UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

                   For the fiscal year ended December 31, 2004

                                       or

              |_| 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: 1-13589

                            PRIME GROUP REALTY TRUST
             (Exact name of registrant as specified in its charter)

            Maryland                                    36-4173047
 (State or other jurisdiction of                     (I.R.S. Employer
 incorporation or organization)                      Identification No.)

  77 West Wacker Drive, Suite 3900, Chicago, Illinois        60601
       (Address of principal executive offices)           (Zip Code)


                                 (312) 917-1300
              (Registrant's telephone number, including area code)

                    Securities registered pursuant to Section
                               12(b) of the Act:

      Title of each class       Name of each exchange on which registered
      -------------------       -----------------------------------------
   Common Shares of Beneficial           New York Stock Exchange
    Interest, $0.01 par value
           per share
      Series B - Cumulative              New York Stock Exchange
   Redeemable Preferred Shares of
   Beneficial Interest, $0.01 par
         value per share

        Securities registered pursuant to Section 12(g) of the Act: None

     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. X Yes ___ No
                                         ---
     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ ]

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Act).  X  Yes ___No
                                   ---
     The  aggregate  market  value of the  registrant's  common  shares  held by
non-affiliates  as of the last  business day of the  registrant's  most recently
completed second fiscal quarter was approximately  $125,037,639 based on the per
share closing  price on the New York Stock  Exchange for such shares on June 30,
2004.

     The number of the registrant's  common shares outstanding was 23,681,371 as
of March 1, 2005.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Part III of this report  incorporates  information  by  reference  from the
definitive Proxy Statement for the Registrant's  Annual Meeting of Shareholders,
to be held on June 3, 2005.







<PAGE>







                                      INDEX


PART I
                                                                            PAGE

Item 1.     Business...........................................................4
Item 2.     Properties........................................................16
Item 3.     Legal Proceedings.................................................18
Item 4.     Submission of Matters to a Vote of Security Holders...............19

PART II

Item 5.     Market for Registrant's Common Equity, Related Stockholder
              Matters and Issuer Purchases of Equity Securities...............20
Item 6.     Selected Financial Data...........................................22
Item 7.     Management's Discussion and Analysis of Financial Condition
              and Results of Operations.......................................29
Item 7A.    Quantitative and Qualitative Disclosures About Market Risk........56
Item 8.     Financial Statements and Supplementary Data.......................57
Item 9.     Changes in and Disagreements With Accountants on Accounting
              and Financial Disclosure........................................57
Item 9A.    Controls and Procedures...........................................57
Item 9B.      Other Information...............................................57

PART III

Item 10.    Directors and Executive Officers of the Registrant................58
Item 11.    Executive Compensation............................................58
Item 12.    Security Ownership of Certain Beneficial Owners and Management....59
Item 13.    Certain Relationships and Related Transactions....................60
Item 14.    Principal Accounting Fees and Services............................60

PART IV

Item 15.    Exhibits and Financial Statement Schedules........................61

            Signatures........................................................76



<PAGE>


     Forward-Looking  Statements  contained in this Annual  Report on Form 10-K,
including  the  section  entitled  "Management's   Discussion  and  Analysis  of
Financial Condition and Results of Operations," include certain  forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, which reflect  management's current view with respect to future events and
financial  performance.  Such forward-looking  statements are subject to certain
risks and  uncertainties  which could cause actual results to differ  materially
from those  anticipated,  and  include  but are not  limited  to, the effects of
future events on our financial performance; risks associated with our high level
of indebtedness and our ability to refinance our indebtedness as it becomes due;
the risk that we or our subsidiaries  will not be able to satisfy scheduled debt
service  obligations  or will  not  remain  in  compliance  with  existing  loan
covenants;  the effects of future  events,  including  tenant  bankruptcies  and
defaults;  the risks related to the office and  industrial  markets in which our
properties  compete,  including the adverse  impact of external  factors such as
inflation,  consumer  confidence,  unemployment  rates and  consumer  tastes and
preferences;  the risk of  potential  increase  in market  interest  rates  from
current rates;  and risks  associated  with real estate  ownership,  such as the
potential  adverse  impact of  changes  in the  local  economic  climate  on the
revenues  and the value of our  properties  as well as our tenants' and vendors'
operations.  Readers  are  cautioned  not  to  place  undue  reliance  on  these
forward-looking statements, which speak only as of December 31, 2004.

Among the matters about which we have made assumptions are the following:

o    future  economic  and  market  conditions  which may  impact the demand for
     office and industrial space either at current or increased levels;

o    the extent of any tenant bankruptcies or defaults that may occur;

o    ability or inability to renew existing tenant leases;

o    prevailing interest rates;

o    the effect of inflation  and other  factors on operating  expenses and real
     estate taxes;

o    our ability to minimize  various  expenses as a percentage of our revenues;
     and

o    the availability of financing and capital.

     In addition,  historical results and percentage  relationships set forth in
this  Annual  Report  on Form  10-K are not  necessarily  indicative  of  future
operations.



<PAGE>


                                     PART I

ITEM 1.  BUSINESS

Background and General

     We are a fully-integrated,  self-administered, and self-managed real estate
investment trust (REIT) which owns, manages,  leases,  develops,  and redevelops
office and industrial real estate,  primarily in the Chicago  metropolitan area.
Our  portfolio of  properties  consists of 11 office  properties,  containing an
aggregate of 4.6 million net rentable square feet, and one industrial  property,
containing 0.1 million net rentable  square feet (See the  "Properties"  section
for detailed  information  concerning  the  individual  properties).  All of our
properties  are  located  in the  Chicago  metropolitan  area in prime  business
locations  within  established  business  communities and account for all of our
rental revenue and tenant reimbursements  revenue. In addition, we own 6.3 acres
of developable  land and have the right to acquire an additional  1.3 acres.  We
also have three joint  venture  interests  in office  properties  containing  an
aggregate of 2.8 million net rentable square feet.

     Our three joint  venture  interests are  accounted  for as  investments  in
unconsolidated  joint  ventures  under the equity  method of  accounting.  These
consist of a 50%  common  interest  in a joint  venture  which owns the  944,556
square foot office tower  located at 77 West Wacker  Drive,  located in Chicago,
Illinois,  a 30% subordinated  common interest in a joint venture which owns the
1,503,238  square  foot Bank One  Center  office  building  located at 131 South
Dearborn Street,  located in Chicago,  Illinois and a 23.1% common interest in a
joint venture that owns a 383,509 square foot office complex located in Phoenix,
Arizona.

     Our  Company  was  formed  on July  21,  1997  as a  Maryland  real  estate
investment  trust and we  completed  the initial  public  offering of our common
shares on November 17, 1997. Our executive offices are located at 77 West Wacker
Drive,  Suite 3900,  Chicago,  Illinois 60601, and our telephone number is (312)
917-1300.

     We are the sole general  partner of, and currently own all of the preferred
units and 88.5% of the common interests in Prime Group Realty,  L.P., a Delaware
limited partnership (the "Operating Partnership").  We conduct substantially all
of our business through the Operating  Partnership,  except for certain services
requested  by  our  tenants,  certain  management  contracts  and  build-to-suit
construction  activities,   which  are  conducted  through  Prime  Group  Realty
Services, Inc., a Maryland corporation,  and its affiliates  (collectively,  the
"Services Company"), a wholly-owned subsidiary of the Operating Partnership.

Tax Status


     We have  elected to be taxed as a real  estate  investment  trust  ("REIT")
under Sections 856 through 860 of the Internal  Revenue Code of 1986, as amended
(the  "Code").  As a REIT,  we will not be subject to federal  income tax at the
corporate level on our income as long as we distribute 90% of our taxable income
(excluding  any net  capital  gain)  each  year to our  shareholders.  Since our
inception,  we believe that we have complied with the tax rules and  regulations
to  maintain  our REIT  status.  If we fail to qualify as a REIT in any  taxable
year,  we will be subject  to  federal  income  tax  (including  any  applicable
alternative  minimum tax) on our taxable income at regular corporate rates. Even
if we qualify as a REIT,  we are subject to certain state and local taxes on our
income and property.  In addition,  our Services  Company's income is subject to
state and federal income taxation.

Business Strategy

     Our business  strategy is to operate our  portfolio of properties to create
the optimum  level of service and value to our  tenants,  to retain our existing
tenant  base as their  leases  expire,  to search for and  identify  prospective
tenants  for  space in our  properties  which is  unoccupied  or is  subject  to
expiring leases and to create maximum portfolio value for our  shareholders.  As
we have  previously  disclosed,  we are  continuing  to pursue an  initiative to
complete a strategic transaction.

     Review of Strategic Alternatives.  In December 2002, our Board approved the
engagement of two  investment  banks as our financial  advisors to assist in the
evaluation of our strategic alternatives, including, but not limited to, a sale,
merger or other business combination involving the Company, or a sale of some or
all of our assets.  On February  16,  2005,  we entered into an amendment to our
engagement  letter with one of these advisors,  Wachovia  Capital  Markets,  LLC
("Wachovia"),   extending  their  engagement  through  December  20,  2005.  The
engagement of our other financial advisor expired in December 2003.

     On October 27, 2004,  we entered into an agreement  and plan of merger with
Prime/Mansur  Investment  Partners,  LLC  ("Prime/Mansur")  and  certain  of its
affiliates.  Prime/Mansur is a  joint-venture  formed and controlled by E. Barry
Mansur and including  Michael W. Reschke,  a former chairman and a former member
of our Board.  Under the merger  agreement,  Prime/Mansur  agreed to acquire our
outstanding common shares and the outstanding  limited  partnership units of our
Operating  Partnership  for $6.70 per share/unit in cash. Our Board approved the
transaction   subject  to  Prime/Mansur   obtaining  a  satisfactory   financing
commitment  for the  transaction.  On November 10, 2004, we announced the merger
agreement  terminated  automatically  in  accordance  with  its  terms,  because
Prime/Mansur   did  not  obtain  a  financing   commitment  that  satisfied  the
requirements of the merger agreement.

     On December 8, 2004, we filed an action in the Circuit Court for Montgomery
County,  Maryland (the "Maryland State Court") against  Prime/Mansur  Investment
Partners,  LLC and certain of its affiliates.  In this action,  we are seeking a
declaratory  judgment  that  our  previously  announced  merger  agreement  with
Prime/Mansur terminated automatically, in accordance with its terms, on November
9,  2004  because  Prime/Mansur  did not  obtain  a  financing  commitment  that
satisfied the requirements of the merger agreement.

     On January 3, 2005,  Prime/Mansur and certain additional affiliates filed a
lawsuit against us and our Operating Partnership in the Maryland State Court. In
the  complaint,  Prime/Mansur  alleges,  among other things,  that we wrongfully
terminated and otherwise breached the merger agreement with Prime/Mansur. In its
complaint,  Prime/Mansur  is seeking  damages from the  Maryland  State Court in
excess of $50.0 million and other relief,  including  specific  performance.  We
vigorously   deny  the  allegations  in  the  complaint  and  believe  that  the
allegations have no merit. We intend to diligently defend ourselves against this
lawsuit and to continue to aggressively pursue our declaratory  judgment lawsuit
against Prime/Mansur.

     On February 11,  2005,  the Maryland  Court  consolidated  the two lawsuits
referred to above and  granted  our  request to assign the case to an  expedited
hearing track.

     On February  17, 2005 we and an  affiliate  of The  Lightstone  Group,  LLC
("Lightstone"),  entered into a definitive  agreement and plan of merger.  Under
the merger  agreement  Lightstone  will  acquire  our  common  shares and common
limited  partnership  units  for  $7.25 in  cash,  plus  the  assumption  of our
outstanding debt. Our Board has unanimously approved the transaction and intends
to recommend it for approval by our common  shareholders.  The parties expect to
close the transaction in the second quarter,  or early in the third quarter,  of
2005. In connection with the merger agreement, Lightstone funded a $10.0 million
earnest money deposit into an escrow.

     Our Cumulative  Redeemable Preferred Shares ("Series B Shares") will remain
outstanding  after  the  transaction  is  completed.   At  the  closing  of  the
transaction,  all accrued but unpaid  distributions on our Series B Shares, plus
distributions  on our Series B Shares for the entire  calendar  quarter in which
the transaction closes, will be paid to the holders of our Series B Shares.

     The closing of the merger  agreement is subject to, among other  things,  a
number of  customary  conditions  including  the  approval by the holders of our
common shares. The transaction is not subject to any financing condition.

     Our continuing goal is to achieve a desirable  result for our  shareholders
which may include a strategic transaction(s) and/or the continued implementation
of our primary business strategy, as discussed below. There can be no assurances
that any transaction or transactions  will occur. We anticipate the net proceeds
from any  transaction  other than a sale of the  Company  (whether  by merger or
otherwise) may be used for a variety of purposes including,  but not limited to,
the repayment of debt, to provide working capital to fund capital  expenditures,
including  tenant   improvements  and  leasing   commissions,   the  payment  of
accumulated  unpaid dividends on our Series B Shares and/or for distributions to
our common shareholders and common unit holders of our Operating Partnership. We
may also utilize a portion of any proceeds for general and  corporate  operating
needs and to  consummate  tax-deferred  exchanges  to minimize  any tax exposure
under existing tax indemnification agreements.

     Ongoing  Operations.  Our primary  business  is to focus on the  operation,
leasing and management of our existing real estate properties.

     We strive to enhance our  property-level net operating income and cash flow
by:

o    engaging in pro-active leasing programs and effective property management;

o    managing  operating  expenses  through  the  use  of  in-house   management
     expertise;

o    maintaining and developing  long-term  relationships  with a diverse tenant
     group;

o    attracting  and retaining  motivated  employees by providing  financial and
     other incentives; and

o    emphasizing  value-added  capital  improvements to maintain and enhance our
     properties' competitive advantages in their submarkets.

     Liquidity  and Capital  Requirements.  We require cash to pay our operating
expenses, make capital expenditures, fund tenant improvements and leasing costs,
pay  distributions  and  service  our debt and other  short-term  and  long-term
liabilities.  Cash on hand and net cash provided from  operations  represent our
primary  sources of  liquidity  to fund these  expenditures.  In  assessing  our
liquidity,  key  components  include our net income,  adjusted  for non-cash and
non-operating items, and current assets and liabilities,  in particular accounts
receivable, accounts payable and accrued expenses. For the longer term, our debt
and long-term liabilities are also considered key to assessing our liquidity.

     In order to qualify as a REIT for  federal  income  tax  purposes,  we must
distribute 90% of our taxable income (excluding capital gains) annually.  Due to
a number  of  factors,  including  our  capital  requirements  in our  operating
environment,  our Board  decided in  January  and  April,  2002 to  suspend  the
declaration  and  payment of  distributions  on our  common  shares and Series B
Shares dividends, respectively. We subsequently resumed the payment of dividends
on our Series B Shares with  dividends  of $0.5625 per share in April,  July and
October  2004 and January  2005.  On February  28,  2005,  our Board  declared a
quarterly  dividend of $0.5625 per share on our Series B Shares for shareholders
of record on March 31, 2005.  Under our  declaration of trust,  this dividend is
deemed to be a quarterly dividend related to the fourth quarter of 2003 dividend
period,  the  earliest  accrued  but unpaid  quarterly  dividend on our Series B
Shares.  There can be no  assurances  as to the timing and amounts of any future
dividends on our Series B Shares and the  declaration of the fourth quarter 2003
preferred  dividend at this time should not be construed to convey any degree of
certainty with respect to future preferred dividend payments. Our management and
Board review our cash position and  requirements  for cash reserves each quarter
prior to making any  decision  with  respect to paying  distributions/dividends.
Distributions  on our common shares may not be made until all accrued  dividends
on our Series B Shares are declared and paid or set apart for payment. We are in
arrears  for five  quarters  of  Series B Share  dividends  for a total of $11.3
million.  Future  distributions  will  depend on the actual cash  available  for
distribution,  our financial condition, current and future capital requirements,
the completion of any capital  transactions,  including  refinancings  and asset
sales,  the annual  distribution  requirements  under the REIT provisions of the
Code and such other factors as our Board deems relevant.

     On April 16, 2004, we sold our 33 West Monroe  Street  property for a gross
sales price of $69.6 million (i) less a credit for $19.4  million,  representing
the sum of a portion of the amount in our leasing reserve escrow account related
to the property and a credit for certain  prepaid  rent,  and (ii) plus or minus
other customary prorations.  Concurrent with the sale of the property, we used a
portion of the proceeds of the sale and approximately $20.0 million of a leasing
escrow held by the existing  lender to repay the existing  first  mortgage  debt
having an outstanding  principal balance of $59.3 million, plus accrued interest
of $0.2 million. After closing prorations and costs and the repayment in full of
the first mortgage loan encumbering the property, we received approximately $8.8
million in net proceeds from the sale.

     In October and  November  2004,  we sold 29 of our  industrial  properties,
consisting of 3.8 million square feet,  located in Illinois and Indiana,  one of
our office  properties,  consisting of 50,400 square feet,  located in Illinois,
and three land parcels  consisting  of 128 acres  located in  Illinois,  plus an
additional 74.3 acres of land included as part of our heavy-crane portfolio. Net
proceeds  after  repayment  or  buyer  assumption  of  mortgage  and  bond  debt
collateralized  by  the  properties,  closing  costs  and  prorations  and a tax
indemnity  payment  obligation  were $54.3 million.  Included in net proceeds is
approximately  $9.7 million of  restricted  cash escrows  which were released or
credited by the  purchaser at closing,  offset by $4.4 million of  environmental
escrows and a rent subsidy  escrow for $0.6 million that were funded at closing.
In addition,  we agreed to fund  approximately  $0.9 million  should two tenants
fail to pay the future rent due under their leases for specific periods of time.
Subsequent  to the sale,  we repaid  $22.8  million of maturing  mezzanine  loan
financing  and  anticipate  utilizing  the  remaining  proceeds to fund  capital
improvements  and  leasing  costs and  provide  additional  working  capital and
liquidity for the Company.

     We can give no assurances  that, if any further  capital  transactions  are
completed on terms  favorable to us or  otherwise,  distributions  on our common
shares and common units will be resumed  either  during 2005 or  thereafter,  or
that we will  be  able to pay  future  dividends  on our  Series  B  Shares.  We
currently  do not  anticipate  declaring or paying  distributions  on our common
shares/units in 2005.

     Our anticipated  cash flows from operations  combined with cash on hand are
expected to be sufficient to fund our anticipated  short-term  capital needs. In
2005,  we  anticipate  the  need to fund  significant  capital  expenditures  to
retenant space that has been previously  vacated or is anticipated to be vacated
during the year or renew existing  tenants'  leases.  In order to fund these and
our other short-term and long-term capital needs, we expect to utilize available
funds from cash on hand, cash generated from our operations and existing escrows
with lenders. In addition, we may enter into capital  transactions,  which could
include asset sales,  debt or equity  financings and modifications or extensions
of existing loans. There can be no assurances that any capital transactions will
occur or, if they do occur,  that they will yield adequate  proceeds to fund our
long-term capital needs.

     The  financial  covenants  contained  in some of our  loan  agreements  and
guarantee  agreements  with our lenders  include minimum ratios for debt service
coverage and liabilities as a percentage of total assets, as well as minimum net
worth levels,  limits as to recourse indebtedness and other financial covenants.
In some past  quarters,  we have failed to meet certain of these  covenants  and
after negotiations with our lenders (and in certain instances, after agreeing to
post additional cash collateral,  provide other security and/or otherwise modify
the  terms  of  the  relevant   loans)  we  have  obtained  the  necessary  loan
modifications  and/or waivers.  As a result of the repayment of indebtedness and
debt  assumptions  from the sale of a portion  of our  industrial  portfolio  in
October 2004,  certain  covenants that we had previously failed are no longer in
effect.  As of December 31, 2004, we are in compliance with the  requirements of
all remaining financial covenants.

     Given our  current  level of debt,  limited  availability  of  unencumbered
collateral and our current financing arrangements,  we may not be able to obtain
additional  debt  financing at interest rates that are below the rates of return
on our  properties.  In  addition,  any  equity  capital  we might  raise may be
dilutive to our current common shareholders.

     Acquisition and Development Activity. Given the general economic conditions
and our capital  availability,  we do not  anticipate any  significant  property
acquisitions  or  development  during  the  next  year.   Certain   tax-deferred
exchanges,  however, may be desirable in connection with property sales in order
to   eliminate   or  minimize  any   payments   required   under   existing  tax
indemnification agreements.

     Financing.  In December 1998, our Board adopted a financing policy with the
following targets: (i) a minimum interest coverage ratio of 2.25, (ii) a minimum
fixed coverage charge ratio of 1.90, (iii) a ratio of debt-to-net asset value of
no more than 50% and (iv) unencumbered cash and credit  availability of at least
$40.0  million,  of which $15.0  million  should be cash on hand.  The foregoing
ratios and measures are calculated  pursuant to detailed  definitions set by our
Board,  and,  in some  instances,  have been  adjusted  over time  pursuant to a
schedule  set by our Board.  The above  targets do not bind the Board and do not
mean that we will operate  within each of these ratios at any or all times.  Our
Board must  approve  all  material  financing  and  acquisition  or  disposition
activities  until the targets are met. Our Board has  approved in the past,  and
has the authority to approve in the future, transactions and other actions which
would cause non-compliance with this policy.

     At present we are not in  compliance  with the targets (i),  (ii) and (iii)
above and do not anticipate being in compliance during 2005. Our Board may alter
our  financing  policy  without  the  consent  of  our  shareholders,   and  our
organizational documents do not limit the amount or type of indebtedness that we
may incur.



<PAGE>

     Recent Developments

     Dispositions.  During the period from January 1, 2004 through  December 31,
2004, we sold the following operating properties and parcels of land.

<TABLE>
                                                 Net                           Mortgage
                                           Rentable Square     Sales Price       Debt         Month
         Property             Location        Feet/Acres      (in millions)  (in millions)    Sold
---------------------------------------------------------------------------------------------------------
<S> <C>                       <C>           <C>                <C>           <C>              <C>

Sold
Office:
   33 West Monroe Street(1)   Chicago, IL     852,075             $  69.6        $  59.3      April
                                                                  =======        =======

Portfolio Sale(2):
Office:
   1301 E. Tower Road         Schaumburg, IL   50,400

Warehouse/distribution
  Facilities:
   425 E. Algonquin Road      Arlington       304,506
                              Heights, IL
   1455 Sequoia Drive         Aurora, IL      257,600
   200 S. Mitchell            Addison, IL     152,200
   11045 Gage Avenue          Franklin        136,600
                              Park, IL
   4248, 4250 and 4300        Hillside, IL    127,129
     Madison Street
   4211 Madison Street        Hillside, IL     90,344
   4160-4190 W. Madison       Hillside, IL     79,532
     Street
   342-346 Carol Lane         Elmhurst, IL     67,935
   200 E. Fullerton Avenue    Carol            66,254
                              Stream, IL
   555 Kirk Road              St.              62,400
                              Charles, IL
   370 Carol Lane             Elmhurst, IL     60,290
   550 Kehoe Blvd.            Carol            44,575
                              Stream, IL
   1543 Abbott Drive          Wheeling, IL     43,930
   388 Carol Lane             Elmhurst, IL     40,502
   343 Carol Lane             Elmhurst, IL     30,084
   350 Randy Road             Carol            25,200
                              Stream, IL
   11039 Gage Avenue          Franklin         21,935
                              Park, IL
   1401 S. Jefferson Street   Chicago, IL      17,265

Overhead Crane/Manufacturing
   Facilities:
Chicago Enterprise Center     Chicago, IL
   13535-A S. Torrence                        385,345
   Avenue
   13535-B S. Torrence                        242,199
   Avenue
   13535-C S. Torrence                         99,333
   Avenue
   13535-D S. Torrence                         77,325
   Avenue
   13535-E S. Torrence                         50,983
   Avenue
   13535-F S. Torrence                         56,486
   Avenue
   13535-G S. Torrence                         55,213
   Avenue
   13535-H S. Torrence                         73,442
   Avenue
   East Chicago Enterprise    East
   Center                     Chicago, IN
     4407 Railroad Avenue -                   169,435
    Building 2
     4407 Railroad Avenue -                   291,550
    Building 3
     4407 Railroad Avenue -                    87,484
     Building 4
     4635 Railroad Avenue -                    14,070
Hammond Enterprise Center     Hammond, IN
   4507 Columbia Avenue                       256,595
   4527 Columbia Avenue                        16,701
   4531 Columbia Avenue                       250,266
                                          -------------------
                                            3,805,108
                                          ===================
Land:
   Aurora Land                Aurora, IL         73.2
   DeKalb Land                DeKalb, IL         36.3
   Batavia Land               Batavia, IL        18.8

                                                                                             October/
Total Portfolio Sale                                             $125.1         $   65.1     November
                                                            ===============================

Land:
   Carol Stream Land(3)       Carol Stream IL     6.1             $ 1.2        $      -       December
                                                            ===============================

</TABLE>




<PAGE>


(1)  We sold this  property for a gross sales price of $69.6  million (i) less a
     credit for $19.4 million,  representing  the sum of a portion of the amount
     in our leasing  reserve escrow account related to the property and a credit
     for certain prepaid rent and (ii) plus or minus other customary prorations.
     Concurrent with the sale of the property, we used a portion of the proceeds
     of the sale and approximately $20.0 million of a leasing escrow held by the
     existing  lender to repay the existing  first mortgage debt on the property
     having an  outstanding  principal  balance of $59.3  million,  plus accrued
     interest  of $0.2  million.  After  closing  prorations  and  costs and the
     repayment in full of the first mortgage loan  encumbering the property,  we
     received  approximately  $8.8 million in net proceeds from the sale. During
     the fourth quarter of 2003, we had recorded an asset  impairment  charge of
     $43.4 million related to this property.  After  reflecting this impairment,
     we recognized a gain of $0.4 on this sale.

(2)  Net proceeds  from the sale of these  properties  after  repayment or buyer
     assumption  of mortgage  and bond debt  collateralized  by the  properties,
     closing costs and a tax indemnity  payment  obligation  were $54.3 million.
     Included in net proceeds is  approximately  $9.7 million of restricted cash
     escrows which were released or credited by the purchaser at closing, offset
     by $4.4 million of environmental escrows and a rent subsidy escrow for $0.6
     million  that  were  funded  at  closing.  In  addition,  we agreed to fund
     approximately  $0.9 million  should two tenants fail to pay the future rent
     due under their  leases for  specific  periods of time.  Subsequent  to the
     sale,  we repaid $22.8  million of maturing  mezzanine  loan  financing and
     anticipate  utilizing the remaining  proceeds to fund capital  improvements
     and leasing costs and provide us additional  working capital and liquidity.
     We recognized a gain of $9.5 million on this sale.

(3)  Net  proceeds  from  the  sale of  this  property  were  $1.2  million.  We
     recognized a gain of $0.4 million on this sale.

     On January 15,  2004,  we  acquired  fee title  ownership  to the 180 North
LaSalle  Street office  property for a $0.1 million  payment.  We had previously
consolidated the operations of this property in 2001 and thereafter since we had
the economic  risks and rewards of ownership  through our interest in the second
mortgage encumbering this property.

     Indebtedness.  During 2004, we completed the  following  transactions  with
respect to our indebtedness:

<TABLE>


                                                 Loan
                                              Principal                                      Original
                                                Amount                        Transaction    Maturity
        Collateral          Type of Loan    (in millions)     Interest Rate      Date          Date
---------------------------------------------------------------------------------------------------------
<S>                        <C>               <C>               <C>             <C>            <C>

New Indebtedness
   180 N. LaSalle Street   First Mortgage         $67.0             5.43%          1/04        2/11

Indebtedness Retirement
   180 N. LaSalle Street   REMIC                   60.0       LIBOR + 3.75%        1/04        1/04
   33 West Monroe Street   First Mortgage          59.3       LIBOR + 1.50%        4/04       11/05
   180 N. LaSalle Street   Mezzanine               10.9       LIBOR + 7.00%       10/04       11/04
   Various Properties      Mezzanine               11.9       LIBOR + 7.00%       10/04       11/04
   Various Properties(1)   Bonds                   24.9             4.13%         10/04        1/07
   555 Kirk Road and 1541  First Mortgage           2.3             7.35%         10/04        4/05
     Abbott Drive
   1455 Sequoia Drive      First Mortgage           5.6       LIBOR + 2.50%       10/04        5/04
   200 S. Mitchell         First Mortgage           4.0       PRIME + 1.00%       10/04        9/05
   Various Properties(1)   First Mortgage          13.9             7.17%         10/04        5/08
   Various Properties(1)   First Mortgage          14.5             7.17%         11/04        5/08

Principal Payments
   Amortization            Various                  5.2          Various        Various      Various

</TABLE>



(1)  This  debt  was  assumed  by  the  purchaser  of  substantially  all of our
     industrial properties.

     We had previously held subordinate interests in the first mortgage interest
in the 180 North LaSalle Street property.  Simultaneous  with our acquisition of
fee title  ownership in the property in January 2004, we refinanced the property
with the proceeds of a first mortgage loan.  Principal and interest payments are
based upon a 30-year amortization period.

     At closing of the  refinancing,  we funded leasing and capital  replacement
reserves of $5.1 million from  proceeds.  In  addition,  a $2.7 million  leasing
escrow was released.  We also agreed to fund into the leasing  reserve escrow an
additional  $0.1  million  per month for 36 months  beginning  March  2004.  The
amounts  in  the  reserves  can  be  drawn  by us to pay  for  approved  leasing
expenditures  relating to the property.  The loan  documents  also require us to
fund  approximately  $13,000  per  month  beginning  March  2004  into a capital
replacement  reserve  to be  used  for  approved  capital  expenditures  at  the
property.  We  used a  portion  of  the  proceeds  of  the  loan  to  repay  the
pre-existing  third-party debt  encumbering the property of $60.0 million,  fund
the reserve  escrows and pay closing costs.  After these  payments,  we received
approximately $4.2 million of net proceeds.

     Prior to the closing of the sale of our 33 West Monroe  Street  property in
April  2004,  we provided  substitute  collateral  to the lender  which held the
existing $11.5 million mezzanine loan relating to this property.  The substitute
collateral consisted of a pledge of ownership interests in the entity owning our
180 North LaSalle Street property.  In connection with the pledge,  we funded an
escrow of $750,000 to the first  mortgage  lender at 180 North LaSalle Street as
additional collateral to secure any costs it may incur in the future relating to
the mezzanine  using  proceeds from the sale of our  industrial  portfolio.  The
escrow was released upon repayment of the mezzanine loan in October 2004.

     Shareholders  and Board of Trustees  Developments.  On August 3, 2004,  our
then  Chairman of the Board,  Stephen J. Nardi,  retired as Chairman.  Mr. Nardi
remains on the Board as a non-employee  Trustee.  Douglas Crocker II, one of our
existing Trustees, was appointed Chairman of the Board. In addition,  Jeffrey A.
Patterson,  our  existing  President  and Chief  Investment  Officer,  was named
President and Chief Executive Officer.  Mr. Crocker serves as a non-employee and
independent  Chairman.  In connection  with Mr. Nardi's  resignation,  the Board
approved a separation payment for Mr. Nardi of $300,000.

     On  February  28,  2005,  our  Board  increased  its size from six to seven
members and  elected Mr.  Patterson  to fill the newly  created  position on the
Board.  Mr. Patterson was elected as a Class III Trustee with a term expiring at
our 2006 Annual Shareholders Meeting.

     Included  in  receivables  is an amount due from Mr.  Nardi  totaling  $0.9
million.  The  receivable  relates to a prior master lease  obligation  with Mr.
Nardi and is payable  from  future  common  dividends/distributions.  Due to the
uncertainty of future dividend/distribution  payments as a result of our pursuit
of strategic  alternatives,  a reserve in the full amount of this receivable was
established in 2004.

Competition

     We compete with many other owners and  developers of office and  industrial
real estate, some of which may have greater financial and marketing resources or
expertise.  In addition, the amount of available space in competitive properties
in any particular  market or submarket in which our properties are located could
have a material  adverse  effect on both our  ability to lease  space and on the
rents charged at our properties.


<PAGE>


Services Company

     We provide  certain  services  requested  by tenants  through our  Services
Company. As a Taxable REIT Subsidiary, our Services Company can provide services
to tenants of our properties, even if these services are not considered services
customarily  furnished in  connection  with the rental of real estate  property,
without  causing the rental  income from the  properties  to be treated as other
than rents from real  property by the Internal  Revenue  Service under the Code.
Our Services Company provides  leasing and property  management  services to the
unconsolidated  joint  ventures  that own the Bank One Center and 77 West Wacker
Drive office properties. In January 2004, concurrent with acquiring fee title to
our 180 North LaSalle Street property,  our Operating  Partnership  replaced our
Services Company as its leasing and managing agent.

Government Regulations

     Environmental  Matters.  Phase I or similar environmental  assessments have
been  performed  by  independent   environmental   consultants  on  all  of  our
properties.  Phase I assessments are intended to discover information regarding,
and to evaluate  the  environmental  condition  of, the  surveyed  property  and
surrounding  properties.  Phase I  assessments  generally  include a  historical
review,  a public  records  review,  an  investigation  of the surveyed site and
surrounding  properties,  and the  preparation and issuance of a written report,
but do not include soil sampling or subsurface investigations.

     We are aware of  contamination  at the  Chicago,  East  Chicago and Hammond
Enterprise Centers that we previously owned and which were sold in October 2004.
These properties were already in remediation programs sponsored by the states in
which they are located. Our environmental  consultants previously estimated that
remedial  action  plans for  these  properties  would  have a  probable  cost of
approximately  $3.2 million.  The Prime Group,  Inc.  ("PGI"),  the owner of the
above-mentioned  industrial  properties  prior to us,  contractually  agreed  to
indemnify  us  for  any  environmental   liabilities  we  may  incur  for  known
contamination in connection with these  properties.  In September 2004, PGI paid
us $1.25 million related to this indemnification,  and in November 2004 PGI paid
us an additional $1.85 million related to this indemnification.  Upon receipt of
this second payment, we released PGI from any further indemnity obligations.

     During the due diligence  process in connection  with the sale of the above
properties,  additional  environmental  contamination,  beyond  that  previously
identified by our environmental consultants,  was discovered by the purchaser at
our East Chicago Enterprise Center and Hammond Enterprise Center facilities.  As
a result,  we agreed to establish a $1.25  million  environmental  escrow at the
closing,  in addition to a $3.2 million  reserve for the  previously  identified
environmental  contamination,  for use in  remediation  of the  costs  described
above. In connection with the sale, the purchaser of these properties has agreed
to assume the responsibility  for the environmental  remediation of the property
and any costs which may be incurred in excess of the amounts we placed in escrow
at the closing. Any excess funds remaining in the $1.25 million escrow after the
remediation of the additional  environmental  contamination  will be returned to
us.

     We are also aware of contamination at two other  properties.  At one of the
properties,  the tenant has provided us with an  indemnity  for all of the costs
associated with the  environmental  remediation and the tenant has purchased the
property.  The  second  property,  which  was  sold as  part  of the  industrial
portfolio sale, was placed in the remediation  program sponsored by the state in
which it is located and the previous owner has obtained a no further remediation
letter  from  the  Illinois   Environmental   Protection  Agency  approving  the
completion  of the  remediation  work.  Accordingly,  we do not  anticipate  any
material liability related to these environmental matters.

     In  November  2001,  at the  request of the  Department  of the Army of the
United  States of America (the  "DOA"),  we granted the DOA a right of entry for
environmental  assessment and response in connection  with our property known as
the Atrium at 280 Shuman Boulevard in Naperville,  Illinois (the "Atrium").  The
DOA  informed us that the  property  was located  north of a former Nike missile
base and that the DOA was investigating  whether certain regional  contamination
of the groundwater by  trichloethene  ("TCE") emanated from the base and whether
the DOA would be required to restore the  environmental  integrity of the region
under the Defense  Environmental  Restoration  Program for Formerly Used Defense
Sites. In December 2001, the results from the tests of the groundwater  from the
site indicated  elevated levels of TCE. It is currently our understanding  based
on information provided by the DOA and an analysis prepared by its environmental
consultants that (i) the source of the TCE contamination did not result from the
past or current activities on the Atrium property, (ii) the TCE contamination is
a regional  problem that is not confined to the Atrium and (iii) the DOA has not
yet  identified  the  source of the TCE in the  groundwater.  Our  environmental
consultants  have  advised us that the United  States  Environmental  Protection
Agency (the "EPA") has issued a Statement of Policy  towards  owners of property
containing  contaminated  acquifers.  According to this policy,  it is the EPA's
position that where  hazardous  substances have come to be located on a property
solely as a result of subsurface migration in an aquifer from an offsite source,
the EPA will not take enforcement actions against the owner of the property. The
groundwater  underneath  this  property is  relatively  deep,  and the  property
obtains its potable  water  supply  from the City of  Naperville  and not from a
groundwater  well.  Accordingly,  we do not  anticipate  any material  liability
because of this TCE contamination.

     Our IBM Plaza office property  currently  contains  asbestos in the form of
non-friable  spray-on  insulation  located  on  the  decking  and  beams  of the
building.  We have  been  informed  by our  environmental  consultants  that the
asbestos  in IBM Plaza is not  friable  and no  remediation  of the  asbestos is
necessary.

     We believe  that our other  properties  are in  compliance  in all material
respects  with all federal,  state and local laws,  ordinances  and  regulations
regarding  hazardous  or toxic  substances.  We have not  been  notified  by any
governmental   authority,   and  are  not  otherwise   aware,  of  any  material
noncompliance,  liability or claim relating to hazardous or toxic  substances in
connection  with  any  of  our  other  properties.  None  of  the  environmental
assessments of our properties have revealed any environmental  liability that we
believe  would have a material  adverse  effect on our  financial  condition  or
results of  operations  taken as a whole,  nor are we aware of any such material
environmental liability. Nonetheless, it is possible that our assessments do not
reveal all  environmental  liabilities or that there are material  environmental
liabilities  of which we are unaware.  Moreover,  there can be no assurance that
(i)  future  laws,  ordinances  or  regulations  will not  impose  any  material
environmental  liability  or (ii) the  current  environmental  condition  of our
properties  will  not be  affected  by  tenants,  by the  condition  of  land or
operations  in  the  vicinity  of  our  properties  (such  as  the  presence  of
underground  storage  tanks) or by third parties  unrelated to us. If compliance
with the  various  laws and  regulations,  now  existing or  hereafter  adopted,
exceeds our budgets for such items,  our  financial  condition  could be further
adversely affected.

     Costs of Compliance with Americans with Disabilities Act (the "ADA"). Under
the ADA, all public  accommodations  and  commercial  facilities are required to
meet certain federal requirements related to access and use by disabled persons.
These   requirements   became  effective  in  1992.   Compliance  with  the  ADA
requirements could require removal of access barriers,  and noncompliance  could
result  in the  imposition  of fines by the  federal  government  or an award of
damages to private  litigants.  We believe that our properties are substantially
in compliance with these requirements, however, we may incur additional costs to
fully  comply with the ADA.  Although we believe that such costs will not have a
material adverse effect on our financial position, if required changes involve a
greater amount of  expenditures  than we currently  anticipate,  our capital and
operating resources could be adversely affected.

     Costs of Compliance  with Chapter  13-196 of the Municipal Code of the City
of  Chicago  (the  "sprinkler  ordinance).  The  City of  Chicago  passed  a new
high-rise  fire  sprinkler  ordinance on December 15, 2004.  Under the sprinkler
ordinance,  all  buildings  in the City of Chicago  exceeding  80 feet in height
above grade (a "High-Rise Building") are required to install automatic sprinkler
systems  and  other  related  improvements.  The  ordinance  requires  that  (i)
one-third  of the gross  square  footage  of every  High Rise  Building  must be
equipped with automatic  sprinklers by January 1, 2009,  (ii)  two-thirds of the
gross square  footage must be equipped by January 1, 2013,  and (iii) the entire
gross square  footage must be equipped by January 1, 2017. Our 208 South LaSalle
Street  property does not have an automatic  sprinkler  system and our 180 North
LaSalle Street property is equipped with an automatic  sprinkler system covering
approximately  60% of the  gross  square  footage  of the  building.  Our  other
properties  meeting the  definition of a High-Rise  Building that are located in
the City of Chicago are equipped with automatic sprinklers.

     We anticipate  complying  with the ordinance at 180 North LaSalle Street by
installing  automatic  sprinklers  as we renovate  floors for  existing  and new
tenants and we anticipate 100% of the building's  gross square footage will have
automatic  sprinklers in place in advance of the  requirements  of the sprinkler
ordinance.  The  installation  of an  automatic  sprinkler  system  in 208 South
LaSalle  Street will also be required  pursuant to the above  schedule  and will
require a material capital investment.  The 180 North LaSalle Street and the 208
South LaSalle  Street  properties  are  comprised of 767,292 and 865,655  square
feet,  respectively.  The  Building  Owner and  Manager  Association  of Chicago
estimates the cost to install the required  sprinkler systems is in the range of
$8 to $10 per square foot of building area,  although there is no assurance that
this will be the actual cost we incur.

     Other  Regulations.  Our  properties  are also subject to various  federal,
state and local regulatory  requirements,  such as state and local fire and life
safety  requirements.  Failure to comply with these requirements could result in
the  imposition  of fines by  governmental  authorities  or awards of damages to
private  litigants.  We believe that our  properties  are  currently in material
compliance  with all such  regulatory  requirements.  However,  there  can be no
assurance that these  requirements  will not be changed or that new requirements
will not be imposed  which would  require us to make  significant  unanticipated
expenditures  and could have an adverse effect on our net income and our capital
and operating resources.

Insurance

     In the regular course of our business, we maintain comprehensive  liability
and  all-risk  property  insurance  with respect to our  properties  provided by
reputable companies with commercially reasonable deductibles,  limits and policy
specifications  customarily  covered  for  similar  properties.  Our  management
believes that such insurance adequately covers our properties.

     On March 22, 2004, we obtained new property insurance  policies  consisting
of (i) a primary policy  covering the first $150.0 million of physical damage to
the properties in our portfolio  (the "primary  policy") and (ii) several layers
of excess property  insurance in an aggregate  amount of $400.0 million covering
physical property damages to our properties in excess of our primary policy (the
"excess policies"). Our primary policy and excess policies include insurance for
acts of Terrorism as a covered loss. We are at risk for  financial  loss,  which
could be  material,  relating  to  losses in excess  of our  policy  limits.  In
addition,  we are at risk under our insurance  policies for losses of any amount
relating to occurrences which are not covered by our insurance policies, such as
occurrences excluded under the standard coverage exclusions such as acts of war,
military  action,  nuclear  hazards,  governmental  action,  illegal acts of the
insured and pollution, which in the event of such losses could be material.

     Our  primary  policy and excess  policies  include  coverage  for flood and
earthquake  losses.  In certain instances our policy sub-limits for these losses
may be less  than the  value of  specific  properties.  Our  properties  are not
located in geographical  areas typically subject to flood or earthquake  losses.
However, we may be at risk of financial losses resulting from losses that exceed
these policy sub-limits.

     We maintain  liability  insurance  including  but not limited to commercial
general  liability,  auto liability,  garage  liability and commercial  umbrella
insurance (the  "liability  policies") in amounts and limits that are similar to
other property owners in geographic areas similar to that of our properties. Our
liability  policies  include  coverage for acts of terrorism as a covered  loss.
Additionally,  we maintain  workers  compensation  in compliance  with statutory
limits and requirements as well as employers liability insurance. These policies
contain standard exclusions that are typical of liability insurance policies. We
may be at financial risk for losses that exceed our limits of liability or which
may be excluded from the insurance policies, which could be material.

     In connection  with the  ownership of our  properties,  certain  events may
occur that would  require us to expend funds for  environmental  remediation  of
some of our properties and adjacent properties.  Certain environmental exposures
are excluded from coverage  under our insurance  policies.  Effective  April 30,
2003,  we obtained a pollution  legal  liability  policy having a limit of $10.0
million, which includes coverage for liability,  third party property damage and
remediation costs as a result of pollution  conditions.  Pre-existing  pollution
conditions  are excluded from the policy and certain  property  locations may be
excluded in the future by our insurer based on its ongoing due diligence.  Costs
not covered under our pollution legal liability policy could be material,  which
could adversely affect our financial condition. We are unable to predict changes
in future  environmental laws and the financial impact we may incur as result of
these changes.

Employees

     As of December 31, 2004, we had approximately 124 full-time  employees.  We
believe that our relations with our employees are satisfactory.

Available Information

     We make available,  free of charge, on our Internet website,  www.pgrt.com,
our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K and  amendments  to those  reports  filed or  furnished  pursuant to
Section 13(a) or 15(d) of the  Securities  Exchange Act of 1934, as amended,  as
soon as reasonably  practicable after the reports are electronically  filed with
the United States Securities and Exchange  Commission.  Copies of our governance
guidelines,  code of ethics and the  charters  of our audit,  compensation,  and
governance and nominating committees are also available,  free of charge, on our
Internet website,  and are available in print to any shareholder who requests it
from our  investor  relations  representative  c/o  Prime  Group  Realty  Trust,
Investor Relations, 77 West Wacker Drive, Suite 3900, Chicago, Illinois 60601.


<PAGE>


ITEM 2.  PROPERTIES

General

     We own 11 office  properties  and one  industrial  property  located in the
Chicago  metropolitan area. This includes  Continental Towers, on which we own a
second mortgage note which results in a controlling  financial  interest in this
property.  We therefore  consolidate its operations.  In addition,  we own a 50%
common  interest in a joint  venture  which owns the 944,556  square foot office
tower located at 77 West Wacker Drive in downtown  Chicago,  a 30%  subordinated
common  interest in a joint  venture  which owns a 1,503,238  square foot office
building located at 131 South Dearborn Street in downtown Chicago, known as Bank
One Center, and a 23.1% common interest in a venture which owns a 383,509 square
foot office complex located in Phoenix, Arizona.

     Our management  team has developed or  redeveloped a significant  number of
office  properties,  such as 77 West Wacker Drive, 180 North LaSalle Street, and
Bank One  Center,  all  located  in  downtown  Chicago.  In the  course  of such
activities,  we have acquired experience across a broad range of development and
redevelopment projects.

     We own  approximately  6.3 acres of developable land and have the rights to
acquire  approximately 1.3 acres of additional  developable land. However, we do
not currently  anticipate  commencing any new  development  projects in the near
future.

     Our office  properties are leased to tenants either (i) on a net basis with
tenants  obligated  to pay  their  proportionate  share  of real  estate  taxes,
insurance,  utilities and operating  expenses or (ii) on a gross basis, with the
landlord responsible for the payment of these expenses up to the amount incurred
during the tenants' first year of occupancy ("Base Year") or a negotiated amount
approximating the tenants' pro rata share of these expenses ("Expense Stop"). In
the latter cases,  the tenants pay their pro rata share of increases in expenses
above the Base Year or Expense Stop. Our industrial  property's lease is written
on a  triple-net  lease  basis,  with the tenant  paying all of the real  estate
taxes, insurance, utilities and other operating expenses for the property.



