 2008



THOMAS PROPERTIES GROUP, INC.By:

/s/ James A. ThomasJames A. Thomas Chief Executive Officer




By:

/s/ Diana M. LaingDiana M. Laing Chief Financial Officer




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