<PAGE>


Properties

     The following table sets forth certain information  relating to each of our
properties.  Through the Operating Partnership and other subsidiaries,  we own a
100%  interest  in all of the  office  and  industrial  properties,  except  for
Continental  Towers and the unconsolidated  joint venture properties  identified
below.  All of the properties are office  properties  with the exception of 1051
Kirk Road, which is an industrial property.


<TABLE>
                                                                               Net        Percentage
                                                             Year Built/     Rentable     Occupied as
                                           Location           Renovated     Square Feet   of 12/31/04
                                    --------------------------------------------------------------------
<S>                                 <C>                      <C>           <C>              <C>

Wholly-Owned Properties:
IBM Plaza (1)                       Chicago, IL              1971           1,366,468          88.0%
Continental Towers (2)              Rolling Meadows, IL      1977 thru        922,898          77.6%
                                                               1981/2001
208 South LaSalle Street            Chicago, IL              1914/1956/       865,655          86.7%
                                                               1982/1991
180 North LaSalle Street            Chicago, IL              1982/1999        767,292          81.0%
800-810 Jorie Boulevard             Oak Brook, IL            1961/1992        191,666         100.0%
4343 Commerce Court                 Lisle, IL                1989             165,534          88.4%
740-770 Pasquinelli Drive           Westmont, IL             1986             109,982          88.7%
1600-1700 167th Street              Calumet City, IL         1981              64,977          80.9%
280 Shuman Blvd.                    Naperville, IL           1979              65,385          89.3%
Enterprise Center II                Westchester, IL          1999              62,619          86.7%
7100 Madison Avenue                 Willowbrook, IL          1999              50,157         100.0%
1051 N. Kirk Road                   Batavia, IL              1990             120,004         100.0%
                                                                          ----------------
Portfolio total                                                             4,752,637          85.5%
                                                                          ================

Unconsolidated Joint Venture
  Properties:
Bank One Center (3)                 Chicago, IL              2002           1,503,238          72.4%
77 West Wacker Drive (4)            Chicago, IL              1992             944,556          93.8%
Thistle Landing (5)                 Phoenix, AZ              1999             383,509          73.7%

</TABLE>



   (1) The land  underlying a portion of this  property,  related to the parking
       garage, is leased for a term expiring on April 30, 2019 with an option to
       extend the term for an additional twenty-five years.

   (2) We hold a mortgage  note  receivable  on this  office  property  and have
       consolidated  the  underlying  property  operations  because  we  receive
       substantially all of the economic benefits of the property's operations.

   (3) We own a 30% subordinated  common  ownership  interest in a joint venture
       that owns this office property.

   (4) We own a 50% common ownership  interest in a joint venture that owns this
       office property.

   (5) We own a 23.1%  common  ownership  interest in a joint  venture that owns
       this office complex consisting of four office buildings.



<PAGE>




ITEM 3.  LEGAL PROCEEDINGS

     Except  as  described  below,  neither  we nor  any of our  properties  are
presently subject to any material  litigation or legal  proceeding,  nor, to our
knowledge,  is any material or other litigation or legal  proceeding  threatened
against us, other than  routine  litigation  arising in the  ordinary  course of
business, some of which is expected to be covered by liability insurance and all
of which  collectively is not expected to have a material  adverse effect on our
consolidated financial statements.

     On October 27, 2004,  we entered into an agreement  and plan of merger with
Prime/Mansur   Investment   Partners,   LLC  and   certain  of  its   affiliates
("Prime/Mansur").  Prime/Mansur is a  joint-venture  formed and controlled by E.
Barry Mansur and including  Michael W. Reschke,  a former  chairman and a former
member of our Board. Under the merger agreement,  Prime/Mansur agreed to acquire
our outstanding common shares and the outstanding  limited  partnership units of
our Operating  Partnership  for $6.70 per share/unit in cash. Our Board approved
the  transaction  subject to  Prime/Mansur  obtaining a  satisfactory  financing
commitment  for the  transaction.  On November 10, 2004, we announced the merger
agreement  terminated   automatically  in  accordance  with  its  terms  because
Prime/Mansur   did  not  obtain  a  financing   commitment  that  satisfied  the
requirements of the merger agreement.

     On December 8, 2004, we filed an action in the Circuit Court for Montgomery
County,  Maryland (the "Maryland  State Court")  against  Prime/Mansur.  In this
action we are  seeking a  declaratory  judgment  that our  previously  announced
merger agreement with Prime/Mansur  terminated  automatically in accordance with
its terms on November 9, 2004  because  Prime/Mansur  did not obtain a financing
commitment that satisfied the requirements of the merger agreement.

     On January 3, 2005,  Prime/Mansur and certain additional affiliates filed a
lawsuit against us and our Operating  Partnership,  in the Maryland State Court.
In the complaint,  Prime/Mansur alleges,  among other things, that we wrongfully
terminated and otherwise breached the merger agreement with Prime/Mansur. In its
complaint,  Prime/Mansur  is seeking  damages  from the Court in excess of $50.0
million and other relief, including specific performance. We vigorously deny the
allegations in the complaint and believe that the allegations  have no merit. We
intend to diligently  defend  ourselves  against this lawsuit and to continue to
aggressively pursue our declaratory judgment lawsuit against Prime/Mansur.

     On February 11,  2005,  the Maryland  Court  consolidated  the two lawsuits
referred to above and  granted  our  request to assign the case to an  expedited
hearing track.

     On or about April 23, 2004, Winstar Communications,  LLC and Winstar of New
York LLC  ("Winstar")  brought suit against a number of  commercial  real estate
companies and a trade association,  the Building Owners and Managers Association
of New York  ("BOMA")  in the  United  States  District  Court for the  Southern
District of New York. The suit asserts claims for certain alleged  violations of
federal and state antitrust laws and a declaratory  judgment that the defendants
are precluded from  terminating  Winstar's  building access or interfering  with
Winstar's  communications  operations  until  Winstar is  permitted  to lawfully
discontinue service.  The suit seeks damages,  attorney's fees and a declaratory
judgment.  The claims are premised upon  allegations that the real estate firms,
through and with BOMA, colluded and agreed to charge Winstar disadvantageous and
discriminatory  fees that were higher than those charged to the incumbent  local
telephone  companies.  As a result of this alleged  collusive  conduct,  Winstar
claims  that  it  has  been  damaged  in  its  ability  to  provide  competitive
telecommunications services to customers leasing office space in the defendants'
commercial  real  estate  properties.  We are  not a  named  defendant  in  this
litigation,  but  Winstar is  attempting  to have  certified  a class  action of
defendants consisting of all companies having agreements with Winstar for access
to buildings and Winstar has identified us as a member of that defendant  class.
In separate  correspondence  to us,  Winstar has  alleged  potential  damages in
excess of $2 billion  against the  defendant  class.  On November 10,  2004,  we
entered into an agreement  with  Winstar  pursuant to which we released  Winstar
from their  obligation to pay certain de minimis  rental  obligations  to us and
Winstar released us from all potential liability relating to this matter.

     On August 29, 2002, 180 Acquisition  Company, LLC ("180 Acquisition") filed
a  complaint  (the  "Complaint")  against  us, our  Operating  Partnership,  our
Services Company, one of our subsidiaries holding our interests in the 180 North
LaSalle Street property in Chicago, Illinois (the "180 Interests"),  and Jeffrey
A. Patterson, our President and Chief Executive Officer. The Complaint was filed
in the County  Department,  Law  Division of the Circuit  Court of Cook  County,
Illinois.

     In the  Complaint,  180  Acquisition  alleged  that the  defendants  orally
promised to sell the 180 Interests to them, and that 180  Acquisition  relied on
these alleged  promises,  notwithstanding  the facts that (i) a written contract
was not entered into among the parties and (ii) we  terminated  negotiations  to
sell the 180 Interests to 180  Acquisition  in July 2002. We settled this matter
in 2004 for a payment of  $275,000  and we were  reimbursed  for  $68,750 of the
settlement by one of our insurance carriers.

     The Internal  Revenue Service (the  "Service")  conducted an examination of
the federal income tax returns filed by certain of our  affiliated  entities for
the  taxable  years  ended  December  31,  1999,  2000 and 2001.  The  Service's
examination   included  the  review  of  certain   transactions   involving  our
acquisition of our IBM Plaza office  property which was reported on the examined
returns  as  acquired  in  connection  with  a  nontaxable,  like-kind  exchange
involving an interest in the 77 West Wacker Drive office  property.  On July 30,
2004,  we received  notice from the IRS Chicago  Office of Appeals that they had
completed their review of all years in question and no adjustments are proposed.
This matter has now been formally closed by the IRS and no deficiency is due.

     We are a defendant  in various  other legal  actions  arising in the normal
course of business.  We believe that the ultimate  outcome of those actions will
not  materially  affect  our  consolidated  financial  position  or  results  of
operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were  submitted to a vote of security  holders during the fourth
quarter of 2004.



<PAGE>


                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
         ISSUER PURCHASES OF EQUITY SECURITIES

     Our common shares began trading on the New York Stock Exchange  ("NYSE") on
November  12,  1997,  under the symbol  "PGE".  On March 1, 2005,  the  reported
closing  sale price on the NYSE was  $7.08,  and there  were  23,681,371  common
shares  outstanding  held by  approximately  2,950  beneficial  shareholders  of
record. The following table sets forth the high and low closing sales prices per
common share reported on the NYSE and the common share distributions we paid for
the years ended December 31, 2004 and 2003: Cash Distributions High Low Paid (1)
-----------------------------------------------------

Fiscal Year 2004
First quarter                   $ 6.90         $ 6.05             -
Second quarter                    6.48           5.06             -
Third quarter                     5.83           5.15             -
Fourth quarter                    6.43           5.69             -

Fiscal Year 2003
First quarter                   $ 5.44         $ 4.61             -
Second quarter                    6.95           5.19             -
Third quarter                     7.00           6.00             -
Fourth quarter                    6.55           5.97             -




<PAGE>



(1)  No  distributions  were  declared or paid for the four  quarters of 2004 or
     2003.

     Due  to  a  number  of  factors,   including  our  capital   resources  and
requirements,  our Board decided not to pay a distribution  on the common shares
and units beginning with the last quarter 2001 and continuing  during 2002, 2003
and  2004.  (See  "Business  -  Business   Strategies-   Liquidity  and  Capital
Requirements.")  Any future  distributions  on our common shares will be made at
the discretion of our Board. These  distributions will depend on the actual cash
available for distribution,  our financial condition, capital requirements,  the
completion of capital events, including refinancings and asset sales, the annual
distribution  requirements  under the REIT provisions of the Code and such other
factors as our Board deems  relevant.  We can give no assurance  that we will be
able to complete capital events or, if they are completed,  whether they will be
on terms  that are  favorable  to us.  We also  can give no  assurances  that if
capital   events  are   completed  on  terms   favorable  to  us  or  otherwise,
distributions  on our common  shares and common units will be resumed in 2005 or
thereafter.  Distributions  on our  common  shares  and  common  units  are  not
permitted  unless all  current  and any  accumulated  dividends  on our Series B
Shares and the related  preferred units in the Operating  Partnership  have been
paid in full or declared and set aside for payment.  In December 2004, our Board
declared one quarterly  dividend of $0.5625 per share on our Series B Shares for
shareholders of record on December 31, 2004,  payable on January 31, 2005. Under
our  Declaration  of Trust,  this dividend is deemed to be a quarterly  dividend
which relates to the third quarter 2003 dividend  period,  the earliest  accrued
but unpaid quarterly  dividend on our Series B Shares. In addition,  on February
28, 2005,  our Board  declared a quarterly  dividend of $0.5625 per share on our
Series B Shares for  shareholders of record on March 31, 2005. We are in arrears
for five  quarters of Series B Share  dividends for a total of $11.3 million and
we can give no  assurances  as to the timing and  amounts  of  dividends  on our
preferred shares of beneficial interest in future periods.

     Equity  Compensation  Plans.  For a discussion  of our equity  compensation
plans see the information contained in "Security Ownership of Certain Beneficial
Owners and Management - Equity Compensation Plan Information" of this report.

     Recent Sales of Unregistered Securities

     The following sets forth certain  information as to all securities  sold by
the Company  during 2004 that were not  registered  under the  Securities Act of
1933, as amended (the "Securities Act"). As to all such transactions,  we issued
the  securities   without   registration  in  reliance  on  the  exemption  from
registration under Section 4(2) of the Securities Act.

<TABLE>


                                                                                Number of
            Transferee             Transaction Date      Consideration      Common Shares
-------------------------------   -------------------- ------------------- -----------------
<S>                               <C>                    <C>               <C>

1.  Douglas Crocker II               March 9, 2004            (1)               2,500

2.  Ray H. D'Ardenne                 March 9, 2004            (1)               2,500

3.  Jacque Ducharme                  March 9, 2004            (1)               2,500

4.  Daniel A. Lupiani                March 9, 2004            (1)               2,500

5.  Christopher J. Nassetta          March 9, 2004            (1)               2,500

</TABLE>


(1)  These  restricted  common shares were issued to  non-employee  directors as
     part of a grant by our Board.  The shares  vest in four equal  installments
     with the first 25% vesting at March 9, 2004.

     Issuer Purchases of Equity Securities

     None.



<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

     The following tables set forth our selected consolidated financial data and
should  be  read in  conjunction  with  our  consolidated  financial  statements
included elsewhere in this Form 10-K.

<TABLE>


                                                            Year ended December 31
                                             2004         2003        2002        2001        2000
                                         -------------------------------------------------------------
                                               (Dollars in thousands, except per share amounts)
<S>                                       <C>          <C>          <C>          <C>        <C>

 Statements of Operations Data (1)
 Revenue:
 Rental...............................   $   65,479   $   84,870   $  70,397   $  71,798 $   77,381
 Tenant reimbursements................       42,934       50,435      43,714      42,747     39,949
 Other property revenues..............        3,763        4,371       4,272       4,704      5,315
 Mortgage note interest...............            -            -           -           -      4,864
 Services Company revenue.............        4,374        2,923       7,366       7,219          -
                                         -----------------------------------------------------------
 Total revenue                              116,550      142,599     125,749     126,468    127,509

 Expenses:
 Property operations..................       31,237       34,640      33,128      33,409     33,380
 Real estate taxes....................       24,048       28,466      24,312      22,826     22,230
 Depreciation and amortization........       22,016       28,683      20,413      20,114     18,807
 General and administrative...........       10,426        9,681       9,794       9,085     10,359
 Services Company operations..........        3,768        2,582       4,811       6,898          -
 Provision for asset impairment.......            -        1,948       6,203      20,337      1,000
 Severance costs......................          322          701       2,525           -          -
 Strategic alternative costs..........        2,374          485       1,561       3,289        717
 Loss on tax indemnification..........            -            -         189       1,191          -
                                         -----------------------------------------------------------
 Total expenses.......................       94,191      107,186     102,936     117,149     86,493
                                         -----------------------------------------------------------

 Operating income.....................       22,359       35,413      22,813       9,319    41,016
 (Loss) income from investments in
    unconsolidated joint ventures.....      (14,878)      (2,249)        810       1,770      (768)
  Other income........................        1,617        1,296       1,380       2,940      8,281
  Interest:
    Expense...........................      (28,500)     (47,853)    (30,660)    (29,032)   (29,885)
    Amortization of deferred
      financing costs.................       (1,667)      (6,957)     (3,691)     (2,978)    (3,786)
                                         -----------------------------------------------------------
 (Loss) income from continuing
    operations before minority
    interests.........................      (21,069)     (20,350)     (9,348)    (17,981)    14,858
 Minority interests...................        3,458        6,453       9,683      11,094     (1,034)
                                         -----------------------------------------------------------
 (Loss) income from continuing
    operations........................      (17,611)     (13,897)        335      (6,887)    13,824
 Discontinued operations, net of
    minority interests of $(873),
    $(6,512), $21,030, $(1,733),
    $(1,969) in 2004, 2003, 2002,
    2001 and 2000, respectively.......        6,721      (21,674)    (29,759)      2,536      3,179
                                         -----------------------------------------------------------
 (Loss) income before (loss) gain on
   sales of real estate and
   cumulative effect of change
     in accounting principles.........      (10,890)     (35,571)    (29,424)     (4,351)    17,003
 (Loss) gain on sales of real
    estate, net of minority
    interests of  $64, $84, $839,
    $(118) and $786 in 2004, 2003,
    2002, 2001 and 2000, respectively.         (493)        (646)     (1,197)       174      (1,271)
 Cumulative effect of change in
    accounting principles, net of
    minority interests of $218 in
    2001 and $1,140 in 2000 (2).......            -            -           -       (321)     (1,843)
                                          ----------------------------------------------------------
    Net (loss) income.................      (11,383)     (36,217)    (30,621)    (4,498)     13,889
 Net income allocated to preferred
    shareholders......................       (9,000)      (9,000)    (11,280)   (12,150)    (12,147)
                                         ----------------------------------------------------------
 Net (loss) income available to
    common shareholders...............   $  (20,383) $   (45,217)  $ (41,901)  $(16,648)  $    1,742
                                         ===========================================================


</TABLE>



<PAGE>



<TABLE>


                                                            Year ended December 31
                                             2004        2003        2002        2001         2000
                                         --------------------------------------------------------------
<S>                                      <C>          <C>            <C>         <C>          <C>

Basic and diluted earnings available to
  common shares per weighted-average
  common share (3)
(Loss) income from continuing operations   $ (1.12)    $    (1.14)  $    (0.70) $  (1.22)    $   0.11
Discontinued operations, net of minority
  interests.............................      0.28          (1.08)       (1.90)     0.16         0.20
(Loss) gain on sales of real estate, net
  of minority interests.................     (0.02)         (0.03)       (0.07)     0.01        (0.08)
Cumulative effect of change in
  accounting principles, net of minority
  interests.............................         -              -            -     (0.02)       (0.12)
                                         --------------------------------------------------------------
Net (loss) income available per
  weighted-average common share of
  beneficial
  interest -basic and diluted...........  $  (0.86)     $   (2.25)  $    (2.67) $  (1.07)    $   0.11
                                         ==============================================================


</TABLE>



<PAGE>





<TABLE>


                                                            Year ended December 31
                                             2004        2003        2002        2001         2000
                                         --------------------------------------------------------------
                                                            (Dollars in thousands)
<S>                                      <C>           <C>         <C>        <C>         <C>

Balance Sheet Data
Real estate assets, exclusive of
  property held for or under development
  and property held for sale and before
  accumulated depreciation..............  $  691,221  $  681,933 $ 1,025,271  $  685,601   $  658,170
Total assets............................     767,363     948,781   1,410,181   1,527,649    1,439,093
Mortgage notes and notes payable........     427,445     435,869     693,910     598,135      489,055
Mortgage notes, construction financing
  and bonds payable related to
  properties held for sale..............           -     136,951     210,528     327,001      310,116
Total liabilities.......................     502,785     663,640   1,064,099   1,076,737      924,124
Minority interests......................      19,154      21,803     100,643     128,806      153,206
Series A Preferred Shares...............           -           -           -      40,000       39,850
Shareholders' equity....................     245,424     263,338     245,439     282,106      321,913

</TABLE>




<PAGE>




<TABLE>



                                                -------------------------------------------------------------
                                                                   Year ended December 31
                                                   2004         2003        2002         2001        2000
                                                ------------ ----------- ------------ ----------- -----------
<S>                                              <C>          <C>        <C>          <C>         <C>

Cash Flow and Operating Data
Funds from operations (4)..................     $   12,689     $ (1,085) $ (29,924)   $  15,786    $40,462
Cash flow provided by (used in):
   Operating activities....................         22,108       56,875     42,320       52,810     64,393
   Investing activities....................        116,613      296,732    (75,951)    (144,744)   (26,248)
   Financing activities....................        (99,598)    (336,799)    42,849       73,248    (32,787)
Ratio of earnings to combined fixed charges
   and preferred share dividends (5).......              -            -          -            -          -
Office Properties:
   Square footage..........................      4,632,633    5,536,065  6,281,263    7,807,576   7,955,524
   Occupancy (%)...........................           85.1         75.1       91.5         92.0        95.7
Industrial Properties:
   Square footage..........................        120,004    3,874,712  3,874,712    3,914,712   4,187,030
   Occupancy (%)...........................          100.0         81.4       84.4         81.7        93.2
Unconsolidated Joint Venture Properties:
   Square footage..........................      2,831,303    2,827,302  2,831,943    1,421,658   1,330,604
   Occupancy (%)...........................           79.7         74.1       39.9         81.9        90.3

</TABLE>


(1)  Information for the years ended December 31, 2003,  2002, 2001 and 2000 has
     been restated for the reclassification of the operations of properties,  in
     which we sold 100% of our ownership  interest  during 2004,  2003 and 2002,
     from continuing operations to discontinued operations.

(2)  In December  1999, the SEC issued Staff  Accounting  Bulletin No. 101 ("SAB
     101"),  "Revenue  Recognition in Financial  Statements." SAB 101 summarizes
     certain  of the  SEC's  views in  applying  generally  accepted  accounting
     principles  to revenue  recognition  in  financial  statements.  We granted
     permanent  property  easements on portions of certain of our  properties in
     1999 for which we recorded  all of the  revenue in 1999 when the  easements
     were granted. In addition,  our Services Company previously recognized 100%
     of certain leasing commissions at the time of lease signing.  However, half
     of the commission  amounts were subject to the tenant  occupying the space.
     Under SAB 101,  revenue should be recognized  over the  anticipated  period
     that the easement would be used and lease commissions  should be recognized
     when all  conditions  related to earning the  commission  have been settled
     which  usually  occurs  within  twelve  months  of the  lease  signing.  In
     determining  the periods over which we would  recognize  revenue  under SAB
     101,  we took  into  consideration  factors  such as the  expected  life of
     physical  structures  constructed  on easement  sites at our properties and
     other  factors that  provided an indication of the periods of active use of
     the easements by the respective grantees.  These periods range from five to
     ten years. We adopted SAB 101 retroactive to January 1, 2000 and recorded a
     charge  to  income  of $1.8  million,  net of  minority  interests  of $1.1
     million,  representing  the  cumulative  effect of  adopting  SAB 101 as of
     January 1, 2000. The cumulative effect represents income recognized in 1999
     and relates to the permanent  property  easements  and to leasing  activity
     described  above.  During  2004,  2003,  2002 and  2001,  respectively,  we
     recognized  $0.3 million,  $0.3  million,  $0.3 million and $0.3 million of
     income (a portion of which is  included in other  property  revenues in the
     consolidated statement of operations) previously recorded in 1999.


<PAGE>


     On January 1, 2001, we adopted Statement of Financial  Accounting Standards
     ("SFAS")  No.  133,  "Accounting  for  Derivative  Instruments  and Hedging
     Activities"  ("SFAS  133"),  as amended by SFAS No.  138,  "Accounting  for
     Certain  Derivative  Instruments  and Certain  Hedging  Activities"  ("SFAS
     138"). SFAS 133, as amended, established accounting and reporting standards
     for  derivative  instruments.  Specifically  SFAS 133 requires an entity to
     recognize all  derivatives as either assets or liabilities in the statement
     of  financial  position  and to measure  those  instruments  at fair value.
     Additionally,  the fair value adjustments will affect either  shareholders'
     equity  or net  income  depending  on  whether  the  derivative  instrument
     qualifies as a hedge for accounting  purposes and, if so, the nature of the
     hedging activity.  Upon adoption of SFAS 138 and SFAS 133, we recorded as a
     cumulative  effect  of an  accounting  change a net  transition  adjustment
     (realized loss) of $0.5 million in net income, and a transition  adjustment
     of $3.2 million as an increase in  accumulated  other  comprehensive  loss.
     Adoption of the standard  resulted in a net  transition  adjustment of $3.8
     million on the balance  sheet  reflected  as a $0.5  million  reduction  in
     deferred  costs, a $1.4 million  reduction in investment in  unconsolidated
     entities and a deferred  hedge  liability of $1.9 million.  In August 2001,
     the Financial  Accounting Standards Board ("FASB") issued final guidance on
     the  accounting for options used as hedges under SFAS 133. This guidance is
     pursuant  to  Derivatives  Implementation  Group  Issue  No.  G20  ("G20").
     Provided  certain  criteria  are  met,  options  can  be  considered  fully
     effective hedging vehicles,  with gains and losses due to changes in market
     value  recorded in other  accumulated  comprehensive  income on the balance
     sheet.  On  September  1, 2001,  we  adopted  G20 for  interest  rate hedge
     instruments.  Any subsequent  unrealized  gains or losses due to changes in
     market value of options,  such as interest  rate caps,  are recorded in the
     other accumulated comprehensive income.

(3)  Net  income  available  per  weighted-average  common  share of  beneficial
     interest-basic  equals  net  income  divided  by  23,671,415,   20,105,183,
     15,673,544,  15,630,586  and  15,408,822  common shares for the years ended
     December 31, 2004,  2003,  2002,  2001 and 2000,  respectively.  Net income
     available per weighted-average share of beneficial  interest-diluted equals
     net income divided by 23,671,415,  20,105,183,  15,673,544,  15,630,586 and
     15,539,337,  common  shares for the years ended  December 31,  2004,  2003,
     2002, 2001 and 2000, respectively. The change in number of weighted-average
     common shares is  principally  due to common  unitholders  in our Operating
     Partnership exchanging units for common shares.

(4)  We compute Funds from Operations in accordance  with standards  established
     by the Board of Governors of National Association of Real Estate Investment
     Trusts ("NAREIT") in its April 2002 White Paper. Funds from Operations does
     not represent amounts available for management's  discretionary use because
     of needed capital replacement or expansion, debt repayment obligations,  or
     other  commitments and  uncertainties.  Funds from Operations should not be
     considered as an alternative to net (loss) income,  as an indication of our
     performance or as an alternative to cash flows as a measure of liquidity or
     the ability to pay dividends or make distributions.

(5)  The ratios of earnings  to  combined  fixed  charges  and  preferred  share
     dividends were computed by dividing  earnings by combined fixed charges and
     preferred share  dividends.  For this purpose,  earnings  consist of income
     (loss) before  minority  interests,  plus combined fixed charges.  Combined
     fixed charges consist of interest  incurred,  amortization of debt issuance
     costs and preferred share  dividends.  Our 2004,  2003, 2002, 2001 and 2000
     earnings were  insufficient to cover fixed charges by  approximately  $30.1
     million,  $33.1 million,  $50.6  million,  $54.0 million and $11.5 million,
     respectively.


<PAGE>


     The following is our consolidated quarterly summary of operations for 2004:



<TABLE>




                                                                            Year ended December 31, 2004
                                                       -----------------------------------------------------------------------
                                                                        Fourth        Third        Second          First
                                                           Total        Quarter      Quarter       Quarter        Quarter
                                                       -----------------------------------------------------------------------
                                                                      (in thousands, except per share amounts)
<S>                                                     <C>            <C>           <C>            <C>         <C>

Total revenue......................................    $     116,550   $  29,058    $  28,932     $    29,056    $   29,504
Total expenses.....................................           94,191      24,282       23,560          23,189        23,160
                                                       -----------------------------------------------------------------------
Operating income...................................           22,359       4,776        5,372           5,867         6,344
Loss from investments in unconsolidated joint
   ventures........................................          (14,878)     (3,581)      (3,449)         (4,560)       (3,288)
Other income.......................................            1,617          75          539             348           655
Interest:
   Expense.........................................          (28,500)     (6,814)      (7,271)         (7,205)       (7,210)
   Amortization of deferred financing costs........           (1,667)       (426)        (456)           (422)         (363)
                                                       -----------------------------------------------------------------------
Loss from continuing operations before minority
   interests.......................................          (21,069)     (5,970)      (5,265)         (5,972)       (3,862)
Minority interests.................................            3,458         966          805           1,043           644
                                                       -----------------------------------------------------------------------
Loss from continuing operations....................          (17,611)     (5,004)      (4,460)         (4,929)       (3,218)
Discontinued operations, net of minority interests
   in the amount of $(894) in the fourth  quarter,
   $(193) in the third quarter, $(19) in the
   second quarter and $233 in the first quarter....            6,721       6,829        1,628              28        (1,764)
                                                       -----------------------------------------------------------------------
(Loss) gain before loss on sales of real estate....          (10,890)      1,825       (2,832)         (4,901)       (4,982)
Loss on sales of real estate, net of minority
   interest of $53 in the fourth quarter, $2 in
   the third quarter, $7 in the second quarter and
   $2 in the first quarter.........................             (493)       (397)         (17)            (61)          (18)
                                                       -----------------------------------------------------------------------
Net (loss) income..................................          (11,383)      1,428       (2,849)         (4,962)       (5,000)
Net income allocated to preferred shareholders.....           (9,000)     (2,250)      (2,250)         (2,250)       (2,250)
                                                       -----------------------------------------------------------------------
Net loss available to common shareholders..........    $     (20,383)  $    (822)   $  (5,099)    $    (7,212)   $   (7,250)
                                                       =======================================================================

Basic and diluted earnings available to common
  shares per weighted average common share

 Loss from continuing operations...................    $       (1.12)  $   (0.30)   $   (0.28)    $     (0.30)   $    (0.23)
 Discontinued operations, net of minority interests             0.28        0.29         0.06               -         (0.08)
 Loss on sales of real estate, net of minority
   interests.......................................            (0.02)      (0.02)           -               -             -
                                                       -----------------------------------------------------------------------
Net loss available per weighted-average common
  share of beneficial interest - basic and diluted.    $       (0.86)  $   (0.03)   $   (0.22)    $     (0.30)   $    (0.31)
                                                       =======================================================================
Weighted average common shares--basic and diluted...          23,672      23,672       23,672          23,672        23,671
                                                       =======================================================================
Distributions paid per common share................                -           -            -               -             -
                                                       =======================================================================
</TABLE>



<PAGE>







     The following is our consolidated quarterly summary of operations for 2003:

<TABLE>


                                                                          Year ended December 31, 2003 (1)
                                                       -----------------------------------------------------------------------
                                                                        Fourth        Third        Second          First
                                                             Total      Quarter      Quarter       Quarter        Quarter
                                                       -----------------------------------------------------------------------
                                                                      (in thousands, except per share amounts)
<S>                                                      <C>          <C>          <C>              <C>          <C>

Total revenue......................................       $  142,599  $   27,570     $    40,153    $  38,071    $   36,805
Total expenses.....................................          107,186      23,822          29,110       28,129        26,125
                                                       -----------------------------------------------------------------------
Operating income...................................           35,413       3,748          11,043        9,942        10,680
(Loss) income from investments in unconsolidated
   joint ventures..................................           (2,249)     (4,140)            131        1,457           303
Other income.......................................            1,296         456             235          266           339
Interest:
   Expense.........................................          (47,853)     (8,337)        (12,596)     (13,058)      (13,862)
   Amortization of deferred financing costs........           (6,957)     (3,362)           (883)      (1,184)       (1,528)
                                                       -----------------------------------------------------------------------
Loss from continuing operations before minority
   interests.......................................          (20,350)    (11,635)         (2,070)      (2,577)       (4,068)
Minority interests.................................            6,453       1,598             502        1,704         2,649
                                                       -----------------------------------------------------------------------
Loss from continuing operations....................          (13,897)    (10,037)         (1,568)        (873)       (1,419)
Discontinued operations, net of minority interests
   in  the amount of $4,762 in the fourth quarter,
   $300 in the third quarter, $(93) in the second
   quarter and  $(11,481) in the first quarter.....          (21,674)    (36,648)         (2,308)         992        16,290
                                                       -----------------------------------------------------------------------
(Loss) income before loss on sales of real estate..          (35,571)    (46,685)         (3,876)         119        14,871
Loss on sales of real estate, net of minority
   interest of $84 in the fourth quarter...........             (646)       (646)              -            -             -
                                                       -----------------------------------------------------------------------
Net (loss) income..................................          (36,217)    (47,331)         (3,876)         119        14,871
Net income allocated to preferred shareholders.....           (9,000)     (2,250)         (2,250)      (2,250)       (2,250)
                                                       -----------------------------------------------------------------------
Net (loss) income available to common shareholders.      $   (45,217) $  (49,581)    $    (6,126)  $   (2,131)   $   12,621
                                                       =======================================================================
Basic and diluted earnings available to common
  shares per weighted average common share
Loss from continuing operations....................      $     (1.14) $    (0.52)    $     (0.16)  $    (0.18)   $    (0.23)
Discontinued operations, net of minority interests             (1.08)      (1.55)          (0.10)        0.06          1.03
Loss on sales of real estate, net of minority
  interests........................................            (0.03)      (0.03)              -            -             -
                                                       -----------------------------------------------------------------------
Net (loss) income available per weighted-average
  common share of beneficial interest - basic and
  diluted..........................................      $     (2.25) $    (2.10)    $     (0.26)  $    (0.12)   $     0.80
                                                       =======================================================================
Weighted average common shares--basic and diluted...          20,105      23,665          23,665       17,378        15,713
                                                       =======================================================================
Distributions paid per common share................      $         -  $        -     $         -   $        -   $         -
                                                       =======================================================================

</TABLE>



(1)      Reclassifications  of information  for the year ended December 31, 2003
         related to the operations of properties sold during 2004 have been made
         from continuing operations to discontinued operations.



<PAGE>

<TABLE>



     The following is our consolidated quarterly summary of operations for 2002:


                                                                         Year ended December 31, 2002 (1)
                                                        --------------------------------------------------------------------
                                                                        Fourth        Third       Second         First
                                                            Total       Quarter      Quarter      Quarter       Quarter
                                                        --------------------------------------------------------------------
                                                                     (in thousands, except per share amounts)
<S>                                                     <C>             <C>           <C>         <C>


Total revenue.......................................     $  125,749    $   31,231   $   32,274  $   31,133    $   31,111
Total expenses......................................        102,936        23,774       24,899      26,206        28,057
                                                      --------------------------------------------------------------------
Operating income....................................         22,813         7,457        7,375       4,927         3,054
Income (loss) from investments in unconsolidated
   joint ventures...................................            810           112          145         252           301
Other income........................................          1,380           338          348         158           536
Interest:
   Expense..........................................        (30,660)       (8,412)      (8,375)     (6,927)       (6,946)
   Amortization of deferred financing costs.........         (3,691)       (1,664)        (847)       (585)         (595)
                                                      --------------------------------------------------------------------
Loss from continuing operations before minority
   interests........................................         (9,348)       (2,169)      (1,354)     (2,175)       (3,650)
Minority interests..................................          9,683         1,849        1,596       2,246         3,992
                                                      --------------------------------------------------------------------
Income (loss) from continuing operations............            335          (320)         242          71           342
Discontinued operations, net of minority interests
   in  the amount of $9,092 in the fourth quarter,
   $(951) in the third quarter, $414 in the second
   quarter and  $12,475 in the first quarter........        (29,759)      (12,681)       1,430        (374)      (18,134)
                                                      --------------------------------------------------------------------
(Loss) income before loss on sales of real estate...        (29,424)      (13,001)       1,672        (303)      (17,792)
Loss on sales of real estate, net of minority
   interest of $213 in the fourth quarter, $408 in
   the  second quarter and $218 in the first quarter         (1,197)         (302)           -        (580)         (315)
                                                      --------------------------------------------------------------------
Net (loss) income...................................        (30,621)      (13,303)       1,672        (883)      (18,107)
Net income allocated to preferred shareholders......        (11,280)       (2,250)      (2,450)     (3,381)       (3,199)
                                                      --------------------------------------------------------------------
Net loss available to common shareholders...........    $   (41,901)  $   (15,553)  $     (778)  $  (4,264)  $   (21,306)
                                                      ====================================================================

Basic and diluted earnings available to common
  shares per weighted average common share
Loss from continuing operations.....................    $    (0.70)   $    (0.17)   $    (0.14)  $   (0.22)  $     (0.18)
Discontinued operations, net of minority interests.          (1.90)        (0.81)         0.09       (0.02)        (1.15)
Loss on sales of real estate, net of minority
   interests........................................         (0.07)        (0.01)            -       (0.04)        (0.02)
                                                      --------------------------------------------------------------------
Net loss available per  weighted-average  common
 share of beneficial  interest - basic and diluted..    $    (2.67)   $    (0.99)   $    (0.05)  $   (0.28)  $     (1.35)
                                                      ====================================================================

Weighted average common shares--basic and diluted...        15,673        15,675        15,675      15,674        15,669
                                                      ====================================================================
Distributions paid per common share.................    $        -    $        -    $        -   $       -   $         -
                                                      ====================================================================
</TABLE>



(1)      Reclassifications  of information  for the year ended December 31, 2002
         related to the operations of properties  sold during 2003 and 2004 have
         been made from continuing operations to discontinued operations.



<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

Overview

     The following  discussion should be read in conjunction with our historical
consolidated  financial  statements and related notes thereto included elsewhere
in this Form 10-K.

     We are a fully-integrated,  self-administered, and self-managed real estate
investment trust (REIT) which owns, manages,  leases,  develops,  and redevelops
office and industrial real estate,  primarily in the Chicago  metropolitan area.
Our  portfolio of  properties  consists of 11 office  properties,  containing an
aggregate of 4.6 million net rentable square feet, and one industrial  property,
containing 0.1 million net rentable  square feet. In addition,  we own 6.3 acres
of developable land and have three joint venture  interests in office properties
containing an aggregate of 2.8 million rentable square feet.

     All of our properties are located in the Chicago metropolitan area in prime
business locations within established  business  communities and account for all
of our  rental  revenue  and  tenant  reimbursements  revenue.  One of our joint
venture properties is located in Arizona.

     Our 2004 and 2003 results reflect the general  weakness in the economy over
the past  couple of years,  which has  resulted  in less  demand  for office and
industrial  property.  Since national and regional office and industrial vacancy
rates are higher than they would be in a stronger economic environment,  we have
been challenged to retain existing tenants and locate new tenants for our vacant
and  non-renewing  space at acceptable  economic rental rates. In addition,  the
supply of downtown  Chicago  office space  continues to grow,  principally  as a
result of the construction of new office  buildings.  As these buildings come on
line in the next few years,  the  additional  supply may  continue to add to the
challenge.

     Our  management is addressing  this  challenge by increasing  our marketing
efforts both through working with the office  brokerage  community and in direct
marketing  campaigns to prospective users of office space in our market, as well
as investing in targeted capital expenditures to improve our properties in order
to enhance our position in our market. In addition,  management has been working
to improve our  balance  sheet in order to increase  our  liquidity  position to
enable us to take advantage of leasing  opportunities  as they arise and, at the
same time, lower our overall cost of debt.

     Our  income  and  cash  flow  is  derived  primarily  from  rental  revenue
(including  tenant  reimbursements)  from our  properties.  We  expect  that any
revenue  growth over the next  several  years will come from  revenue  generated
through increased occupancy rates in our portfolio. The following summarizes our
portfolio  occupancy  at the end of 2003 and at the end of each quarter of 2004,
excluding properties sold in subsequent periods:

<TABLE>


                                                            Portfolio Occupancy
                            December 31,      September 30,        June 30,      March 31,      December 31,
                                2004               2004              2004           2004            2003
                           ---------------- ------------------- -------------- --------------- ----------------
<S>                        <C>              <C>                <C>             <C>             <C>

Portfolio Total                  85.5%            86.4%               87.8%          84.9%           84.9%
                           ================ =================== ============== =============== ================
Unconsolidated Joint
  Venture Properties             79.7%            79.2%               79.0%          77.1%           74.1%
                           ================ =================== ============== =============== ================
</TABLE>


<PAGE>


2004 Business Summary

     For 2004, our focus was on:

o    improving our liquidity position;
o    retiring or refinancing debt which had maturity dates in 2004;
o    reducing our overall debt levels;
o    stabilizing portfolio cash flow;
o    reducing operating costs;
o    aggressively pursuing leasing transactions; and
o    continuing to explore strategic alternatives.

     Below is a summary of several of the  activities  we  undertook  in 2004 in
keeping with these objectives.


o    We reduced our outstanding  indebtedness  from $572.8 million at the end of
     2003 to $427.4 million as of December 31, 2004, including the retirement of
     $22.8 million of maturing mezzanine debt.

o    We sold our 33 West Monroe  Street  property to repay its mortgage  debt of
     $59.3  million,  eliminate  the outflows of cash needed for its  continuing
     operations and generate $8.8 million in net sales proceeds.

o    We sold 29 of our industrial  properties,  one of our office properties and
     three land parcels  allowing us to eliminate  $65.1 million of mortgage and
     bond debt  secured by the  properties  and  generate  $54.3  million of net
     proceeds (including escrow releases),  which we used to repay $22.8 million
     of maturing mezzanine debt and provide additional working capital.

o    Through  December 31, 2004, we commenced 48 new and expansion office leases
     totaling  457,928  square feet and  renewed or  extended  63 office  leases
     totaling 290,885 square feet.

o    We  continued  to  evaluate  strategic  alternatives  in  consideration  of
     opportunities to enhance shareholder value.


Key Performance Indicators

     We  evaluate  the  performance  of our  operations  based on the  occupancy
percentages  and operating  profit of each of our  properties,  including  their
rental revenue,  tenant reimbursement  revenue,  property operations expense and
administrative  expenses,  as well as tenant retention and the results of tenant
satisfaction  surveys. We also use other metrics such as gross rent,  occupancy,
percent of property  operating  expenses  recovered,  and net effective  rent in
analyzing individual tenant lease agreements.

     In addition to net income under generally accepted  accounting  principles,
we use funds from  operations,  which is a  measurement  tool common  among real
estate investment trusts for measuring profitability.


<PAGE>


     Results of Operations

     Comparison of the Year ended  December 31, 2004 to the Year Ended  December
     31, 2003

     The  table  below  represents   selected  operating   information  for  our
portfolio.  Property revenues include rental revenues, tenant reimbursements and
other property  operating  revenues.  Property  operating  expenses include real
estate taxes, utilities and other property operating expenses.

<TABLE>


                                                                             Increase/           %
(Dollars in thousands)                           2004            2003       (Decrease)        Change
------------------------------------------- --------------- -------------- --------------- ---------------
<S>                                         <C>             <C>            <C>             <C>

Property revenues.......................    $  112,176      $  139,676    $   (27,500)        (19.7)%
Services Company revenues...............         4,374           2,923          1,451          49.6
                                           -------------- -------------- --------------- ---------------
 Total revenues.........................       116,550         142,599        (26,049)        (18.3)

Property operating expenses.............        55,285          63,106         (7,821)        (12.4)
Depreciation and amortization...........        22,016          28,683         (6,667)        (23.2)
General and administrative..............        10,426           9,681            745           7.7
Services Company operations.............         3,768           2,582          1,186          46.0
Provision for asset impairment..........             -           1,948         (1,948)       (100.0)
Severance costs.........................           322             701           (379)        (54.1)
Strategic alternative costs.............         2,374             485          1,889         389.5
                                           -------------- -------------- --------------- ---------------
 Total expenses.........................        94,191         107,186        (12,995)        (12.1)
                                           -------------- -------------- --------------- ---------------
Operating income........................        22,359          35,413        (13,054)        (36.9)
Loss from investments in
 unconsolidated joint ventures..........       (14,878)         (2,249)       (12,629)       (561.5)
Other income............................         1,617           1,296            321          24.8
Interest:...............................
 Expense................................       (28,500)        (47,853)        19,353          40.4
 Amortization of deferred financing
   costs................................        (1,667)         (6,957)         5,290          76.0
                                           -------------- -------------- --------------- ---------------
Loss from continuing operations
  before minority interests.............       (21,069)        (20,350)          (719)         (3.5)
Minority interests......................         3,458           6,453         (2,995)        (46.4)
                                           -------------- -------------- --------------- ---------------
Loss from continuing operations.........       (17,611)        (13,897)        (3,714)        (26.7)
Discontinued operations,
 net of minority interests..............         6,721         (21,674)        28,395         131.0
                                           -------------- -------------- --------------- ---------------
Loss before loss on sales of real estate       (10,890)        (35,571)        24,681          69.4
Loss on sales of real estate,
    net of minority interest............          (493)           (646)           153          23.7
                                           -------------- -------------- --------------- ---------------
Net loss................................    $  (11,383)    $   (36,217)   $    24,834          68.6%
                                           ============== ============== =============== ===============

</TABLE>



     Property Revenues.  The decrease of $27.5 million in 2004 property revenues
consists  principally of revenues  generated from Bank One Center in 2003 ($27.3
million),  which is no longer consolidated into our operations,  as well as from
the expiration, downsizing and termination of leases at various properties ($3.9
million)  and the 2003  termination  of Arthur  Andersen  LLP's lease at our IBM
Plaza  property  ($1.0  million).  These  were  offset by the  commencement  and
expansion of leases at various  properties ($3.5 million) and additional  tenant
reimbursements  due to greater property operating expenses in 2004 excluding our
Bank One Center property ($0.5 million).

     Services  Company  Revenues.  The  increase of $1.5 million in our Services
Company revenues during 2004 was primarily due to increased  leasing  commission
income of $0.8 million  from the joint  ventures and  increased  management  fee
income of $0.8 million  related to our  management of Bank One Center for a full
year and the management of 77 West Wacker Drive which was previously  managed by
our Operating Partnership and previously included in other income.



<PAGE>


     Property  Operating  Expenses.  The  decrease  of $7.8  million in property
operating  expenses consists  principally of operating expenses incurred by Bank
One Center in 2003 ($8.5 million),  which are no longer consolidated,  offset by
increases  in real  estate  taxes  ($0.5  million)  and bad debt  expense  ($0.5
million).

     Depreciation and Amortization. The decrease of $6.7 million in depreciation
and  amortization  in the total  portfolio  was  attributable  primarily to $5.9
million of depreciation and amortization  related to Bank One Center in 2003. In
addition,  in 2003 we recorded a write-off of $0.4 million of unamortized tenant
improvement  and leasing  commissions  associated  with the Arthur  Andersen LLP
lease termination at our IBM Plaza property.

     General and  Administrative.  The  increase of $0.7  million in general and
administrative  expenses  was  primarily  due to an increase in  consulting  and
professional fees in 2004,  principally  related to  Sarbanes-Oxley  compliance,
costs to settle a legal claim and the costs  associated with the registration of
certain common shares.

     Services  Company  Expenses.  The  increase of $1.2 million in our Services
Company's  operating  expenses was primarily due to an increase in the provision
for income  taxes of $0.7  million  due to  increased  income and an increase in
leasing commissions expense of $0.4 million.

     Provision for Asset  Impairment.  The decrease of $1.9 million in provision
for asset impairment is due to no impairments  recorded in 2004.  During 2003 we
recorded an asset  impairment of $1.0 million related to costs associated with a
development  project,  which we determined no longer had value. Also, during the
third  quarter of 2003,  we entered  into an  agreement to admit a new 70% joint
venture  partner  to our  subsidiary  that  owned  the  Bank One  Center  office
building, which subsequently closed in October 2003. As a result, we recorded an
asset impairment of $0.9 million  representing the difference between our equity
in the property and the equity value determined by the acquisition price paid by
our joint venture partner for the 70% interest, net of transaction costs.

     Severance  Costs. The decrease of $0.4 million in severance costs is due to
lower  severance  expenditures in 2004. For the year ended December 31, 2004, we
recorded $0.3 million of severance costs primarily resulting from the retirement
of Mr.  Stephen J. Nardi as our Chairman of our Board.  Our severance  costs for
2003 were $0.7 million  resulting from the termination of Mr. Louis G. Conforti,
our former Chief Financial Officer.

     Strategic Alternative Costs. The increase in strategic alternative costs of
$1.9 million is due to an increase in legal, consulting and professional fees of
$1.0 million as compared to 2003, and an accounts receivable reserve in 2004 for
$0.9 million.  The receivable reserve relates to a prior master lease obligation
due  from  Mr.   Nardi,   which   is   payable   solely   from   future   common
dividends/distributions.  Due to the uncertainty of future dividend/distribution
payments as a result of our  pursuit of  strategic  alternatives,  a reserve has
been established for this amount.

     Investment  in  Unconsolidated  Joint  Ventures.  The increase in loss from
investments in unconsolidated  joint ventures of $12.6 million was primarily due
to an $11.1  million  increase in loss as compared to 2003  associated  with our
equity  investment in the Bank One Center joint venture as the venture commenced
operations in October of 2003, a partial year. As  distributions  to our partner
in the joint venture  exceeded the joint  venture's net income,  income equal to
the  distribution  was  allocated  to our  partner and we recorded a loss in the
amount of the  difference  between this  allocation and the actual net income of
the joint  venture.  In addition,  our equity  investment  in the 77 West Wacker
joint venture experienced a $0.9 million loss in 2004 compared to a $0.3 million
gain in 2003 which was principally  due to a lease  termination fee at the joint
venture  property in 2003 in addition to the effects of an interest  rate collar
in 2004. The interest rate collar expired on September 30, 2004.

     Other Income.  The increase in other income relates primarily to forfeiture
to us of $0.5 million of earnest money related to a proposed merger  transaction
and higher interest  income,  partially offset by management fee income from the
77 West Wacker Drive joint venture which is now included in our Services Company
revenues.

     Interest  Expense.  The decrease in interest  expense of $19.4  million was
primarily due to a $11.9 million decrease in interest as a result of a reduction
in debt  due to the sale of 70% of our  ownership  in Bank  One  Center,  a $5.7
million decrease due to the retirement of our Security Capital  Preferred Growth
Incorporated  ("SCPG") debt, a $0.6 million  decrease due to the  refinancing of
our IBM  Plaza  property,  a $0.8  million  decrease  due to the  retirement  of
mezzanine  loans  associated  with our 180 North LaSalle  Street,  800-810 Jorie
Boulevard and 208 South LaSalle Street properties and a decrease of $0.3 million
due to the amortization of principal on various other loans.

     Amortization of Deferred  Financing  Costs. The decrease in amortization of
deferred  financing  costs of $5.3  million was  primarily  attributable  to the
write-off  and  amortization  of  financing  costs for  indebtedness  retired or
refinanced in 2003 and 2004.

     Discontinued Operations.  Discontinued operations reflect net income (loss)
(including  provision for asset  impairment and lease  termination  revenue) and
gain  (loss) on sales of real  estate  for  properties  which  have  been  sold.
Discontinued  operations  include the results of  operations  of our  industrial
portfolio  sold in October  and  November  2004,  as well as our 33 West  Monroe
Street  property,  which was sold in April 2004,  and our  National  City Center
property,  which was sold in 2003.  The increase of $28.4  million was primarily
due to a $43.4  million  provision for asset  impairment  related to our 33 West
Monroe Street property in 2003, a $9.5 million gain on sales of real estate from
our  industrial  portfolio  in  2004,  a $4.4  million  decrease  in  loss  from
operations  on our former 33 West  Monroe  Street  property  as compared to 2003
(excluding  lease  termination  fee revenue) and a $0.9 million  increase in the
income from operations of our industrial portfolio sold in 2004. These increases
were  offset by $30.3  million of lease  termination  fees  associated  with the
Arthur  Andersen LLP lease at our 33 West Monroe Street property in 2003, a $2.7
million decrease in income from operations  relating to our National City Center
property in 2003 and a $2.3 million gain on sales of real estate relating to our
former  National City Center  property in 2003.  In addition,  the $28.4 million
increase in discontinued  operations was net of minority  interests,  which also
contributed $5.6 million to the increase.

     Loss on Sales of Real Estate. Loss on sales of real estate is primarily due
to changes in  estimates  of assumed  lease  liabilities  which we  retained  in
connection with the sale of 70% of our ownership in Bank One Center.



<PAGE>


     Comparison of the Year ended  December 31, 2003 to the Year Ended  December
31, 2002

     The  table  below  represents   selected  operating   information  for  our
portfolio.  Property revenues include rental revenues, tenant reimbursements and
other property  operating  revenues.  Property  operating  expenses include real
estate taxes, utilities and other property operating expenses.

<TABLE>

                                                                              Increase/          %
(Dollars in thousands)                           2003           2002         (Decrease)        Change
------------------------------------------ --------------- --------------- --------------- ---------------
<S>                                       <C>              <C>             <C>              <C>

Property revenues........................    $ 139,676     $   118,383      $   21,293          18.0%
Services Company revenues................        2,923           7,366          (4,443)        (60.3)
                                           --------------- --------------- --------------- ---------------
 Total revenues..........................      142,599         125,749          16,850          13.4

Property operating expenses..............       63,106          57,440           5,666           9.9
Depreciation and amortization............       28,683          20,413           8,270          40.5
General and administrative...............        9,681           9,794            (113)         (1.2)
Services Company operations..............        2,582           4,811          (2,229)        (46.3)
Provision for asset impairment...........        1,948           6,203          (4,255)        (68.6)
Severance costs..........................          701           2,525          (1,824)        (72.2)
Strategic alternative costs..............          485           1,561          (1,076)        (68.9)
Loss on tax indemnification..............            -             189            (189)       (100.0)
                                           --------------- --------------- --------------- ---------------
 Total expenses..........................      107,186         102,936           4,250           4.1
                                           --------------- --------------- --------------- ---------------
Operating income.........................       35,413          22,813          12,600          55.2
(Loss) income from investments in
  unconsolidated joint ventures............     (2,249)            810          (3,059)       (377.6)
Other income.............................        1,296           1,380             (84)         (6.1)
Interest:
 Expense.................................      (47,853)        (30,660)        (17,193)        (56.1)
 Amortization of deferred financing costs       (6,957)         (3,691)         (3,266)        (88.5)
                                           --------------- --------------- --------------- ---------------
Loss from continuing operations before
  minority interests.....................      (20,350)         (9,348)        (11,002)       (117.7)
Minority interests.......................        6,453           9,683          (3,230)        (33.4)
                                           --------------- --------------- --------------- ---------------
(Loss) income from continuing operations       (13,897)            335         (14,232)     (4,248.4)
Discontinued operations,
 net of minority interests...............      (21,674)        (29,759)          8,085          27.2
                                           --------------- --------------- --------------- ---------------
Loss before loss on sales of real estate       (35,571)        (29,424)         (6,147)        (20.9)
Loss on sales of real estate,  net of
  minority interest......................         (646)         (1,197)            551          46.0
                                           --------------- --------------- --------------- ---------------
Net loss.................................   $  (36,217)    $   (30,621)     $   (5,596)        (18.3)%
                                           =============== =============== =============== ===============

</TABLE>



     Property Revenues.  The increase of $21.3 million in 2003 property revenues
included  $27.3 million of revenues  generated  from Bank One Center,  partially
offset by a decrease of $3.9 million due to the  expiration of leases at various
properties  and  a  decrease  of  $1.1  million  due  to a  decrease  in  tenant
reimbursement  revenue  as a result  of a  decrease  in  expenses  at two of our
buildings.  The Bank One Center  property was placed in service in November 2002
with tenant lease  commencements  in January,  February and April 2003.  We have
recorded revenue from January 1, 2003 through October 8, 2003 (admittance of our
joint  venture  partner) for this  property.  Subsequent  to October 8, 2003, we
recorded this investment under the equity method of accounting.

     Services Company Revenues.  The decrease of $4.4 million in the revenues of
our  Services  Company  during  2003 was  primarily  due to our  recognition  of
development  fee income of $4.2 million in 2002 related to the  development of a
build-to-suit industrial building.

     Property  Operating  Expenses.  The  increase  of $5.7  million in property
operating  expenses  in 2003  was  primarily  due to the  inclusion  of Bank One
Center's operating expenses,  totaling $8.5 million, as a result of the property
being  placed in service as of  November  1,  2002,  net of amounts  capitalized
relating to vacant  space,  and a $0.9 million  increase in our estimate of 2003
real estate taxes primarily due to an increase in the assessed  valuation of one
of our properties.  These were offset by a $1.3 million decrease in costs due to
staffing  reductions,   an  $0.8  million  decrease  due  to  less  repairs  and
maintenance  at our  properties  in 2003,  a $0.7  million  decrease in bad debt
expense  from 2002 and a $0.7  million  decrease in the 2002 real  estate  taxes
primarily  due to a decrease in the  assessed  valuation of our  properties.  In
addition, an $0.8 million increase in real estate taxes, included in our results
for the  quarter  ended  March 31,  2002,  which  resulted  from a change in the
assessed valuation of one of our properties, partially offset by the increase in
property operating expenses.

     Depreciation and Amortization. The increase of $8.3 million in depreciation
and  amortization  in  2003  was  primarily  attributable  to  $5.9  million  of
depreciation  and  amortization  related  to the  portion of our Bank One Center
property in which tenant leases  commenced in 2003 and,  therefore,  the related
tenant improvement and leasing cost amortization began. In addition, we recorded
write-offs of $0.9 million at our IBM Plaza and Continental Towers properties in
2003 associated with various lease terminations.

     General and Administrative.  General and administrative  expenses decreased
$0.1  million   primarily   due  to  decreases  in  salaries  and  benefits  and
professional  fees which  were  partially  offset by an  increase  in  corporate
insurance costs, principally directors' and officers' liability insurance.

     Services Company Operations.  The decrease of $2.2 million in the operating
expenses of our Services  Company was  primarily due to a decrease in the income
tax  provision by $1.3  million due to the  decrease in revenue  from 2002.  The
remaining  difference  was primarily due to the  elimination  of the expenses of
operating  non-core  business  activities  of third party  brokerage  and tenant
construction services which were discontinued in March 2002.

     Provision for Asset Impairment.  Provision for asset impairment  represents
impairment losses  associated with certain operating and development  properties
in reducing their net book value to their current  estimated  value. In 2003, we
recorded an asset  impairment of $1.0 million related to costs associated with a
development project,  which we determined no longer had value as the development
was put on hold and a $0.9 million asset impairment related to the sale of a 70%
interest  to a new  partner in the entity  that owns the Bank One Center  office
building.  In 2002,  we  recorded a $5.7  million  asset  impairment  related to
various  development  projects we  abandoned as it was  determined  that they no
longer had value.  In  addition,  we also  transferred  our  interest in a joint
venture to our joint  venture  partner and recorded an asset  impairment of $0.5
million related to our investment in that unconsolidated entity.

     Severance  Costs.  For 2003,  we recorded  severance  costs of $0.7 million
resulting from the  termination of Mr. Louis G. Conforti as our Chief  Financial
Officer and, for 2002,  we recorded  severance  costs of $2.5 million  resulting
from the resignations of Mr. Michael W. Reschke and Mr. Richard S. Curto as well
as a reduction of corporate management and support staff.

     Strategic  Alternative Costs. These costs consist primarily of professional
and  investment  banking fees.  For the year ended December 31, 2003 compared to
2002, we incurred  lower expenses in connection  with our  continuing  review of
strategic alternatives.

     Investment in  Unconsolidated  Joint Ventures.  The loss from investment in
unconsolidated joint ventures during 2003 of $2.2 million was primarily due to a
$2.6 million loss associated  with our equity  investment in the Bank One Center
joint  venture for the period from  October 8, 2003 through the end of the year.
As  distributions  to our  partner  in this  joint  venture  exceeded  the joint
venture's  net income,  income equal to the  distribution  was  allocated to our
partner  and we  recorded a loss in the amount of the  difference  between  this
allocation and the actual net income of the joint venture.  Partially offsetting
this loss was income of $0.3 million from our equity  investment  in the 77 West
Wacker joint venture.

     Interest  Expense.  The  increase in interest  expense of $17.2  million is
primarily  due to an  increase  of $9.2  million  related  to  interest  expense
previously  capitalized  for projects  under  development,  an increase of $11.9
million  due to Bank One Center  being  completed  and placed in service  and an
increase  of  $1.6  million  related  to  increased  average  debt  outstanding,
partially offset by a decrease of $5.0 million resulting from the refinancing of
our IBM Plaza  property and a decrease of $1.3 million due to lower rates on our
variable rate debt.

     Amortization of Deferred  Financing  Costs. The increase in amortization of
deferred financing costs of $3.3 million is primarily due to an increase of $1.1
million  related  to  the  write-off  of  financing  fees  associated  with  the
refinancings in March and October 2003 related to financings secured by the Bank
One  Center  office  property,  and a $2.4  million  reduction  in the amount of
amortized financing fees capitalized for projects under development.

     Discontinued  Operations.  In connection with the  requirements of SFAS 144
"Accounting for the Impairment of Long-Lived Assets" (SFAS 144), we have updated
our  historical  financial  statements for the years ended December 31, 2003 and
2002 to present  operating  results of properties sold or classified as held for
disposition through December 31, 2004, as discontinued operations.  Discontinued
operations for 2003 and 2002 include the results for our  industrial  portfolio,
which was sold in October and November 2004, our 33 West Monroe Street property,
which was sold in April 2004,  and National City Center,  which was sold in June
2003.  Included in the 2003 and 2002 discontinued  operations is $0.6 million of
income and $0.1 million loss, respectively, related to our industrial portfolio,
$25.1 million loss, net of a provision for asset impairment, and $1.5 million of
income,  respectively,  related to our 33 West Monroe Street property,  and $2.6
million of income and $31.1 million loss, net of provision for asset impairment,
respectively, related to our National City Center property.

Liquidity and Capital Resources

     Recent Developments. In December 2002, our Board approved the engagement of
two  investment  banks as our financial  advisors to assist in the evaluation of
strategic alternatives,  including,  but not limited to, a sale, merger or other
business  combination  involving  the  Company,  or a sale of some or all of our
assets.  On February  16, 2005,  we entered into an amendment to our  engagement
letter with one of these advisors,  Wachovia, extending their engagement through
December 20, 2005.  The  engagement of our other  financial  advisor  expired in
December 2003.

     Our continuing goal is to achieve a desirable  result for our  shareholders
which may include a strategic transaction(s) and/or the continued implementation
of our primary business strategy (See "Business - Business Strategy"). There can
be no assurances that any transaction or transactions  will occur. We anticipate
utilizing  net proceeds  from any  transaction  other than a sale of the Company
(whether by merger or otherwise) to repay debt,  provide working capital to fund
capital  expenditures,  including tenant  improvements and leasing  commissions,
and/or  distribute them to our  shareholders  and the common unit holders of our
Operating Partnership. We may also utilize a portion of any proceeds for general
and  corporate  operating  needs and to  consummate  tax-deferred  exchanges  to
minimize any tax exposure under existing tax indemnification agreements.

     On April 16, 2004, we sold our 33 West Monroe  Street  property for a gross
sales price of $69.6 million (i) less a credit for $19.4  million,  representing
the sum of a portion of the amount in our leasing reserve escrow account related
to the property and a credit for certain  prepaid  rent,  and (ii) plus or minus
other customary prorations.  Concurrent with the sale of the property, we used a
portion of the proceeds of the sale and approximately $20.0 million of a leasing
escrow held by the existing  lender to repay the existing  first  mortgage  debt
having an outstanding  principal balance of $59.3 million, plus accrued interest
of $0.2 million. After closing prorations and costs and the repayment in full of
the first mortgage loan encumbering the property, we received approximately $8.8
million in net proceeds from the sale.

     In October and  November  2004,  we sold 29 of our  industrial  properties,
consisting of 3.8 million square feet,  located in Illinois and Indiana,  one of
our office  properties,  consisting of 50,400 square feet,  located in Illinois;
and three land parcels  consisting  of 128 acres  located in  Illinois,  plus an
additional 74.3 acres of land included as part of our heavy-crane portfolio. Net
proceeds  after  repayment  of  mortgage  and bond  debt  collateralized  by the
properties,  closing  costs and a tax  indemnity  payment  obligation  was $54.3
million.  Included in net proceeds is  approximately  $9.7 million of restricted
cash escrows which were released or credited by the purchaser at closing, offset
by $4.4  million of  environmental  escrows and a rent  subsidy  escrow for $0.6
million  that  were  funded  at  closing.   In  addition,   we  agreed  to  fund
approximately  $0.9  million  should two tenants fail to pay the future rent due
under their  lease for  specific  periods of time.  Subsequent  to the sale,  we
repaid  $22.8  million of  maturing  mezzanine  loan  financing  and  anticipate
utilizing the remaining proceeds to fund capital  improvements and leasing costs
and provide additional working capital and liquidity.

     Liquidity.  We require  cash to pay our  operating  expenses,  make capital
expenditures,  fund tenant improvements and leasing costs, pay distributions and
service our debt and other  short-term and long-term  liabilities.  Cash on hand
and net cash provided from operations represent our primary sources of liquidity
to fund these expenditures.  In assessing our liquidity,  key components include
our net income adjusted for non-cash and non-operating items, and current assets
and  liabilities,  in particular  accounts  receivable,  accounts  payable,  and
accrued  expenses.  For the longer term, our debt and long-term  liabilities are
also considered key to assessing our liquidity.

     In order to qualify as a REIT for  federal  income  tax  purposes,  we must
distribute 90% of our taxable income (excluding capital gains) annually.  Due to
a number  of  factors,  including  our  capital  requirements  in our  operating
environment,  our Board  decided in  January  and  April,  2002 to  suspend  the
declaration  and  payment of  distributions  on our  common  shares and Series B
Shares,  respectively.  We subsequently  resumed the payment of dividends on our
Series B Shares with  dividends of $0.5625 per share in April,  July and October
2004 and January 31, 2005.  On February 28, 2005 our Board  declared a quarterly
dividend of $0.5625 per share on our Series B Shares for  shareholders of record
on March 31, 2005. Under our declaration of trust, this dividend is deemed to be
a quarterly  dividend related to the fourth quarter of 2003 dividend period, the
earliest accrued but unpaid quarterly dividend on our Series B Shares. There can
be no  assurances  as to the timing and amounts of any future  dividends  on our
Series B  Shares  and the  declaration  of the  fourth  quarter  2003  preferred
dividend at this time should not be  construed to convey any degree of certainty
with respect to future  preferred  dividend  payments.  Our management and Board
review our cash position and  requirements  for cash reserves each quarter prior
to making any  decision  with  respect  to paying  dividends  or  distributions.
Distributions  on our common shares may not be made until all accrued  dividends
on our Series B Shares are declared and paid or set apart for payment. We are in
arrears  for five  quarters  of  Series B Share  dividends  for a total of $11.3
million.  Future  dividends  will  depend  on  the  actual  cash  available  for
distribution,  our financial condition, capital requirements,  the completion of
any capital  transactions,  including  refinancing  and asset sales,  the annual
distribution  requirements  under the REIT  provisions  of the Internal  Revenue
Code, and such other factors as our Board deems relevant.

     We can give no  assurances  that if any further  capital  transactions  are
completed  on terms  favorable  to us or  otherwise  pursuant  to our pursuit of
strategic alternatives, distributions on our common shares and common units will
be resumed  either  during  2005 or  thereafter,  or that we will be able to pay
future  dividends  on our  Series  B  Shares.  We  currently  do not  anticipate
declaring or paying distributions on our common shares/units in 2005.

     Our anticipated  cash flows from operations  combined with cash on hand are
expected to be sufficient to fund our anticipated  short-term  capital needs. In
2005,  we  anticipate  the  need to fund  significant  capital  expenditures  to
retenant space that has been previously  vacated or is anticipated to be vacated
during the year or renew existing  tenants'  leases.  In order to fund these and
our other short-term and long-term capital needs, we expect to utilize available
funds from cash on hand, cash generated from our operations and existing escrows
with lenders. In addition, we may enter into capital  transactions,  which could
include asset sales,  debt or equity  financings and modifications or extensions
of existing loans. There can be no assurance that any capital  transactions will
occur or, if they do occur,  that they will yield adequate  proceeds to fund our
long-term capital needs.

     The  financial  covenants  contained  in some of our  loan  agreements  and
guarantee  agreements  with our lenders  include minimum ratios for debt service
coverage and liabilities as a percentage of total assets, as well as minimum net
worth levels,  limits as to recourse indebtedness and other financial covenants.
In some past  quarters,  we have failed to meet certain of these  covenants  and
after negotiations with our lenders (and in certain instances, after agreeing to
post additional cash collateral,  provide other security and/or otherwise modify
the  terms  of  the  relevant   loans)  we  have  obtained  the  necessary  loan
modifications  and/or waivers.  As a result of the repayment of indebtedness and
debt  assumptions  from the sale of our  industrial  portfolio in October  2004,
certain  covenants that we had previously  failed are no longer in effect. As of
December 31, 2004, we are in compliance  with the  requirements of all remaining
financial covenants.

         As a  requirement  of our  lenders,  we maintain  escrow  accounts  and
restricted  cash  balances for  particular  uses.  At December  31, 2004,  these
accounts totaled $42.8 million. Of this, $15.6 million is for capital and tenant
improvements,  $10.8 million represents lease  obligations,  $7.9 million is for
real estate taxes and insurance,  $3.3 million is for depository accounts,  $2.8
million is related  to  environmental  remediation,  and the  remaining  $2.4 is
reserved for various miscellaneous purposes.

     Given our  current  level of debt,  limited  availability  of  unencumbered
collateral and our current financing arrangements,  we may not be able to obtain
additional  debt  financing at interest rates that are below the rates of return
on our  properties.  In  addition,  any  equity  capital  we might  raise may be
dilutive  to  our  common  shareholders.   The  following  tables  disclose  our
contractual obligations and commercial commitments as of December 31, 2004:

<TABLE>



                                                                    Payments Due by Period
                                                                    (dollars in thousands)
                                                    -------------------------------------------------------
                                                                       2006/         2008/       2010 and
     Contractual Obligations (A)            Total         2005          2007         2009       Thereafter
-----------------------------------------------------------------------------------------------------------
<S>                                      <C>         <C>         <C>            <C>          <C>

Mortgage notes payable (B)               $   427,445   $  3,997   $  203,894    $   26,554   $  193,000
Operating lease obligations                    2,267        578          291           247        1,151
Tenant improvement allowances (C)              4,884      4,884            -             -            -
Tax indemnifications (D)                       3,500      3,500            -             -            -
Liabilities for leases
   assumed and lease reimbursement
   obligations (E)                            74,376     12,290       19,521        17,874       24,691
                                      ---------------------------------------------------------------------
Total contractual cash
   obligations                           $   512,472  $  25,249   $  223,706    $   44,675   $  218,842
                                      =====================================================================

</TABLE>


(A)  We anticipate  funding these  obligations  from  operations,  cash on hand,
     escrowed  funds  and  the  proceeds  of  equity,   debt  or  asset  sale(s)
     transaction(s) as discussed above.

(B)  See Note 4 - Mortgage Notes and Bonds Payable to our Consolidated Financial
     Statements for further detail on interest rates and other terms.

(C)  We  have  escrows  of $3.4  million  that  may be  utilized  to fund  these
     obligations.

(D)  As a result of the sale of certain of our properties in 2004, we recorded a
     liability of $3.5 million payable to the NAC Contributors.

(E)  These  obligations  would be offset by any receipts from  subleasing of the
     related space.  We currently have executed  subleases that we estimate will
     provide  subleasing  receipts of $59.9 million  consisting of base rent and
     the  pro-rata  share of  operating  expenses  and  real  estate  taxes.  In
     addition,  we have  escrowed  reserves  totaling  $10.4  million  to fund a
     portion of this contractual amount.

<TABLE>


                                                                         Amount of Commitment
                                                                        Expiration Per Period
                                                                        (dollars in thousands)

                                                       --------------- ------------- ------------ --------------
               Other                       Total                                                      2010
             Commercial                   Amounts                         2006-       2008-            and
            Commitments                  Committed          2005           2007         2009       Thereafter
------------------------------------- ---------------- --------------- ------------- ------------ --------------
<S>                                   <C>              <C>             <C>           <C>          <C>

Guarantees (A)                        $     4,856       $      600      $    1,200   $    1,200  $     1,856
Unconsolidated joint ventures (B)         164,421              737           3,431        5,729      154,524
Tax indemnifications (C)                   59,138              (C)             (C)          (C)          (C)
Series B preferred shares (D)                 (D)           22,500          18,000       18,000          (D)
                                      ---------------- --------------- ------------ ------------ --------------
Total commercial commitments          $   228,415       $   23,837      $   22,631   $   24,929  $   156,380
                                      ================ =============== ============ ============ ==============

</TABLE>


(A)  This  represents  a guarantee  for $4.9  million to ensure  certain  tenant
     improvement  and lease  commission  payments  are made with  respect to the
     joint  venture  that owns the office  building  located  at 77 West  Wacker
     Drive.

(B)  We have a 50%  common  interest  in an  unconsolidated  real  estate  joint
     venture that owns an office building  located at 77 West Wacker Drive.  The
     amount  shown  includes 50% of the balance of the $166.0  million  mortgage
     note payable secured by the property.

     We also have a 30.0% subordinated common interest in an unconsolidated real
     estate joint venture, that owns the Bank One Center office property.  While
     we are not a guarantor or responsible party, the joint venture has a $270.0
     million  mortgage loan secured by the property.  The amount shown  includes
     30% of the balance of the mortgage loan.

     In  addition,  we have a 23.1%  interest in an  unconsolidated  real estate
     venture,  which owns an office property in Phoenix,  Arizona.  While we are
     not a guarantor or responsible  party, the venture has a $22.0 million loan
     secured by the property.  We have not included any amounts  related to this
     loan in this table.

(C)  We estimate our maximum  possible  exposure on tax  indemnifications  to be
     $59.1 million if all  remaining  indemnity  properties  had been sold as of
     December 31, 2004. For $6.0 million of this exposure, the percentage of the
     tax liabilities,  which our operating partnership is required to indemnify,
     is 40% for the taxable year ending on December  31,  2004,  and declines by
     10% each year  thereafter  until  December  31,  2007.  See "Tax  Indemnity
     Agreements"  and  "Certain  Relationships  and Related  Transactions  - Tax
     Indemnification Agreements" for further discussion of these indemnities.

(D)  Dividends  are  cumulative  and payable at a 9.0% annual rate each  quarter
     that our Series B Shares remain outstanding.  No dividend has been paid for
     the four  quarters of 2004 or for the third and fourth  quarters of 2003 on
     the Series B Shares.  The total  arrearage in payment of dividends is $11.3
     million.  The  amount  shown  for 2005  includes  this  arrearage  plus the
     dividend payable and the dividend for the four quarters of 2005.

     Tenant Concentration.  The following represents our five largest tenants in
2004 based on gross revenue recognized during 2004 (in thousands of dollars):




                                Gross
                               Tenant         % Of Our Total           Lease
        Tenant                 Revenue           Revenue             Expiration
--------------------------------------------------------------------------------

Jenner & Block               $  13,672           11.7%              April 2010
IBM Corporation (1)              8,012            6.9               August 2006
ST Holdings, Inc. (1)            6,246            5.4                May 2007
Accenture                        5,735            4.9                July 2015
ABN AMRO (1)                     5,670            4.9                   (2)
                       ----------------------------------------
                             $  39,335           33.8%
                       ========================================



(1)  We  have  received  indications  that  IBM  Corporation,  ABN  AMRO  and ST
     Holdings, Inc. will not be renewing their leases at expiration.

(2)  Includes a 208,210  square foot lease which  expires in December 2005 and a
     46,738 square foot lease expiring in November 2008.

     If one or more of the tenants  listed  above were to  experience  financial
difficulties  and  cease  paying  rent or  fail  to  renew  their  lease  at the
expiration  of its term,  our cash flow and earnings  would likely be negatively
impacted  in the near term.  The extent and length of this would be  impacted by
several factors, including:

o    the nature of the financial difficulties;
o    our ability to obtain control of the space for re-leasing;
o    market conditions;
o    the length of time it would require for us to re-lease the tenant's  space;
     and
o    whether the tenant's rent was above or below market.

     Property  Sales.  On April  16,  2004,  we sold our 33 West  Monroe  Street
property  for a gross sales  price of $69.6  million (i) less a credit for $19.4
million,  representing the sum of a portion of the amount in our leasing reserve
escrow  account  related to the property and a credit for certain  prepaid rent,
and (ii) plus or minus other customary  prorations.  Concurrent with the sale of
the  property,  we used a portion of the proceeds of the sale and  approximately
$20.0  million  of a leasing  escrow  held by the  existing  lender to repay the
existing first mortgage debt having an  outstanding  principal  balance of $59.3
million,  plus accrued  interest of $0.2 million.  After closing  prorations and
costs and the  repayment  in full of the first  mortgage  loan  encumbering  the
property, we received approximately $8.8 million from the sale.

     In October and  November  2004,  we sold 29 of our  industrial  properties,
consisting of 3.8 million square feet,  located in Illinois and Indiana,  one of
our office  properties,  consisting of 50,400 square feet,  located in Illinois,
and three land parcels  consisting  of 128 acres  located in  Illinois,  plus an
additional 74.3 acres of land included as part of our heavy-crane portfolio. Net
proceeds  after  repayment  or  buyer  assumption  of  mortgage  and  bond  debt
collateralized  by the properties,  closing costs and the tax indemnity  payment
was $54.3  million.  Included in net proceeds is  approximately  $9.7 million of
restricted  cash  escrows  which were  released or credited by the  purchaser at
closing,  offset by $4.4  million of  environmental  escrows and a rent  subsidy
escrow for $0.6 million that were funded at closing.  In addition,  we agreed to
fund  approximately  $0.9 million should two tenants fail to pay the future rent
due under their lease for specific  periods of time.  Subsequent to the sale, we
repaid $22.8 million of high interest  mezzanine  loan  financing and anticipate
utilizing the remaining proceeds to fund capital  improvements and leasing costs
and provide additional working capital and liquidity for the Company.

     On December  21,  2004,  we sold 6.13 acres of vacant land located in Carol
Stream,  Illinois  for  a  sales  price  of  $1.2  million.  This  property  was
unencumbered.

     Preferred  Shares.  Our Series B Shares rank senior to our common shares as
to the payment of  dividends.  Our Series B Shares may be redeemed at our option
at a redemption price of $25.00 per share plus accrued and unpaid dividends. The
redemption  price is payable  solely out of the proceeds  from our sale of other
capital shares of beneficial interest.

     Our Board suspended the payment of distributions  and dividends for certain
prior  periods in  anticipation  of our need for  liquidity for dealing with our
maturing  indebtedness and our capital needs for property level  expenditures in
retenanting our vacant office and industrial space.  Quarterly dividend payments
on our Series B Shares  resumed in April,  July and October 2004 and January 31,
2005.  On February 28, 2005 our Board  declared a quarterly  dividend of $0.5625
per share on our Series B Shares for  shareholders  of record on March 31, 2005.
Under  our  declaration  of trust,  this  dividend  is deemed to be a  quarterly
dividend which relates to the fourth quarter 2003 dividend period,  the earliest
accrued but unpaid quarterly  dividends on our Series B Shares.  There can be no
assurances as to the timing and amounts of any future  dividends on our Series B
Shares and the declaration of the fourth quarter 2003 preferred dividend at this
time should not be construed  to convey any degree of certainty  with respect to
future preferred dividend  payments.  We are in arrears for five quarters on the
Series B Shares.  The holders of our Series B Shares have the right to elect two
additional  members to our Board if six consecutive  quarterly  dividends on the
Series B Shares are outstanding.  The term of any trustees elected by the Series
B Shareholders will expire whenever the total dividend arrearage on the Series B
Shares has been paid and current  dividends have been declared and set apart for
payment.

     Tax Indemnity  Agreements.  In connection with the  contribution of certain
properties   during  our  initial   public   offering,   we  entered   into  tax
indemnification agreements with certain principals affiliated with Mr. Edward S.
Hadesman, a former executive officer, and certain principals affiliated with Mr.
Nardi, the former Chairman of our Board and current Board member.

     In addition,  on December 12, 1997,  we purchased  and amended the mortgage
note  encumbering  the property known as  Continental  Towers located in Rolling
Meadows,  Illinois. As part of this transaction,  we agreed to indemnify the two
limited partners of the limited  partnership  which owns the property for, among
other  things,  the federal and  applicable  state income tax  liabilities  that
result  from the income or gain which they  recognize  upon  refinancing,  sale,
foreclosure  or other  action  taken by us with  respect to the  property or the
mortgage note.

     As discussed  above,  sales of properties which result in taxable income to
parties  covered by tax  indemnification  agreements  would  create an indemnity
obligation  on our part to the  indemnified  party.  In order to  mitigate  this
obligation,  we may enter into tax deferred exchange  transactions,  which would
defer the tax sale and related indemnity  obligation.  Proceeds  available to us
from sales of  properties  covered by tax  indemnification  agreements  would be
reduced by the amount  necessary  to fund any  indemnity  payment or to purchase
properties  to satisfy tax deferred  exchange  transactions.  The terms of these
agreements  are  discussed in Note 14 -  Commitments  and  Contingencies  to our
Consolidated Financial Statements.

     Indebtedness. Our aggregate indebtedness was $427.4 million at December 31,
2004. This  indebtedness  had a weighted average maturity of 4.23 years and bore
interest at a weighted average interest rate of 6.21% per annum. At December 31,
2004,  $232.4  million,  or 54.4% of such  indebtedness,  bore interest at fixed
rates,  and $195.0  million,  or 45.6% of such  indebtedness,  bore  interest at
variable  rates.  The  $195.0  million  of  variable  rate debt is subject to an
interest rate cap agreement.

     In  October  and  November  2004 we  closed  on the sale of our  industrial
portfolio,  which  resulted in the  repayment  of $11.8  million of debt and the
assumption  by the  purchaser  of $53.3  million  of  property  level  debt.  In
addition,  we  utilized a portion of the  proceeds  from the sale to repay $10.9
million of mezzanine  financing secured by our 180 North LaSalle Street property
and $11.9 million of mezzanine financing secured by our 208 South LaSalle Street
and 800-810 Jorie Boulevard Plaza properties.

     Prior to the closing of the sale of our 33 West Monroe Street property,  we
provided  substitute  collateral  to the lender  which held the  existing  $11.5
million  mezzanine  loan relating to the  property.  The  substitute  collateral
consisted of a pledge of ownership  interests in the entity owning our 180 North
LaSalle Street property.  In connection with the pledge,  we funded an escrow of
$750,000 to the first mortgage  lender at 180 North LaSalle Street as additional
collateral  to  secure  any  costs it may incur in the  future  relating  to the
mezzanine  loan. In  conjunction  with the repayment of the mezzanine  loan, the
escrow has been returned to us.

     Interest  Rate  Protection  Agreement.  We have entered into the  following
interest rate cap agreement:

<TABLE>


                                               Notional Amount
                                                   as of
                                                December 31,     Capped LIBOR
            Loan Associated with                   2004             Rate       Effective Date  Expiration Date
--------------------------------------------- ---------------- -------------- --------------- ---------------
<S>                                           <C>              <C>            <C>             <C>
IBM Plaza
   First Mortgage/Mezzanine Loans             $ 195,000,000        6.60%           2/21/03       3/15/06


</TABLE>

     No amounts were received  under the terms of the interest  rate  protection
agreement in 2004.

     Debt Repayments.  Scheduled 2004 principal payments were made totaling $5.2
million,  the buyer of our industrial portfolio assumed loans and bonds totaling
$53.3 million and additional loans were repaid totaling $86.9 million  resulting
in total debt  reduction for the year ended  December 31, 2004 of $145.4 million
including  $60.0  million that was  refinanced  with the proceeds of a new $67.0
million loan. See Note 4 - Mortgage Notes and Bonds Payable to our  Consolidated
Financial Statements for further explanation.

     Capital  Improvements.  In order to  secure  new and  renewal  leases,  our
properties  require an infusion of capital for tenant  improvements  and leasing
commissions.  For the years ended  December 31, 2004,  2003 and 2002, our tenant
improvements  and  leasing  commissions  averaged  $37.98,  $37.75  and  $26.94,
respectively,  per square foot of  newly-leased  office space totaling  457,928,
427,756  and 70,969  square  feet,  respectively,  $12.61,  $16.85  and  $13.18,
respectively,  per square  foot of office  leases  renewed by  existing  tenants
totaling  290,885,  303,965 and 277,248  square feet,  respectively,  and $0.23,
$1.78 and $0.00, respectively,  per square foot of newly-leased industrial space
totaling 81,859, 215,267 and 154,275 square feet,  respectively.  Our total cost
of general  capital  improvements to our properties  historically  averages $2.5
million  annually  based upon an estimate of $0.58 per square foot. For 2004, we
incurred   $3.2   million  of  capital   improvement   expenditures,   excluding
discontinued  operations,  and we expect to incur approximately $4.4 million for
2005.



<PAGE>


Off-Balance Sheet Arrangements

     As part of our ongoing business, we do not participate in transactions that
generate relationships with unconsolidated  entities or financial  partnerships,
often referred to as structured  finance or special purpose  entities  ("SPEs"),
which would have been  established for the purpose of  facilitating  off-balance
sheet arrangements or for other contractually narrow or limited purposes.  As of
December 31, 2004, we are not involved in any unconsolidated SPE transactions.


<PAGE>


Historical Cash Flows

<TABLE>


                                                                 Year ended December 31
                                            -----------------------------------------------------------------
                                                                               Increase/
                                                  2004            2003         (Decrease)       % Change
                                            -----------------------------------------------------------------
                                                                 (dollars in thousands)

<S>                                        <C>              <C>               <C>              <C>

Operating Activities
Net loss                                    $    (11,383)   $    (36,217)     $   24,834           68.6%
Amortization of discount on notes payable              -             343            (343)        (100.0)
Amortization of costs for leases assumed             288           2,968          (2,680)         (90.3)
   Net equity in loss of unconsolidated
     investments                                  14,878           2,249          12,629          561.5
   Depreciation and amortization                  29,558          42,575         (13,017)         (30.6)
   Provision for asset impairment                      -          45,353         (45,353)        (100.0)
   Gain on sales of real estate                   (5,382)         (1,618)         (3,764)        (232.6)
   Minority interests                             (2,649)            (25)         (2,624)     (10,496.0)
   Changes in operating assets and
     liabilities                                  (3,202)          1,247          (4,449)        (356.8)
                                            -----------------------------------------------------------------
Net cash provided by operating
  activities                                $     22,108    $     56,875      $  (34,767)         (61.1)%
                                            =================================================================

Investing Activities
   Expenditures for real estate and
     equipment                              $    (15,950)   $   (104,472)     $   88,522           84.7%
   Proceeds received under
     environmental indemnification                 3,100               -           3,100              -
   Proceeds from sales of real estate            134,169         430,254        (296,085)         (68.8)
   Leasing costs                                  (7,761)        (20,201)         12,440           61.6
   Decrease (increase) in restricted
     cash escrows                                  3,424         (13,483)         16,907          125.4
   Loan to unconsolidated joint venture             (588)              -            (588)             -
   Net distributions from (contributions
     to) unconsolidated entities                     219           4,634          (4,415)         (95.3)
                                            -----------------------------------------------------------------
Net cash provided by investing activities   $    116,613    $    296,732      $ (180,119)         (60.7)%
                                            =================================================================

Financing Activities
   Financing costs                          $       (755)   $     (4,838)     $    4,083           84.4%
   Proceeds from mortgage notes payable           67,000         195,000        (128,000)         (65.6)
   Repayment of mortgage notes payable          (159,093)       (318,763)        159,670           50.1
   Proceeds from construction financing                -          97,155         (97,155)        (100.0)
   Repayment of construction financing                 -        (305,353)        305,353          100.0
   Dividends paid to Series B preferred
     shareholders                                 (6,750)              -          (6,750)             -
                                            -----------------------------------------------------------------
Net cash used in financing activities       $    (99,598)   $   (336,799)     $  237,201           70.4%
                                            =================================================================

</TABLE>



     Operating  Activities.  The $34.8 million  decrease in net cash provided by
operating activities from 2003 was primarily due to:

o    a decrease of $30.3 million due to the lease  termination fee received from
     Arthur Andersen LLP in 2003, offset by a $2.4 million decrease in loss from
     operations of our former 33 West Monroe Street property;

o    $7.6 million  related to the operations of our Bank One Center  property in
     2003,  which is no  longer  consolidated  as a result  of the sale of a 70%
     joint venture interest in October 2003;

o    $3.3 million  related to the operations of our former  National City Center
     property, which was sold in June 2003; and

o    a  decrease  of  $2.0  million  related  to the  operations  of our  former
     industrial properties, which were sold in October and November 2004.

     This decrease was partially offset by a decrease of $6.2 million related to
     interest  expense payments from 2003 primarily due to the retirement of our
     indebtedness with SCPG in 2003.

     Investing  Activities.  The $180.1 million decrease in net cash provided by
investing activities from 2003 was primarily due to:

o    a decrease  of $296.1  million in  proceeds  from the sales of real  estate
     primarily as a result of 2003 sales  activity  including the  admittance of
     our Bank One Center joint venture partner ($350.0 million) and the sales of
     our former  National  City  Center  property  ($79.0  million)  and land in
     Aurora,  Illinois  ($2.7  million),  as compared to sales  activity in 2004
     including  the sales of our former 33 West Monroe  Street  property  ($68.0
     million),  industrial  properties ($66.2 million) and land in Carol Stream,
     Illinois ($1.2 million); and

o    a $4.4 million  distribution  from the 77 West Wacker Drive  unconsolidated
     joint venture in 2003.

This decrease was partially offset by:

o    a decrease of $88.5 million in  expenditures  for real estate and equipment
     primarily  as a result of  construction  costs  ($44.5  million) and tenant
     improvements ($36.0 million) in 2003 for our Bank One Center property and a
     payment in 2003 to  purchase  all of our  former  joint  venture  partner's
     interest in the entity that owned Bank One Center ($10.9 million);

o    a decrease of $16.9 million of payments into restricted cash escrows, which
     was primarily  due to a deposit in 2003 of the fee received  related to the
     Arthur  Andersen LLP lease  termination at our former 33 West Monroe Street
     property,  as  required  by the lender  ($33.6  million),  and a release of
     escrowed  funds  in 2004  related  to  lease  liability  obligations  ($2.4
     million),  partially  offset by a release  of  construction  and  financing
     escrows in 2003 related to our Bank One Center  property  ($18.7  million);
     and

o    a  decrease  of $12.4  million of leasing  costs  primarily  as a result of
     leasing costs in 2003 for our Bank One Center  property  ($7.9 million) and
     executing  subleases  for  occupancy  at One  North  Wacker  Drive  thereby
     reducing  required  payments towards the Citadel  Reimbursement  Obligation
     ($4.5 million).

     Financing  Activities.  The $237.2 million increase in net cash provided by
financing activities as compared to 2003 was primarily due to:

o       repayments of construction  financing ($305.4 million),  net of proceeds
        ($97.2 million) related to our Bank One Center property in 2003;

o       repayments  of  mortgages  and notes  payable  that were lower by $159.7
        million in 2004, which included:

o       the refinancing of maturing indebtedness at our 180 North LaSalle Street
        property ($60.0 million),

o       the repayment of the mortgage note payable secured by our former 33 West
        Monroe Street property upon its sale ($59.3 million),

o       the  repayment  of the  mortgage  notes  payable  secured  by our former
        industrial properties upon their sale ($11.8 million),

o       the  repayment  of two  mezzanine  loans  totaling  $22.8  million and

o       principal amortization payments ($5.2 million),



<PAGE>


As compared to repayments of indebtedness in 2003, including:

     o    the  refinancing  of the debt  associated  with our IBM Plaza property
          ($177.1 million),

     o    the  repayment  of the  mortgage  note  payable  secured by our former
          National City Center property upon its sale ($71.8 million),

     o    payments on our indebtedness with SCPG ($57.3 million),

     o    a  partial  payment  on our  former  33 West  Monroe  Street  property
          mortgage ($7.0 million) and

     o    principal amortization payments ($5.6 million);

     o    $4.8  million of financing  costs  incurred in 2003  principally  as a
          result of refinancing the above debt.

This increase was partially offset by:

     o    proceeds  from  mortgages  notes  payable  that  were  lower by $128.0
          million in 2004 due to refinancing proceeds from our 180 North LaSalle
          Street  property in 2004 ($67.0  million) as compared to proceeds from
          the  refinancing of our IBM Plaza  property in 2003 ($195.0  million);
          and

     o    $6.8 million of dividends paid to our Series B shareholders in 2004.




<PAGE>

<TABLE>




                                                                 Year ended December 31
                                            -----------------------------------------------------------------
                                                                               Increase/
                                                  2003            2002         (Decrease)       % Change
                                            -----------------------------------------------------------------
                                                                 (dollars in thousands)
<S>                                          <C>            <C>                <C>             <C>

Operating Activities
Net loss                                    $    (36,217)   $    (30,621)    $    (5,596)         (18.3)%
Amortization of discount on notes payable            343             290              53           18.3
Amortization of costs for leases assumed           2,968             836           2,132          255.0
   Net equity in loss (income) of
     unconsolidated investments                    2,249            (810)          3,059          377.7
   Depreciation and amortization                  42,575          39,805           2,770            7.0
   Provision for asset impairment                 45,353          64,525         (19,172)         (29.7)
   (Gain) loss on sales of real estate            (1,618)          4,483          (6,101)        (136.1)
   Minority interests                                (25)        (31,552)         31,527           99.9
   Changes in operating assets and
     liabilities                                   1,247          (4,636)          5,883          126.9
                                            -----------------------------------------------------------------
Net cash provided by operating
  activities                                $     56,875    $     42,320     $    14,555           34.4%
                                            =================================================================

Investing Activities
   Expenditures for real estate and
     equipment                              $   (104,472)   $   (124,054)    $    19,582           15.8%
   Proceeds from sales of real estate            430,254          26,596         403,658        1,517.7
   Leasing costs                                 (20,201)        (13,770)         (6,431)         (46.7)
   (Increase) decrease in restricted
     cash escrows                                (13,483)         13,187         (26,670)        (202.2)
   Proceeds from joint ventures                        -          22,969         (22,969)        (100.0)
   Net distributions from (contributions
     to) unconsolidated entities                   4,634            (879)          5,513          627.2
                                             -----------------------------------------------------------------
Net cash provided by (used in) investing
   activities                               $    296,732    $    (75,951)    $   372,683          490.7%
                                            =================================================================

Financing Activities
   Financing costs                          $     (4,838)   $     (2,950)    $    (1,888)         (64.0)%
   Proceeds from mortgage notes payable          195,000          20,448         174,552          853.6
   Repayment of mortgage notes payable          (318,763)        (35,310)       (283,453)        (802.8)
   Repayment of bonds payable                          -         (27,150)         27,150          100.0
   Proceeds from construction financing           97,155         102,561          (5,406)          (5.3)
   Repayment of construction financing          (305,353)              -        (305,353)             -
   Series A preferred share repurchases                -          (5,000)          5,000          100.0
   Dividends paid to Series B preferred
     shareholders                                      -          (9,000)          9,000          100.0
   Dividends paid to Series A preferred
     shareholder                                       -            (750)            750          100.0
                                            -----------------------------------------------------------------
Net cash (used in) provided by financing
activities                                  $   (336,799)    $    42,849     $  (379,648)        (886.0)%
                                            =================================================================

</TABLE>




<PAGE>


     Operating  Activities.  Operating activities provided $56.9 million of cash
flow in 2003 as compared to $42.3 million in 2002, an increase of $14.6 million.
This increase was primarily due to:

o    a $35.1 million lease termination fee received in 2003 from Arthur Andersen
     LLP and

o    $7.6  million  of income  related  to the 2003  operations  of our Bank One
     Center property, which was placed in service in November 2002; offset by

o    the  payment  of  accrued  interest  in 2003 of  $5.5  million  principally
     associated with the sale and/or refinancing of several of our assets;

o    a $9.2  million  loss of income in 2003 related to the sale of our National
     City  Center  office  property  in June 2003 and the sale of various  other
     properties in 2002 (See Note 15 - Property Acquisitions,  Placed in Service
     and Dispositions to our Consolidated  Financial Statements for a listing of
     the properties we sold in 2002); and

o    a $12.9 million loss of income in 2003 as compared to 2002  resulting  from
     the  termination  of Arthur  Andersen's  lease at our 33 West Monroe Street
     office property.

     Investing  Activities.  During 2003,  investing  activities provided $296.7
million of cash, as compared to utilizing  $76.0 million in 2002, an increase of
$372.7 million. The 2003 investing activities were primarily comprised of:

o    $350.0 million of proceeds from the admittance of our Bank One Center joint
     venture partner in October 2003;

o    $79.0  million of proceeds from the sale of our National City Center office
     property in June 2003; and

o    a $4.4 million  distribution  from the 77 West Wacker Drive joint  venture;
     offset by

o    $104.5  million of  expenditures  for real estate and  equipment  primarily
     related to construction costs for our Bank One Center office property;

o    $20.2  million  of leasing  costs  principally  related  to the  payment of
     liabilities for leases assumed  associated  with the Citadel  Reimbursement
     Obligation of $7.7 million and leasing commissions  associated with leasing
     activity at our properties; and

o    a  net  increase  in  our  deposits  to  restricted  cash  escrow  accounts
     principally consisting of a $33.5 million deposit required by our lender in
     connection  with the February 2003 Arthur  Andersen LLP lease  termination,
     net of a partial release of these funds during 2003 for a $7.0 million debt
     reduction  payment and $8.1  million to fund  operating  deficits at our 33
     West Monroe  Street  property and the release of $5.0 million of previously
     restricted escrows on sold properties.

The 2002 investing activities were primarily comprised of:

o    $124.1  million of  expenditures  for real estate and  equipment  primarily
     related to construction costs for our Bank One Center office property; and

o    $13.8  million of  leasing  costs  paid  primarily  related to our Bank One
     Center office property; offset by

o    a $22.9 million  payment  received  from our joint venture  partner for the
     assignment  of our  interest  in a joint  venture  relating  to a parcel of
     developable land located in Chicago, Illinois;

o    $16.1  million of proceeds from the sale of suburban  office  properties in
     June 2002;

o    $9.9  million of  proceeds  from the sale of two land  parcels in  February
     2002; and

o    a $13.2 million  decrease in restricted cash escrows  primarily  related to
     the use of escrows in our  purchase  of a portion of  industrial  bonds for
     $23.3  million and the  retirement  of $3.9 million in bonds as a result of
     the sale of our  Tennessee  property,  net of an  additional  $7.7  million
     funding into an escrow  associated  with the  construction  of the Bank One
     Center office  property and a $6.2 million  increase to the escrows related
     to the Citadel Reimbursement Obligation.

     Financing  Activities.  During 2003,  financing  activities utilized $336.8
million of cash, as compared to proceeds in 2002 of $42.8 million, a decrease of
$379.6 million. The 2003 financing activities were primarily comprised of:

o    a repayment of mortgage  notes payable of $318.8  million  consisting of:

     o    $72.9  million of first  mortgage and mezzanine  financing  secured by
          National City Center with the proceeds from the sale of the property;

     o    $177.1  million of first mortgage and mezzanine  financing  secured by
          our IBM Plaza property with $195.0 million of new financing;

     o    $64.3  million of payments  reduced the  principal  balance of several
          loans (See Note 4 - Mortgages  and Notes  Payable,  Bonds  Payable and
          Construction  Financing to our Consolidated Financial Statements for a
          further discussion of these transactions);

o    $4.5 million of principal amortization payments;

o    a repayment of  construction  financing of $305.4 million  (which  includes
     2003 construction draws of $22.2 million) consisting primarily of:

     o    a $61.7  million  mezzanine  loan  (which  includes  $0.9  million  of
          additional  interest added to the loan), plus accrued  interest,  with
          the proceeds of a new $75.0 million mezzanine loan; and

     o    $169.5 million of  construction  financing  secured by Bank One Center
          and the $75.0  million  of  mezzanine  financing  discussed  above and
          refinancing proceeds from our sale of an interest in Bank One Center.

No dividends or distributions  were paid on the Series B shares or common shares
in 2003.

The 2002 financing activities were primarily comprised of:

o    an additional $102.6 million of construction  financing associated with the
     development of Bank One Center; and

o    new indebtedness of $20.0 million from SCPG; offset by

o    a repayment of two notes payable in the amount of $24.5 million;

o    $10.5 million of principal amortization payments;

o    a  purchase  of $27.2  million  of  industrial  development  revenue  bonds
     utilizing the escrows previously  securing letters of credit related to the
     bonds;

o    a payment of $0.8  million of  dividends  to holders of our Series A Shares
     and the subsequent $5.0 million repurchase by our Operating  Partnership of
     our Series A preferred shares; and

o    a payment  of $9.0  million  of  dividends  to the  holders of our Series B
     shares,  which were subsequently  suspended beginning in the fourth quarter
     of 2002.

Funds from Operations

     Industry analysts generally  consider Funds from Operations,  as defined by
the  National  Association  of Real  Estate  Investment  Trusts  ("NAREIT"),  an
alternative  measure of performance of an equity REIT.  Funds from Operations is
defined by NAREIT as net  income  (loss)  determined  in  accordance  with GAAP,
excluding gains (or losses) from sales of depreciable  operating property,  plus
depreciation and  amortization  (other than  amortization of deferred  financing
costs and  depreciation  of non-real  estate  assets) and after  adjustment  for
unconsolidated  partnerships  and joint  ventures  and  discontinued  operations
(primarily  for adding back the effect of gains  (losses) on sale of depreciable
operating  property and depreciation and  amortization  expense).  Non-recurring
items,  other  than  those  considered   "extraordinary"  under  GAAP,  are  not
adjustments to funds from  operations.  We believe that in order to facilitate a
clear understanding of our historical  operating results,  Funds from Operations
should be examined in  conjunction  with net income  (loss) as  presented in the
financial statements included elsewhere in this Form 10-K.



<PAGE>





<TABLE>


                                                               Year ended December 31, 2004
                                          -----------------------------------------------------------------------
                                                            Fourth        Third         Second        First
                                              Total        Quarter       Quarter       Quarter       Quarter
                                          -----------------------------------------------------------------------
                                                                      (in thousands)
<S>                                       <C>             <C>           <C>         <C>           <C>


Net (loss) income (1)..................   $  (11,383)       $  1,428     $ (2,849)    $  (4,962)     $ (5,000)
Adjustments to reconcile Funds from
Operations available to common
   shareholders:
Real estate depreciation and
   amortization........................        20,692          5,405        5,030         5,149         5,108
Amortization of costs for
   leases assumed......................           288             72           72            72            72
Share of joint venture real estate
   depreciation and amortization.......        18,640          5,275        4,487         4,490         4,388
Loss on sale of operating property,
   net of minority interests...........           493            408           15            52            18
Adjustment for discontinued operations:
   Real estate depreciation and
     amortization (2)..................         3,398              -            -         1,319         2,079
   (Gain) loss on sale (included in
     discontinued operations) (3)......        (7,854)        (7,801)        (109)           56             -
   Minority interests..................           873            894          193            19          (233)
Minority interests.....................        (3,458)          (966)        (805)       (1,043)         (644)
                                          -----------------------------------------------------------------------
Funds from operations (1)..............        21,689          4,715        6,034         5,152         5,788
Income allocated to preferred
   shareholders........................        (9,000)        (2,250)      (2,250)       (2,250)       (2,250)
                                          -----------------------------------------------------------------------
Funds from Operations available to
   common share........................   $    12,689     $    2,465     $  3,784     $   2,902      $  3,538
                                          =======================================================================

FFO available  to  common   share/unit
   holders  per  share/unit  of
   beneficial interest:
       Basic and Diluted................  $     0.47      $    0.09      $   0.14     $    0.11      $   0.13
                                          =======================================================================

Weighted average shares/units of
 beneficial interest:
     Common shares......................       23,672        23,672        23,672        23,672        23,671
     Nonvested employee stock grants....            7             9             9             9             2
     Operating Partnership units.......         3,076         3,076         3,076         3,076         3,076
                                          -----------------------------------------------------------------------
       Basic............................       26,755        26,757        26,757        26,757        26,749
                                          =======================================================================

     Common shares......................       23,672        23,672        23,672        23,672        23,671
     Nonvested employee stock grants....            7             9             9             -             -
     Employee stock options.............           14            19             8            10            20
     Operating Partnership units........        3,076         3,076         3,076         3,076         3,076
                                          -----------------------------------------------------------------------
       Diluted..........................       26,769        26,776        26,765        26,758        26,767
                                          =======================================================================
Other data:
   Net cash provided by (used in)
     operating activities...............  $    22,108     $   3,864     $  10,538     $  10,725     $  (3,019)
   Net cash provided by (used in)
     investing activities...............      116,613        68,857        (7,120)       57,319        (2,443)
   Net cash (used in) provided by
     financing activities...............      (99,598)      (38,762)       (3,595)      (62,827)        5,586

</TABLE>




<PAGE>




<TABLE>



                                                               Year ended December 31, 2003
                                          -----------------------------------------------------------------------
                                                            Fourth        Third         Second        First
                                              Total        Quarter       Quarter       Quarter       Quarter
                                          -----------------------------------------------------------------------
                                                                      (in thousands)
<S>                                        <C>            <C>            <C>           <C>        <C>


Net (loss) income (1)..................  $    (36,217)    $  (47,331)  $   (3,876)    $     119    $   14,871
Adjustments to reconcile Funds from
   Operations:
Real estate depreciation and
   amortization........................        27,309          5,432        7,369         7,442         7,066
Amortization of costs for
   leases assumed......................         1,912            169          675           748           320
Share of joint venture real estate
   depreciation and amortization.......         7,324          4,726          873           871           854
Adjustment for discontinued operations:
   Real estate depreciation and
     amortization (2)..................         8,754          1,975        1,996         2,173         2,610
   Gain on sale (included in
     discontinued operations) (3)......        (1,226)            (6)           -        (1,220)            -
   Minority interests..................         6,512         (4,762)        (300)           93        11,481
Minority interests.....................        (6,453)        (1,598)        (502)       (1,704)       (2,649)
                                          -----------------------------------------------------------------------
Funds from operations (1)..............         7,915        (41,395)       6,235         8,522        34,553
Income allocated to preferred
   shareholders........................        (9,000)        (2,250)      (2,250)       (2,250)       (2,250)
                                          -----------------------------------------------------------------------
Funds from Operations available to
   common share/unit holders...........   $    (1,085)    $  (43,645)   $   3,985     $   6,272    $   32,303
                                          =======================================================================

FFO available  to  common   share/unit
   holders  per  share/unit  of
   beneficial interest:
       Basic and Diluted................  $     (0.04)    $    (1.63)   $    0.15     $    0.23    $     1.21
                                          =======================================================================

Weighted average shares/units of
 beneficial interest:
     Common shares......................       20,105        23,665        23,665        17,378        15,713
     Nonvested employee stock grants....            6             6             6             6             6
     Operating Partnership units........        6,636         3,076         3,076         9,363        11,028
                                          -----------------------------------------------------------------------
       Basic............................       26,747        26,747        26,747        26,747        26,747
                                          =======================================================================

     Common shares......................       20,105        23,665        23,665        17,378        15,713
     Nonvested employee stock grants....            6             6             6             6             6
     Employee stock options.............           19            20            17             -             -
     Operating Partnership units........        6,636         3,076         3,076         9,363        11,028
                                          -----------------------------------------------------------------------
       Diluted..........................       26,766        26,767        26,764        26,747        26,747
                                          =======================================================================

Other data:
   Net cash provided by operating
     activities.........................  $    56,875    $    3,785    $   13,987    $   18,425    $   20,678
   Net cash provided by (used in)
     investing activities...............      296,732       305,758       (17,012)       61,115       (53,129)
   Net cash (used in) provided by
     financing activities...............     (336,799)     (286,429)        3,833       (77,970)       23,767


</TABLE>

<PAGE>





<TABLE>


                                                               Year ended December 31, 2002
                                          -----------------------------------------------------------------------
                                                            Fourth        Third         Second        First
                                              Total        Quarter       Quarter       Quarter       Quarter
                                          -----------------------------------------------------------------------
                                                                      (in thousands)
<S>                                       <C>           <C>          <C>            <C>            <C>

Net (loss) income (1)..................   $    (30,621)  $   (13,303)  $    1,672    $     (883)   $  (18,107)
Adjustments to reconcile Funds from
   Operations:
Real estate depreciation and
   amortization........................        20,018          5,334        5,333         5,283         4,068
Amortization of costs for
   leases assumed......................           836            266          250           157           163
Share of joint venture real estate
   depreciation and amortization.......         3,386            853          846           844           843
Loss (gain) on sale of operating
   property, net of minority interests            773            (38)           -           684           127
Adjustment for discontinued operations:
   Real estate depreciation and
   amortization (2)....................        14,466          3,637        2,798         3,588         4,443
   Loss (gain) on sale (included in
   discontinued operations) (3)........         3,211           (498)        (103)        3,812             -
   Minority interests..................       (21,030)        (9,092)         951          (414)      (12,475)
Minority interests.....................        (9,683)        (1,849)      (1,596)       (2,246)       (3,992)
                                          -----------------------------------------------------------------------
Funds from operations (1)..............       (18,644)       (14,690)      10,151        10,825       (24,930)
Income allocated to preferred
   shareholders........................       (11,280)        (2,250)      (2,450)       (3,380)       (3,200)
                                          -----------------------------------------------------------------------
Funds from Operations available to
   common share/unit holders...........   $   (29,924)   $   (16,940)  $    7,701    $    7,445    $  (28,130)
                                          =======================================================================

FFO available  to  common   share/unit
   holders  per  share/unit  of
   beneficial interest:
   Basic and Diluted....................  $     (1.12)   $     (0.63)  $     0.29    $     0.28    $    (1.06)
                                          =======================================================================

Weighted average shares/units of
 beneficial interest:
     Common shares......................       15,673        15,675        15,675        15,674        15,669
     Nonvested employee stock grants....           21            15            16            18            34
     Operating Partnership units........       10,996        11,057        11,058        11,057        10,809
                                          -----------------------------------------------------------------------
       Basic............................       26,690        26,747        26,749        26,749        26,512
                                          =======================================================================

     Common shares......................       15,673        15,675        15,675        15,674        15,669
     Nonvested employee stock grants....           21            15            16            18            34
     Employee stock options.............            -             -             -             -             -
     Operating Partnership units........       10,996        11,057        11,058        11,057        10,809
                                          -----------------------------------------------------------------------
       Diluted..........................       26,690        26,747        26,749        26,749        26,512
                                          =======================================================================

Other data:
   Net cash provided by operating
     activities.........................  $    42,320   $     3,135   $    16,456    $   17,543   $     5,186
   Net cash (used in) provided by
     investing activities...............      (75,951)      (20,988)      (36,089)      (30,861)       11,987
   Net cash provided by (used in)
     financing activities...............       42,849        14,950        24,257        18,680       (15,038)

</TABLE>




<PAGE>


(1)  Funds  from  Operations  is  a  non-GAAP  financial  measure.   Funds  from
     Operations ("FFO") is defined as net income (loss),  computed in accordance
     with generally  accepted  accounting  principles  ("GAAP") plus real estate
     depreciation  and  amortization,  excluding gains (or losses) from sales of
     operating properties,  and after comparable  adjustments for unconsolidated
     joint  ventures and  discontinued  operations.  FFO  includes  results from
     discontinued operations,  including revenues,  property operations expense,
     real estate taxes  expense,  provision  for asset  impairment  and interest
     expense.  Tax indemnification  payments and write-off of deferred financing
     fees  related to  properties  sold have been  included as a cost of sale in
     computing the gain/loss for these properties.  We compute FFO in accordance
     with  standards  established  by the  National  Association  of Real Estate
     Investment Trusts  ("NAREIT"),  which may not be comparable to FFO reported
     by other REITs that do not define the term in  accordance  with the current
     NAREIT   definition  or  that  interpret  the  current  NAREIT   definition
     differently  than us. We utilize FFO as a performance  measure.  We believe
     that FFO provides useful information to investors regarding our performance
     as FFO provides  investors with additional means of comparing our operating
     performance with the operating  performance of our competitors.  FFO is not
     representative  of cash flow from  operations,  is not indicative that cash
     flows are adequate to fund all cash needs,  and should not be considered as
     an alternative to cash flows as a measure of liquidity. We believe that net
     income (loss) is the most directly  comparable  GAAP  financial  measure to
     FFO.


(2)  The real estate  depreciation and  amortization in discontinued  operations
     for the year ended  December 31, 2004 relates to the  industrial  portfolio
     that was sold in October and November  2004,  and the 33 West Monroe Street
     property,  which was sold in April 2004. The real estate  depreciation  and
     amortization  for  discontinued  operations for the year ended December 31,
     2003 relates to the above-mentioned properties as well as the National City
     Center  property which was sold in June 2003. The real estate  depreciation
     and amortization  for  discontinued  operations for the year ended December
     31, 2002 relates to the above-mentioned properties sold in 2004 and 2003 as
     well  as the  nine  suburban  office  properties  sold to an  affiliate  of
     Blackstone Real Estate Advisors, L.P. on June 26, 2002.

(3)  The  gain on sale of real  estate  for the year  ended  December  31,  2004
     resulted from the gain on the sale of our industrial  portfolio and 33 West
     Monroe  property.  The  gain  on sale of real  estate  for the  year  ended
     December 31, 2003 resulted from our sale of National City Center.  The loss
     on sale of real  estate  for the year  ended  December  31,  2002  resulted
     primarily  from our sale of nine  suburban  office  properties  during  the
     second  quarter  of 2002.  See Note  15--Property  Acquisitions,  Placed In
     Service and  Dispositions to the  Consolidated  Financial  Statements for a
     description  of  these  transactions.   Tax  indemnification  payments  and
     write-off of deferred  financing fees related to properties  sold have been
     included  as a cost of sale in  computing  the  gain/loss  for  these  sold
     properties.

Critical Accounting Policies

     General.  The previous  discussion and analysis of our financial  condition
and results of operations are based upon our consolidated  financial statements,
which have been  prepared in accordance  with  accounting  principles  generally
accepted in the United  States.  The  preparation  of our  financial  statements
requires  us to make  estimates  and  judgments  about the effects of matters or
future events that are inherently  uncertain.  These estimates and judgments may
affect the reported amounts of assets,  liabilities,  revenues and expenses, and
related  disclosure of contingent assets and liabilities.  On an on-going basis,
we evaluate our estimates, including contingencies and litigation. We base these
estimates on  historical  experience  and on various other  assumptions  that we
believe to be reasonable in the  circumstances.  These  estimates form the basis
for making  judgments about the carrying  values of assets and liabilities  that
are not readily  apparent  from other  sources.  Actual  results may differ from
these estimates under different assumptions or conditions.

     To  assist  in  understanding  our  results  of  operations  and  financial
position, we have identified our critical accounting policies and discussed them
below.  These  accounting  policies are most  important to the  portrayal of our
results  and  financial  position,  either  because of the  significance  of the
financial  statement  items to which they  relate or because  they  require  our
management's most difficult, subjective or complex judgments.

     Allowance   for   Doubtful   Accounts.   We  monitor  the   liquidity   and
creditworthiness  of our tenants on an ongoing basis. We maintain allowances for
doubtful accounts using the specific  identification method for estimated losses
resulting from the inability of certain of our tenants to make payments required
by the terms of their respective leases. No general reserve is recorded.  If the
financial  condition of our tenants were to deteriorate,  additional  allowances
may be required.

     Assumed  Lease  Liabilities.  As a result  of the  negotiation  of  certain
leases,  we assumed  the  liability  for the  tenants'  obligation  or agreed to
reimburse  the  tenants  for their  obligation  under  leases  with their  prior
landlords.  In  addition,  in  connection  with the sale of  certain  industrial
properties in 1999, we agreed to a master lease agreement for certain properties
for a defined  period.  Our policy is to record the estimated net  obligation we
may be subject to as a liability.  The net  obligation is derived by calculating
our total contractual  obligation and reducing the amount by existing  subleases
and an estimate of  subleases we  anticipate  signing in the future based on the
nature of the space, the property and market conditions.  We periodically review
these  estimates for  reasonableness  based on changes in market  conditions and
executed subleases. Failure to achieve forecasted results could lead to a future
increase in the liabilities  associated with these  transactions.  The liability
for leases  assumed at December 31, 2004 as compared to 2003  reflects  payments
under these  leases,  net of an increase  in the  liability  during 2004 of $0.6
million due to assumption changes.

     Provisions  for  Impairment.  In  evaluating  our assets for  impairment in
accordance with SFAS 144, we record  impairment losses on long-lived assets used
in operations  when events and  circumstances  indicate that the assets might be
impaired.  Under SFAS 144, assets that display indicators of possible impairment
are  reviewed to see if their net book value will be  recovered  from  estimated
cash flows over an  anticipated  hold  period.  If these  cash  flows,  plus the
proceeds from a sale at the end of the  anticipated  hold period,  are less than
the net book value of the related  asset,  our policy is to record an impairment
reserve  related to the asset in the amount of the  difference  between  its net
book value and our estimate of its fair market  value,  less costs of sale.  For
assets held for sale,  impairment is measured as the difference between carrying
value and fair  value,  less cost to dispose.  Fair value is based on  estimated
cash flows  discounted at a  risk-adjusted  rate of interest.  Property held for
development is also evaluated for impairment.

     At December 31, 2004, we determined  that no reserves  were  warranted.  In
evaluating  our other  long-lived  assets used in operations  for  impairment at
December 31, 2004,  we assumed  anticipated  hold periods of three to five years
for our operating  properties.  In evaluating our property held for development,
we concluded that development expenditures, including capitalized interest, were
recoverable and no reserves were warranted at this time.  However,  as discussed
under  "Liquidity  and  Capital  Resources",  if we  determined  that a  capital
transaction is desired, our anticipated hold periods for certain assets would be
shortened and impairment  reserves would be required.  These reserves would have
significant impacts on our operating results.

     Capitalization  of  Interest  and  Other  Costs  on  Development  Projects.
Development  costs,  which include land acquisition  costs, fees and other costs
incurred in developing new properties,  are  capitalized as incurred.  Interest,
financing  costs,  real estate  taxes,  other direct  costs and  indirect  costs
(including   certain  employee   compensation  costs  and  related  general  and
administrative  expenses) incurred during development periods are capitalized as
a component of the building costs.  These costs continue to be  capitalized,  to
the extent  they relate to vacant  space,  for one year  following  the date the
development  is placed in service.  During this one-year  period,  the amount of
capitalized  costs  could be  materially  affected  by the timing and changes in
occupancy  levels.  Subsequent  to the  one-year  period,  these costs are fully
expensed as incurred. During 2004, we did not capitalize any development costs.

Impact of Recently Issued Accounting Standards

     On December 16,  2004,  the  Financial  Accounting  Standards  Board (FASB)
issued SFAS No. 123 (revised 2004),  "Share-Based Payment" ("Statement 123(R)"),
which is a revision of SFAS No. 123,  "Accounting for Stock-Based  Compensation"
("Statement  123").  Statement 123(R) supersedes APB Opinion No. 25, "Accounting
for Stock  Issued to  Employees,"  and amends  SFAS No. 95,  "Statement  of Cash
Flows."  Generally,  the approach in Statement 123(R) is similar to the approach
described in Statement 123.  However,  Statement 123(R) required all share-based
payments  to  employees,  including  grants of  employee  stock  options,  to be
recognized  in the  income  statement  based on their  fair  values.  Pro  forma
disclosure is no longer an alternative.

     Statement 123(R) must be adopted no later than July 1, 2005. Early adoption
will be permitted  in periods in which  financial  statements  have not yet been
issued. We expect to adopt Statement 123(R) on July 1, 2005.

     Statement 123(R) permits public  companies to adopt its requirements  using
one of two methods:

1.       A  "modified   prospective"   method  in  which  compensation  cost  is
         recognized   beginning  with  the  effective  date  (a)  based  on  the
         requirements of Statement  123(R) for all share-based  payments granted
         after the effective date and (b) based on the requirements of Statement
         123 for all awards granted to employees  prior to the effective date of
         Statement 123(R) that remain unvested on the effective date.

2.       A "modified  retrospective"  method which includes the  requirements of
         the  modified  prospective  method  described  above,  but also permits
         entities to restate based on the amounts  previously  recognized  under
         Statement  123 for  purposes  of pro forma  disclosures  either (a) all
         prior  periods  presented or (b) prior  interim  periods of the year of
         adoption.

     We plan to adopt Statement 123 using the modified prospective method.

     Adoption of Statement 123(R) will not have a material impact on our results
of operations or our financial position.

Inflation

     Substantially  all of our office and industrial  leases require  tenants to
pay, as additional rent, a portion of real estate taxes and operating  expenses.
In  addition,  many of our leases  provide for fixed  increases  in base rent or
indexed  escalations  (based on the Consumer Price Index or other measures).  We
believe that inflationary  increases in expenses will be offset, in part, by the
expense reimbursements and contractual rent increases described above.

     As of December 31, 2004,  approximately  $195.0 million of our  outstanding
indebtedness was subject to interest at floating rates.  Future indebtedness may
also be subject to floating rate interest. Inflation, and its impact on floating
interest  rates,  could  affect  the  amount of  interest  payments  due on such
indebtedness.  Our  floating  rate  debt is  subject  to an  interest  rate  cap
agreement that is designed to mitigate some of this risk.



<PAGE>


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                    MARKET RISK

     The following  table provides  information  about our derivative  financial
instruments  and other  financial  instruments  that are sensitive to changes in
interest  rates.  For our mortgage notes payable,  the table presents  principal
cash flows,  including  principal  amortization,  and  related  weighted-average
interest  rates by expected  maturity  dates as of December  31,  2004.  For the
interest  rate  protection  agreement,  the table  presents the notional  amount
entered into and the cap rate.

<TABLE>


                                                                   Interest Rate Sensitivity
                                                       Principal (Notional) Amount by Expected Maturity
                                                                     Average Interest Rate
                                      ------------------------------------------------------------------------------------
                                          2005        2006        2007        2008       2009     Thereafter    Total
                                      ------------------------------------------------------------------------------------
                                                                     (Dollars in Millions)
<S>                                   <C>            <C>          <C>         <C>        <C>       <C>

Liabilities
Mortgage notes payable (1):
Fixed rate amount..................    $    4.0    $    4.3      $  4.6      $ 19.2        $7.3     $193.0       $232.4
Weighted-average interest rate.....         7.03%       7.03%       7.04%       7.14%       7.57%      6.98%

Variable rate amount (2)...........         -        $195.0         -           -           -          -         $195.0
Weighted-average interest rate.....         -           5.25%       -           -           -          -

Interest rate cap agreements (3):
Notional amount....................         -        $195.0         -           -           -          -         $195.0
Cap rate...........................         -           6.60%       -           -           -          -           -

</TABLE>

(1)  Based upon the rates in effect at December 31, 2004,  the  weighted-average
     interest  rates on our  mortgage  notes  payable at  December  31, 2004 was
     6.21%.  If  interest  rates on our  variable  rate  debt  increased  by one
     percentage  point, our annual interest  incurred  (including the effects of
     the interest rate protection  agreements)  would increase by $1.95 million.
     The mortgage loan secured by our Continental  Towers property in the amount
     of $66.0  million at  December  31,  2004,  matures  January  5, 2013.  The
     maturity is  contingent  upon an  agreement  between the lender and us to a
     modification  of the loan's  interest rate and other major loan terms on or
     before April 30, 2005,  which would  decrease the interest rate on the loan
     from the current rate of 7.22% as described  in the loan  documents.  If we
     determine  the  revised  terms are not  acceptable  to us,  the loan may be
     repaid  without  penalty.  We are currently in  discussions  with potential
     lenders concerning refinancing this property.

(2)  This loan has two extension  options allowing the maturity date of the loan
     to be extended to March 9, 2007 and March 9, 2008.

(3)  In March 2003,  we  obtained  an interest  rate cap of LIBOR at 6.6% with a
     notional  amount  of  $195.0  million  for the term of the new  loan  which
     refinanced outstanding debt collateralized by our IBM Plaza property.


<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial  statements and supplementary data required by Regulation S-X
are included in this Report on Form 10-K commencing on page F-1.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

     Not applicable.

ITEM 9A.  CONTROLS AND PROCEDURES

(a)  Evaluation of Disclosure Controls and Procedures

     Based on our management's evaluation of the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated
under the  Securities  Exchange  Act of 1934,  as  amended) as of the end of the
period covered by this annual report on Form 10-K,  which was conducted with the
participation of our Chief Executive  Officer and Chief Financial  Officer,  our
Chief  Executive  Officer and Chief  Financial  Officer have  concluded that our
disclosure  and  controls  and  procedures  were  effective as of the end of the
period covered by this annual report on Form 10-K.

(b)  Management's Report on Internal Control over Financial Reporting.

     Our management is responsible for  establishing  and maintaining  effective
internal  control over financial  reporting as defined in Rules  13a-15(f) under
the  Securities  Exchange  Act of 1934.  Our  system of  internal  control  over
financial  reporting  is  designed  to  provide  reasonable   assurance  to  our
management  and our  board  of  trustees  regarding  the  preparation  and  fair
presentation of published financial statements.

     Because of its  inherent  limitations,  a system of internal  control  over
financial  reporting may not prevent or detect  misstatements.  Therefore,  even
those systems  determined to be effective can provide only reasonable  assurance
with respect to financial statement preparation and presentation.

     Management   assessed  the  effectiveness  of  our  internal  control  over
financial  reporting  as of  December  31,  2004.  In  making  this  assessment,
management   used  the  criteria  set  forth  by  the  Committee  of  Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control - Integrated
Framework.  Based on our  assessment,  we believe that, as of December 31, 2004,
our system of internal  control over financial  reporting is effective  based on
those criteria.

     Management's  assessment  of the  effectiveness  of internal  control  over
financial  reporting as of December 31, 2004, has been audited by Ernst & Young,
LLP, the  independent  registered  public  accounting  firm who also audited our
consolidated  financial  statements.  Ernst  &  Young's  attestation  report  on
management's assessment of our internal control over financial reporting appears
on page F-3 hereof.

ITEM 9B.  OTHER INFORMATION

         None.



<PAGE>


                                    PART III

     Certain information  required by Part III is omitted from this Report as we
will file a  definitive  proxy  statement  within  120 days after the end of our
fiscal year pursuant to Regulation 14A for our Annual Meeting of Shareholders to
be held on June 3, 2005 (the "Proxy  Statement")  and the  information  included
therein is incorporated herein by reference.


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information contained in the sections captioned "Election of Trustees,"
"Compensation     of     Executives--Executive     Officers,"     and     "Other
Information--Section  16(a) Beneficial  Ownership Reporting Compliance and "Code
of Ethics" of the Proxy Statement is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

     The  information   contained  in  the  sections   captioned   "Election  of
Trustees--Compensation   of  Trustees",   "Report  of  Compensation  Committee",
"Performance  Graph" and  "Compensation of Executives" of the Proxy Statement is
incorporated herein by reference.


<PAGE>


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Equity Compensation Plan Information

     The following table gives  information  about our common shares that may be
issued upon the  exercise of options,  warrants and rights under the Prime Group
Realty Trust 1997 Share Incentive Plan, as amended,  as of December 31, 2004. We
have no other compensation plans pursuant to which common shares may be issued.

<TABLE>




                                              (a)              (b)                (c)                    (d)
                                                                                  Number
                                                                                of common
                                                                                  shares
                                                                                 remaining
                                           Number of                           available for
                                          common shares   Weighted-average    future issuance
                                        to be issued      exercise price       under equity
                                         upon exercise     of outstanding      compensation
                                         of outstanding       options,       plans (excluding     Total of common
                                            options,       of outstanding      common shares     shares reflected
                                          warrants and      warrants and        reflected in       in Columns
Plan Category                                rights            rights            Column (a)        (a) and (c)
                                        ----------------- ------------------ ------------------ ------------------
<S>                                       <C>             <C>                <C>                <C>

Equity compensation plan
  previously approved by
  shareholders....................          938,883 (1)      $ 15.19              1,772,127 (2)   2,711,010 (2)
Equity compensation plans not
  previously approved by                                       Not
  shareholders....................           None         Applicable              None            None
                                        ----------------- ------------------ ------------------ ------------------
      TOTAL:                                938,883          $ 15.19              1,772,127       2,711,010 (2)
                                        ================= ================== ================== ==================
</TABLE>

------------
(1)  Issued  under the Prime Group Realty Trust 1997 Share  Incentive  Plan,  as
     amended.

(2)  We have  granted  the options to  purchase  common  shares set forth in the
     table  above  as  well as  restricted  common  shares  subject  to  vesting
     schedules and unrestricted common shares under the Plan. As of December 31,
     2004, we have granted 149,764  restricted common shares under the Plan, all
     of which  have now  vested.  We are  authorized  to issue an  aggregate  of
     2,860,774  common shares under the Plan.  After taking into account  common
     shares  subject to  outstanding  options and  restricted  and  unrestricted
     common share grants,  1,772,127  common shares of the authorized  2,860,774
     common shares remain available for future issuance under the Plan.

     The information  contained in the sections  captioned  "Principal  Security
Holders  of the  Company"  of the  Proxy  Statement  is  incorporated  herein by
reference.

     We have Series A-2  warrants  outstanding  to purchase up to 500,000 of our
common  shares at $7.50 per share,  Series B warrants  outstanding  to  purchase
250,000  of our  common  shares  at  $10.00  per  share  and  Series C  warrants
outstanding  to purchase up to 250,000 of our common shares at $12.50 per share.
The warrants contain antidilution  adjustment provisions and expire on the fifth
anniversary of their issuance,  July 16, 2007. We have granted the holder of the
warrants  certain  demand and incidental  registration  rights in respect of any
common shares they may receive upon the exercise of any of the warrants.



<PAGE>


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information  contained in the section captioned "Certain  Relationships
and Related  Transactions"  of the Proxy  Statement  is  incorporated  herein by
reference.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

     The  information  contained in the section  captioned  "Audit and Non-Audit
Fees" of the Proxy Statement is incorporated herein by reference.



<PAGE>


                                     PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


(a) (1)  Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firm                     F-2

Consolidated Balance Sheets as of December 31, 2004 and 2003                 F-5


Consolidated Statements of Operations for the years ended
  December 31, 2004, 2003 and 2002                                           F-6


Consolidated Statements of Changes in Shareholders' Equity for the
  years ended December 31, 2004, 2003 and 2002                               F-7

Consolidated Statements of Cash Flows for the years ended
 December 31, 2004, 2003 and 2002                                            F-8

Notes to Consolidated Financial Statements                                  F-10

     (2) Financial Statement Schedule

The following financial statement schedule is included in Item 15(c)

Schedule III - Real Estate and Accumulated Depreciation of Prime Group
  Realty Trust as of December 31, 2004                                      F-52

Financial Statements of Significant Subsidiary                              F-54

     All  other  schedules  for  which  provision  is  made  in  the  applicable
accounting  regulations  of the  Securities  and  Exchange  Commission  are  not
required under the related instructions or are inapplicable,  and therefore have
been omitted.



<PAGE>


(3) Exhibits

Exhibit
Number                             Description

2.1  Purchase  Agreement  dated as of August 2, 2004 by and between  CenterPoint
     Properties  Trust and Prime Group Realty,  L.P. as filed as exhibit 99.2 to
     our Current Report on Form 8-K (filed August 6, 2004,  File No.  001-13589)
     and incorporated herein by reference.

2.2  First  Amendment to Purchase  Agreement  dated as of October 8, 2004 by and
     between Prime Group Realty, L.P. and CenterPoint Properties Trust, as filed
     as exhibit 99.3 to our Current  Report on Form 8-K (filed October 15, 2004,
     File No. 001-13589) and incorporated herein by reference.

3.1  Articles of Amendment  and  Restatement  of  Declaration  of Trust of Prime
     Group Realty  Trust,  as filed as exhibit 3.1 to our 1997 Annual  Report on
     Form 10-K and incorporated herein by reference.

3.2  Articles  Supplementary  to the Articles of Amendment  and  Restatement  of
     Declaration  of Trust of Prime Group Realty Trust,  as filed as exhibit 4.1
     to our  Quarterly  Report on Form 10-Q for the quarter  ended June 30, 1998
     and incorporated herein by reference.

3.3  Articles  Supplementary  to the Articles of Amendment  and  Restatement  of
     Declaration  of Trust of Prime Group  Realty Trust dated as of December 29,
     1998,  as filed as exhibit 3.3 to our 1998  Annual  Report on Form 10-K and
     incorporated by reference.

3.4  Amended  and  Restated  Bylaws of Prime  Group  Realty  Trust,  as filed as
     exhibit  3.1 to our  Quarterly  Report on Form 10-Q for the  quarter  ended
     September 30, 2000 and incorporated herein by reference.

3.5  Amended  and  Restated  Agreement  of Limited  Partnership  of Prime  Group
     Realty, L.P. (the "Amended and Restated Agreement of Limited Partnership"),
     as  filed  as  exhibit  3.3 to our  1997  Annual  Report  on Form  10-K and
     incorporated herein by reference.

3.6  Amendment  No.  1  to  the  Amended  and  Restated   Agreement  of  Limited
     Partnership  dated as of  December  15,  1997,  as filed as exhibit  3.5 to
     Amendment No. 1 to our Registration  Statement on Form S-11 (No. 333-51599)
     and incorporated herein by reference.

3.7  Amendment  No.  2  to  the  Amended  and  Restated   Agreement  of  Limited
     Partnership  dated as of  December  15,  1997,  as filed as exhibit  3.6 to
     Amendment No. 1 to our Registration  Statement on Form S-11 (No. 333-51599)
     and incorporated herein by reference.

3.8  Amendment  No.  3  to  the  Amended  and  Restated   Agreement  of  Limited
     Partnership  dated as of  January  15,  1998,  as filed as  exhibit  3.7 to
     Amendment No. 1 to our Registration  Statement on Form S-11 (No. 333-51599)
     and incorporated herein by reference.

3.9  Amendment  No.  4  to  the  Amended  and  Restated   Agreement  of  Limited
     Partnership  dated as of  February  13,  1998,  as filed as exhibit  3.8 to
     Amendment No. 1 to our Registration  Statement on Form S-11 (No. 333-51599)
     and incorporated herein by reference.

3.10 Amendment  No.  5  to  the  Amended  and  Restated   Agreement  of  Limited
     Partnership  dated as of  March  13,  1998,  as  filed  as  exhibit  3.9 to
     Amendment No. 1 to our Registration  Statement on Form S-11 (No. 333-51599)
     and incorporated herein by reference.

3.11 Amendment  No.  6  to  the  Amended  and  Restated   Agreement  of  Limited
     Partnership  dated as of March  25,  1998,  as  filed  as  exhibit  3.10 to
     Amendment No. 1 to our Registration  Statement on Form S-11 (No. 333-51599)
     and incorporated herein by reference.

3.12 Amendment  No.  7  to  the  Amended  and  Restated   Agreement  of  Limited
     Partnership  dated as of April  15,  1998,  as  filed  as  exhibit  3.11 to
     Amendment No. 1 to our Registration  Statement on Form S-11 (No. 333-51599)
     and incorporated herein by reference.

3.13 Amendment  No.  8  to  the  Amended  and  Restated   Agreement  of  Limited
     Partnership  dated  as of May 15,  1998,  as filed  as  exhibit  3.2 to our
     Quarterly  Report  on Form 10-Q for the  quarter  ended  June 30,  1998 and
     incorporated herein by reference.

3.14 Amendment  No.  9  to  the  Amended  and  Restated   Agreement  of  Limited
     Partnership  dated  as of June 5,  1998,  as filed  as  exhibit  3.3 to our
     Quarterly  Report  on Form 10-Q for the  quarter  ended  June 30,  1998 and
     incorporated herein by reference.

3.15 Amendment  No.  10  to  the  Amended  and  Restated  Agreement  of  Limited
     Partnership  dated as of June 15,  1998,  as  filed as  exhibit  3.4 to our
     Quarterly  Report  on Form 10-Q for the  quarter  ended  June 30,  1998 and
     incorporated herein by reference.

3.16 Amendment  No.  11  to  the  Amended  and  Restated  Agreement  of  Limited
     Partnership  dated  as of July  15,  1998,  as  filed  as  exhibit  3.15 to
     Post-Effective  Amendment No. 1 to our Registration  Statement on Form S-11
     (No. 333-51935) and incorporated herein by reference.

3.17 Amendment  No.  12  to  the  Amended  and  Restated  Agreement  of  Limited
     Partnership  dated as of  August  14,  1998,  as filed as  exhibit  3.16 to
     Post-Effective  Amendment No. 1 to our Registration  Statement on Form S-11
     (No. 333-51935) and incorporated herein by reference.

3.18 Amendment  No.  13  to  the  Amended  and  Restated  Agreement  of  Limited
     Partnership  dated as of  September  15, 199,  as filed as exhibit  3.17 to
     Amendment  No. 1 to  Post-Effective  Amendment  No.  1 to our  Registration
     Statement  on  Form  S-11  (No.   333-51935)  and  incorporated  herein  by
     reference.

3.19 Amendment  No.  14  to  the  Amended  and  Restated  Agreement  of  Limited
     Partnership  dated as of October  15,  1998,  as filed as  exhibit  3.18 to
     Amendment No. 2 to our Registration  Statement on Form S-3 (No.  333-64973)
     and incorporated herein by reference.


<PAGE>





Exhibit
Number                      Description

3.20 Amendment  No.  15  to  the  Amended  and  Restated  Agreement  of  Limited
     Partnership  dated as of November  16,  1998,  as filed as exhibit  3.19 to
     Amendment No. 1 to our Registration  Statement on Form S-3 (No.  333-64973)
     and incorporated herein by reference.

3.21 Amendment  No.  16  to  the  Amended  and  Restated  Agreement  of  Limited
     Partnership  dated as of December  15,  1998,  as filed as exhibit  3.20 to
     Post-Effective  Amendment No. 3 to our  Registration  Statement on Form S-3
     (Registration No. 333-51935) and incorporated herein by reference.

3.22 Amendment  No.  17  to  the  Amended  and  Restated  Agreement  of  Limited
     Partnership  dated as of January 15,  1999,  as filed as exhibit 3.1 to our
     Quarterly  Report on Form 10-Q for the  quarter  ended  March 31,  1999 and
     incorporated herein by reference.

3.23 Amendment  No.  18  to  the  Amended  and  Restated  Agreement  of  Limited
     Partnership  dated as of February 15, 1999,  as filed as exhibit 3.2 to our
     Quarterly  Report on Form 10-Q for the  quarter  ended  March 31,  1999 and
     incorporated herein by reference.

3.24 Amendment  No.  19  to  the  Amended  and  Restated  Agreement  of  Limited
     Partnership  dated as of March 15,  1999,  as filed as  exhibit  3.3 to our
     Quarterly  Report on Form 10-Q for the  quarter  ended  March 31,  1999 and
     incorporated herein by reference.

3.25 Amendment  No.  21  to  the  Amended  and  Restated  Agreement  of  Limited
     Partnership  dated as of April  15,  1999,  as  filed  as  exhibit  3.24 to
     Amendment No. 1 to our Registration  Statement on Form S-3 (No.  333-70369)
     and incorporated herein by reference.

3.26 Amendment  No.  22  to  the  Amended  and  Restated  Agreement  of  Limited
     Partnership  dated as of April  22,  1999,  as  filed  as  exhibit  3.25 to
     Amendment No. 1 to our Registration  Statement on Form S-3 (No.  333-70369)
     and incorporated herein by reference.

3.27 Amendment  No.  23  to  the  Amended  and  Restated  Agreement  of  Limited
     Partnership dated as of May 17, 1999, as filed as exhibit 3.26 to Amendment
     No.  1 to our  Registration  Statement  on Form  S-3  (No.  333-70369)  and
     incorporated herein by reference.

3.28 Amendment  No.  24  to  the  Amended  and  Restated  Agreement  of  Limited
     Partnership  dated as of June 15,  1999,  as  filed as  exhibit  3.4 to our
     Quarterly  Report  on Form 10-Q for the  quarter  ended  June 30,  1999 and
     incorporated herein by reference.

3.29 Amendment  No.  25  to  the  Amended  and  Restated  Agreement  of  Limited
     Partnership  dated as of July 14,  1999,  as  filed as  exhibit  3.1 to our
     Quarterly  Report on Form 10-Q for the quarter ended September 30, 1999 and
     incorporated herein by reference.

3.30 Amendment  No.  26  to  the  Amended  and  Restated  Agreement  of  Limited
     Partnership  dated as of July 15,  1999,  as  filed as  exhibit  3.2 to our
     Quarterly  Report on Form 10-Q for the quarter ended September 30, 1999 and
     incorporated herein by reference.


<PAGE>





Exhibit
Number                                 Description

3.31    Amendment  No. 27 to the  Amended  and  Restated  Agreement  of  Limited
        Partnership  dated as of August 16, 1999, as filed as exhibit 3.3 to our
        Quarterly  Report on Form 10-Q for the quarter ended  September 30, 1999
        and incorporated herein by reference.

3.32    Amendment  No. 28 to the  Amended  and  Restated  Agreement  of  Limited
        Partnership  dated as of September  15, 1999, as filed as exhibit 3.4 to
        our Quarterly  Report on Form 10-Q for the quarter  ended  September 30,
        1999 and incorporated herein by reference.

3.33    Amendment  No. 29 to the  Amended  and  Restated  Agreement  of  Limited
        Partnership  dated as of October 15,  1999,  as filed as exhibit 3.34 to
        our  1999  Annual  Report  on  Form  10-K  and  incorporated  herein  by
        reference.

3.34    Amendment  No. 30 to the  Amended  and  Restated  Agreement  of  Limited
        Partnership  dated as of November 15, 1999,  as filed as exhibit 3.35 to
        our  1999  Annual  Report  on  Form  10-K  and  incorporated  herein  by
        reference.

3.35    Amendment  No. 31 to the  Amended  and  Restated  Agreement  of  Limited
        Partnership  dated as of December 15, 1999,  as filed as exhibit 3.36 to
        our  1999  Annual  Report  on  Form  10-K  and  incorporated  herein  by
        reference.

3.36    Amendment  No. 32 to the  Amended  and  Restated  Agreement  of  Limited
        Partnership  dated as of December 30, 1999,  as filed as exhibit 3.37 to
        our  1999  Annual  Report  on  Form  10-K  and  incorporated  herein  by
        reference.

3.37    Amendment  No. 33 to the  Amended  and  Restated  Agreement  of  Limited
        Partnership of Prime Group Realty, L.P. dated as of January 17, 2000, as
        filed  as  exhibit  3.1 to our  Quarterly  Report  on Form  10-Q for the
        quarter ended March 31, 2000 and incorporated herein by reference.

3.38    Amendment  No. 34 to the  Amended  and  Restated  Agreement  of  Limited
        Partnership  of Prime Group Realty,  L.P. dated as of February 15, 2000,
        as filed as  exhibit  3.2 to our  Quarterly  Report on Form 10-Q for the
        quarter ended March 31, 2000 and incorporated herein by reference.

3.39    Amendment  No. 35 to the  Amended  and  Restated  Agreement  of  Limited
        Partnership  of Prime Group Realty,  L.P. dated as of March 15, 2000, as
        filed  as  exhibit  3.3 to our  Quarterly  Report  on Form  10-Q for the
        quarter ended March 31, 2000 and incorporated herein by reference.

3.40    Amendment  No. 36 to the  Amended  and  Restated  Agreement  of  Limited
        Partnership  of Prime Group Realty,  L.P. dated as of March 15, 2000, as
        filed  as  exhibit  3.4 to our  Quarterly  Report  on Form  10-Q for the
        quarter ended March 31, 2000 and incorporated herein by reference.

3.41    Amendment  No. 37 to the  Amended  and  Restated  Agreement  of  Limited
        Partnership  of Prime Group Realty,  L.P. dated as of March 24, 2000, as
        filed  as  exhibit  3.5 to our  Quarterly  Report  on Form  10-Q for the
        quarter ended March 31, 2000 and incorporated herein by reference.


<PAGE>





Exhibit
Number                                 Description

3.42    Amendment  No. 38 to the  Amended  and  Restated  Agreement  of  Limited
        Partnership  of Prime Group Realty,  L.P. dated as of April 17, 2000, as
        filed  as  exhibit  3.1 to our  Quarterly  Report  on Form  10-Q for the
        quarter ended June 30, 2000 and incorporated herein by reference.

3.43    Amendment  No. 39 to the  Amended  and  Restated  Agreement  of  Limited
        Partnership  of Prime Group  Realty,  L.P.  dated as of May 15, 2000, as
        filed  as  exhibit  3.2 to our  Quarterly  Report  on Form  10-Q for the
        quarter ended June 30, 2000 and incorporated herein by reference.

3.44    Amendment  No. 40 to the  Amended  and  Restated  Agreement  of  Limited
        Partnership  of Prime Group Realty,  L.P.  dated as of June 15, 2000, as
        filed  as  exhibit  3.3 to our  Quarterly  Report  on Form  10-Q for the
        quarter ended June 30, 2000 and incorporated herein by reference.

3.45    Amendment  No. 41 to the  Amended  and  Restated  Agreement  of  Limited
        Partnership  of Prime Group Realty,  L.P.  dated as of March 7, 2002, as
        filed  as  exhibit  3.46 to our  2001  Annual  Report  on Form  10-K and
        incorporated herein by reference.

3.46    Amendment   No.  42  to  Amended  and  Restated   Agreement  of  Limited
        Partnership of Prime Group Realty, L.P. dated as of January 10, 2003, as
        filed  as  Exhibit  3.1 to our  Quarterly  Report  on Form  10-Q for the
        quarter ended March 31, 2003 and incorporated herein by reference.

10.1    Option  Agreement  by and between  Prime Group  Realty,  L.P. and 300 N.
        LaSalle,  L.L.C., as filed as exhibit 10.13 to the Company's 1997 Annual
        Report on Form 10-K and incorporated herein by reference.

10.2    Registration  Rights  Agreement  dated as of November  17, 1997  between
        Prime  Group  Realty  Trust,  Prime  Group  Realty,   L.P.,   Primestone
        Investment Partners L.P. and the other investors named therein, as filed
        as exhibit  10.14 to the  Company's  1997 Annual Report on Form 10-K and
        incorporated herein by reference.

10.3    Environmental  Remediation  and  Indemnification  Agreement  dated as of
        November 17, 1997 by and between Prime Group Realty,  L.P. and The Prime
        Group,  Inc.,  as filed as exhibit  10.29 to the  Company's  1997 Annual
        Report on Form 10-K and incorporated herein by reference.

10.4    Tax  Indemnification  Agreement by and between Prime Group Realty,  L.P.
        and Edward S. Hadesman Trust dated May 22, 1992, Grandville/Northwestern
        Management  Corporation,  Carolyn B. Hadesman  Trust dated May 21, 1992,
        Lisa Hadesman 1991 Trust,  Cynthia Hadesman 1991 Trust, Tucker B. Magid,
        Francis Shubert,  Grandville Road Property,  Inc., H R Trust,  Edward E.
        Johnson  and Sky Harbor  Associates,  as filed as  exhibit  10.24 to the
        Company's  1997 Annual  Report on Form 10-K and  incorporated  herein by
        reference.

10.5    Tax  Indemnification  Agreement  dated as of  November  17,  1997 by and
        between Prime Group Realty,  L.P.,  Stephen J. Nardi, Narco Enterprises,
        Inc. and Nardi Group Limited, as filed as exhibit 10.25 to the Company's
        1997 Annual Report on Form 10-K and incorporated herein by reference.


<PAGE>



Exhibit
Number                               Description

10.6    Indemnification  Agreement  dated as of November 17, 1997 by and between
        The Prime  Group,  Inc.  and Prime Group  Realty,  L.P.,  as filed as an
        exhibit to the Company's  1997 Annual Report on Form 10-K, as amended by
        the Company's Form 10-K/A as filed with the Commission on April 27, 1998
        and incorporated herein by reference.

10.7    Registration  Rights  Agreement dated as of March 25, 1998 between Prime
        Group Realty Trust and the other  parties  thereto,  as filed as exhibit
        10.36  to  the  Company's  Registration  Statement  on  Form  S-11  (No.
        333-51599) and incorporated herein by reference.

10.8    Registration  Rights  Agreement  dated as of November  17, 1997  between
        Prime  Group  Realty  Trust  and  Security   Capital   Preferred  Growth
        Incorporated,  as filed as exhibit 10.30 to the Company's  Annual Report
        on Form 10-K, as amended by the Company's  Form 10-K/A as filed with the
        Commission on April 27, 1998 and incorporated herein by reference

10.9    Registration  Rights  Agreement  dated as of December  15, 1997  between
        Prime Group  Realty  Trust and certain  holders of Common Units of Prime
        Group Realty,  L.P.,  as filed as exhibit  10.28 to the  Company's  1997
        Annual Report on Form 10-K and incorporated herein by reference

10.10   Subordination  and  Intercreditor  Agreement  dated  as of May 14,  1998
        between Prime Group Realty,  L.P. and Connecticut General Life Insurance
        Company,  as  filed  as  exhibit  10.44  to the  Company's  Registration
        Statement  on Form  S-11  (No.  333-51599)  and  incorporated  herein by
        reference.

10.11   Promissory Note dated as of May 1, 1998 made by certain  subsidiaries of
        Prime Group Realty Trust to CIBC, Inc., as filed as exhibit 10.42 to the
        Company's  Registration  Statement  on Form  S-11  (No.  333-51599)  and
        incorporated herein by reference.

10.12   Promissory Note dated as of May 14, 1998 made by American  National Bank
        and Trust Company of Chicago,  not personally but as trustee under trust
        agreement  dated July 26, 1977 and known as Trust No. 40935 and American
        National  Bank and Trust  Company of Chicago,  as  successor  trustee to
        First Bank,  N.A., as successor  trustee to National  Boulevard  Bank of
        Chicago,  not  personally,  but solely as trustee under trust  agreement
        dated  September  27,  1976 and known as Trust No.  5602 to  Connecticut
        General Life  Insurance  Company as filed as an exhibit to the Company's
        Registration  Statement on Form S-11 (No.  333-51599)  and  incorporated
        herein by reference.

10.13   First Amendment to Tax  Indemnification  Agreement dated as of March 15,
        2000 by and among Stephen Nardi,  Narco  Enterprises,  Inc., Nardi Group
        Limited and Prime Group  Realty,  L.P.,  as filed as exhibit 10.1 to our
        Quarterly  Report on Form 10-Q for the  quarter  ended June 30, 2000 and
        incorporated herein by reference.

10.14   Amended and Restated Employment  Agreement dated as of September 1, 2000
        among Prime Group Realty Trust, Prime Group Realty,  L.P. and Jeffrey A.
        Patterson, as filed as exhibit 10.3 to our Quarterly Report on Form 10-Q
        for the quarter  ended  September  30, 2000 and  incorporated  herein by
        reference.


<PAGE>




Exhibit
Number                               Description

10.15   Support  and  Standstill  Agreement  dated as of August 30,  2001 by and
        among Cadim inc.,  The Prime Group,  Inc.,  Prime Group Realty Trust and
        Prime Group  Realty,  L.P.,  as filed on August 31, 2001 under  Schedule
        14D9 and incorporated herein by reference.

10.16   Amended  and  Restated  Support  and  Standstill  Agreement  dated as of
        September 14, 2001 by and among Cadim inc., The Prime Group, Inc., Prime
        Group Realty Trust and Prime Group  Realty,  L.P., as filed on September
        19, 2001 under Schedule 14D9-C and incorporated herein by reference.

10.17   Consent and  Agreement  dated as of November 16, 2001 by and among Prime
        Group Realty Trust, Prime Group Realty, L.P. and Cadim inc., as filed as
        exhibit 99.1 to our Current Report on Form 8-K (filed November 21, 2001,
        File No. 001-13589) and incorporated herein by reference.

10.18   Tax Indemnity Agreement dated November 17, 1997 by and among Prime Group
        Realty, L.P., Roland E. Casati and Richard A. Heise, as filed as exhibit
        10.22 to our 2001 Annual Report on Form 10-K and incorporated  herein by
        reference.

10.19   First  Amendment  to Series A Preferred  Securities  Purchase  Agreement
        dated as of February  22, 2002 among Prime  Group  Realty  Trust,  Prime
        Group Realty,  L.P., and Security Capital Preferred Growth Incorporated,
        as  filed as  exhibit  99.1 to our  Current  Report  on Form 8-K  (filed
        February  28,  2002,  File No.  001-13589)  and  incorporated  herein by
        reference.

10.20*  Bonus  Agreement  dated  as of May 20,  2002  by and  between  Louis  G.
        Conforti,  Prime Group Realty  Trust and Prime Group  Realty,  L.P.,  as
        filed as  exhibit  99.1 to our  Quarterly  Report  on Form  10-Q for the
        quarter ended June 30, 2002 and incorporated herein by reference.

10.21*  Bonus  Agreement  dated as of May 20,  2002 by and  between  Jeffrey  A.
        Patterson,  Prime Group  Realty  Trust and Prime Group  Realty,  L.P. as
        filed as  Exhibit  99.2 to our  Quarterly  Report  on Form  10-Q for the
        quarter ended June 30, 2002 and incorporated herein by reference.

10.22*  Bonus  Agreement  dated  as of May 20,  2002  by and  between  James  F.
        Hoffman, Prime Group Realty Trust and Prime Group Realty, L.P., as filed
        as Exhibit  99.3 to our  Quarterly  Report on Form 10-Q for the  quarter
        ended June 30, 2002 and incorporated herein by reference

10.23   Securities  Purchase  and Exchange  Agreement  dated as of June 13, 2002
        among Security Capital Preferred Growth Incorporated, Prime Group Realty
        Trust and Prime  Group  Realty,  L.P.,  as filed as Exhibit  99.1 to our
        Current Report on Form 8-K (filed June 14, 2002, File No. 001-13589) and
        incorporated herein by reference.

10.24   Form of Promissory Note from Prime Group Realty,  L.P. in favor Security
        Capital Preferred Growth  Incorporated,  as filed as exhibit 99.2 to our
        Current Report on Form 8-K (filed June 14, 2002, File No. 001-13589) and
        incorporated herein by reference.


<PAGE>




Exhibit
Number                               Description

10.25   Form of Exchangeable  Promissory  Note from Prime Group Realty,  L.P. in
        favor of Security Capital  Preferred Growth,  Incorporated,  as filed as
        exhibit  99.3 to our Current  Report on Form 8-K (filed  June 14,  2002,
        File No. 001-13589) and incorporated herein by reference.

10.26   Form of  Promissory  Note from  Prime  Group  Realty,  L.P.  in favor of
        Security Capital Preferred Growth Incorporated, as filed as Exhibit 99.1
        to our  Current  Report  on Form  8-K  (filed  July 18,  2002,  File No.
        001-13589) and incorporated herein by reference.

10.27   Form of Exchangeable  Promissory  Note from Prime Group Realty,  L.P. in
        favor of Security  Capital  Preferred Growth  Incorporated,  as filed as
        Exhibit  99.2 to our Current  Report on Form 8-K (filed  July 18,  2002,
        File No. 001-13589) and incorporated herein by reference.

10.28   Amendment No. 1 to the Securities  Purchase and Exchange Agreement dated
        as of July 16,  2002 by and  among  Security  Capital  Preferred  Growth
        Incorporated,  Prime Group Realty Trust and Prime Group Realty, L.P., as
        filed as Exhibit 99.3 to our Current  Report on Form 8-K (filed July 18,
        2002, File No. 001-13589) and incorporated herein by reference.

10.29   Registration  Agreement  dated as of July 16, 2002 by and between  Prime
        Group Realty Trust and Security Capital  Preferred Growth  Incorporated,
        as filed as Exhibit  99.4 to our Current  Report on Form 8-K (filed July
        18, 2002, File No. 001-13589) and incorporated herein by reference

10.30   Series A-1 Share  Purchase  Warrant dated July 16, 2002 from Prime Group
        Realty Trust to Security Capital Preferred Growth Incorporated, as filed
        as Exhibit 99.5 to our Current  Report on Form 8-K (filed July 18, 2002,
        File No. 001-13589) and incorporated herein by reference.

10.31   Series A-2 Share  Purchase  Warrant dated July 16, 2002 from Prime Group
        Realty Trust to Security Capital Preferred Growth Incorporated, as filed
        as Exhibit 99.6 to our Current  Report on Form 8-K (filed July 18, 2002,
        File No. 001-13589) and incorporated herein by reference.

10.32   Series B Share  Purchase  Warrant  dated July 16,  2002 from Prime Group
        Realty Trust to Security Capital Preferred Growth Incorporated, as filed
        as Exhibit 99.7 to our Current  Report on Form 8-K (filed July 18, 2002,
        File No. 001-13589) and incorporated herein by reference.

10.33   Series C Share  Purchase  Warrant  dated July 16,  2002 from Prime Group
        Realty Trust to Security Capital Preferred Growth Incorporated, as filed
        as Exhibit 99.8 to our Current  Report on Form 8-K (filed July 18, 2002,
        File No. 001-13589) and incorporated herein by reference.

10.34   Reaffirmation and Amendment of Limited Guaranty (Loan to BRE/City Center
        L.L.C.)  dated as of June 27,  2002 by and between  Prime Group  Realty,
        L.P.  and Corus Bank  N.A.,  as filed as  Exhibit  99.13 to our  Current
        Report  on Form 8-K  (filed  July 18,  2002,  File  No.  001-13589)  and
        incorporated herein by reference.


<PAGE>



Exhibit
Number                                 Description

10.35   Loan Agreement  dated as of March 10, 2003 between Lehman  Brothers Bank
        FSB and 330 N. Wabash  Avenue,  L.L.C.,  as filed as Exhibit 10.1 to our
        Quarterly  Report on Form 10-Q for the quarter  ended March 31, 2003 and
        incorporated herein by reference.

10.36   Promissory  Note dated as of March 10, 2003 from 330 N.  Wabash  Avenue,
        L.L.C. in favor of Lehman Brothers Bank FSB, as filed as Exhibit 10.2 to
        our  Quarterly  Report on Form 10-Q for the quarter ended March 31, 2003
        and incorporated herein by reference.

10.37   Guaranty dated as of March 10, 2003 by Prime Group Realty,  L.P. for the
        benefit of Lehman  Brothers  Bank FSB,  as filed as Exhibit  10.3 to our
        Quarterly  Report on Form 10-Q for the quarter  ended March 31, 2003 and
        incorporated herein by reference.

10.38   Guaranty dated as of March 10, 2003 by Prime Group Realty,  L.P. for the
        benefit of Lehman  Brothers  Bank FSB,  as filed as Exhibit  10.4 to our
        Quarterly  Report on Form 10-Q for the quarter  ended March 31, 2003 and
        incorporated herein by reference.

10.39   Guaranty dated as of March 10, 2003 by Prime Group Realty,  L.P. for the
        benefit of Lehman  Brothers  Bank FSB,  as filed as Exhibit  10.5 to our
        Quarterly  Report on Form 10-Q for the quarter  ended March 31, 2003 and
        incorporated herein by reference.

10.40   Mezzanine  Loan  Agreement  dated  as of  March  19,  2003 by and  among
        Prime/Beitler  Development Company, L.L.C. and LNR Eastern Lending, LLC,
        as filed as Exhibit  10.6 to our  Quarterly  Report on Form 10-Q for the
        quarter ended March 31, 2003 and incorporated herein by reference.

10.41   Omnibus First Modification to Mezzanine Loan Documents dated as of March
        19, 2003 by and among  Prime/Beitler  Development  Company,  L.L.C., LNR
        Eastern Lending,  LLC and Prime Group Realty,  L.P., as filed as Exhibit
        10.7 to our  Quarterly  Report on Form 10-Q for the quarter  ended March
        31, 2003 and incorporated herein by reference.

10.42   Omnibus Second  Modification  to Mezzanine  Loan  Documents  dated as of
        March 19, 2003 by and among Prime/Beitler  Development Company,  L.L.C.,
        LNR  Eastern  Lending,  LLC,  Dearborn  Center,  L.L.C.  and Prime Group
        Realty,  L.P., as filed as Exhibit 10.8 to our Quarterly  Report on Form
        10-Q for the quarter  ended March 31,  2003 and  incorporated  herein by
        reference.

10.43   Omnibus Third Modification to Mezzanine Loan Documents dated as of March
        19, 2003 by and among  Prime/Beitler  Development  Company,  L.L.C., LNR
        Eastern Lending,  LLC,  Dearborn Center,  L.L.C. and Prime Group Realty,
        L.P., as filed as Exhibit 10.9 to our Quarterly  Report on Form 10-Q for
        the quarter ended March 31, 2003 and incorporated herein by reference.

10.44   Mezzanine Note dated as of March 19, 2003 from Prime/Beitler Development
        Company,  L.L.C.  in  favor of LNR  Eastern  Lending,  LLC,  as filed as
        Exhibit 10.10 to our Quarterly Report on Form 10-Q for the quarter ended
        March 31, 2003 and incorporated herein by reference.


<PAGE>





Exhibit
Number                              Description

10.45   Guaranty of Completion and Indemnity dated as of March 19, 2003 by Prime
        Group  Realty,  L.P. in favor of LNR Eastern  Lending,  LLC, as filed as
        Exhibit 10.11 to our Quarterly Report on Form 10-Q for the quarter ended
        March 31, 2003 and incorporated herein by reference.

10.46   Guaranty of Interest and  Operating  Costs dated as of March 19, 2003 by
        Prime Group Realty, L.P. in favor of LNR Eastern Lending,  LLC, as filed
        as Exhibit  10.12 to our  Quarterly  Report on Form 10-Q for the quarter
        ended March 31, 2003 and incorporated herein by reference.

10.47   Reserve  Account  Agreement  dated as of  March  19,  2003 by and  among
        Dearborn Center,  L.L.C.,  Bayerische Hypo- Und Vereinsbank AG, New York
        Branch, LNR Eastern Lending,  LLC,  Prime/Beitler  Development  Company,
        L.L.C.  and Prime Group  Realty,  L.P., as filed as Exhibit 10.13 to our
        Quarterly  Report on Form 10-Q for the quarter  ended March 31, 2003 and
        incorporated herein by reference.

10.48   Non-Recourse  Carveout  Agreement  dated as of March  19,  2003 by Prime
        Group  Realty,  L.P. in favor of LNR Eastern  Lending,  LLC, as filed as
        Exhibit 10.14 to our Quarterly Report on Form 10-Q for the quarter ended
        March 31, 2003 and incorporated herein by reference.

10.49   Mezzanine  Loan  Agreement  dated  as of May  28,  2003  between  Lehman
        Brothers Holdings Inc. and 330 N. Wabash Mezzanine,  L.L.C., as filed as
        Exhibit 10.15 to our Quarterly Report on Form 10-Q for the quarter ended
        June 30, 2003 and incorporated herein by reference.

10.50   Promissory  Note dated as of May 28, 2003 from 330 N. Wabash  Mezzanine,
        L.L.C.  in favor of Lehman  Brothers  Holdings Inc., as filed as Exhibit
        10.16 to our  Quarterly  Report on Form 10-Q for the quarter  ended June
        30, 2003 and incorporated herein by reference.

10.51   Guaranty  dated as of May 28, 2003 by Prime Group  Realty,  L.P. for the
        benefit of Lehman  Brothers  Holdings Inc., as filed as Exhibit 10.17 to
        our  Quarterly  Report on Form 10-Q for the quarter  ended June 30, 2003
        and incorporated herein by reference.

10.52   Guaranty  dated as of May 28, 2003 by Prime Group  Realty,  L.P. for the
        benefit of Lehman  Brothers  Holdings Inc., as filed as Exhibit 10.18 to
        our  Quarterly  Report on Form 10-Q for the quarter  ended June 30, 2003
        and incorporated herein by reference.

10.53   Guaranty  dated as of May 28, 2003 by Prime Group  Realty,  L.P. for the
        benefit of Lehman  Brothers  Holdings Inc., as filed as Exhibit 10.19 to
        our  Quarterly  Report on Form 10-Q for the quarter  ended June 30, 2003
        and incorporated herein by reference.

10.54   Amendment  to Loan  Agreement  dated as of May 28,  2003  between 330 N.
        Wabash Avenue,  L.L.C. and Lehman Brothers Bank FSB, as filed as Exhibit
        10.20 to our  Quarterly  Report on Form 10-Q for the quarter  ended June
        30, 2003 and incorporated herein by reference.


<PAGE>





Exhibit
Number                             Description

10.55   Omnibus Amendment to Loan Documents dated as of May 28, 2003 between 330
        N.  Wabash  Avenue,  L.L.C.  and Lehman  Brothers  Bank FSB, as filed as
        Exhibit 10.21 to our Quarterly Report on Form 10-Q for the quarter ended
        June 30, 2003 and incorporated herein by reference.

10.56   Amendment  to  Guaranty  dated as of May 28,  2003  between  Prime Group
        Realty,  L.P. and Lehman Brothers Bank FSB, as filed as Exhibit 10.22 to
        our  Quarterly  Report on Form 10-Q for the quarter  ended June 30, 2003
        and incorporated herein by reference.

10.57   Termination  of  $4,000,000  Mortgage  Guaranty Note dated as of May 28,
        2003 between Prime Group Realty,  L.P. and Lehman  Brothers Bank FSB, as
        filed as  Exhibit  10.23 to our  Quarterly  Report  on Form 10-Q for the
        quarter ended June 30, 2003 and incorporated herein by reference.

10.58   Contribution  Agreement  dated as of August 4, 2003 between  Prime Group
        Realty,  L.P. and WELP  Chicago,  L.C.,  as filed as Exhibit 99.2 to our
        Current Report on Form 8-K (filed September 5, 2003, File No. 001-13589)
        and incorporated herein by reference.

10.59   First  Amendment to  Contribution  Agreement dated as of August 18, 2003
        between  Prime Group Realty,  L.P. and WELP  Chicago,  L.C., as filed as
        Exhibit 99.3 to our Current Report on Form 8-K (filed September 5, 2003,
        File No. 001-13589) and incorporated herein by reference.

10.60   Second  Amendment to Contribution  Agreement dated as of August 29, 2003
        between  Prime Group Realty,  L.P. and WELP  Chicago,  L.C., as filed as
        Exhibit 99.4 to our Current Report on Form 8-K (filed September 5, 2003,
        File No. 001-13589) and incorporated herein by reference.

10.61   Third  Amendment to  Contribution  Agreement dated as of October 8, 2003
        between  Prime Group Realty,  L.P. and WELP  Chicago,  L.C., as filed as
        Exhibit 99.2 to our Current  Report on Form 8-K (filed October 23, 2003,
        File No. 001-13589) and incorporated herein by reference.

10.62   Amended and Restated  Limited  Liability  Company  Agreement of Dearborn
        Center, L.L.C. dated as of October 8, 2003 between UST XI Dearborn, Ltd.
        and Prime Group  Realty,  L.P.,  as filed as Exhibit 99.3 to our Current
        Report on Form 8-K (filed  October 23,  2003,  File No.  001-13589)  and
        incorporated herein by reference.

10.63   Management  and  Leasing  Agreement  dated as of  October 8, 2003 by and
        between Dearborn Center,  L.L.C. and Prime Group Realty Services,  Inc.,
        as  filed as  Exhibit  99.4 to our  Current  Report  on Form 8-K  (filed
        October  23,  2003,  File No.  001-13589)  and  incorporated  herein  by
        reference.

10.64   Earnout Guaranty dated as of October 8, 2003 by Estein & Associates USA,
        Ltd. for the benefit of Prime Group  Realty,  L.P.,  as filed as Exhibit
        99.5 to our Current Report on Form 8-K (filed October 23, 2003, File No.
        001-13589) and incorporated herein by reference.



<PAGE>


Exhibit
Number                             Description

10.65   Indemnification  Agreement  dated as of October  8, 2003 by Prime  Group
        Realty,  L.P.  for the benefit of UST XI  Dearborn,  Ltd.  and  Dearborn
        Center,  L.L.C.,  as filed as Exhibit 99.6 to our Current Report on Form
        8-K (filed October 23, 2003, File No. 001-13589) and incorporated herein
        by reference.

10.66   Existing Tenant  Improvements and Citadel Cash Escrow Agreement dated as
        of October 8, 2003 among  Prime Group  Realty,  L.P.,  UST XI  Dearborn,
        Ltd., Dearborn Center, L.L.C. and Near North Title Insurance Company, as
        filed as Exhibit 99.7 to our Current  Report on Form 8-K (filed  October
        23, 2003, File No. 001-13589) and incorporated herein by reference.

10.67   Promissory Note dated as of October 1, 2003 from Dearborn Center, L.L.C.
        to Landesbank Hessen-Thuringen Girozentrale, as filed as Exhibit 99.8 to
        our  Current  Report  on Form 8-K  (filed  October  23,  2003,  File No.
        001-13589) and incorporated herein by reference.

10.68   Loan  Agreement  dated as of  October  1, 2003 by and  between  Dearborn
        Center, L.L.C. and Landesbank Hessen-Thuringen Girozentrale, as filed as
        Exhibit 99.9 to our Current  Report on Form 8-K (filed October 23, 2003,
        File No. 001-13589) and incorporated herein by reference.

10.69   Employment  Agreement  dated  October 29, 2003 among Prime Group  Realty
        Trust, Prime Group Realty, L.P. and Richard M. FitzPatrick,  as filed as
        Exhibit  10.75 to our Annual  Report on Form 10-K (filed March 12, 2004,
        File No. 001-13589) and incorporated herein by reference.

10.70   Consent  and  Agreement  dated as of  September  26, 2000 by Prime Group
        Realty  Trust,  and Prime  Group  Realty,  L.P.  in favor of Vornado PS,
        L.L.C.,  as filed as exhibit 99.7 to Vornado Realty Trust's Schedule 13D
        (filed November 2, 2001, File No. 005-51993) and incorporated  herein by
        reference.

10.71   Environmental  Escrow Agreement dated as of October 8, 2004 by and among
        Prime Group Realty, L.P., CenterPoint Properties Trust and Chicago Title
        and Trust  Company,  as filed as exhibit  99.4 to our Current  Report on
        Form 8-K (filed October 15, 2004, File No.  001-13589) and  incorporated
        herein by reference.

10.72   Escrow  Agreement  dated as of October 8, 2004 by and among  CenterPoint
        Properties  Trust and Prime Group  Realty,  L.P.  and Chicago  Title and
        Trust  Company,  as filed as exhibit 99.5 to our Current  Report on Form
        8-K (filed October 15, 2004, File No. 001-13589) and incorporated herein
        by reference.

10.73   Second Amended and Restated Employment Agreement dated as of October 21,
        2004 by and among Prime Group Realty Trust, Prime Group Realty, L.P. and
        Jeffrey A. Patterson,  as filed as exhibit 10.1 to our Current Report on
        Form 8-K (filed October 22, 2004, File No.  001-13589) and  incorporated
        herein by reference.

10.74   Amended and Restated Severance Agreement dated as of October 21, 2004 by
        and among Prime Group Realty Trust,  Prime Group Realty,  L.P. and James
        F. Hoffman,  as filed as exhibit 10.2 to our Current  Report on Form 8-K
        (filed October 22, 2004, File No. 001-13589) and incorporated  herein by
        reference.


<PAGE>


Exhibit
Number                               Description

10.75   Amended and Restated Severance Agreement dated as of October 21, 2004 by
        and among Prime Group Realty Trust, Prime Group Realty,  L.P. and Randel
        S. Waites,  as filed as exhibit  10.3 to our Current  Report on Form 8-K
        (filed October 22, 2004, File No. 001-13589) and incorporated  herein by
        reference.

10.76   Amended and Restated Severance Agreement dated as of October 21, 2004 by
        and among Prime Group Realty Trust,  Prime Group Realty,  L.P. and Steve
        Baron, as filed as exhibit 10.4 to our Current Report on Form 8-K (filed
        October  22,  2004,  File No.  001-13589)  and  incorporated  herein  by
        reference.

10.77   Amended and Restated Severance Agreement dated as of October 21, 2004 by
        and among Prime Group Realty Trust,  Prime Group  Realty,  L.P. and Paul
        Del Vecchio,  as filed as exhibit 10.5 to our Current Report on Form 8-K
        (filed October 22, 2004, File No. 001-13589) and incorporated  herein by
        reference.

10.78   Letter  dated April 6, 1998 by and between  Prime Group Realty Trust and
        Roy Rendino,  as filed as exhibit 10.6 to our Current Report on Form 8-K
        (filed October 22, 2004, File No. 001-13589) and incorporated  herein by
        reference.

10.79   Letter  dated  October 21, 2004 by and between  Prime Group Realty Trust
        and Roy Rendino,  as filed as exhibit 10.7 to our Current Report on Form
        8-K (filed October 22, 2004, File No. 001-13589) and incorporated herein
        by reference.

10.80   Agreement  and  Plan of  Merger  dated  October  27,  2004 by and  among
        Prime/Mansur Investment Partners, LLC, Cumberland Blues Merger Sub, LLC,
        Cumberland  Blues, LLC, Prime Group Realty Trust and Prime Group Realty,
        L.P., as filed as exhibit 10.1 to our Current  Report on Form 8-K (filed
        October  28,  2004,  File No.  001-13589)  and  incorporated  herein  by
        reference.

10.81   Termination and Release  Agreement dated November 9, 2004 by and between
        The Prime Group, Inc., Prime Group Partners, LLC and Prime Group Realty,
        LP.

10.82   Agreement and Plan of Merger dated  February 17, 2005 by and among Prime
        Office  Company,  LLC,  Prime Office Merger Sub LLC, Prime Office Merger
        Sub I, LLC,  Prime Group  Realty Trust and Prime Group  Realty,  L.P. as
        filed as exhibit 10.1 to our Current Report on Form 8-K (filed  February
        17, 2005, File No. 001-13589) and incorporated herein by reference.

12.1    Computation  of Ratios of Earnings to Fixed Charges and Preferred  Share
        Distributions

21.1    Subsidiaries of Registrant.

23.1    Consent of Independent Auditors.

31.1    Rule  13a-14(a)  Certification  of Jeffrey A.  Patterson,  President and
        Chief Executive Officer of Registrant.

31.2    Rule 13a-14(a) Certification of Richard M. FitzPatrick,  Chief Financial
        Officer of Registrant.



<PAGE>



32.1    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
        Section 906 of the  Sarbanes-Oxley  Act of 2002 of Jeffrey A. Patterson,
        President and Chief Executive Officer of the Board of Registrant.

32.2    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
        Section 906 of the Sarbanes-Oxley Act of 2002 of Richard M. FitzPatrick,
        Executive Vice President and Chief Financial Officer of Registrant.

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

* Management  contracts or compensatory plan or arrangement required to be filed
as an exhibit to this  Report on Form 10-K  pursuant to Item 14(b) of the Report
on Form 10-K.



<PAGE>



                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 1, 2005.

                                          PRIME GROUP REALTY TRUST

                                          By: /s/ Richard M. FitzPatrick
                                          ------------------------------
                                              Richard M. FitzPatrick
                                              Executive Vice President and
                                                Chief Financial Officer

     Pursuant to the requirements of the Securities Act of 1933, this report has
been  signed  by the  following  persons  in  the  capacities  and on the  dates
indicated.

<TABLE>


              Signature                                     Title                               Date

<S>                                        <C>                                         <C>

/s/Douglas Crocker, II                     Chairman of the Board and Trustee            March 1, 2005
----------------------
Douglas Crocker, II


/s/Jeffrey A. Patterson                    President and Chief Executive Officer        March 1, 2005
-----------------------





/s/Richard M. FitzPatrick                  Executive Vice President and                 March 1, 2005
-------------------------                  Chief Financial Officer
Richard M. FitzPatrick                      (Principal Financial Officer)







/s/Roy P. Rendino                          Senior Vice President - Finance and Chief    March 1, 2005
-----------------                          Accounting Officer (Principal Accounting
Roy P. Rendino                                           Officer)



/s/Ray H. D'Ardenne                        Trustee                                      March 1, 2005
-------------------
Ray H. D'Ardenne



/s/Jacque M. Ducharme                      Trustee                                      March 1, 2005
---------------------
Jacque M. Ducharme



/s/Daniel A. Lupiani                       Trustee                                      March 1, 2005
--------------------
Daniel A. Lupiani



/s/Stephen J. Nardi                        Trustee                                      March 1, 2005
-------------------
Stephen J. Nardi



/s/Christopher J. Nassetta                 Trustee                                      March 1, 2005
--------------------------
Christopher J. Nassetta

</TABLE>

<PAGE>

                               PRIME GROUP REALTY TRUST

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firm....................F-2

Consolidated Balance Sheets as of December 31, 2004 and 2003................F-4

Consolidated Statements of Operations for the years ended
   December 31, 2004, 2003 and 2002.........................................F-5

Consolidated Statements of Changes in Shareholders' Equity for the
   years ended December 31, 2004, 2003 and 2002.............................F-6

Consolidated Statements of Cash Flows for the years ended
   December 31, 2004, 2003 and 2002.........................................F-7

Notes to Consolidated Financial Statements.................................F-10

Financial Statement Schedule

Schedule III - Real Estate and Accumulated Depreciation
   as of December 31, 2004.................................................F-53

Financial Statements of Significant Subsidiary.............................F-54



<PAGE>








             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Trustees
Prime Group Realty Trust

      We have  audited the  accompanying  consolidated  balance  sheets of Prime
Group  Realty  Trust  as  of  December  31,  2004  and  2003,  and  the  related
consolidated  statements of operations,  shareholders' equity and cash flows for
each of the three years in the period ended  December 31, 2004.  Our audits also
included the  financial  statement  schedule  listed in the Index at Item 15(a).
These financial  statements and schedule are the  responsibility  of Prime Group
Realty Trust's management.  Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

      We conducted  our audits in  accordance  with the  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material  respects,  the consolidated  financial  position of Prime Group
Realty Trust at December 31, 2004 and 2003, and the consolidated  results of its
operations  and its cash flows for each of the three  years in the period  ended
December  31,  2004,  in  conformity  with U.S.  generally  accepted  accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole,  presents  fairly,  in all material  respects,  the information set forth
therein.

      We also have  audited,  in  accordance  with the  standards  of the Public
Company Accounting  Oversight Board (United States),  the effectiveness of Prime
Group Realty Trust's  internal  control over financial  reporting as of December
31,  2004,  based  on  criteria  established  in  Internal   Control--Integrated
Framework  issued by the Committee of Sponsoring  Organizations  of the Treadway
Commission  and our report  dated  February 21, 2005  expressed  an  unqualified
opinion thereon.



                                                     /s/Ernst & Young LLP
                                                     --------------------


Chicago, Illinois
February 21, 2005



<PAGE>


         REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                  ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Board of Trustees
Prime Group Realty Trust

We have audited  management's  assessment,  included in  Management's  Report on
Internal Control Over Financial  Reporting included at Item 9A, that Prime Group
Realty Trust maintained  effective internal control over financial  reporting as
of   December   31,   2004,   based  on   criteria   established   in   Internal
Control--Integrated   Framework   issued   by  the   Committee   of   Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Prime Group Realty
Trust's  management is responsible for maintaining  effective  internal  control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's  assessment  and an opinion on the  effectiveness  of the company's
internal control over financial reporting based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain  reasonable  assurance  about whether  effective
internal  control  over  financial  reporting  was  maintained  in all  material
respects. Our audit included obtaining an understanding of internal control over
financial reporting,  evaluating management's assessment, testing and evaluating
the design and operating  effectiveness of internal control, and performing such
other  procedures as we considered  necessary in the  circumstances.  We believe
that our audit provides a reasonable basis for our opinion.

A company's  internal control over financial  reporting is a process designed to
provide reasonable  assurance  regarding the reliability of financial  reporting
and the preparation of financial  statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial  reporting  includes those policies and procedures that (1) pertain to
the  maintenance  of records that, in reasonable  detail,  accurately and fairly
reflect the  transactions  and  dispositions  of the assets of the company;  (2)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.

Because of its inherent  limitations,  internal control over financial reporting
may not prevent or detect misstatements.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies or procedures may deteriorate.

In our opinion, management's assessment that Prime Group Realty Trust maintained
effective internal control over financial  reporting as of December 31, 2004, is
fairly stated, in all material  respects,  based on the COSO criteria.  Also, in
our  opinion,  Prime Group Realty Trust  maintained,  in all material  respects,
effective  internal  control over  financial  reporting as of December 31, 2004,
based on the COSO criteria.

We also have  audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight Board (United States),  the consolidated balance sheets as
of  December  31,  2004 and 2003,  and the related  consolidated  statements  of
operations,  shareholders'  equity and cash flows for each of the three years in
the period  ended  December  31, 2004 of Prime Group Realty Trust and our report
dated February 21, 2005 expressed an unqualified opinion thereon.

                                                     /s/Ernst & Young LLP
                                                     --------------------
Chicago, Illinois
February 21, 2005


<PAGE>


                            PRIME GROUP REALTY TRUST
                           CONSOLIDATED BALANCE SHEETS
           (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>



                                                                                December 31        December 31
                                                                                   2004                2003
                                                                            ----------------------------------------
<S>                                                                         <C>                   <C>

Assets
Real estate, at cost:
   Land..................................................................      $    124,100       $    123,780
   Building and improvements.............................................           494,742            491,558
   Tenant improvements...................................................            62,452             56,499
   Furniture, fixtures and equipment.....................................             9,927             10,096
                                                                            ----------------------------------------
                                                                                    691,221            681,933
   Accumulated depreciation..............................................          (107,440)           (88,090)
                                                                            ----------------------------------------
                                                                                    583,781            593,843
   Property held for development.........................................             1,588              1,588
                                                                            ----------------------------------------
                                                                                    585,369            595,431

Properties held for sale.................................................               591            204,222
Investments in unconsolidated joint ventures.............................            26,088             42,778
Cash and cash equivalents................................................            71,731             32,608
Receivables,  net of  allowance  of $1,985 and $259
  at  December  31,  2004 and December 31, 2003, respectively:
     Tenant..............................................................               641              1,241
     Deferred rent.......................................................            18,934             16,764
     Other...............................................................             2,190                386
Restricted cash escrows..................................................            42,774             35,761
Deferred costs, net......................................................            16,255             16,593
Other....................................................................             2,790              2,997
                                                                            ----------------------------------------
Total assets.............................................................      $    767,363      $     948,781
                                                                            ========================================

Liabilities and Shareholders' Equity
Mortgage notes payable...................................................      $    427,445      $     435,869
Mortgage notes payable related to properties held for sale...............                 -            112,051
Bonds payable related to properties held for sale........................                 -             24,900
Liabilities related to properties held for sale..........................                 -             17,630
Accrued interest payable.................................................             1,508              1,539
Accrued real estate taxes................................................            25,861             24,610
Accrued tenant improvement allowances....................................             4,884             10,973
Accounts payable and accrued expenses....................................             9,184              8,276
Liabilities for leases assumed...........................................             9,957             13,792
Deficit investment in unconsolidated joint venture.......................             4,087              5,168
Dividends payable........................................................             2,250                  -
Other....................................................................            17,609              8,832
                                                                            ----------------------------------------
Total liabilities........................................................           502,785            663,640
Minority interests:
   Operating Partnership.................................................            19,154             21,803
Shareholders' equity:
   Preferred Shares, $0.01 par value; 30,000,000 shares authorized:
     Series B - Cumulative Redeemable Preferred Shares, 4,000,000
     shares designated, issued and outstanding...........................                40                 40
   Common Shares, $0.01 par value; 100,000,000 shares authorized;
     23,671,996 and 23,670,522 shares issued and outstanding at
     December 31, 2004 and December 31, 2003, respectively...............               236                236
   Additional paid-in capital............................................           381,293            381,273
   Accumulated other comprehensive loss..................................              (468)            (2,917)
   Distributions in excess of earnings...................................          (135,677)          (115,294)
                                                                            ----------------------------------------
Total shareholders' equity...............................................           245,424            263,338
                                                                            ----------------------------------------
Total liabilities and shareholders' equity...............................      $    767,363      $     948,781
                                                                            ========================================

</TABLE>



                             See accompanying notes.


<PAGE>


                            PRIME GROUP REALTY TRUST
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>


                                                                         Year ended December 31
                                                                     2004            2003            2002
                                                           ---------------------------------------------------
<S>                                                        <C>              <C>              <C>

Revenue:
Rental.................................................     $       65,479   $       84,870   $      70,397
Tenant reimbursements..................................             42,934           50,435          43,714
Other property revenues................................              3,763            4,371           4,272
Services Company revenue...............................              4,374            2,923           7,366
                                                           ---------------------------------------------------
Total revenue..........................................            116,550          142,599         125,749

Expenses:
Property operations....................................             31,237           34,640          33,128
Real estate taxes......................................             24,048           28,466          24,312
Depreciation and amortization..........................             22,016           28,683          20,413
General and administrative.............................             10,426            9,681           9,794
Services Company operations............................              3,768            2,582           4,811
Provision for asset impairment.........................                  -            1,948           6,203
Severance costs........................................                322              701           2,525
Strategic alternative costs............................              2,374              485           1,561
Loss on tax indemnification............................                  -                -             189
                                                           ---------------------------------------------------
Total expenses.........................................             94,191          107,186         102,936
                                                           ---------------------------------------------------

Operating income.......................................             22,359           35,413          22,813
(Loss) income from investments in unconsolidated joint
      ventures.........................................            (14,878)          (2,249)            810
 Other income..........................................              1,617            1,296           1,380
 Interest:
      Expense..........................................            (28,500)         (47,853)        (30,660)
      Amortization of deferred financing costs.........             (1,667)          (6,957)         (3,691)
                                                           ---------------------------------------------------
Loss from continuing operations before minority
   interests...........................................            (21,069)         (20,350)         (9,348)
Minority interests.....................................              3,458            6,453           9,683
                                                           ---------------------------------------------------
(Loss) income from continuing operations...............            (17,611)         (13,897)            335
Discontinued operations, net of minority interests of
   $(873), $(6,512) and $21,030 in 2004, 2003 and 2002,
   respectively........................................              6,721          (21,674)        (29,759)
                                                           ---------------------------------------------------
Loss before loss on sales of real estate...............            (10,890)         (35,571)        (29,424)
Loss on sales of real estate, net of minority interests
   of $64, $84 and $839 in 2004, 2003 and 2002,
   respectively........................................               (493)            (646)         (1,197)
                                                           ---------------------------------------------------
Net loss...............................................            (11,383)         (36,217)        (30,621)
Net income allocated to preferred shareholders.........             (9,000)          (9,000)        (11,280)
                                                           ---------------------------------------------------
Net loss available to common shareholders..............     $      (20,383)  $      (45,217)   $    (41,901)
                                                           ===================================================

Basic and diluted earnings available to common shares
   per weighted-average common share:
Loss from continuing operations........................     $        (1.12)  $         (1.14)  $      (0.70)
Discontinued operations, net of minority interests.....               0.28             (1.08)         (1.90)
Loss on sales of real estate, net of minority interests              (0.02)            (0.03)         (0.07)
                                                           ---------------------------------------------------
Net loss available per weighted-average common share of
   beneficial interest -basic and diluted..............     $        (0.86)  $         (2.25)  $      (2.67)
                                                           ===================================================

Comprehensive loss:
Net loss...............................................     $      (11,383)  $       (36,217)  $    (30,621)
Other comprehensive loss - interest rate
   protection agreements
   Net unrealized (losses) gains arising
     during the year...................................               (145)              (63)         6,116
   Equity in unrealized gains (losses) arising
     during the year - unconsolidated entities.........                  -             2,542         (1,344)
   Losses reclassified into earnings from
     other comprehensive income -
     unconsolidated entities...........................              2,594               612            275
                                                           ---------------------------------------------------
Comprehensive loss.....................................     $       (8,934)  $       (33,126)  $    (25,574)
                                                           ===================================================


                             See accompanying notes.
</TABLE>






                            PRIME GROUP REALTY TRUST

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

       (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE/UNIT AND PER SHARE AMOUNTS)

<TABLE>


                                                                       Accumulated
                                     Series B              Additional     Other      (Distributions
                                     Preferred   Common     Paid-In   Comprehensive   in Excess of)
                                      Shares     Shares     Capital        Loss      Retained Earnings    Total
                                    ------------------------------------------------------------------------------
<S>                                 <C>          <C>       <C>        <C>            <C>                  <C>

Balance at January 1, 2002.......   $     40  $     157   $   329,390  $ (11,055)   $   (36,426)     $   282,106
Amortization of restricted stock
   awards........................         -          -            304          -              -              304
Net loss.........................         -          -              -          -        (30,621)         (30,621)
Series B - preferred share
   dividends declared ($2.25 per
   share)........................         -          -              -          -         (9,000)          (9,000)
Series A - preferred share
   dividends declared ($1.51 per
   share)........................         -          -              -          -         (3,030)          (3,030)
Net unrealized gain on
   derivative instruments........         -          -              -      5,047              -            5,047
Issuance of stock warrants.......         -          -            633          -              -              633
                                    ------------------------------------------------------------------------------
Balance at December 31, 2002.....        40        157        330,327     (6,008)       (79,077)         245,439
Conversion of 7,980,899 common
   units to common shares (one
   for one)......................         -         79         50,852          -              -           50,931
Amortization of restricted stock
   awards........................         -          -             94          -              -               94
Net loss.........................         -          -              -          -        (36,217)         (36,217)
Net unrealized gain on
   derivative instruments........         -          -              -      3,091              -            3,091
                                    ------------------------------------------------------------------------------
Balance at December 31, 2003.....        40        236        381,273     (2,917)      (115,294)         263,338
Amortization of restricted stock
   awards........................         -          -             20          -              -               20
Net loss.........................         -          -              -          -        (11,383)         (11,383)
Series B - preferred share
   dividends declared ($2.25 per
   share)........................         -          -              -          -         (9,000)          (9,000)
Net unrealized gain on
   derivative instruments........         -          -              -      2,449              -            2,449
                                    ------------------------------------------------------------------------------
Balance at December 31, 2004.....   $    40  $     236    $   381,293  $    (468)   $  (135,677)     $   245,424
                                    ==============================================================================

</TABLE>



                             See accompanying notes.


<PAGE>


                            PRIME GROUP REALTY TRUST

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (DOLLARS IN THOUSANDS)

<TABLE>


                                                                          Year ended December 31
                                                                     2004          2003          2002
                                                                -------------------------------------------
<S>                                                             <C>           <C>              <C>

Operating activities
Net loss....................................................     $    (11,383)  $   (36,217)   $  (30,621)
Adjustments to reconcile net loss to net cash provided by
   operating activities:
     Amortization of discount on notes payable..............                -           343           290
     Amortization of costs for leases assumed (included in
       rental revenue)......................................              288         2,968           836
     (Gain) loss on sales of real estate ((gain) loss of
       $(10,287), $(2,348) and $2,447 in 2004, 2003 and
       2002, respectively, included in discontinued
       operations)..........................................           (5,382)       (1,618)        4,483
     Depreciation and amortization (including discontinued
       operations)..........................................           29,558        42,575        39,805
     Provision for asset impairment (asset impairments of
       $43,405 and $58,322 in 2003 and 2002, respectively,
       included in discontinued operations).................                -        45,353        64,525
     Net equity in loss (income) from investments in
       unconsolidated joint ventures........................           14,878         2,249          (810)
     Minority interests (including discontinued operations
       and loss on sales of real estate)....................           (2,649)          (25)      (31,552)
     Changes in operating assets and liabilities (including
       discontinued operations):
       Increase in receivables..............................           (2,736)         (783)         (808)
       Decrease (increase) in other assets..................              727           (77)          582
       (Decrease) increase in accrued interest payable......              (65)       (5,553)        3,333
       (Decrease) increase in accrued real estate taxes.....             (595)        4,631         2,480
       (Decrease) increase in accounts payable and accrued
         expenses...........................................           (4,575)        5,223        (9,229)
       Increase (decrease) in other liabilities.............            4,042        (2,194)         (994)
                                                                -------------------------------------------
Net cash provided by operating activities...................           22,108        56,875        42,320
Investing activities
Expenditures for real estate and equipment..................          (15,950)     (104,472)     (124,054)
Proceeds received under environmental indemnification.......            3,100             -             -
Proceeds from sales of real estate..........................          134,169       430,254        26,596
Decrease (increase) in restricted cash escrows (including
   discontinued operations).................................            3,424       (13,483)       13,187
Leasing costs...............................................           (7,761)      (20,201)      (13,770)
Proceeds from assignment of joint venture interest..........                -             -        22,969
Loan to unconsolidated joint venture........................             (588)            -             -
Net distributions from (contributions to) unconsolidated
   joint ventures...........................................              219         4,634          (879)
                                                                -------------------------------------------
Net cash provided by (used in) investing activities.........          116,613       296,732       (75,951)

</TABLE>



<PAGE>




                            PRIME GROUP REALTY TRUST

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                             (DOLLARS IN THOUSANDS)

<TABLE>


                                                                          Year ended December 31
                                                                     2004          2003          2002
                                                                -------------------------------------------
<S>                                                             <C>             <C>           <C>

Financing activities
Financing costs...............................................  $        (755)  $    (4,838)  $    (2,950)
Proceeds from mortgage notes payable..........................         67,000       195,000        20,448
Repayment of mortgage notes payable...........................       (159,093)     (318,763)      (35,310)
Repayment of bonds payable....................................              -             -       (27,150)
Proceeds from construction financing..........................              -        97,155       102,561
Repayment of construction financing...........................              -      (305,353)            -
Series A - preferred shares repurchase........................              -             -        (5,000)
Dividends paid to Series B - preferred shareholders...........         (6,750)            -        (9,000)
Dividends paid to Series A - preferred shareholder............              -             -          (750)
                                                                -------------------------------------------
Net cash (used in) provided by financing activities...........        (99,598)     (336,799)       42,849
                                                                -------------------------------------------
Net increase in cash and cash equivalents.....................         39,123        16,808         9,218
Cash and cash equivalents at beginning of year................         32,608        15,800         6,582
                                                                -------------------------------------------
Cash and cash equivalents at end of year......................   $     71,731   $    32,608   $    15,800
                                                                ===========================================
</TABLE>

                             See accompanying notes.



<PAGE>


                            PRIME GROUP REALTY TRUST

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                             (DOLLARS IN THOUSANDS)

      During the years  ended  December  31,  2004,  2003 and 2002,  we sold the
following net assets:

<TABLE>


                                                                          Year ended December 31
                                                                     2004          2003          2002
                                                                 ------------------------------------------
<S>                                                              <C>             <C>          <C>

Real estate, net..............................................    $   156,487   $  435,784    $  145,948
Deferred rent receivable......................................          3,426        3,222         2,826
Deferred costs, net...........................................          2,507       38,963         2,196
Restricted escrows............................................         27,198        2,526         3,842
Mortgage notes payable assumed by buyer.......................        (28,382)           -      (113,085)
Bonds payable assumed by buyer................................        (24,900)           -        (5,100)
Accrued real estate taxes.....................................         (5,173)      (9,644)       (6,089)
Other liabilities and assets, net.............................         (6,724)       1,908           362
                                                                 ------------------------------------------
Net assets....................................................        124,439      472,759        30,900
Equity investment in unconsolidated entity retained(1)........              -      (44,123)            -
                                                                 ------------------------------------------
Net assets sold...............................................        124,439      428,636        30,900
Proceeds from sales of real estate............................        134,169      430,254        26,596
                                                                 ------------------------------------------
Gain (loss) on sales of real estate(2)........................    $     9,730   $    1,618    $   (4,304)
                                                                 ==========================================
</TABLE>


<PAGE>



(1)  Represents our 30%  subordinate  common equity in the Bank One Center joint
     venture.
(2)  $10.3  million and $2.3 million of gain and $2.4 million of loss on sale of
     real  estate  during the years  ended  December  31,  2004,  2003 and 2002,
     respectively,  are included in discontinued operations.  For the year ended
     December 31, 2004, the $10.3 million gain includes $4.3 million of non-cash
     allocated costs.

      The following  represents  supplemental  disclosure of significant noncash
activity for the years ended December 31, 2004, 2003, and 2002:

<TABLE>

                                                                          Year ended December 31
                                                                     2004          2003          2002
                                                                -------------------------------------------
<S>                                                             <C>           <C>          <C>

Real estate basis reduction due to the exchange of
  Operating  Partnership common  units for common shares....     $       -    $  (24,614)    $       -
Deferred  leasing cost  reduction  due to the exchange
  of Operating  Partnership common units for common shares..             -        (1,272)            -
Real estate additions through the issuance of
   partnership units to minority interest...................             -             -         3,210
Real estate additions through the increase in accrued
   interest payable on construction financing...............             -             -         8,162
Real estate additions through the increase in accrued
   tenant improvement allowances............................             -             -        23,577
Mortgage notes payable reduction through assumption of
   debt by purchaser of sold properties.....................        28,382             -       113,085
Bonds payable reduction through assumption of debt by
   purchaser of sold property...............................        24,900             -         5,100
Repurchase of Series A preferred shares through the
   issuance of notes payable................................             -             -        35,000
Dividends paid to Series A preferred shares through the
   issuance of notes payable................................             -             -         2,280
                                                                -------------------------------------------
                                                                $   53,282    $  (25,886)   $  190,414
                                                                ===========================================

</TABLE>
                             See accompanying notes.


<PAGE>


                            Prime Group Realty Trust

                   Notes to Consolidated Financial Statements


1.  Summary of Significant Accounting Policies

Formation and Organization of the Company

      We were  organized in Maryland on July 21, 1997 and intend to qualify as a
real estate  investment  trust ("REIT") under the Internal Revenue Code of 1986,
as amended, for Federal income tax purposes.  On November 17, 1997, we completed
our initial  public  offering  and  contributed  the net proceeds to Prime Group
Realty, L.P. (the "Operating  Partnership") in exchange for preferred and common
partnership interests.

      We are the sole general  partner of the Operating  Partnership and own all
of the preferred units and 88.5% of the common units issued at December 31, 2004
and  2003.   Each  preferred  unit  and  common  unit  entitles  us  to  receive
distributions from the Operating Partnership.  Distributions declared or paid to
holders of preferred shares and common shares are based upon such  distributions
we receive with respect to our preferred and common units.

Basis of Presentation

      The  preparation  of financial  statements in conformity  with  accounting
principles  generally accepted in the United States requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

      Investments in  corporations  and  partnerships  in which we do not have a
controlling  financial interest but do have significant  influence or a majority
interest are accounted for under the equity method of accounting.  To the extent
that our recorded share of losses  exceeds our  investment in an  unconsolidated
corporation or  partnership,  we reflect a deficit  investment as a liability in
our consolidated financial statements.

      In January 2003, the Financial  Accounting Standards Board ("FASB") issued
Interpretation   No.  46,   "Consolidation   of  Variable   Interest   Entities"
("Interpretation  46"),  which  requires  the  consolidation  of an entity by an
enterprise  (i) if that  enterprise,  known as a  "primary  beneficiary",  has a
variable interest that will absorb a majority of the entity's expected losses if
they occur, receive a majority of the entity's expected residual returns if they
occur, or both and (ii) if the entity is a variable  interest entity, as defined
by Interpretation 46. We adopted Interpretation 46 in the fourth quarter of 2003
and it did not have any effect on our financial statements.

      Our consolidated  financial  statements include the Operating  Partnership
and the other  entities  in which we have  control or from which we receive  all
economic benefits.  We have significant  controlling  financial interests in the
Continental Towers office building located at 1701 Golf Road in Rolling Meadows,
Illinois  through  our  ownership  of a second  mortgage  note  secured  by this
property and we consolidate this property.

      Significant intercompany accounts and transactions have been eliminated in
consolidation.



<PAGE>


1.  Summary of Significant Accounting Policies (continued)

      Certain amounts in the prior period consolidated financial statements have
been reclassified to conform to the current period presentation,  with no effect
on our consolidated financial position or results of operations.

      We have one  primary  reportable  segment  consisting  principally  of our
ongoing  ownership and operation of eleven office  properties and one industrial
property  located in the Chicago  area and leased  through  operating  leases to
unrelated third parties.  Substantially  all  depreciation  and interest expense
reflected in the consolidated  financial  statements  presented herein relate to
our ownership of our properties.

Real Estate

      Depreciation is calculated on the straight-line  method over the estimated
useful lives of the related assets, which are as follows:

      Buildings                                   40 years
      Building improvements                       10 to 30 years
      Tenant improvements                         Term of related leases
      Furniture and equipment                     3-10 years

      Development  costs,  which include land  acquisition  costs,  construction
costs,  fees  and  other  costs  incurred  in  developing  new  properties,  are
capitalized as incurred.  Interest,  financing costs,  real estate taxes,  other
direct costs and indirect costs (including  certain employee  compensation costs
and related general and  administrative  expenses)  incurred during  development
periods  are  capitalized  as a component  of the  building  costs.  These costs
continue to be capitalized,  to the extent they relate to vacant space,  for one
year following the date the development is placed in service.  Subsequent to the
one-year period, these costs are fully expensed as incurred.  Upon completion of
construction,  development  costs are included in buildings and improvements and
are  depreciated  over  the  useful  lives  of the  respective  properties  on a
straight-line basis.

      Real estate is carried at  depreciated  cost.  Expenditures  for  ordinary
maintenance  and repairs are expensed to  operations  as  incurred.  Significant
renovations and improvements  which improve and/or extend the useful life of the
asset are  capitalized  and  depreciated  over their  estimated  useful life. In
accordance with Statement of Financial  Accounting  Standards  ("SFAS") No. 144,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 144"), we record  impairment  losses on long-lived assets
used in operations when events and circumstances  indicate that the assets might
be impaired and the  undiscounted  cash flows estimated to be generated by those
assets  during the expected  hold period are less than the  carrying  amounts of
those assets.  Impairment losses are measured as the difference between carrying
value and fair value of assets. For assets held for sale, impairment is measured
as the difference  between carrying value and fair value, less costs to dispose.
Fair value is based on estimated cash flows  discounted at a risk-adjusted  rate
of interest. Property held for future development and property under development
are also  evaluated for  impairment.  Impairment is determined  for  development
costs  associated  with property held for future  development and property under
development based upon  management's  assessment that these costs have no future
value.



<PAGE>


1.  Summary of Significant Accounting Policies (continued)

Sales of Real Estate

      In accordance with SFAS No. 66, "Accounting for Sales of Real Estate",  we
recognize  gains on sale of real estate using the full accrual method upon sale,
provided  the sales  price is  reasonably  assured and we are not  obligated  to
perform significant  activities after the sale. However, when we agree to assume
responsibility  for re-leasing  sold  properties for a period beyond the date of
sale and where we use  estimates  to  support  our  intent to  mitigate  our net
liability,  we defer  recognition  of the gain on sale of real estate until such
time as we can more  reasonably  determine  our actual  liability  with executed
subleases.

      In  accordance  with SFAS 144, net income and gain (loss) on sales of real
estate for  properties  sold or  properties  held for sale are  reflected in our
Consolidated  Balance  Sheets and  Statements  of  Operations  as  "discontinued
operations" for all years presented.

Cash Equivalents

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

Deferred Costs

      Costs  incurred  in  connection  with  financings,  refinancings  or  debt
modifications  are capitalized as deferred  financing costs and are amortized on
the  straight-line   method  over  the  lives  of  the  related  loans.  Leasing
commissions,   lease   assumption   costs  and  other  leasing  costs   directly
attributable to tenant leases are capitalized as deferred  leasing costs and are
amortized  on the  straight-line  method  over the  terms of the  related  lease
agreements.  Upon the early extinguishment of debt, remaining deferred financing
costs associated with the extinguished debt are fully amortized.

Allowance for Doubtful Accounts

      We record an allowance for doubtful accounts on a  tenant-by-tenant  basis
using the specific  identification  method. As a result, we recorded a provision
of $1.7  million,  $0.3 million and $0.8 million for years ended 2004,  2003 and
2002, respectively.

Leases Assumed

      In connection  with certain tenant  leases,  we have assumed the liability
for the  remaining  terms of the  tenants'  existing  leases  in their  previous
location.  We have  recorded a liability  for the  difference  between the total
remaining  costs for leases  assumed and the expected  benefits  from actual and
estimated  future  subleasing  of the  assumed  lease  obligations.  The related
incentive  to the lessee has been  capitalized  as a deferred  cost and is being
amortized  as a  reduction  of rental  revenue  over the life of the  respective
lease. The deferred cost and related  liability are adjusted  prospectively  for
changes in the estimated benefits from subleases.

Rental Revenue

      Rental revenue is recorded on the  straight-line  method over the terms of
the related lease  agreements for new leases and the remaining terms of existing
leases for acquired  properties.  Differences  between rental revenue earned and
amounts due per the  respective  lease  agreements  are credited or charged,  as
applicable, to deferred rent receivable. Rental payments received prior


<PAGE>


1.  Summary of Significant Accounting Policies (continued)

to their  recognition  as income are  classified as rent received in advance and
are included in other liabilities.  Lease termination income (included in rental
revenue)  represents  amounts received from tenants in connection with the early
termination  of their  remaining  lease  obligation  reduced by any  outstanding
tenant  receivables  (including  deferred rent receivable).  Unamortized  tenant
improvements, deferred lease commissions and leasing costs related to terminated
leases are recorded as additional  depreciation  and  amortization  expense upon
lease termination.

Interest Rate Protection Agreements

      In the normal course of business, we are exposed to the effect of interest
rate  changes.  We limit these risks by following  established  risk  management
policies and  procedures  including  the use of  derivatives.  For interest rate
exposures,  derivatives  are used  primarily  to align  rate  movements  between
interest rates  associated  with our leasing income and other  financial  assets
with  interest  rates on  related  debt  and to  manage  the  cost of  borrowing
obligations.  These are  principally  entered  into to comply with  requirements
under certain of our loan agreements.

      We have a policy of only entering  into  derivative  contracts  with major
financial  institutions based upon their credit ratings and other factors.  When
viewed in  conjunction  with the  underlying  and  offsetting  exposure that the
derivatives  are designed to hedge,  we have not  sustained a material loss from
those  instruments  nor do we anticipate any material  adverse effect on our net
income or financial position in the future from the use of derivatives.

      We require that hedging  derivative  instruments  be effective in reducing
the  interest  rate risk  exposure  that  they are  designated  to  hedge.  This
effectiveness is essential for qualifying for hedge accounting.  Some derivative
instruments  are  associated  with the hedge of an anticipated  transaction.  In
those cases, hedge effectiveness  criteria also require that it be probable that
the underlying transaction occurs.  Instruments that meet these hedging criteria
are formally  designated as hedges at the inception of the derivative  contract.
When the terms of an underlying transaction are modified, or when the underlying
hedged item ceases to exist, all changes in the fair value of the instrument are
marked-to-market  with changes in value included in net income each period until
the  instrument  matures,  unless the instrument is  redesignated  as a hedge of
another  transaction.  Any derivative  instrument  used for risk management that
does not meet the hedging criteria is marked-to-market each period in earnings.

      To determine the fair values of derivative  instruments,  we use a variety
of  methods  and  assumptions  that are  based on  market  conditions  and risks
existing at each balance sheet date.  For the majority of financial  instruments
including most derivatives,  long-term  investments and long-term debt, standard
market conventions and techniques such as discounted cash flow analysis,  option
pricing models,  replacement  cost, and  termination  cost are used to determine
fair  value.   All  methods  of  assessing   fair  value  result  in  a  general
approximation of value, and such value may never actually be realized.

      Interest rate hedges that are  designated  as cash flow hedges,  hedge the
future cash outflows on debt. Interest rate swaps that convert variable payments
to fixed payments,  interest rate caps, floors,  collars,  and forwards are cash
flow hedges.  The unrealized  gains/losses in the fair value of these hedges are
reported  on  the  balance  sheet  with a  corresponding  adjustment  to  either
accumulated other comprehensive income or in earnings,  depending on the type of
hedging relationship.  If the hedging transaction is a cash flow hedge, then the
offsetting  gains and losses are  reported in  accumulated  other  comprehensive
income.  Over time,  the unrealized  gains and losses held in accumulated  other
comprehensive income will be reclassified to earnings.  This reclassification is
consistent when the hedged items are also recognized in earnings. Within the


<PAGE>


1.  Summary of Significant Accounting Policies (continued)

next twelve  months,  we expect to  reclassify  to earnings  approximately  $0.3
million  of  amounts  held  in  accumulated  other  comprehensive  income.  If a
derivative  instrument  is terminated  or the hedging  transaction  is no longer
determined  to be effective,  amounts held in  accumulated  other  comprehensive
income are reclassified  into earnings over the term of the future cash outflows
on the related debt.

      SFAS  No.  133,   "Accounting  for  Derivative   Instruments  and  Hedging
Activities,"  ("SFAS 133"), as amended by SFAS No. 138,  "Accounting for Certain
Derivative Instruments and Certain Hedging Activities" ("SFAS 138"), established
accounting and reporting standards for derivative instruments. Specifically SFAS
133  requires  an entity  to  recognize  all  derivatives  as  either  assets or
liabilities  in  the  statement  of  financial  position  and to  measure  those
instruments at fair value. Additionally,  the fair value adjustments will affect
either  shareholders'  equity or net income  depending on whether the derivative
instrument  qualifies as a hedge for accounting  purposes and, if so, the nature
of the hedging activity.  The Financial  Accounting  Standards Board also issued
guidance on the accounting  for options used as hedges under SFAS 133.  Provided
certain  criteria are met,  options can be considered  fully  effective  hedging
vehicles,  with gains and losses due to  changes  in market  value  recorded  in
accumulated other  comprehensive loss on the balance sheet. Any unrealized gains
or losses due to changes in market value of options, such as interest rate caps,
have been recorded in comprehensive loss.

      On December 31, 2004 and 2003, we reported our  derivative  instruments at
their fair value as other assets of $613 and $0.2 million, and accumulated other
comprehensive  loss of $0.5  million  and $2.9  million,  respectively.  We also
recorded an increase in deficit  investment in  unconsolidated  joint venture of
$2.6  million  for  the  year  ended   December  31,  2003.  We  incurred  total
comprehensive  losses of $8.9 million ($0.38 per weighted average share),  $33.1
million ($1.65 per weighted average share) and $25.6 million ($1.63 per weighted
average  share)  for  the  years  ended  December  31,  2004,   2003  and  2002,
respectively.

Earnings Per Share

      Basic  earnings  per share  ("EPS") is  calculated  by dividing net income
available to common shareholders by the weighted average number of common shares
outstanding  during the period.  Diluted EPS includes the  potentially  dilutive
effect, if any, which would occur if outstanding:  (i) common share options were
exercised;  (ii) limited partner common units in the Operating  Partnership were
exchanged for common shares;  (iii) common share grants were fully-vested;  (iv)
common share warrants were exercised;  and (v) convertible preferred shares were
converted into common shares.

Stock Based Compensation

      We account for common share option grants using the intrinsic value method
in accordance with Accounting  Principles Board Opinion No. 25,  "Accounting for
Stock Issued to Employees" ("APB 25"). Under APB 25, no compensation  expense is
to be recognized  for the common share option grants when the exercise  price of
the  options  equals the market  price of the  underlying  shares at the date of
grant. Under our Share Incentive Plan (the "Plan"),  the measurement date is the
market price of the underlying  shares on the day prior to the date of grant. We
have not recorded  any  compensation  expense as the market  price  differential
between the dates has been nominal.



<PAGE>


1.  Summary of Significant Accounting Policies (continued)

      On  December  16,  2004,   FASB  issued  SFAS  No.  123  (revised   2004),
"Share-Based  Payment"  ("Statement  123 (R)"),  which is a revision of SFAS No.
123,  "Accounting for Stock-Based  Compensation"  ("Statement  123").  Statement
123(R)  supersedes  APB  Opinion  No.  25,   "Accounting  for  Stock  Issued  to
Employees," and amends SFAS No. 95,  "Statement of Cash Flows."  Generally,  the
approach in Statement  123(R) is similar to the approach  described in Statement
123. However,  Statement 123(R) required all share-based  payments to employees,
including  grants of employee  stock  options,  to be  recognized  in the income
statement  based on their  fair  values.  Pro forma  disclosure  is no longer an
alternative.

      Statement  123(R)  must be  adopted  no later  than  July 1,  2005.  Early
adoption will be permitted in periods in which financial statements have not yet
been issued. We expect to adopt Statement 123(R) on July 1, 2005.

      Statement 123(R) permits public companies to adopt its requirements  using
one of two methods:

1.       A  "modified   prospective"   method  in  which  compensation  cost  is
         recognized   beginning  with  the  effective  date  (a)  based  on  the
         requirements of Statement  123(R) for all share-based  payments granted
         after the effective date and (b) based on the requirements of Statement
         123 for all awards granted to employees  prior to the effective date of
         Statement 123(R) that remain unvested on the effective date.

2.       A "modified  retrospective"  method which includes the  requirements of
         the  modified  prospective  method  described  above,  but also permits
         entities to restate based on the amounts  previously  recognized  under
         Statement  123 for  purposes  of pro forma  disclosures  either (a) all
         prior  periods  presented or (b) prior  interim  periods of the year of
         adoption.

      We plan to adopt Statement 123 using the modified prospective method.

      Adoption of Statement  123(R) is not anticipated to have a material impact
on our results of operations or our financial position.

Income Taxes

      We have elected to be taxed as a REIT under the  Internal  Revenue Code of
1986 ("the Code"),  as amended.  As a REIT, we generally  will not be subject to
federal  income tax to the extent  that we  distribute  at least 90% of our REIT
taxable  income  to  our  shareholders.   REITs  are  subject  to  a  number  of
organizational and operational requirements.  If we fail to qualify as a REIT in
any  taxable  year,  we will be  subject to federal  income tax  (including  any
applicable  alternative  minimum tax) on our taxable income at regular corporate
tax rates.

      As of December 31, 2004,  for income tax  purposes,  our real estate had a
gross and net basis of $450.1 million and $387.2 million, respectively, mortgage
notes  receivable had a tax basis of $71.4  million,  deferred costs had a gross
and net basis of $31.4  million and $16.3  million,  respectively,  and deferred
rent receivable had no tax basis. Our investment in  unconsolidated  real estate
joint ventures, for income tax purposes, had a net basis of $42.7 million.

     We account for income taxes  payable by the Services  Company in accordance
with SFAS No.  109,"Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires
that deferred tax assets and  liabilities be recognized  using enacted tax rates
for the  effect  of  temporary  differences  between  the book and tax  basis of
recorded assets and liabilities. SFAS 109 also requires that deferred tax assets
be reduced by a  valuation  allowance  if it is more  likely  than not that some
portion or all of the  deferred  tax asset  will not be  realized.  We  evaluate
quarterly  the  realizability  of our  deferred  tax  assets  by  assessing  the
valuation allowance and by adjusting the amount of the allowance,  if necessary.
The factors used to assess the  likelihood  of  realization  are our forecast of
future  taxable  income and  available  tax  planning  strategies  that could be
implemented  to realize the net  deferred tax asset.  We have used  tax-planning
strategies  to  realize or renew net  deferred  tax assets in order to avoid the
potential loss of future tax benefits.

      The Services  Company recorded a tax provision of $1.1 million during 2004
and at December  31, 2004,  had a current and deferred tax  liability of $34,000
and $30,000,  respectively.  During 2003,  the Services  Company  recorded a tax
provision  of $0.4 million and had deferred tax assets in excess of deferred tax
liabilities of $1.0 million (included in other assets).

Severance Costs

      For the year ended December 31, 2004, severance costs of $0.3 million were
incurred primarily  resulting from the retirement of Mr. Stephen J. Nardi as our
Chief Executive Officer and Chairman of our Board.  Severance costs for the year
ended  December 31, 2003 of $0.7 million  resulted from the  termination  of Mr.
Louis G.  Conforti,  our  former  Chief  Financial  Officer.  For the year ended
December 31, 2002,  severance costs of $2.5 million resulted  primarily from the
resignations of our former Chairman and our former Chief Executive  Officer,  as
well as a reduction of corporate management and support staff.

Strategic Alternative Costs

     Strategic alternative costs relate to legal,  consulting,  and professional
fees  incurred.  In December  2002,  our Board  approved the  engagement  of two
investment  banks as our financial  advisors to assist in the  evaluation of our
strategic alternatives,  including,  but not limited to, a sale, merger or other
business  combination  involving  the  Company,  or a sale of some or all of our
assets.  On February  16, 2005,  we entered into an amendment to our  engagement
letter with one of these advisors,  Wachovia Capital Markets,  LLC ("Wachovia"),
extending  their  engagement  through  December 20, 2005.  The engagement of our
other financial advisor expired in December 2003.

      Strategic  alternative costs for the year ended December 31, 2004 includes
an accounts receivable reserve for $0.9 million.  The receivable reserve relates
to a prior master lease  obligation due from Mr. Nardi,  which is payable solely
from future common  dividends/distributions.  Due to the  uncertainty  of future
dividend/distribution   payments  as  a  result  of  our  pursuit  of  strategic
alternatives, a reserve has been established for this amount.



<PAGE>


2.  Asset Impairments

      During 2004, 2003 and 2002, we recorded the following provisions for asset
impairments:

<TABLE>


                                                                    December 31
                                                          2004         2003         2002
                                                      ----------------------------------------
                                                              (dollars in thousands)
<S>                                                   <C>           <C>         <C>


Operating properties (1).........................     $        -    $     900   $        -
Investment in unconsolidated entities (2)........              -            -          495
Property under development (3)...................              -        1,048        5,708
                                                      ----------------------------------------
                                                               -        1,948        6,203
Discontinued operations (4)......................              -       43,405       58,322
                                                      ----------------------------------------
                                                      $        -    $  45,353   $   64,525
                                                      ========================================

</TABLE>



(1)      In 2003,  we  admitted  a new 70% joint  venture  partner  to the joint
         venture which owns the Bank One Center office building.  We recorded an
         asset  impairment of $0.9 million in 2003  representing  the difference
         between our equity in the property and the equity value  determined  by
         the  acquisition  price paid by our joint  venture  partner for the 70%
         interest, net of estimated transaction costs.

(2)      On August 23, 2002, we  transferred  our interest in a joint venture to
         another joint venture partner and recorded an asset  impairment of $0.5
         million related to our investment in that unconsolidated entity.

(3)      During 2003 and 2002,  we abandoned or  curtailed  various  development
         projects  and  recorded  asset  impairments  of $1.0  million  and $4.2
         million,  respectively.  We also  recorded  asset  impairments  of $1.0
         million  in 2002,  related  to  certain  costs  for  other  development
         projects  that we  determined  no longer had value to the  project.  In
         addition,  we placed one of the development  projects on hold and, as a
         result,  the remaining costs, other than those attributable to the fair
         value  of the  land,  were  determined  to have no value  resulting  in
         additional asset impairment of $0.5 million in 2002.

(4)      Discontinued  operations for the years ended December 31, 2003 and 2002
         include  provisions for asset impairment related to properties held for
         sale  or  sold.  See  Note  9  -   Discontinued   Operations  to  these
         Consolidated  Financial  Statements  for a  description  of these asset
         impairments.

3.       Deferred Costs

      Deferred costs consist of the following:

                                                     December 31
                                               2004                2003
                                       -----------------------------------------
                                                (dollars in thousands)

Financing costs........................    $  10,220           $  12,508
Leasing costs..........................       21,135              18,421
                                       -----------------------------------------
                                              31,355              30,929
Less:  Accumulated amortization........      (15,100)            (14,336)
                                       -----------------------------------------
                                           $  16,255           $  16,593
                                       =========================================



<PAGE>


4.  Mortgage Notes and Bonds Payable

      Mortgage notes and bonds payable consisted of the following:

<TABLE>




                                                                                    December 31
                                                                               2004             2003
                                                                         -----------------------------------
                                                                                (dollars in thousands)
<S>                                                                     <C>              <C>
Mortgage Notes Payable (1), (2):
   Mortgage notes payable to various financial  institutions,
     collateralized by various properties, interest at fixed
     rates ranging from 5.43% to 8.76% per annum,  with
     principal and interest  payable  monthly on dates ranging
     from 2005  through  2013.  The  weighted  average  rate at
     December 31, 2004 was 7.02%....................................      $   232,445      $   200,012

   Mortgage  notes  payable  to  various   financial   institutions,
     collateralized  by various  properties,  interest  at  variable
     rates ranging from LIBOR (2.40% at December 31, 2004)  plus 143
     basis  points to LIBOR plus 570 basis  points  per annum,  with
     interest  payable  monthly  through March 9, 2006. The weighted
     average rate at December 31, 2004 was 5.25%....................          195,000          347,908
                                                                         -----------------------------------
Total mortgage notes payable........................................      $   427,445      $   547,920
                                                                         ===================================

Bonds Payable: (3):
   Variable  rate  tax-exempt  bonds  issued by  various  state and
     local government authorities..................................       $         -      $    24,900
                                                                         ===================================
</TABLE>


(1)  The mortgage  notes payable are subject to various  operating and financial
     covenants.  In addition,  we are required to periodically fund and maintain
     escrow accounts to make future real estate tax and insurance  payments,  as
     well as to fund certain tenant  releasing  costs and capital  expenditures.
     These are included in restricted cash escrows.

(2)  All of our  operating  real estate  assets and mortgage  notes  receivable,
     except  for our  280  Shuman  Boulevard  property,  have  been  pledged  as
     collateral for our mortgage notes payable.

(3)  Under the terms of the bond loan agreements, we made interest-only payments
     monthly,  calculated  using  a  floating  weekly  rate  determined  by  the
     remarketing agent of the bonds. The rates ranged from 0.96% to 1.78% during
     2004,  0.78% to 1.56% during 2003 and 1.20% to 2.02% during 2002. Under the
     terms of a $25.2 million  letter of credit  facility that provided  support
     for these bonds, we were required to maintain, on a quarterly basis, a cash
     collateral  escrow.  As of December 31, 2003, we had deposited $4.0 million
     into the cash  collateral  escrow which was  subsequently  released in 2004
     upon  assumption  of the bonds by the  purchaser  of the  properties  which
     served as collateral  for these bonds.  The  obligation for these bonds was
     transferred to the purchaser in  conjunction  with the sale of the majority
     of our industrial properties.

     On January 15,  2004,  we  acquired  fee title  ownership  to the 180 North
LaSalle  Street office  building for a $0.1 million  payment.  We had previously
consolidated  the  operations of this property in 2003 and 2002 since we had the
economic  risks and  rewards of  ownership  through  our  interest in the second
mortgage  encumbering this property.  We also held subordinate  interests in the
first mortgage  interest in the property.  Simultaneous  with our acquisition of
fee title ownership in 180 North LaSalle Street, we refinanced the property with
the proceeds of a first mortgage loan in the principal  amount of $67.0 million.
The loan accrues interest at a fixed interest rate of 5.43% per year and matures
February 1, 2011,  with  principal  and interest  payments  based upon a 30-year
amortization period.

      At closing of the loan, we funded leasing and capital replacement reserves
of $5.1 million from proceeds and a $2.7 million  leasing escrow was released at
closing.  We also agreed to fund into the leasing  reserve  escrow an additional
$0.1 million per month for 36 months  beginning  March 2004.  The amounts in the
reserves can be drawn by us to pay for approved leasing expenditures relating to
the property.  The loan documents also require us to fund approximately  $13,000
per month beginning March 2004 into a capital replacement reserve to be used for
approved capital expenditures at the property. We used a portion of the proceeds
of the loan to repay the pre-existing  third-party debt encumbering the property
of $60.0 million,  fund the reserve  escrows and pay closing costs.  After these
payments, we received approximately $4.2 million of net proceeds.

      Prior to the closing of the sale of our 33 West Monroe Street property, we
provided  substitute  collateral  to the lender  which held the  existing  $11.5
million  mezzanine  loan relating to this property.  The  substitute  collateral
consisted of a pledge of ownership  interests in the entity owning our 180 North
LaSalle Street property.  In connection with the pledge,  we funded an escrow of
$750,000 to the first mortgage  lender at 180 North LaSalle Street as additional
collateral  to secure any costs it may have  incurred in the future  relating to
the mezzanine loan. In conjunction  with the closing of the sale of a portion of
our  industrial  portfolio and repayment of the mezzanine  loan,  the escrow has
been  returned  to us and the  minimum  cash  balance  requirement  if no longer
required.

      Concurrent  with the sale of our 33 West Monroe  Street  property on April
16, 2004, we used a portion of the proceeds of the sale and approximately  $20.0
million of a leasing  escrow held by the  existing  lender to repay the existing
first  mortgage debt having an outstanding  principal  balance of $59.3 million,
plus accrued interest of $0.2 million.

      In October and November  2004,  the sale of our  industrial  portfolio was
consummated,  which  resulted in the  repayment of $11.8 million of debt and the
assumption  by the  purchaser  of $53.3  million  of  property  level  debt.  In
addition,  we  utilized a portion of the  proceeds  from the sale to repay $10.9
million of mezzanine  financing secured by our 180 North LaSalle Street property
and $11.9 million of mezzanine financing secured by our 208 South LaSalle Street
and 800-810 Jorie Boulevard properties.

     Interest  Rate  Protection  Agreement.  We have entered into the  following
interest rate cap agreement:

<TABLE>



                                   Notional Amount
                                        as of           Capped
                                      December 31,       LIBOR      Effective     Expiration
            Loan Associated with        2004             Rate          Date          Date
---------------------------------- ---------------- -------------- ------------- ---------------
<S>                                 <C>               <C>            <C>            <C>
IBM Plaza:
   First Mortgage/Mezzanine Loans    $195,000,000         6.60%        2/21/03       3/15/06

</TABLE>


      No amounts were received  under the terms of any interest rate  protection
agreements in 2004, 2003 and 2002.

     Amortization  of Principal.  During 2004,  we made  payments  totaling $5.2
million for amortization of principal for loans on various properties.

      Other. We have provided  guarantees of escrow  balances,  certain expenses
and in some cases principal  balances with regard to certain mortgages and notes
payable.  In  addition,   as  of  December  31,  2004,   guarantees  related  to
unconsolidated joint ventures totaled $4.9 million.

      We  allowed  a lender  to  securitize  the loan  secured  by our 180 North
LaSalle Street property by utilizing a Real Estate Mortgage  Investment  Conduit
("REMIC") in October 2001. The lender transferred the first mortgage loan to the
REMIC.  The principal amount of the REMIC was $113.7 million and was composed of
three classes of certificate  holders.  Class "A"  certificates  represented the
original first mortgage holder owning a $60.0 million priority  interest,  Class
"B" certificates which were owned by us and represented a $53.7 million interest
subordinate  to the Class  "A"  certificates,  and the  Class  "R"  certificates
represented any residual  amounts due to us upon any sale of the property should
net  proceeds  exceed  $113.7  million.  The  interest  rate  on the  Class  "A"
certificate  was  LIBOR  plus  3.75%  and the  interest  note on the  Class  "B"
certificate was equal to the difference  between (i) 16.22% and (ii) the product
of LIBOR  multiplied by 1.1179.  Our Services Company acted as the loan servicer
for the REMIC and we  accounted  for our  ownership  interest on a  consolidated
basis. On January 15, 2004, we refinanced the REMIC with the proceeds of a first
mortgage  loan  and,  concurrent  with  the loan  closing,  acquired  fee  title
ownership in the property.

      Certain mortgage notes payable are subject to various financial  covenants
including  minimum net worth and debt  service  coverage  ratios.  In  addition,
certain  loans  contain  cross-default  provisions  whereby a default  under the
covenants related to one loan agreement would also result in a default under the
provisions  of  one  or  more  loans.  See  Note 5 -  Debt  Covenants  to  these
Consolidated  Financial  Statements  for  a  description  of  our  various  debt
covenants.

<PAGE>

      The following  represents our future minimum principal payments due on our
mortgage notes payable outstanding at December 31, 2004 (dollars in thousands):

     Year Ending December 31                                     Amount
     -------------------------------------------------------------------------

     2005.................................................   $      3,997
     2006.................................................        199,290
     2007.................................................          4,604
     2008.................................................         19,210
     2009.................................................          7,344
     Thereafter...........................................        193,000
                                                           -------------------
                                                             $    427,445
                                                           ===================


      Our IBM Plaza property has first and second  mortgage loans in the amounts
of $130.2  million and $64.8  million,  respectively.  Both loans have  maturity
dates of March 9, 2006, with extension options. If the first extension option is
exercised,  the maturity  date will be extended to March 9, 2007.  If the second
extension option is subsequently  exercised,  the maturity date will be extended
to March 9, 2008.  We must give the lender 30 days written  notice of our intent
to extend the loans and must exercise the extension not later than five business
days before the maturity date and pay the  applicable  extension fee of 0.25% of
the outstanding loan balance.

     The  mortgage  loan  secured  by our  Continental  Towers  property  in the
principal amount of $66.0 million at December 31, 2004, matures January 5, 2013.
However,  the loan agreement  provides that, upon notification to us, the lender
may  modify  the loan's  interest  rate and other  major loan terms on or before
April 30, 2005. If we determine the revised terms are not  acceptable to us, the
loan may be repaid at that time without  penalty.  We have received  notice from
our lender  concerning the  modifications  and are currently in discussions with
potential lenders concerning the refinancing of this property's mortgage note.

      During  the  years  ended   December  31,  2003  and  2002,  we  wrote-off
unamortized  deferred  financing  costs  related  to debt  refinancings  of $3.2
million and $0.8 million,  respectively  (included in  amortization  of deferred
financing costs).  These write-offs resulted from mortgage notes payable,  bonds
payable and a line of credit that were repaid or refinanced.  During 2004,  2003
and 2002, we wrote-off  unamortized deferred financing fees related to debt that
was  paid  as a  result  of  the  sale  of  properties,  which  is  included  in
discontinued   operations.   (See  Note  9--Discontinued   Operations  to  these
Consolidated Financial Statements).

      Total  interest  paid  on  mortgage  notes  payable,   bonds  payable  and
construction  financing was $32.0  million,  $78.7 million and $62.5 million for
the years ended December 31, 2004, 2003 and 2002, respectively. During the years
ended  December  31,  2003 and 2002,  we  capitalized  interest  expense of $3.7
million  and  $29.9  million,   respectively,   to  development   projects.   No
capitalization of interest occurred in the year ended December 31, 2004.

5.  Debt Covenants

      In order to obtain certain  covenant  modifications in 2002 related to our
original  construction  and mezzanine loans for Bank One Center,  we agreed with
the Bank One  Center  lenders  to  establish  an escrow  account  (the  "Citadel
Escrow") to secure the payment of certain costs  associated  with the subleasing
of the space leased by Citadel Investment Group,  L.L.C.  ("Citadel") at the One
North  Wacker  Drive  office  building  ("One North  Wacker  Drive")  located in
downtown  Chicago,   Illinois.   This  obligation  (the  "Citadel  Reimbursement
Obligation") was undertaken by us in connection with Citadel's lease of space in
Bank One Center. See Note 14-Commitments and Contingencies to these Consolidated
Financial Statements for description of our Citadel Reimbursement Obligation. We
also agreed,  beginning  January 2003, to make monthly  escrow  payments of $1.0
million  per month to an account to be used to pay these  costs.  We  pre-funded
$4.0 million of these costs into the escrow which were  subsequently  applied to
the monthly payments for June, July, August and September of 2003.

     On March 19, 2003, we refinanced  the Bank One Center  mezzanine  loan with
the proceeds of a $75.0 million mezzanine loan and $1.5 million of our funds. In
conjunction with this  refinancing,  the  construction  lender and new mezzanine
lender  restructured  our escrow  deposit  obligations  relating  to the Citadel
Reimbursement Obligation as follows. Prior to the closing of the mezzanine loan,
the  construction  lender held $12.6 million in escrows relating to the Bank One
Center  project.  At the closing of the new mezzanine  loan,  all of these funds
were  deposited  into a new account  held by the  construction  lender (the "New
Citadel  Escrow").  Additionally,  we were required to make  additional  monthly
deposits  into the New  Citadel  Escrow in the amount of $0.8  million per month
beginning in April 2003 and continuing  through and including January 2004. Upon
Citadel's  occupancy  at Bank One Center in May 2003,  the  construction  lender
deposited a $0.5 million leasing  commission due and payable to us in connection
with the Citadel lease into the New Citadel Escrow. Upon satisfaction of certain
conditions contained in the construction and mezzanine loan documents,  funds in
the New Citadel  Escrow were to be used in the future to pay for certain  tenant
improvement and leasing  commission  costs associated with the subleasing of the
Citadel space at One North Wacker Drive and,  after February 1, 2004, to pay for
the Citadel  Reimbursement  Obligation.  Simultaneous with the admittance of our
joint venture partner to the joint venture which owns Bank One Center, the joint
venture closed on a new $270.0 million  mortgage loan with a new lender,  $247.5
million  of which was  funded at  closing.  Immediately  prior to closing on the
refinancing,  the  balance in the New  Citadel  Escrow was  approximately  $15.2
million. Simultaneous with closing, $2.3 million of the funds in the New Citadel
Escrow were  released to us leaving a balance of  approximately  $12.9  million.
Subsequent  to  closing  in 2003 and in 2004,  $1.3  million  and $2.3  million,
respectively,  were  released  to us as  reimbursement  for  funds we  disbursed
related to the Citadel Reimbursement Obligation.  The balance of the New Citadel
Escrow  was $9.5  million  and $11.7  million  at  December  31,  2004 and 2003,
respectively.

      The  financial  covenants  contained  in some of our loan  agreements  and
guarantee  agreements  with our lenders  include minimum ratios for debt service
coverage and liabilities as a percentage of total assets, as well as minimum net
worth levels,  limits as to recourse indebtedness and other financial covenants.
In some past  quarters,  we have failed to meet certain of these  covenants  and
after negotiations with our lenders (and in certain instances, after agreeing to
post additional cash collateral,  provide other security and/or otherwise modify
the  terms  of  the  relevant   loans)  we  have  obtained  the  necessary  loan
modifications  and/or waivers.  As a result of the repayment of indebtedness and
debt assumptions from the sale of substantially all of our industrial  portfolio
in October and November 2004,  certain covenants that we had previously  failed,
are no longer in effect.  As of December 31, 2004, we are in compliance with the
requirements of all of the remaining financial covenants.

      Certain loans contain cross-default provisions whereby a default under the
covenants related to one loan agreement would also result in a default under the
provisions of one or more other loans.  Failure to meet a covenant  could result
in a  requirement  for a  principal  paydown,  accelerated  maturity,  increased
interest rate, additional collateral or other changes in terms.

6.  Leases

      We have  entered  into lease  agreements  with  tenants  with lease  terms
ranging month-to-month to twenty years at lease inception.  The leases generally
provide  for  tenants to share in  operating  expenses  and real  estate  taxes,
although  some leases only  provide for sharing  amounts in excess of  specified
base  amounts.  Approximately  34%, 20% and 30% of rental  revenue for the years
ended  December 31, 2004,  2003 and 2002,  respectively,  was received from five
tenants.

      The total future minimum rentals to be received by us under  noncancelable
operating   leases  in  effect  at  December  31,  2004,   exclusive  of  tenant
reimbursements and contingent rentals, are as follows (dollars in thousands):

     Year Ending December 31                                     Amount
     -------------------------------------------------------------------------

     2005.................................................     $   64,785
     2006.................................................         56,049
     2007.................................................         46,010
     2008.................................................         40,830
     2009.................................................         35,656
     Thereafter...........................................         70,067
                                                           -------------------
                                                               $  313,397
                                                           ===================

      As a part of lease  agreements  entered  into  with  certain  tenants,  we
assumed those  tenants'  leases at their  previous  locations  and  subsequently
executed   subleases  for  certain  of  the  assumed   lease  space.   See  Note
14--Commitments and Contingencies to these Consolidated Financial Statements for
a description of these obligations.


<PAGE>


6.  Leases (continued)

      Future minimum rental payments (exclusive of tenant  reimbursements) to be
paid by us under leases assumed,  net of subleases executed through December 31,
2004, are as follows:

<TABLE>


                                                            Gross            Executed            Net
Year Ending December 31                                     Amount          Subleases          Amount
------------------------------------------------------------------------------------------------------------
                                                                     (dollars in thousands)
<S>                                                      <C>              <C>               <C>

2005.................................................    $   7,988         $   5,472         $   2,516
2006.................................................        6,863             5,509             1,354
2007.................................................        5,221             4,400               821
2008.................................................        5,310             4,479               831
2009.................................................        5,098             3,928             1,170
Thereafter...........................................       14,213            11,030             3,183
                                                      ------------------------------------------------------
                                                         $  44,693         $  34,818         $   9,875
                                                      ======================================================

</TABLE>


      We have an operating  lease with the joint  venture which owns the 77 West
Wacker  Drive  property for our  corporate  office  space,  as well as equipment
leases at various other properties.  Future minimum lease payments to be paid by
us on this  operating  lease  obligation  in effect at December  31, 2004 are as
follows:


               Year Ending December 31                      Amount
-------------------------------------------------------------------------
                (dollars in thousands)
2005.................................................     $    578
2006.................................................          158
2007.................................................          133
2008.................................................          124
2009.................................................          123
Thereafter...........................................        1,151
                                                      -------------------
                                                          $  2,267
                                                      ===================

      In February 2003, we entered into lease termination agreements with Arthur
Andersen LLP ("Arthur  Andersen")  whereby Arthur Andersen was released from its
remaining lease obligations at two of our properties  subsequent to December 31,
2002 in exchange for total termination  payments consisting of $32.4 million for
the 33 West  Monroe  Street  property  lease and $1.1  million for the IBM Plaza
property  lease.  The agreements  also provided we could retain  previously paid
rent for the month of January  2003 which was  recorded  as rental  revenue.  In
connection with these  terminations,  we recorded lease  termination fee revenue
(included in rental  revenue) of $29.7  million in 2003,  which  represents  the
termination  payments  described above less outstanding  receivables  (including
deferred rent receivable) related to these leases.

      In addition to the above,  in May and June 2003,  we received  real estate
tax refunds for prior years  taxes on the 33 West  Monroe  Street  property,  of
which $1.5 million  related to the Arthur  Andersen  space was also  included in
lease termination fee revenue (included in rental revenue). As part of the lease
termination agreement, Arthur Andersen relinquished its right to these funds. As
required by the lender for the 33 West Monroe Street property, the $32.4 million
termination payment was deposited into escrow.

      During 2003, $7.0 million of the escrow was utilized to repay a portion of
the  principal on the first  mortgage  loan secured by the 33 West Monroe Street
property and $8.1 million was drawn to fund debt service and operating  deficits
at this property during 2003. The remaining balance of the escrow, together with
a portion of the sales  proceeds  upon sale of the  property in April 2004,  was
utilized to repay the lender.


<PAGE>


7.  Minority Interests

      Primestone  Investment Partners L.P.  ("Primestone"),  an affiliate of The
Prime Group,  Inc.  ("PGI"),  previously owned 7,944,893  limited partner common
units (the "Primestone Units") of the Operating Partnership.  PGI is a privately
held company  controlled by Mr. Michael W. Reschke,  the former  Chairman of our
Board.  Mr. Reschke  resigned as Chairman on April 8, 2002 and resigned from our
Board on April 17, 2003. On April 30, 2002, Vornado PS, L.L.C. ("Vornado PS"), a
lender to Primestone who had a lien on the Primestone  Units, held a foreclosure
auction  of the  Primestone  Units and  acquired  all of the units for $8.35 per
common unit.  Vornado PS subsequently  assigned 3,972,446 (the "Cadim Units") of
the  Primestone  Units to  Cadim  Acquisition,  LLC  ("Cadim  Acquisition")  and
retained the remaining 3,972,447 units (the "Vornado Units").

      On June 11, 2003, we issued  3,972,447 of our common shares to Vornado PS,
in  connection  with the  exercise  by Vornado PS of  certain  exchange  rights.
Simultaneous  with the issuance of the common shares to Vornado PS, we cancelled
the 3,972,447 common units in our Operating Partnership held by Vornado PS which
were exchanged for the common shares.

      On June 13,  2003,  we  issued  3,972,446  of our  common  shares to Cadim
Acquisition  in  connection  with the exercise by Cadim  Acquisition  of certain
exchange  rights.  Simultaneous  with the issuance of the common shares to Cadim
Acquisition,   we  cancelled  the  3,972,446   common  units  in  our  Operating
Partnership  held by Cadim  Acquisition  which  were  exchanged  for the  common
shares.

      The Vornado PS and Cadim Acquisition  exchanges of common units for common
shares resulted in an increase in our ownership of our Operating  Partnership by
29.8%.  The  transaction  price recorded for the units  purchased was our common
share price on the date of notices  from Vornado PS and Cadim  Acquisition  (May
23, 2003 - $6.37 per share) of the exercise of their respective exchange rights.
The difference  between the transaction price and the book value of these equity
accounts at the Operating  Partnership level was recorded in 2003 as a reduction
of the  carrying  value of our real  estate  and  other  assets  as  follows:  a
reduction in minority  interest  reflected in our consolidated  balance sheet of
$76.5 million,  an increase in our  shareholder's  equity of $50.6 million and a
reduction in real estate and other assets of $25.9 million. The determination of
the  allocation  of this  reduction was based on our estimate of the fair market
value of each asset.

8.  Preferred Shares

      We are authorized to issue up to 30,000,000 of non-voting preferred shares
of beneficial interest in one or more series. Concurrent with our initial public
offering of November 17, 1997,  we completed a private  placement  with Security
Capital Preferred Growth ("SCPG") of 2,000,000 Series  A-Cumulative  Convertible
Preferred  Shares of  beneficial  interest  ("Series A Shares") with a $0.01 par
value. On June 5, 1998, we completed the sale of 4,000,000  Series  B-Cumulative
Redeemable  Preferred Shares of beneficial  interest  ("Series B Shares") with a
$0.01 par value.

      On February 22, 2002, we amended the dividend rate on our Series A Shares,
and agreed to pay a deferral payment,  as defined,  of 3.5% of the $40.0 million
aggregate  liquidation  value of the outstanding  Series A Shares.  The deferral
payment  increased by 0.50% on May 8, 2002 and  compounded  quarterly  beginning
March 31, 2002.

      On July 16, 2002,  we and our Operating  Partnership  closed a transaction
with  SCPG.  Prior to the  closing,  SCPG was the sole  holder  of our  Series A
Shares. At the closing, our Operating  Partnership purchased all of the Series A
Shares for a total redemption price of $42.3 million through the issuance of two
notes payable described below.

      Our Operating  Partnership  issued to SCPG (i) an  exchangeable  note (the
"Exchangeable  Note")  in the  principal  amount  of  $37.3  million  and (ii) a
nonexchangeable note (the "$20M Note") in the principal amount of $20.0 million.
Our  Operating  Partnership  purchased  the  Series  A  Shares  by  issuing  the
Exchangeable  Note to SCPG and paying SCPG $5.0 million of the proceeds from the
$20M Note. The principal amount of the Exchangeable Note was exchangeable by its
terms for our common shares at an exchange price of $20.00 per share, subject to
anti-dilution  adjustments.  Approximately $6.8 million of the proceeds from the
$20M Note were used to fund the payment of  dividends on our Series B Shares for
the first,  second and third  quarters of 2002. The balance of the loan proceeds
was used to fund certain escrow accounts  described  below, pay expenses related
to the transactions and for general corporate purposes. The notes were repaid in
October 2003 utilizing  proceeds from the sale of a 70% common  interest in Bank
One  Center.  (See  Note  15--Property  Acquisitions,   Placed  in  Service  and
Dispositions  to  these   Consolidated   Financial   Statements  for  a  further
description of this transaction.)

      As part of the  foregoing  transactions,  we  issued  to SCPG  Series  A-1
warrants to purchase up to 500,000  common  shares at $9.00 per share and Series
A-2  warrants to purchase up to 500,000  common  shares at $7.50 per share.  The
Series A-1 warrants  expired  April 1, 2003. We also issued to SCPG Series B and
Series C warrants.  The Series B warrants allow SCPG to purchase  250,000 common
shares at $10.00 per share and the Series C warrants  allow SCPG to  purchase up
to 250,000 common shares at $12.50 per share. The remaining outstanding warrants
contain antidilution  adjustment  provisions and expire on July 16, 2007, except
as  specified  above.  We recorded the fair market value of the warrants of $0.6
million as a discount to the $20M Note and as an increase to additional  paid-in
capital.  The discount was  amortized  as interest  expense over a  twelve-month
period  which  ended July 16,  2003,  the initial  maturity  date of the related
notes.  We have also granted to SCPG certain demand and incidental  registration
rights in respect of any common shares SCPG may receive upon the exercise of any
of the warrants.

      In order to permit the  purchase of the Series A Shares under our charter,
our Board conditionally declared dividends on our Series B Shares for the first,
second and third quarters of 2002, at the quarterly rate of $0.5625 per share.

      Dividends  on our Series B Shares are  payable  quarterly  on or about the
last day of January,  April,  July and  October of each year,  at the rate of 9%
(equivalent  to $2.25 per annum per Series B Share).  Our  Series B Shares  rank
senior  to our  common  shares  as to the  payment  of  dividends  and as to the
dividend of assets upon liquidation. Our Series B Shares may be redeemed, at our
option,  at a  redemption  price of $25.00  per share  plus  accrued  and unpaid
dividends.  The redemption  price is payable solely out of the proceeds from the
sale of other capital shares of beneficial interest of ours.

      Our  January  2005  Series B Shares'  dividend  payment  is deemed to be a
quarterly  dividend  related to the third quarter of 2003, the earliest  accrued
but unpaid quarterly  dividend on our Series B Shares.  At December 31, 2004, we
were in arrears for five  quarters of Series B Shares'  dividends for a total of
$11.3 million. Dividends on our Series B Shares are cumulative and will continue
to accrue to the extent they are not declared and paid currently. The holders of
our Series B Shares have the right to elect two additional  members to our Board
if six consecutive  quarterly dividends on the Series B Shares are not made. The
term of any Trustee  elected by the Series B Shareholders  will expire  whenever
the total  dividend  arrearage  in the Series B Shares has been paid and current
dividends  declared  and set apart for  payment.  Any  future  distributions  in
respect to our  common  shares may not be paid  unless  all  accrued  but unpaid
preferred share dividends have been or are concurrently satisfied.

9.  Discontinued Operations

      SFAS No. 144,  "Accounting  for the  Impairment  or Disposal of Long-Lived
Assets,"  (SFAS 144) requires,  among other things,  that the primary assets and
liabilities  and the results of operations  of  properties  which have been sold
subsequent to January 1, 2002, or are held for disposition subsequent to January
1,  2002,  be  classified  as  discontinued  operations  and  segregated  in the
Consolidated Statements of Operations and Balance Sheets.  Properties classified
as real estate held for  disposition  generally  represent  properties  that are
under contract for sale and are expected to close within the next twelve months.

      In  accordance  with the  requirements  of SFAS 144,  we have  updated our
historical  financial statements for the years ended December 31, 2003 and 2002,
to present the primary assets and liabilities  and the net operating  results of
those properties sold or classified as held for disposition through December 31,
2004 as discontinued  operations for all periods presented.  The update does not
have an impact on net income  available  to common  stockholders.  SFAS 144 only
results in the  reclassification of the operating results of all properties sold
or  classified as held for  disposition  through  December 31, 2004,  within the
Consolidated  Statements of Operations for the years ended December 31, 2003 and
2002,  and  the  reclassification  of the  assets  and  liabilities  within  the
Consolidated Balance Sheets for 2004 and 2003.

      Below is a summary of the results of operations  for our  properties  sold
during 2004, which includes our Carol Stream property sold in December 2004, our
industrial  portfolio,  consisting  of  29  industrial  properties,  one  office
property and three land parcels  which we sold in October and November  2004 and
our 33 West Monroe Street  property,  which we sold in April 2004. Also included
are the operations of our National City Center  property,  which we sold in June
2003, and our non-core suburban properties, which we sold in 2002.

<PAGE>

<TABLE>



                                                                   Year Ended December 31
                                                            2004              2003             2002
                                                   -------------------------------------------------------
                                                                (dollars in thousands)
<S>                                                <C>                   <C>               <C>
Rental revenue............................            $   10,782        $    52,109       $    50,432
Tenant reimbursements.....................                 4,113              8,751            20,604
Other property income.....................                   623              1,265             2,511
                                                   --------------------------------------------------------
   Total revenue..........................                15,518             62,125            73,547

Property operations.......................                 5,319             10,838            18,038
Real estate taxes.........................                 3,585              8,113            16,397
Depreciation and amortization.............                 3,398              8,754            14,466
Interest:
   Expense................................                 3,432              6,821            13,431
   Amortization of deferred
     financing costs(1)...................                 2,477              1,704             1,235
                                                   --------------------------------------------------------
   Total expenses.........................                18,211             36,230            63,567
                                                   --------------------------------------------------------

Income before provisions for asset
    impairment,net gain (loss) on sale
    of real estate and minority interests.                (2,693)            25,895             9,980
Provisions for asset impairment(2)........                     -            (43,405)          (58,322)
Net gain (loss) on sales of real estate(3)                10,287              2,348            (2,447)
Minority interests........................                  (873)            (6,512)           21,030
                                                   --------------------------------------------------------
Discontinued operations...................             $   6,721        $   (21,674)      $   (29,759)
                                                   ========================================================
</TABLE>



(1)      Amortization  of deferred  financing  costs  includes the  write-off of
         unamortized  deferred financing fees of $2.1 million,  $1.1 million and
         $0.5  million for the years ended  2004,  2003 and 2002,  respectively,
         related  to  debt  that  was  repaid  as  the  result  of the  sale  of
         properties.

(2)      During the fourth  quarter of 2003, we recorded an asset  impairment of
         $43.4 million  related to our 33 West Monroe Street office  property as
         our anticipated hold period for the property was reduced based upon our
         decision to pursue a sale,  joint venture or other capital  transaction
         during 2004.  During  2002,  we recorded an asset  impairment  of $22.1
         million  related to an office property sold in June 2003 based upon our
         decision to exit a non-core  market,  which  shortened our  anticipated
         hold period for the property.  The  impairment  charge  reduced the net
         book value of the building and  improvements,  deferred rent receivable
         and deferred  costs by $19.4  million,  $0.8 million and $1.9  million,
         respectively,   to  our  estimate  of  fair  value  based  upon  market
         conditions  and  discussions  we were having with a tenant  regarding a
         potential sale. In addition,  we recorded  provisions for impairment of
         $33.6 million based upon our decision to sell certain non-core suburban
         office  properties and $0.8 million related to an office property based
         upon  our  decision  to  actively  market  the  property  and  exit the
         Tennessee  market (an impairment  loss of $1.5 million  related to this
         office property was recognized during 2001). We entered into a contract
         to sell our non-core  suburban  office  properties  in April 2002.  The
         purchase  price less costs of sale was used to determine the fair value
         of the  properties  and related  assets.  We determined the fair market
         value of the Tennessee  office  property  based upon the purchase price
         less costs of sale of a contract  with a third party  purchaser and our
         knowledge of the Tennessee marketplace. Also during 2002, we recorded a
         $1.7 million asset  impairment  related to an asset  associated with an
         industrial  property as it was determined  that the asset no longer had
         value.

(3)      See Note 15 - Property Acquisitions, Placed in Service and Dispositions
         to these Consolidated  Financial  Statements for a description of these
         sales.


<PAGE>


10.  Earnings Per Share

      The following  table sets forth the  computation  of our basic and diluted
net income available per  weighted-average  common share of beneficial  interest
for the years ended  December 31,  2004,  2003 and 2002  (dollars in  thousands,
except per share amounts):

<TABLE>

                                                                          Year ended December 31
                                                                     2004          2003          2002
                                                                -------------------------------------------
<S>                                                              <C>          <C>           <C>
Numerator:
   Loss from continuing operations before minority interests    $     (21,069)  $   (20,350)  $    (9,348)
   Minority interests.........................................          3,458         6,453         9,683
   Net income allocated to preferred shareholders.............         (9,000)       (9,000)      (11,280)
                                                                -------------------------------------------
   Loss before discontinued operations and loss on sales
     of real estate...........................................        (26,611)      (22,897)      (10,945)
   Discontinued operations, net of minority interests.........          6,721       (21,674)      (29,759)
   Loss on sales of real estate, net of minority interests....           (493)         (646)       (1,197)
                                                                -------------------------------------------
Numerator for earnings per share - loss available to common
     shares...................................................  $     (20,383)  $   (45,217)  $   (41,901)
                                                                ===========================================

Denominator:
   Denominator for basic earnings per share - weighted
     average common shares....................................     23,671,415    20,105,183    15,673,544
Effect of dilutive securities:
   Employee stock options.....................................              -             -             -
   Employee stock grants......................................              -             -             -
                                                                -------------------------------------------
Denominator for diluted earnings per share - adjusted
   weighted average common shares and assumed
   conversions................................................     23,671,415    20,105,183    15,673,544
                                                                ===========================================


BASIC AND DILUTED EARNINGS AVAILABLE TO COMMON SHARES PER
   WEIGHTED-AVERAGE COMMON SHARE:
Loss from continuing operations...............................  $      (1.12)   $     (1.14)  $     (0.70)

Discontinued operations, net of minority interests............          0.28          (1.08)        (1.90)
Loss on sales of real estate, net of minority interests.......         (0.02)         (0.03)        (0.07)
                                                                -------------------------------------------
Net loss available per weighted-average common share
   of beneficial interest - basic and diluted.................  $      (0.86)   $     (2.25)  $     (2.67)
                                                                ===========================================

</TABLE>



      For the 2004  earnings  per share  computation,  1,409,827  of our options
during the first and second quarters of 2004, 1,124,983 options during the third
quarter of 2004 and 938,883  options  during the fourth quarter of 2004 were not
included in the  computation  of diluted  earnings  per share for periods  after
their issuance because the conversion would have been antidilutive.

      For the 2003  earnings  per share  computation,  1,948,921  of our options
during the first quarter of 2003, 1,449,210 options during the second quarter of
2003,  1,319,390  options during the third quarter of 2003 and 1,309,827 options
during  the fourth  quarter  of 2003 were not  included  in the  computation  of
diluted  earnings  per  share for  periods  after  their  issuance  because  the
conversion would have been antidilutive.

      On July 16, 2002,  we issued Series A-2 warrants to purchase up to 500,000
common  shares at $7.50 per share,  Series B warrants  to purchase up to 250,000
common  shares at $10.00  per share and  Series C  warrants  to  purchase  up to
250,000  common shares at $12.50 per share.  These warrants were not included in
the  computation of diluted  earnings per share for periods after their issuance
because the conversion would have been antidilutive.

      For the 2002  earnings  per share  computation,  2,293,591  of our options
during the first quarter of 2002, 2,115,755 options during the second quarter of
2002,  2,029,926  options during the third quarter of 2002 and 2,008,191 options
during  the fourth  quarter  of 2002 were not  included  in the  computation  of
diluted earnings per share because the conversion would have been antidilutive.

      We  had  nonvested  stock  grants  of  9,375,   5,898  and  14,144  shares
outstanding   during  the  years  ended  December  31,  2004,   2003  and  2002,
respectively, which were not included in the computation of diluted earnings per
share because the effect would have been antidilutive.

      The  minority  interest  in  the  Operating   Partnership  had  3,076,586,
6,604,391  and  10,996,166   weighted   average  limited  partner  common  units
outstanding   during  the  years  ended  December  31,  2004,   2003  and  2002,
respectively, of which 3,076,586, 6,604,391 and 7,023,720,  respectively,  could
be  exchanged  for common  shares on a  one-for-one  basis,  subject to our 9.9%
ownership  limitation  contained in our charter,  or, at our option,  cash in an
amount equal to the fair market value of a common share at the time of exchange.
The limited partner common units were not included in the computation of diluted
earnings per share because the conversion would have been antidilutive.

11.  Employee Benefit Plans

      Our 1997 Share  Incentive  Plan (the  "Plan")  permits  the grant of share
options,  share appreciation  rights,  restricted  shares,  restricted units and
performance  units to  officers  and other key  employees  and to  officers  and
employees of subsidiaries,  the Operating Partnership,  the Services Company and
other owned  partnerships.  The Plan also permits the grant of share  options to
non-employee Trustees.

      Under the Plan,  up to  2,860,774  of our  common  shares may be issued or
transferred to participants.  The maximum  aggregate number of common shares and
share equivalent units that may be subject to awards granted during any calendar
year to any one participant under the Plan, regardless of the type of awards, is
200,000.  This limit applies  regardless of whether such compensation is paid in
common shares or share equivalent units.

      The  Compensation  Committee of our Board of Trustees  (the  "Compensation
Committee") administers the Plan and has the authority to determine, among other
things,  subject to the terms and conditions of the Plan, the  individuals to be
granted options, the exercise price at which shares may be acquired,  the number
of shares subject to options,  the vesting  requirements and the exercise period
of each option.  The Compensation  Committee is granted  discretion to determine
the term of each option  granted  under the Plan to  employees,  executives  and
Trustees,  but in no event  will the term  exceed ten years and one day from the
date of the grant.

      In 2000, the Board granted certain  executives 25,380 shares of our common
shares as part of a long-term  incentive  program.  These  common  share  grants
vested at the rate of 25.0% per year in four annual  installments  commencing on
January 15, 2000.

      In 2001, the Board also granted  certain  executives  57,190 shares of our
common  shares as part of a long-term  incentive  program.  These  common  share
grants  and  options  vested  at the  rate of  25.0%  per  year  in four  annual
installments commencing on January 23, 2001.

       In January 2003, the Compensation Committee awarded Mr. Stephen J. Nardi,
our then  Chairman of the Board,  100,000  stock options at $5.02 per share (the
closing  price on the last trading day  immediately  prior to the award).  These
options vest over three years in one-third increments on each anniversary of the
award.

      During  2004,  2003  and  2002,  217,350,  947,313  and  286,320  options,
respectively,   expired  or  were  voluntarily  terminated  in  connection  with
employees or executives, who held options, resigning from the Company.

      The unaudited pro-forma  information regarding net income and earnings per
share is required by SFAS No. 123,  "Accounting for  Stock-Based  Compensation,"
("SFAS  123") and has been  determined  as if we had  accounted  for our options
under the fair value  method of that  statement.  The fair value for the options
was estimated at the date of grant using a  Black-Scholes  option  pricing model
with the following  weighted average  assumptions for 2003:  risk-free  interest
rate of  2.21%;  expected  dividend  yield of  0.00%;  volatility  factor of the
expected market price common shares of 0.310;  and a  weighted-average  expected
life of the options of three years for  options  granted.  There were no options
granted in 2004 and 2002.

      We did not  recognize  any  compensation  expense  in 2004,  2003 and 2002
related to options  granted  under APB 25.  Under the fair value  method of SFAS
123,  $40,000,  ($0.00 per basic and diluted  common share)  $45,000  ($0.00 per
basic and diluted common share) and $158,000 ($0.01 per basic and diluted common
share),  would have been recognized as additional  compensation  expense for the
years ended December 31, 2004, 2003 and 2002, respectively.  For purposes of the
following  pro-forma  disclosure,  the  estimated  fair value of the  options is
amortized to expense over the vesting period of the options.  On this basis, the
pro-forma net loss available to common shares was $20.4 million ($0.86 per basic
and diluted  common  share) $45.3  million  ($2.25 per basic and diluted  common
share) and $42.1 million  ($2.68 per basic and diluted  common  share),  for the
years ended December 31, 2004, 2003 and 2002, respectively.

      The effects on unaudited  pro-forma net income and pro-forma  earnings per
common share for the years ended December 31, 2004,  2003 and 2002 of amortizing
to  expense  the  estimated  fair  value of share  options  are not  necessarily
representative  of the effects on net income to be reported in future  years due
to the vesting  period of the share  options,  and the potential for issuance of
additional share options in future years. For purposes of pro-forma disclosures,
the  estimated  fair value of the  options  is  amortized  to  expense  over the
options' vesting periods.

      The  Black-Scholes  options  valuation  model  was  developed  for  use in
estimating the fair value of traded  options which have no vesting  restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.  Because changes in the subjective input  assumptions can materially
affect the fair value estimate,  in the opinion of our management,  the existing
models do not necessarily provide a reliable single measure of the fair value of
the options granted under the Plan.

      In February 2002,  our  Compensation  Committee  approved 2001 bonuses and
2002 stay  bonuses  totaling  $0.4  million  for  certain  members of our senior
management.  None of the  participants in the bonus program was a Trustee of the
Company.  One-half of the bonus pool was  designated as bonuses for 2001 and the
other  one-half as stay bonuses  that vested in two  increments,  two-thirds  on
April 1, 2002 and one-third on June 1, 2002.  Any vested or earned  amounts were
payable  at our  option at any time on or  before  August 8, 2002 in (i) cash or
(ii) restricted  shares of the Company under the Plan having an equivalent value
based on the average of the high and low trading  price of the common  shares on
the day before  notification of such election is given to the relevant employee.
In addition, the participants could have elected to receive any vested or earned
bonus amounts in restricted shares.  These amounts were paid entirely in cash in
August 2002.

     On May 20, 2002,  we entered into  retention  agreements  with Mr. Louis G.
Conforti and Mr. Jeffrey A. Patterson,  our two  Co-Presidents at that time, and
Mr.  James F.  Hoffman,  our  Executive  Vice  President,  General  Counsel  and
Secretary.  The  agreements  provided for a retention  payment for calendar year
2002 of $250,000 for each of Mr. Conforti and Mr. Patterson and $100,000 for Mr.
Hoffman. The retention payments vested on a per diem basis from the beginning of
calendar  year 2002 so long as the  participant  remained  employed by us or our
affiliates.  Any unvested portions of the bonus would have been forfeited in the
event the participant voluntarily terminated his employment.  Vested portions of
the retention  payments were payable upon the earlier of December 31, 2002 or at
the  discretion of the  Compensation  Committee of our Board in the event of the
consummation of various capital events. The retention payments were considered a
2002  performance  bonus   distribution  for  the  purpose  of  calculating  any
termination   compensation  due  under  the  participants'  previously  existing
employment or severance  agreements with us. These retention  payments were paid
by us in January 2003.

      The  following  is a summary of our share  option  activity,  and  related
information  for the years ended  December 31, 2004,  2003 and 2002  (dollars in
thousands, except per share amounts):




                                                  Shares        Weighted Average
                                                Subject to         Exercise
                                                  Option        Price Per Share
                                            ------------------------------------
Balance at January 1, 2002...............       2,289,866           $16.38
Options canceled or repurchased..........        (286,320)           18.41
                                            ------------------------------------
Balance at December 31, 2002.............       2,003,546            16.09
Additional options granted...............         100,000             5.02
Options canceled.........................        (947,313)           15.94
                                            ------------------------------------
Balance at December 31, 2003.............       1,156,233            15.25
Options canceled.........................        (217,350)           15.51
                                            ------------------------------------
Balance at December 31, 2004.............         938,883           $15.19
                                            ====================================

      At December 31, 2004,  options with respect to 872,213  common shares were
exercisable  with exercise  prices  ranging from $5.02 to $21.00 per share and a
weighted   average   exercise   price  of  $15.77  per  share.   The   remaining
weighted-average   contractual  life  of  these  options  was  4.04  years.  The
weighted-average  grant date fair value of all options  granted  during the year
ended December 31, 2003 was $1.20.

12.  Related Party Transactions

      On March 19,  2002,  we entered  into an  agreement  appointing  Julien J.
Studley, Inc. as our exclusive agent to lease space on our behalf related to the
Citadel Reimbursement  Obligation.  Mr. Jacque M. Ducharme, one of our trustees,
is the Vice  Chairman  Western  Region and Director of Julien J.  Studley,  Inc.
("Studley"),  a  brokerage  firm that  specializes  in  representing  tenants in
leasing  transactions.  In  addition,  Studley is from  time-to-time  engaged by
third-party  tenants as a tenant broker in connection  with the tenants'  search
for office space in Chicago.  In 2004, 2003 and 2002, Studley earned commissions
of approximately $0.9 million, $0.1 million and $0.2 million, respectively, from
us in connection  with  transactions  where tenants who had  previously  engaged
Studley leased space from us. We are not involved in the selection of Studley by
the  third-parties as its broker,  and we have been advised by Mr. Ducharme that
he did not receive  any  portion of the  commissions  in  connection  with these
transactions,  other  than  compensation  he may  receive  based on the  general
profitability of Studley.

     On August 3, 2004, our Chairman of the Board,  Stephen J. Nardi, retired as
Chairman.  Mr.  Nardi  remains  on  the  Board  as a  non-employee  Trustee.  In
connection with Mr. Nardi's resignation, the Board approved a separation payment
for Mr. Nardi of $300,000 (included in severance costs). Douglas Crocker II, one
of our existing  Trustees,  was  appointed  Chairman of the Board.  Mr.  Crocker
serves as a  non-employee  and  independent  Chairman.  In addition,  Jeffrey A.
Patterson,  our  existing  President  and Chief  Investment  Officer,  was named
President and Chief Executive Officer.

      As of December  31,  2004,  we have a  receivable  of  approximately  $0.9
million  from  Mr.  Nardi  and  certain  of his  affiliates,  representing  rent
receivable  on our 1051 Kirk Road  property due under a master  lease  agreement
with us for the period from  October 2001  through  March 31, 2003.  Payments of
rent per the agreement are to be deducted from common unit distributions made to
Mr.   Nardi   and   his   affiliates.   Due  to  the   uncertainty   of   future
dividend/distribution   payments  as  a  result  of  our  pursuit  of  strategic
alternatives,  a reserve for the full amount of this  receivable was recorded in
2004 (included in strategic alternative costs).

      On March 25, 2003, we, PGI and one of PGI's affiliates, both affiliates of
Mr. Reschke,  one of our Trustees at that time, entered into an amendment to the
environmental remediation and indemnity agreement previously entered into by PGI
and us in November 1997 in connection with certain of our industrial  properties
contributed  to us as an equity  contribution  by PGI during our initial  public
offering. Pursuant to the original agreement, PGI agreed to indemnify us against
certain  environmental  liabilities  related to our  Chicago,  Hammond  and East
Chicago Enterprise industrial parks. These properties were sold in October 2004.
The original  agreement  also provided that PGI was entitled to use the proceeds
from certain pending  litigation we had against third parties  relating to these
environmental liabilities.  The amendment to the agreement provided, among other
things,  that all of the proceeds from the litigation would not be funded to PGI
or its affiliate,  but instead that if any proceeds were recovered in connection
with the litigation,  sufficient  proceeds (if recovered)  would be placed in an
escrow to be used to fund the  environmental  remediation  costs. In addition to
the $0.5 million described in the following paragraph,  PGI paid us $1.3 million
in September 30, 2004 under this  indemnity.  In November  2004,  PGI paid us an
additional amount of $1.8 million and we released PGI from all obligations under
the indemnity agreement.

      In connection with the admission of a new 70% joint venture partner to the
joint  venture  that  owns the Bank  One  Center  office  building  in  Chicago,
Illinois,  we entered into certain  agreements with affiliates of PGI, providing
for a total of $1.0 million of compensation in connection with certain  advisory
services  performed  in  connection  with  the  transaction.   These  agreements
consisted of (i) a letter  agreement  providing for a $0.3 million  advisory fee
relating  to such  transaction,  (ii)  an  amendment  to the  PGI  Environmental
Indemnity  providing  that we would  pay the  first  $0.5  million  of any costs
incurred in connection with the  environmental  clean-up and related  litigation
and (iii) our  agreement  to pay $0.2  million  to our joint  venture  affiliate
owning the office property located at 77 West Wacker Drive in Chicago, Illinois,
representing  three months past-due rent owed by PGI for space it was leasing at
the building at the time.

     PGI  previously  leased  22,620  square feet of space at the 77 West Wacker
Drive  property  owned  by 77 West  Wacker  Drive,  LLC ("77  LLC"),  one of our
unconsolidated  real estate joint  ventures  that we own a 50% common  ownership
interest in and for which we account using the equity method. PGI's lease was to
expire October 31, 2007 with an option,  effective  April 30, 2002, to terminate
the lease upon six months  written  notice.  As of July 31,  2003,  PGI owed the
unconsolidated  real estate joint venture $0.4 million  representing five months
of rent and  related  operating  expense  reimbursements.  PGI was  subsequently
charged  rent for the months of August and  September.  In  connection  with the
past-due rent, the parties  entered into an amendment to PGI's lease pursuant to
which  rent  ceased to accrue as of  October 1, 2003 and PGI (i) paid two months
rent to the  landlord for August and  September  2003,  (ii)  conveyed its trade
fixtures and certain  office  furniture to the landlord in  satisfaction  of its
remaining rent  obligation,  and (iii) agreed to vacate the premises at any time
in the future  upon 45 days notice from  landlord,  which  notice has since been
served by landlord. An additional three months of rent was paid. PGI vacated the
premises as of February 8, 2004.

      In connection with our management of the 77 West Wacker Drive property, we
are  entitled to receive  property  management  fees and lease  commissions  for
services  performed and  reimbursement of costs we pay on behalf of 77 LLC. Such
amounts for the years ended  December 31, 2004,  2003 and 2002 are summarized as
follows:

                                               2004           2003         2002
                                         ---------------------------------------
                                                       (dollars in thousands)

Management fees (1).....................     $ 1,081       $ 1,092      $ 1,053
Payroll and other operating costs.......       1,324         1,625        1,913
Leasing costs (1).......................       1,264           373          175

(1)  We earn a  monthly  management  fee  equal to 2.5% of gross  rental  income
     calculated on a cash basis and lease  commissions  for services  performed.
     For financial  reporting purposes,  50% of these amounts,  representing our
     share of  earnings  from the  joint  venture  is  offset  by our  equity in
     earnings from this joint venture.

      We own a 30% subordinated  common  ownership  interest in Dearborn Center,
LLC  ("Dearborn  LLC"),  an  unconsolidated  joint  venture that owns the office
property  known as Bank One  Center  located  at 131  South  Dearborn  Street in
Chicago,  Illinois.  In connection  with our management of the property,  we are
entitled to receive property  management fees and lease commissions for services
performed  and  reimbursement  of costs we pay on behalf of Dearborn  LLC.  Such
amounts for the year ended  December 31, 2004 and for the period from October 8,
2003  (admittance of our joint venture  partner)  through December 31, 2003, are
summarized as follows (dollars in thousands):



                                                 2004              2003
                                           ------------------------------------

Management fees (1).....................       $   729           $  148
Payroll and other operating costs.......         1,379              299
Leasing costs (1).......................           284                -

(1)  We earn a  monthly  management  fee  equal to 2.0% of gross  rental  income
     calculated on a cash basis and lease  commissions  for services  performed.
     For  financial  reporting  purposes,  these are offset by our equity in the
     loss from this joint venture.

      On August 11,  2004,  we made a loan in the amount of $587,771 to Dearborn
LLC to cover  funds  required  to be paid  under  Dearborn  LLC's  redevelopment
agreement with the City of Chicago. The City of Chicago determined that Dearborn
LLC failed to meet certain goals contained in the redevelopment  agreement and a
formula in the  agreement  provided for a payment of $1.0 million to the City of
Chicago. The payment satisfied Dearborn LLC's obligation under the redevelopment
agreement.  Our loan  represented  the excess of the payment over that estimated
when our joint  venture  partner was  admitted and was required to be made by us
pursuant to the joint  venture  agreement.  The interest rate on the loan is 10%
per annum.

     On March 7, 2002,  the  Operating  Partnership  acquired 24.9 acres of land
from Mr.  Nardi  for a total  purchase  price of $3.3  million  paid in  344,331
limited   partner  common  units.   This  purchase   fulfilled  our  contractual
requirements to acquire land from Mr. Nardi.

     In connection with Mr. Nardi's resignation as the Chairman of our Board, on
August 3, 2004, we provided to Mr. Nardi  complementary  office space in our IBM
Plaza property for six months. This six-month term expired in February 2005. Mr.
Nardi has paid rent through  March 31, 2005 and we are  currently  negotiating a
lease with an affiliate of Mr. Nardi at market rates.

      Governor  James R.  Thompson,  a former  Trustee  whose  term as a trustee
expired in May 2003, is the Chairman of a law firm which provides legal services
to us. The law firm earned fees of $2.3  million,  $1.1 million and $1.7 million
for legal services provided to us in 2004, 2003 and 2002, respectively.

      During  2002,  we incurred  rent  expense of $35,600  under the terms of a
month-to-month  sublease with PGI. This sublease was  terminated on February 28,
2002.

13.  Fair Values of Financial Instruments

      SFAS No.  107,  "Disclosures  About Fair Value of  Financial  Instruments"
("SFAS  107")  and  SFAS  No.  119,   "Disclosure  about  Derivative   Financial
Instruments and Fair Value of Financial  Instruments"  require disclosure of the
fair value of certain on- and off-balance sheet financial  instruments for which
it is  practicable  to  estimate.  Fair  value is defined by SFAS No. 107 as the
amount at which  the  instrument  could be  exchanged  in a current  transaction
between willing parties, other than in a forced or liquidation sale.

      We used the following methods and assumptions in estimating the fair value
disclosures for financial instruments.

Cash and Cash Equivalents and Restricted Cash Escrows

      The  carrying  amount of cash and cash  equivalents  and  restricted  cash
escrows  reported in the  consolidated  balance sheets  approximates  their fair
value.

      We maintain our cash and cash  equivalents  and restricted cash escrows at
various   financial   institutions.   The  combined  account  balances  at  each
institution  periodically exceed FDIC insurance coverage, and as a result, there
is a  concentration  of credit  risk  related to amounts on deposit in excess of
FDIC insurance coverage. We believe that the risk is not significant.

Mortgage and Notes Payable

      The carrying amount of our variable and fixed rate debt (including accrued
interest)  approximates  fair  value  based on the  current  borrowing  rate for
similar types of debt.

      At December  31,  2004,  the fair value of our  interest  rate  protection
agreement is an asset of $613.

14.  Commitments and Contingencies

     Legal. On October 27, 2004, we entered into an agreement and plan of merger
with  Prime/Mansur  Investment  Partners,  LLC  and  certain  of its  affiliates
("Prime/Mansur").  Prime/Mansur is a  joint-venture  formed and controlled by E.
Barry Mansur and including  Michael W. Reschke,  a former  chairman and a former
member of our Board. Under the merger agreement,  Prime/Mansur agreed to acquire
our outstanding common shares and the outstanding  limited  partnership units of
our Operating  Partnership  for $6.70 per share/unit in cash. Our Board approved
the  transaction  subject to  Prime/Mansur  obtaining a  satisfactory  financing
commitment  for the  transaction.  On November 10, 2004, we announced the merger
agreement  terminated   automatically  in  accordance  with  its  terms  because
Prime/Mansur   did  not  obtain  a  financing   commitment  that  satisfied  the
requirements of the merger  agreement.  Other income for the year ended December
31, 2004 includes  $0.05 million of earnest money  forfeited  under the terms of
the merger agreement.

     On December 8, 2004, we filed an action in the Circuit Court for Montgomery
County,  Maryland (the "Maryland  State Court")  against  Prime/Mansur.  In this
action we are  seeking a  declaratory  judgment  that our  previously  announced
merger agreement with Prime/Mansur  terminated  automatically in accordance with
its terms on November 9, 2004  because  Prime/Mansur  did not obtain a financing
commitment that satisfied the requirements of the merger agreement.

     On January 3, 2005,  Prime/Mansur and certain additional affiliates filed a
lawsuit against us and our Operating  Partnership,  in the Maryland State Court.
In the complaint,  Prime/Mansur alleges,  among other things, that we wrongfully
terminated and otherwise breached the merger agreement with Prime/Mansur. In its
complaint,  Prime/Mansur  is seeking  damages  from the Court in excess of $50.0
million and other relief, including specific performance. We vigorously deny the
allegations in the complaint and believe that the allegations  have no merit. We
intend to diligently  defend  ourselves  against this lawsuit and to continue to
aggressively pursue our declaratory judgment lawsuit against Prime/Mansur.

     On February 11,  2005,  the Maryland  Court  consolidated  the two lawsuits
referred to above and  granted  our  request to assign the case to an  expedited
hearing track.

      On August 29, 2002, 180 Acquisition Company, LLC ("180 Acquisition") filed
a  complaint  (the  "Complaint")  against  us, our  Operating  Partnership,  our
Services Company, one of our subsidiaries holding our interests in the 180 North
LaSalle Street property in Chicago, Illinois (the "180 Interests"),  and Jeffrey
A. Patterson, our President and Chief Executive Officer.

      The  Complaint  was filed in the County  Department,  Law  Division of the
Circuit  Court of Cook  County,  Illinois.  In the  Complaint,  180  Acquisition
alleged that the defendants  orally  promised to sell the 180 Interests to them,
and that 180 Acquisition relied on these alleged promises,  notwithstanding  the
facts that (i) a written  contract  was not  entered  into among the parties and
(ii) we terminated  negotiations to sell the 180 Interests to 180 Acquisition in
July 2002.  We settled  this matter in 2004 for a payment of  $275,000  and were
reimbursed $68,750 of the settlement by one of our insurance carriers.

     On or about April 23, 2004, Winstar Communications,  LLC and Winstar of New
York LLC  ("Winstar")  brought suit against a number of  commercial  real estate
companies and a trade association,  the Building Owners and Managers Association
of New York  ("BOMA")  in the  United  States  District  Court for the  Southern
District of New York. The suit asserts claims for certain alleged  violations of
federal and state antitrust laws and a declaratory  judgment that the defendants
are precluded from  terminating  Winstar's  building access or interfering  with
Winstar's  communications  operations  until  Winstar is  permitted  to lawfully
discontinue service. The suit seeks damages,  attorney's fees, and a declaratory
judgment.  The claims are premised upon  allegations that the real estate firms,
through and with BOMA, colluded and agreed to charge Winstar disadvantageous and
discriminatory  fees that were higher than those charged to the incumbent  local
telephone  companies.  As a result of this alleged  collusive  conduct,  Winstar
claims  that  it  has  been  damaged  in  its  ability  to  provide  competitive
telecommunications services to customers leasing office space in the defendants'
commercial  real  estate  properties.  We are  not a  named  defendant  in  this
litigation,  but  Winstar is  attempting  to have  certified  a class  action of
defendants consisting of all companies having agreements with Winstar for access
to buildings and Winstar  identified us as a member of that defendant  class. In
separate correspondence to us, Winstar alleged potential damages in excess of $2
billion  against the defendant  class.  On November 10, 2004, we entered into an
agreement  with  Winstar  pursuant  to  which we  released  Winstar  from  their
obligation  to pay  certain  de minimis  rental  obligations  to us and  Winstar
released us from all potential liability relating to this matter.

      We are a  defendant  in legal  actions  arising  in the  normal  course of
business.  We  believe  that the  ultimate  outcome  of those  actions  will not
materially affect our consolidated financial position or results of operations.

      Environmental.  All of our  properties  were subject to Phase I or similar
environmental  assessments by independent  environmental  consultants which were
intended to discover  information  regarding,  and to evaluate the environmental
condition of, the surveyed property and surrounding properties.

      We are aware of  contamination  at the  Chicago,  East Chicago and Hammond
Enterprise  Centers that we  previously  owned and sold in October 2004 and that
were already in remediation  programs  sponsored by the states in which they are
located. Our environmental consultants previously estimated that remedial action
plans for these  properties  would have a probable  cost of  approximately  $3.2
million.  During 1997,  a liability  of $3.2  million was recorded  (included in
liabilities  related  to  properties  held for sale at  December  31,  2003) for
possible  environmental  costs.  PGI,  the former  owner of the  above-mentioned
industrial   properties,   contractually   agreed  to   indemnify   us  for  any
environmental  liabilities  we may incur for known  contamination  in connection
with these  properties.  In September 2004, PGI paid us $1.25 million related to
this  indemnification  and, in November  2004,  PGI paid us an additional  $1.85
million related to this indemnification.  Upon receipt of the second payment, we
released PGI from any further indemnity obligations.

      During the due diligence  process in connection with the sale of the above
properties,  additional  environmental  contamination,  beyond  that  previously
identified by our environmental consultants,  was discovered by the purchaser at
our East Chicago Enterprise Center and Hammond Enterprise Center facilities.  As
a result,  we agreed to establish a $1.25  million  environmental  escrow at the
closing,  in addition to a $3.2 million  reserve for the  previously  identified
environmental  contamination,  for use in  remediation  of the  costs  described
above. In connection with the sale, the purchaser of these properties  agreed to
assume the responsibility for the environmental  remediation of the property and
any costs  which may be incurred in excess of the amounts we placed in escrow at
the closing.  Any excess funds  remaining in the $1.25 million  escrow after the
remediation of the additional  environmental  contamination  will be returned to
us.  This  escrow  is  included  in our  restricted  cash  with a  corresponding
liability included in other liabilities.

      We are also aware of contamination at two other properties.  At one of the
properties,  the tenant has provided us with an  indemnity  for all of the costs
associated with the  environmental  remediation and the tenant has purchased the
property. The second property was placed in the remediation program sponsored by
the  state in which it is  located  and the  previous  owner has  obtained  a no
further  remediation  letter from the Illinois  Environmental  Protection Agency
approving  the  completion  of  the  remediation  work.  Accordingly,  we do not
anticipate any material liability related to these environmental matters.

      In  November  2001,  at the request of the  Department  of the Army of the
United  States of America (the  "DOA"),  we granted the DOA a right of entry for
environmental  assessment and response in connection  with our property known as
the Atrium at 280 Shuman Boulevard in Naperville,  Illinois (the "Atrium").  The
DOA  informed us that the  property  was located  north of a former Nike Missile
Base and that the DOA was investigating  whether certain regional  contamination
of the groundwater by  trichloethene  ("TCE") emanated from the base and whether
the DOA would be required to restore the  environmental  integrity of the region
under the Defense  Environmental  Restoration  Program for Formerly Used Defense
Sites. In December 2001, the results from the tests of the groundwater  from the
site indicated  elevated levels of TCE. It is currently our understanding  based
on information provided by the DOA and an analysis prepared by its environmental
consultants that (i) the source of the TCE contamination did not result from the
past or current activities on the Atrium property, (ii) the TCE contamination is
a regional problem that is not confined to the Atrium, and (iii) the DOA has not
yet  identified  the  source of the TCE in the  groundwater.  Our  environmental
consultants  have  advised us that the United  States  Environmental  Protection
Agency (the "EPA") has issued a Statement of Policy  towards  owners of property
containing  contaminated  acquifers.  According to this policy,  it is the EPA's
position that where  hazardous  substances have come to be located on a property
solely as a result of subsurface migration in an aquifer from an offsite source,
the EPA will not take enforcement actions against the owner of the property. The
groundwater  underneath  this  property is  relatively  deep,  and the  property
obtains its potable  water  supply  from the City of  Naperville  and not from a
groundwater  well.  Accordingly,  we do not  anticipate  any material  liability
because of this TCE contamination.

      Tax   Indemnities.    Our   Operating   Partnership   entered   into   tax
indemnification  agreements with certain  principals  affiliated with Mr. Nardi,
("NAC  Contributors") and certain  principals  affiliated with one of our former
executive officers ("IBD Contributors"), both of which contributed properties to
us during our initial public  offering.  Under these  agreements,  our Operating
Partnership  is  required  to  indemnify  the  NAC   Contributors  and  the  IBD
Contributors for, among other things, the income tax liability that would result
from the income or gain which they recognize  upon the  refinancing or repayment
by our Operating Partnership of its liabilities or the sale or other disposition
by our Operating Partnership of the properties they contributed. Under the terms
of the agreement,  our Operating Partnership will indemnify the NAC Contributors
and the IBD Contributors  for certain income tax liabilities  based on income or
gain which the NAC  Contributors  and/or the IBD  Contributors  are  required to
include in their  gross  income for  federal or state  income tax  purposes as a
result of such an event. This indemnity covers these income taxes,  interest and
penalties  and is required to be made on a "grossed  up" basis that  effectively
results in the NAC Contributors and the IBD Contributors receiving the indemnity
payment on a net, after-tax basis.

      The  percentage  of  the  above  tax  liabilities,   which  our  Operating
Partnership  is required  to  indemnify,  is 40% for the taxable  year ending on
December 31, 2004,  and declines an additional  10% each year  thereafter  until
December 31, 2007.  Our Operating  Partnership  is not required to indemnify the
NAC  Contributors  and the IBD  Contributors for income or gain realized by them
after the taxable  year ending  December  31,  2007.  As a result of the sale of
certain of our  properties in October and November 2004, we recorded a liability
(included in other  liabilities)  under these  indemnities in the amount of $3.5
million  payable  to the NAC  Contributors  (included  as a cost of sale in gain
(loss) on sale in  discontinued  operations).  We estimate our maximum  possible
remaining  exposure under the  indemnities to the NAC  Contributors  and the IBD
Contributors to be $3.4 million and $2.6 million,  respectively, at December 31,
2004.

      PGI has entered into an agreement with our Operating  Partnership pursuant
to which PGI has agreed to indemnify our Operating  Partnership  for any amounts
paid  by our  Operating  Partnership  to the  NAC  Contributors  and/or  the IBD
Contributors  pursuant  to such  agreement,  provided  that PGI is liable to our
Operating  Partnership  for such amounts  only to the extent that our  Operating
Partnership  uses  its best  efforts  to avoid  such  tax  liability  (including
exploring the opportunity for a tax-free exchange under Section 1031 of the Code
for the transaction that gave rise to the obligation under such agreement).  PGI
will not be responsible  for reimbursing us for the  indemnification  obligation
resulting from the sale of our industrial portfolio discussed above since we are
not pursuing a tax-free  exchange or other tax avoidance  strategy in connection
with the sale.

      On  December  12,  1997,  we  purchased  and  amended  the  mortgage  note
encumbering the property known as Continental Towers located in Rolling Meadows,
Illinois (we  currently  receive all of the economic  benefits from the property
and have consolidated the operations). As part of this transaction, we agreed to
indemnify the two limited partners (the "Principals") of the limited partnership
which owns the property  for,  among other  things,  the federal and  applicable
state  income tax  liabilities  that  result  from the income or gain which they
recognize upon refinancing,  sale,  foreclosure or other action taken by us with
respect to the property or the mortgage note (a "Tax Event"). Under the terms of
the agreement, if an Indemnification Event, as defined,  results in a Tax Event,
we are required to immediately pay to the Principals the amount of any resulting
federal or state tax, including any interest and penalties,  as well as a "gross
up" amount that effectively  results in the Principals  receiving this indemnity
payment on a net, after tax basis.

      However,  if a legal opinion is obtained from independent tax counsel that
the Indemnification  Event "should" not trigger a Tax Event resulting in taxable
income or gain to the Principals,  no indemnity payment is immediately required.
If the legal  opinion  obtained  from  independent  tax counsel  states that the
Principals  have a "reasonable  basis" for reporting the  Indemnification  Event
without   including  any  taxable  income  or  gain,  no  indemnity  payment  is
immediately required. In either case, the indemnity payment would be required if
a Tax Event  occurred.  However,  if a  "reasonable  basis"  opinion is received
regarding an  Indemnification  Event and if our equity market  capitalization is
less than $400 million (but more than $200 million),  we are required to deposit
50% of the  total  indemnity  amount  into an escrow in cash or in the form of a
letter-of-credit.  If (i) an Indemnification  Event occurs and our equity market
capitalization  falls below $200  million for more than 30  consecutive  trading
days, or (ii)  immediately  after we sell or otherwise  dispose of the lesser of
$100 million or 33% of our gross assets within a twelve-month period (a "Trigger
Disposition"), we desire to cause an Indemnification Event and our equity market
capitalization  is less than $200  million,  then we will be required to deposit
100% of the total indemnity amount into the escrow. In addition,  in the case of
a Trigger  Disposition  and our equity  market  capitalization  falls below $200
million,  the  Principals  may acquire the general  partnership  interest in the
limited  partnership,  which owns the property,  for a nominal amount and may be
able to  prevent an  Indemnification  Event from  occurring.  The tax  indemnity
obligation  expires  January 5, 2013.  We have not  recorded any  liability  and
estimate its maximum possible exposure at December 31, 2004 is $53.2 million.

     Lease Liabilities.  As a part of lease agreements entered into with certain
tenants,  we assumed  these  tenants'  leases at their  previous  locations  and
subsequently  executed  subleases for certain of the assumed lease space. One of
these leases is a lease the Bank One Center joint venture has with  Citadel.  We
have agreed to  reimburse  the joint  venture for its  obligation  to  reimburse
Citadel for the financial obligations,  consisting of base rent and the pro rata
share of operating expenses and real estate taxes, under Citadel's  pre-existing
lease (the "Citadel Reimbursement  Obligation") for 161,488 square feet of space
at the One North Wacker Drive office building in downtown Chicago, Illinois.

      We have executed subleases at One North Wacker Drive for substantially all
of  the  space  to  partially   mitigate  our   obligation   under  the  Citadel
Reimbursement Obligation. As a requirement under one of the subleases for 27,826
square  feet,  we escrowed a total of $1.1  million  with the owner of One North
Wacker  Drive as security for the payment of the  difference  between the rental
amount payable under the Citadel lease and this  sublease.  This escrow is being
returned to us pro-rata  over the life of this  sublease,  of which $0.2 million
has  been  received  through  December  31,  2004.  The  Citadel   Reimbursement
Obligation  includes an estimated  remaining  nominal gross rental obligation of
$66.1  million  over the term of the  lease.  Although  we have  sold 70% of our
investment in Bank One Center to a joint venture partner,  we have retained 100%
of this liability.  Liabilities for leases assumed at December 31, 2004 and 2003
includes  $6.7 million and $8.7  million,  respectively,  related to the Citadel
Reimbursement  Obligations,  which is our estimate of the remaining gross rental
obligation less estimated future sublease recoveries.

      In connection with another  sublease at One North Wacker Drive, we assumed
two lease  obligations,  at two Chicago office buildings owned by third parties,
with gross rental  obligations of approximately  $2.8 million.  In July 2003, we
paid a lease  termination  fee of $0.3  million  on one of the  two  leases  and
subsequently  made  payments of $0.8  million and $0.6 million in 2004 and 2003,
respectively,  which reduced our gross rental  obligation on the remaining lease
to $1.1 million at December 31, 2004. We intend to attempt to partially mitigate
our financial obligations under the remaining lease by subleasing the space.

      On  November  26,  2001,  we  finalized a lease with a tenant for space in
Continental  Towers, our office buildings located in Rolling Meadows,  Illinois.
We  have  agreed  to  reimburse  the  tenant  for a  portion  of  the  financial
obligations consisting of base rent and the pro rata share of operating expenses
and real estate  taxes under the  tenant's  lease for  occupancy  executed at an
office building located in downtown Chicago,  Illinois. As of December 31, 2004,
this lease has a remaining  estimated gross rental  obligation of  approximately
$2.8 million. On February 14, 2003, we re-leased the space to the tenant for the
remainder of the lease term of the  pre-existing  lease  subject to the tenant's
option to terminate the lease  effective as of any date after February 29, 2004,
by providing us with six months prior written notice. We have approximately $1.7
million and $2.1 million in liabilities  for leases assumed at December 31, 2004
and 2003, respectively, representing an estimate of our net liability related to
this  obligation  which  represents  the  differential   between  our  remaining
financial  obligation under the pre-existing  lease and the expected future rent
from the tenant under the new lease.

      During 1999, we sold ten properties in a single transaction resulting in a
deferred gain of $3.1  million.  As a condition of the sale, we agreed to assume
responsibility  for  re-leasing two of the properties for a period of five years
after the expiration in 2000 and 2001 of the then existing  tenant  leases.  Our
remaining  nominal gross lease  obligation at December 31, 2004 is approximately
$4.5 million.  During 2002, we re-leased one of the  properties  and revised our
leasing  assumptions  related  to  the  second  property.  Correspondingly,  the
remaining deferred gain was reduced to zero at December 31, 2002 and we recorded
a loss on the sale of real estate of $1.3 million in 2002.  In 2004 and 2003, we
further revised our leasing  assumptions and recorded an additional  (loss) gain
on the sale of real estate of ($0.2) million and $0.6 million,  respectively. At
December 31, 2004 and 2003, we have included approximately $1.6 million and $3.0
million,  respectively,  in liabilities  for leases  assumed,  representing  our
estimate of the remaining net liability anticipated related to this obligation.

      Income Taxes.  The Internal  Revenue Service (the "Service")  conducted an
examination of the federal income tax returns filed by certain of our affiliated
entities  for the taxable  years ended  December 31,  1999,  2000 and 2001.  The
Service's examination included the review of certain transactions  involving our
acquisition  of our IBM Plaza  property,  which  was  reported  on the  examined
returns  as  acquired  in  connection  with a  non-taxable,  like-kind  exchange
involving  an interest in the 77 West Wacker Drive  office  property  located in
Chicago,  Illinois.  On July 30, 2004,  we received  notice from the IRS Chicago
Office of Appeals that they had completed  their review of all years in question
and no adjustments are proposed. This matter has now been formally closed by the
IRS and no deficiency is due.

     Other.  Dividends  on our Series B Shares are  cumulative  and payable at a
9.0% annual rate each quarter that the Series B Shares remain  outstanding.  The
Series B Shares rank senior to the common shares as to the payment of dividends.
On January 31,  2005,  we paid a quarterly  dividend of $0.5625 per share on our
Series B Shares for  shareholders  of record on  December  31,  2004.  Under our
declaration of trust, this dividend is deemed to be a quarterly dividend,  which
relates to the third  quarter 2003  dividend  period,  the earliest  accrued but
unpaid quarterly  dividend on our Series B Shares. No dividend has been paid for
any quarter in 2004 or for the last quarter of 2003 on the Series B Shares.  The
total  arrearage in payment of dividends is $11.3  million.  The Series B Shares
may be  redeemed  at our option at a  redemption  price of $25.00 per share plus
accrued and unpaid dividends.  The redemption price is payable solely out of the
proceeds from our sale of other capital shares of beneficial interest.



<PAGE>


15.  Property Acquisitions, Placed in Service and Dispositions

      The following properties were acquired, placed in service or sold in 2004,
2003 and 2002.  The results of their  operations are included or excluded in our
consolidated statements of operations from their respective transaction dates.


<TABLE>




                                                                                              Month
        Property                                    Location              Sales Price         Sold
----------------------------------------------------------------------------------------------------------
                                                                     (dollars in thousands)

<S>                                               <C>                   <C>                 <C>
2004 Sales
Office:
   33 West Monroe Street(1)                         Chicago, IL         $  69,600              April
                                                                       ==================


Portfolio Sale(2):
Office:
   1301 E. Tower Road                               Schaumburg, IL

Warehouse/distribution
  Facilities:
   425 E. Algonquin Road                            Arlington Heights,
                                                    IL
   1455 Sequoia Drive                               Aurora, IL
   200 S. Mitchell                                  Addison, IL
   11045 Gage Avenue                                Franklin Park, IL
   4248, 4250 and 4300 Madison                      Hillside, IL
     Street
   4211 Madison Street                              Hillside, IL
   4160-4190 W. Madison Street                      Hillside, IL
   342-346 Carol Lane                               Elmhurst, IL
   200 E. Fullerton Avenue                          Carol Stream, IL
   555 Kirk Road                                    St. Charles, IL
   370 Carol Lane                                   Elmhurst, IL
   550 Kehoe Blvd.                                  Carol Stream, IL
   1543 Abbott Drive                                Wheeling, IL
   388 Carol Lane                                   Elmhurst, IL
   343 Carol Lane                                   Elmhurst, IL
   350 Randy Road                                   Carol Stream, IL
   11039 Gage Avenue                                Franklin Park, IL
   1401 S. Jefferson Street                         Chicago, IL

Overhead Crane/Manufacturing Facilities:
Chicago Enterprise Center                           Chicago, IL
   13535-A S. Torrence Avenue
   13535-B S. Torrence Avenue
   13535-C S. Torrence Avenue
   13535-D S. Torrence Avenue
   13535-E S. Torrence Avenue
   13535-F S. Torrence Avenue
   13535-G S. Torrence Avenue
   13535-H S. Torrence Avenue
   East Chicago Enterprise Center                   East Chicago, IN
     4407 Railroad Avenue - Building 2
     4407 Railroad Avenue - Building 3
     4407 Railroad Avenue - Building 4
     4635 Railroad Avenue
Hammond Enterprise Center                           Hammond, IN
   4507 Columbia Avenue
   4527 Columbia Avenue
   4531 Columbia Avenue

Land:
   Aurora Land                                      Aurora, IL
   DeKalb Land                                      DeKalb, IL
   Batavia Land                                     Batavia, IL

Total Portfolio Sale                                                                        October/
                                                                        $  125,100          November
                                                                       ==================


Land:
   Carol  Stream Land(3)                            Carol Stream, IL    $    1,200          December
                                                                       ==================
</TABLE>


<PAGE>


15.  Property Acquisitions, Placed in Service and Dispositions (continued)

<TABLE>


                                                                          Acquisition         Month
                                                                       Cost/Construction    Acquired/
    Property                                     Location              Costs/Sales Price       Sold
-----------------------------------------------------------------------------------------------------------
                                                                  (dollars in thousands)
<S>                                              <C>                   <C>                  <C>
2003 Acquisitions
Land:
   Aurora Land (4)                               Aurora, IL               $    2,400           June
                                                                       ==================

2003 Sales
Land:
   Aurora Land (5)                               Aurora, IL               $    2,800         December
                                                                       ==================

Office:
   National City Center (6)                      Cleveland, OH            $   80,000           June
                                                                       ==================
   70% of Common Interest:
     Bank One Center (7)                         Chicago, IL              $  105,000           October
                                                                       ==================

2002 Acquisitions
Land:
   Aurora Land (8)                               Aurora, IL               $    2,700         February
   Batavia Land (9)                              Batavia, IL                   2,400          March
   Carol Stream Land (9)                         Carol Stream, IL                800          March
                                                                       ------------------
                                                                          $    5,900
                                                                       ==================

2002 Sales
Land:
   Aurora Land (8)                               Aurora, IL               $    7,000         February
   Aurora Land (10)                              Aurora, IL                    3,400         February
                                                                       ------------------
                                                                          $   10,400
                                                                       ==================
Office:
   2000 York Road
     (Oak Brook Business Center) (11)            Oak Brook, IL
   2100 Swift Drive (11)                         Oak Brook, IL
   6400 Shafer Court (11)                        Rosemont, IL
   1699 E. Woodfield Road
     (Citibank Plaza) (11)                       Schaumburg, IL
   3800 and 3850 North Wilke Road and 3930
     Ventura Drive (Commerce Point) (11)         Arlington Heights, IL
   2205-2255 Enterprise Drive (Enterprise
     Office Center) (11)                         Westchester, IL
   1900 Algonquin Road/2000-2060
     Algonquin Road
       (Salt Creek Office Center/Sun Annex)(11)  Schaumburg, IL
   1700 East Golf Road
     (Two Century Centre) (11)                   Schaumburg, IL
   850, 860, 870 and 1000 Technology Way (Pine
     Meadows Corporate Center) (11)              Libertyville, IL
                                                                       ------------------
                                                                          $  131,156            June
   Centre Square I (12)                          Knoxville, TN                 5,100          November
                                                                       ------------------
                                                                          $  136,256
                                                                       ==================
Industrial:
   4430 Railroad Avenue (13)                     East Chicago, IN         $      600          December
                                                                       ==================

Joint Venture:
   300 West Monroe Street and 25 & 27
     South Wacker Drive (14)                     Chicago, IL              $   22,900          January
   Pine Meadows Corporate Center
      (Building E) (15)                          Libertyville, IL                  -           August
                                                                       ------------------
                                                                          $   22,900
                                                                       ==================
2002 Developments Placed In Service
Office:
   Bank One Center (16)                          Chicago, IL              $  325,207          November
                                                                       ==================

</TABLE>


<PAGE>






15.  Property Acquisitions, Placed in Service and Dispositions (continued)

(1)  We sold this  property for a gross sales price of $69.6  million (i) less a
     credit of $19.4 million, representing the sum of a portion of the amount in
     our leasing reserve escrow account related to the property and a credit for
     certain  prepaid rent, and (ii) plus or minus other  customary  prorations.
     Concurrent with the sale of the property, we used a portion of the proceeds
     of the sale and approximately $20.0 million of a leasing escrow held by the
     existing  lender  to repay  the  existing  first  mortgage  debt  having an
     outstanding  principal  balance of $59.3 million,  plus accrued interest of
     $0.2 million.  After closing prorations and costs and the repayment in full
     of  the  first  mortgage  loan   encumbering  the  property,   we  received
     approximately  $8.8 million from the sale. We recorded an asset  impairment
     charge of $43.4 million related to this property in 2003.  After reflecting
     this impairment, we recognized a gain of $0.4 million on this sale.

(2)  Net proceeds  from the sale of these  properties  after  repayment or buyer
     assumption  of mortgage  and bond debt  collateralized  by the  properties,
     closing costs and a tax indemnity  payment  obligation  were $54.3 million.
     Included in net proceeds is  approximately  $9.7 million of restricted cash
     escrows which were released or credited by the purchaser at closing, offset
     by $4.4 million of environmental escrows and a rent subsidy escrow for $0.6
     million  that  were  funded  at  closing.  In  addition,  we agreed to fund
     approximately  $0.9  million  (included  in other  liabilities)  should two
     tenants  fail to pay the future  rent due under their  leases for  specific
     periods  of time.  Subsequent  to the sale,  we  repaid  $22.8  million  of
     maturing  mezzanine loan  financing and anticipate  utilizing the remaining
     proceeds to fund capital  improvements  and leasing costs and provide to us
     additional  working  capital and  liquidity.  We  recognized a gain of $9.5
     million on this sale.

(3)  Net  proceeds  from  the  sale of  this  property  were  $1.2  million.  We
     recognized a gain of $0.4 million on this sale.

(4)  We  purchased  this land  pursuant to a purchase  contract  entered into in
     February 1998 by our Operating Partnership.  The 2003 purchase fulfills our
     obligation under this contract.

(5)  We sold this land  comprised of 15.0 acres for $2.8 million  resulting in a
     gain of $0.2 million.

(6)  We sold this  property to an affiliate of our major tenant at the property,
     National City Corporation. The gross contract price for the sale, including
     a lease  termination  fee from an  affiliate  of the  purchaser,  was $80.0
     million. During the fourth quarter of 2002, we recorded an asset impairment
     of  $22.1  million   related  to  this  property   (which  is  included  in
     discontinued operations).  After reflecting this impairment, our subsequent
     sale of this  property  resulted  in a gain of $2.3  million  and has  been
     recorded in discontinued operations.

(7)  On October 8, 2003,  we closed on a  transaction  admitting a new 70% joint
     venture  partner to our former  subsidiary  (the  "Venture") that owns this
     office building (the "Property"). Commencing with the transaction, we began
     accounting for our investment in this joint venture under the equity method
     of  accounting.  The new joint venture  partner is an affiliate of Estein &
     Associates USA, Ltd. of Orlando, Florida (together with its affiliates, the
     "JV Partner").

     Our affiliate  manages and leases the Property pursuant to a management and
     leasing  agreement that was entered into at the closing of the transaction.
     Our  affiliate  earns  management  fees in an amount equal to 2% of monthly
     Gross  Revenues,  as  defined,  until the  Property  achieves  a 90% leased
     threshold  at which time the  management  fees earned will  increase to and
     remain at 2.5%.  Our JV Partner has the right to replace our  affiliate  as
     the leasing  agent upon thirty days  written  notice if the office space of
     the property is not 80% leased, as defined, by October 8, 2005.

     At the closing,  the JV Partner made a cash  contribution to the Venture of
     $106.4  million  (which  includes  $1.4 million  retained by the Venture as
     working  capital) in exchange  for 70% of the  membership  interests in the
     Venture. Upon closing, the Venture, in turn,  distributed $105.0 million to
     us.

     Under  the  terms of the  contribution  agreement,  an  additional  capital
     contribution in the amount of $9.8 million was to be made by the JV Partner
     and  distributed to us when the Venture leased an additional  40,000 square
     feet of space in the Property over and above the square  footage  leased in
     the Property as of August 4, 2003 (the "Leasing Earnout"). In January 2005,
     the  Venture  entered  into a lease which  resulted in the Leasing  Earnout
     being  distributed  to  us  (See  Note   17--Subsequent   Events  to  these
     Consolidated Financial Statements for further discussion).

     After closing  prorations and funding certain  required closing escrows and
     costs,  we received  approximately  $323.0 million in net proceeds from the
     transaction,  of  which  $293.2  million  was  used to  retire  outstanding
     construction and mezzanine  indebtedness  secured by the property of $169.8
     million and $80.7 million, respectively, and $42.7 million of which we used
     to repay in full our outstanding  indebtedness to SCPG,  including  accrued
     interest, and the remainder of which we have retained for working capital.

     The JV Partner is the  administrative  member of the  Venture,  and we have
     approval rights over major decisions.  At closing,  we received a credit to
     our invested  capital account in the Venture in the amount of $45.6 million
     (which  includes a $0.6  million cash  contribution  we made which has been
     retained by the Venture as working capital),  representing 30% of the total
     invested capital of the Venture.  We also received a credit to our invested
     capital  account,  upon the  satisfaction  of the  Leasing  Earnout,  of an
     additional $4.2 million.  We recorded our equity  investment at the date of
     the transaction at our carryover basis of $43.4 million.

     The JV Partner is entitled to receive out of available  annual cash flow, a
     10%  non-cumulative,   non-compounded  preferred  return  on  its  invested
     capital,  after which we will receive a 10% non-cumulative,  non-compounded
     return on our capital.  Any remaining  annual cash flow will be paid 50% to
     us and 50% to the JV  Partner.  The JV  Partner  also  receives  a  monthly
     administrative fee of $50,000.

     Our equity in the  earnings  (loss) from this joint  venture is  determined
     based upon the  distribution  of  available  cash flow.  To the extent that
     joint  venture  earnings  exceed the return to our partner in any year,  we
     will  record  100%  of  the  excess  up to a 10%  return  on  our  capital.
     Thereafter, earnings will be allocated 50% to us and 50% to our partner. To
     the  extent  earnings  of the  joint  venture  are  less  than  the  amount
     distributable to our JV Partner, we will record a corresponding loss to the
     extent of any difference.

     In the  event of any sale or future  refinancing  of the  Property,  our JV
     Partner will receive a 10% non-cumulative,  non-compounded preferred return
     on its  invested  capital  for the  year in which  the sale or  refinancing
     occurs and the return of its invested capital prior to the payment to us of
     our 10% return for that year and our  capital.  Any  remaining  net sale or
     refinancing proceeds will be paid 50% to us and 50% to our JV Partner.

     We have an option to purchase the JV  Partner's  interest in the Venture on
     the  date  that is 90 days  prior to the  maturity  of the  first  mortgage
     secured by the property. The purchase price for the JV Partner's membership
     interest  will be equal to the greater of (a) the value of the JV Partner's
     interest in the Venture determined based upon a deemed sale of the Property
     at a value (the "Deemed Property Value") calculated using the pro forma net
     operating  income of the Property  for a twelve  month period  divided by a
     capitalization  rate of 8.5%,  less the actual  amount of all unpaid tenant
     improvement  allowances  and  rental  allowances  for  any  leases  of  the
     Property,  or (b) an amount  that must be  received  by the JV  Partner  to
     return  to the JV  Partner  its  invested  capital,  plus a return of 12.5%
     compounded annually, taking into account all prior distributions.

     In the event we do not  exercise our  purchase  option,  the JV Partner may
     elect to purchase  our  interest in the Venture on the date that is 60 days
     prior to the maturity of the first  mortgage.  The  purchase  price for our
     interest  shall be equal to the value of our interest in the Venture  based
     upon a deemed sale of the Property at the Deemed Property Value.

(8)  We sold this land consisting of 52.5 acres for $7.0 million  resulting in a
     loss of $0.2  million.  Approximately  33  acres  of the  52.5  acres  were
     acquired by us concurrently for a purchase price of $2.7 million.

(9)  These parcels were acquired by our Operating Partnership from affiliates of
     Mr. Nardi in exchange  for 344,331  limited  partner  common  units.  These
     acquisitions  completed our obligation  under a contract  entered into with
     affiliates of Mr. Nardi as part of our initial public offering.

(10) Our sale of this land  resulted  in a loss of $0.1  million.  Our  Services
     Company agreed to act as the developer in connection with the  construction
     of  a  350,000  square  foot  industrial  build-to-suit  building  on  this
     property.  In connection  with this sale,  our Services  Company  agreed to
     acquire a 222,840  square  foot  industrial  building  located  in  Aurora,
     Illinois for $10.4 million.  Our Services Company  subsequently  contracted
     with a third  party to sell this  property  for a  purchase  price of $10.4
     million. We purchased and sold the property in October 2002. As part of the
     sale,  the Services  Company was required to master  lease  certain  vacant
     space in the building for a total annual rent of approximately $0.3 million
     for up to two years or until the space was  leased to  another  tenant.  In
     October 2002,  our obligation to master lease this space was mitigated upon
     the leasing of the space to another tenant.  During the year ended December
     31, 2002, our Services Company  recognized $1.7 million of net income after
     applicable income taxes, as the construction manager in connection with the
     construction of the industrial build-to-suit building.

(11) On June 26, 2002, we completed the sale of nine suburban office  properties
     to an affiliate of Blackstone  Real Estate  Advisors,  L.P. for an adjusted
     sales price of $131.2  million,  excluding the assumption of $113.1 million
     of debt related to the properties (the  "Blackstone  Sale").  We recorded a
     $33.6 million  provision for asset impairment  during 2002 related to these
     properties based upon our revised holding period and subsequently  recorded
     an additional  $3.7 million loss on sale in 2002 relating  primarily to the
     write-off of certain deferred assets associated with these properties.

(12) We sold this office  building  for a gross sales price of $5.1  million and
     recorded a gain of $0.1 million in discontinued  operations.  In connection
     with this sale, we redeemed  approximately $3.9 million of the $9.0 million
     of bonds that encumbered the property.  The purchaser assumed the remainder
     of the outstanding bonds.

     The facility that provided credit  enhancement for the bonds was terminated
     in connection with this sale.

(13) Our  sale of this  property  resulted  in a gain  of  $0.4  million  and is
     reflected in discontinued  operations.  Net proceeds from this sale of $0.6
     million were  deposited  into escrow with the lender that  provided  credit
     enhancement on the bonds relating to this and other properties.

(14) On January 16, 2002, we assigned our interest in a joint  venture  relating
     to certain  property  located at the  northeast  corner of Wacker Drive and
     Monroe Street in Chicago,  Illinois, to our joint venture partner for $22.9
     million and used a portion of the  proceeds  to repay the $16.5  million we
     borrowed from the joint venture partner in 2001. We also received an option
     which expired,  unexercised, on June 28, 2002 to repurchase our interest in
     the joint venture for $22.9 million plus a 10% compounded return.

(15) On August 23,  2002,  we  transferred  our 10%  ownership  interest in Pine
     Meadow,  LLC to  our  joint  venture  partner.  In  consideration  of  this
     transfer,  we were  released  of our  obligations  under the joint  venture
     agreement  and the  documents  that  evidenced  and secured a $9.3  million
     construction  mortgage loan  encumbering  the property.  We recorded a $0.5
     million  provision  for  asset  impairment  during  2002  related  to  this
     ownership interest.

(16) On August 1,  2002,  we and the City of  Chicago  ("City")  closed  the tax
     increment  financing  assistance for Bank One Center  pursuant to which the
     owner of the property  may be entitled to receive from the City,  depending
     on the  satisfaction  of certain  requirements,  up to $10.0 million in tax
     increment assistance.  As disclosed above, we have a 30% common interest in
     a joint venture  which owns this  property.  The  obligation of the City is
     evidenced by a  promissory  note in the maximum  principal  amount of $10.0
     million  (which is subject to  reduction  if certain  requirements  are not
     satisfied).  Interest  on the note  accrues  at the rate of 9.5% per  year.
     Payments  of the tax  increment  assistance  are to be made each  January 1
     after  the  project  is  completed,  and  are to be  made  from  50% of the
     incremental  real  estate  taxes  attributable  to  Bank  One  Center.  The
     promissory  note  matures on  December  31,  2008,  and,  to the extent any
     portion of the note remains  unpaid as of the maturity date, the Venture is
     required to forego such amounts.  On November 1, 2002, upon satisfaction of
     the majority of the City's  significant  requirements,  a  promissory  note
     receivable in the amount of $9.4 million and related  accrued  interest was
     recorded for financial reporting  purposes.  This  correspondingly  reduced
     development costs related to Bank One Center.

      In  prior  years,   we  acquired  the  first  and  second  mortgage  notes
encumbering  the office  property known as 180 North LaSalle  Street.  We had an
option to purchase the equity  ownership of the property  during the period from
January 15,  2004 to  February  15, 2004 for a price equal to the greater of the
fair market  value of the  interest or $2.0  million.  On January 15,  2004,  we
acquired  fee title to the property in exchange for a payment of $0.1 million to
cover certain related expenses.

16.  Investments in Unconsolidated Joint Ventures

      We have investments in three joint ventures which we account for using the
equity method of accounting.  The following is a summary of the  investments and
the amounts reflected in our consolidated  financial statements related to these
investments.

       77 West Wacker Drive.  We own a 50% common interest in 77 LLC, which owns
a 944,556 square foot office building  located in Chicago,  Illinois.  Our joint
venture  partner  also owns a $66.0  million  preferred  interest  (providing  a
cumulative preferred return of 9.5% per annum) in this property. Our interest at
December 31, 2004 and December 31, 2003 was a deficit investment of $4.1 million
and $5.2 million  (included in deficit  investment  in  unconsolidated  entity),
respectively.

<PAGE>

      The following table summarizes our share of various items:

<TABLE>


                                                   Year ended December 31,
                                              2004          2003           2002
                                         ---------------------------------------------
                                                    (dollars in thousands)
<S>                                        <C>           <C>          <C>
Operations (included in other
    income) (1)(2).......................  $      (915)  $       317  $       1,005
Contributions made.......................            -             -          2,000
Distributions received...................            -         4,415            900
Unrealized gains (losses) (included in
  other comprehensive income)............            -         2,542         (1,344)
Losses reclassified into earnings from
  other comprehensive income.............        2,594           612            275

</TABLE>


     (1) Includes lease  termination  fee income earned in April 2003, our share
         of which was $1.6  million  and  excludes  our share (50%) of the joint
         venture's  expense  related  to the  management  fee we  earned  on the
         property of $1.1 million for each of the years ended December 31, 2004,
         2003 and 2002, respectively.

     (2) Includes  $0.7  million of income in each of the years  2004,  2003 and
         2002,  related to  accretion  of our  investment  account  from zero at
         formation  of  this  joint  venture  to  $22.0  million  at  end of the
         estimated  useful life of the  property.  The $22.0 million is based on
         our joint venture partners  contribution of cash at formation for their
         50% common interest in the joint venture.

      On October 24, 2003,  the joint  venture  refinanced  its existing  $152.5
million  first  mortgage loan payable on the property with the proceeds of a new
$166.0  million first mortgage loan. The new loan bears interest at a fixed rate
of 5.70% and matures on November 1, 2013. The loan requires  monthly payments of
interest  only for the first two  years of the loan  term and  requires  monthly
payments of principal and interest  thereafter  based on a 30 year  amortization
schedule.

       The new loan  required  $0.3  million at closing and an  additional  $0.2
million per year to be deposited into an escrow for  maintenance  and repairs at
the  property.  In  addition,  the loan created a rollover  reserve  account for
future leasing costs which the joint venture  deposited $8.65 million at closing
and is  required to deposit an  additional  $0.1  million per month  thereafter,
provided,  however,  in no event  will the  amount in the  rollover  reserve  be
required to exceed  $19.7  million.  In the event  certain  tenants do not renew
their leases by certain dates or the relevant space is not re-leased, additional
escrow  deposits will be required.  After the joint venture paid its outstanding
preferred  return  to our  partner,  we and our  partner  each  received  a cash
distribution of $2.4 million from the joint venture out of loan proceeds.

      The following  tables  represent the condensed  balance  sheets and income
statements of 77 LLC:

                                              Year ended December 31,
                                           2004                  2003
                                     -------------------------------------------
                                                  (dollars in thousands)

   Real estate, at cost (net):...... $ 251,387              $   253,525
   Other assets.....................    28,862                   26,368
                                     -------------------------------------------
   Total assets..................... $ 280,249              $   279,893
                                     ===========================================

   Mortgage note payable............ $ 166,000              $   166,000
   Other liabilities................    18,745                   19,851
   Total members' capital...........    95,504                   94,042
                                     -------------------------------------------
   Total liabilities and members'
     capital........................ $ 280,249              $   279,893
                                     ===========================================


                                             Year ended December 31,
                                        2004          2003           2002
                                      ---------------------------------------
                                              (dollars in thousands)

Total revenue...................... $    43,661    $   46,828     $   44,570
Total expenses.....................      40,595        41,299         37,665
                                   ---------------------------------------------
Net income......................... $     3,066    $    5,529     $    6,905
                                   =============================================



      Bank One Center.  On March 19, 2003,  we purchased  all of our prior joint
venture  partner's  ownership  interest  in the entity that owns Bank One Center
which made us the sole owner of the property at that time.  We paid $9.2 million
for the  interest,  of which $0.5 million was deposited  into an escrow  account
that was to be released to the joint venture  partner upon the  satisfaction  of
certain post-closing obligations of the joint venture partner (and in all events
on the first  anniversary  of the closing date).  The joint venture  partner had
continued to provide certain development services through November 3, 2003 for a
monthly fee. As of December 31, 2003,  the $0.5 million escrow had been released
to the joint venture  partner.  Simultaneous  with this  transaction,  the joint
venture  partner repaid us in full a loan  previously made by us to them of $1.0
million, plus accrued interest of $0.2 million.

      On October 8, 2003, we closed on a  transaction  admitting a new 70% joint
venture partner to our former  subsidiary,  Dearborn LLC, that owns the Bank One
Center.  At the closing,  our partner made a cash contribution to the venture of
$106.4 million (which  includes $1.4 million  retained by the venture as working
capital) in exchange for 70% of the  membership  interests  in the  venture.  We
retained a 30% subordinated common interest in the joint venture.  Upon closing,
the venture,  in turn,  distributed $105.0 million to us. Under the terms of the
contribution agreement, an additional capital contribution in the amount of $9.8
million  is to be made by our  partner  and  distributed  to us when  the  joint
venture  leases an  additional  40,000 square feet of space in the property over
and above the square footage  leased in the property as of August 4, 2003.  (See
Note 17--Subsequent Events regarding this provision).

     Our  interest  in the joint  venture at  December  31, 2004 and 2003 was an
equity investment of $25.4 million and $41.6 million, respectively, (included in
investment in unconsolidated entities).

      The  following  table  summarizes  our share of various items for the year
ended  December 31, 2004 and for the period  October 8, 2003  (admittance of our
joint venture partner) through December 31, 2003 (dollars in thousands):

                                              2004          2003
                                         -----------------------------
Operations (included in other
    income) (1) (2)......................   $  (13,668)$      (2,571)
Contributions made (3)...................            -           600


(1)  During  the  period,  distributions  to  our  partner  exceeded  the  joint
     venture's net income.  As a result,  income equal to the  distribution  was
     allocated  to our  partner  and we  recorded  a loss in the  amount  of the
     difference  between this  allocation and the actual net income of the joint
     venture.

(2)  Excludes  the  expense  related  to the  management  fee we  earned on this
     property of $0.7 million and $0.1 million for 2004 and 2003, respectively.

(3)  Per the terms of the  joint  venture  agreement,  we and our  partner  made
     working capital contributions at closing.

      Simultaneous with the admittance of our joint venture partner to the joint
venture,  the joint venture closed on a $270.0  million  mortgage loan. The loan
bears  interest at a fixed rate of 5.47% per year,  except that $22.5 million of
the loan  commitment,  related to future  tenant  improvement  and other leasing
costs at the  property,  will bear  interest at a floating  rate of one or three
month LIBOR plus 1.2% when and as funded.  The joint venture will have the right
to fix the interest  rate on this future  funding in $5.0 million  increments as
funded,  at an interest  rate equal to the lender's  then-current  cost of funds
plus 1.2%. On September  30, 2004,  the joint venture fixed the rate on the loan
at 5.18%  and drew  down  $18.1  million  representing  the  remaining  proceeds
available under the original loan commitment.  Funds not disbursed are invested.
These funds are held in an escrow to be utilized for future  tenant  improvement
and leasing costs.

      The  loan,  having a term of 7 years,  requires  quarterly  interest  only
payments  payable in  arrears  for the first two years of the loan term and then
payments of principal and interest pursuant to a 30-year amortization  schedule.
The venture paid the lender a 0.5%  arrangement fee on the entire loan amount at
closing, and is obligated to pay a $50,000 agency fee each year.

      The loan documents  provide that if the debt service coverage ratio of the
property (as defined in the loan documents and tested on June 30 and December 31
of each year)  falls  below 1.1, it is a default  under the loan.  In  addition,
beginning on June 30, 2006, in the event the debt service  coverage ratio of the
property falls below 1.30,  then the excess net cash flow from the property will
be deposited  into an interest  bearing escrow account with the lender until the
debt service coverage ratio test of 1.30 is met.



<PAGE>


16.  Investments in Unconsolidated Joint Ventures (continued)

      The following  tables  represent the condensed  balance  sheets and income
statements of Dearborn LLC on a historical cost basis:

                                                Year ended December 31,
                                               2004                  2003
                                    --------------------------------------------
                                                 (dollars in thousands)

  Real estate, at cost (net):......    $   330,012            $   335,632
  Other assets.....................        102,720                 85,765
                                    --------------------------------------------
  Total assets.....................    $   432,732            $   421,397
                                    ============================================

  Mortgage note payable............    $   270,000            $   247,500
  Other liabilities................         22,723                 29,838
  Total members' capital...........        140,009                144,059
                                    --------------------------------------------
  Total liabilities and members'
    capital.........................   $   432,732            $   421,397
                                    ============================================

                                                       For the period
                                                        from October 8
                                                            2003
                                           Year ended      through
                                          December 31    December 31
                                              2004          2003
                                         ------------------------------
                                            (dollars in thousands)

Total revenue.........................      $   45,939    $    9,618
Total expenses........................          49,149         9,809
                                         ------------------------------
Net loss..............................      $   (3,210)   $     (191)
                                         ==============================


       Thistle Landing. We own a 23.1% common interest in Plumcor Thistle,  LLC,
which owns a 383,509 square foot office  building  located in Phoenix,  Arizona,
that opened in late 1999.  Our  interest  at  December  31, 2004 and 2003 was an
equity  investment  of $0.7 million and $1.2 million  (included in investment in
unconsolidated  entities),   respectively,   and  our  share  of  the  venture's
operations were $(0.3) million,  $(0.0) million and $(0.2) million in 2004, 2003
and 2002, respectively, which is included in other income (expense). We received
distributions  of $0.2  million  in each  of the  years  2004,  2003  and  2002,
respectively.

17.  Subsequent Events

      In January 2005, the joint venture which owns the Bank One Center building
executed a lease  expansion with Citadel.  The lease  amendment with Citadel for
47,235  square feet is effective as of December 1, 2004 for a term of nine years
and one  month.  As a result  of this  lease  amendment,  we have met a  leasing
condition under the Joint Venture  agreement and qualified for the  distribution
to us of $9.8 million from the Joint Venture.  This distribution was received by
us on January 24, 2005.

     On February 17, 2005,  we and an affiliate  of The  Lightstone  Group,  LLC
("Lightstone"),  entered into a definitive  agreement and plan of merger.  Under
the merger agreement  Lightstone will acquire our common shares and common share
limited  partnership  units  for  $7.25 in  cash,  plus  the  assumption  of our
outstanding debt. Our Board has unanimously approved the transaction and intends
to recommend it for approval by our common  shareholders.  The parties expect to
close the transaction in the second quarter,  or early in the third quarter,  of
2005. In connection with the merger agreement, Lightstone funded a $10.0 million
earnest money deposit into an escrow.

      Our Series B Shares  will  remain  outstanding  after the  transaction  is
completed.   At  the  closing  of  the  transaction,   all  accrued  but  unpaid
distributions on our Series B Shares,  plus distributions on our Series B Shares
for the entire calendar quarter in which the transaction closes, will be paid to
the holders of our Series B Shares.

      The closing of the merger  agreement is subject to, among other things,  a
number of  customary  conditions  including  the  approval by the holders of our
common shares. The transaction is not subject to any financing condition.




<PAGE>






                            PRIME GROUP REALTY TRUST

             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                             AS OF DECEMBER 31, 2004
                             (DOLLARS IN THOUSANDS)


<TABLE>


                                                           Cost Capitalzed   Gross Amount Carried
                                                             Subsequent to    at Close of Period
                         Encumbrances(1)  Initial Cost        Acquisition          12/31/04
                         -------------- ------------------ ----------------  -------------------------


                                                                                                        Accumulated
                                              Buildings          Buildings            Building        Depreciation
                         December 31            and                and                  and           at December 31   Date of
                            2004      Land  Improvements  Land  Improvements  Land  Improvements Total    2004(2)    Acquisition
                         -------------------------------- -------------------------------------------- ----------------------------
<S>                      <C>          <C>      <C>       <C>     <C>      <C>       <C>        <C>      <C>          <C>

280 Shuman Blvd.......... $       -  $  1,261 $   5,056  $    - $  1,050  $   1,261 $  6,106 $   7,367 $  1,218      Nov. 1997
Continental Towers ......    65,991    21,780    87,324     455   17,741     22,235  105,065   127,300   24,465      Dec. 1997
4343 Commerce Court (3)..    12,172     5,370    21,394     192    3,405      5,562   24,799    30,361    7,489      Nov. 1997
1600-1700 167th St.......     2,625     1,073     4,291     167      801      1,240    5,092     6,332    1,364      Nov. 1997
208 South LaSalle Street.    42,590    12,310    49,042      20   10,791     12,330   59,833    72,163   13,189      Mar. 1998
800-810 Jorie Blvd.......    22,117     5,619    24,089       -    1,417      5,619   25,506    31,125    3,457      Aug. 1999
IBM Plaza (4)............   195,000    39,664   208,898       1    6,746     39,665  215,644   255,309   29,315      Dec. 1999
Brush Hill Office Court..     7,918     2,617    10,469       -      556      2,617   11,025    13,642    1,646      Dec. 1999
Enterprise Center II.....     5,805     1,783     7,376       1     (421)     1,784    6,955     8,739      904      Jan. 2000
7100 Madison Avenue......     3,775     1,360     4,000       -      125      1,360    4,125     5,485      473      Apr. 2000
180 North LaSalle Street.    66,282    29,409    73,276     107   17,848     29,516   91,124   120,640   16,023      Aug. 2000
1051 N. Kirk Road (3)....     3,170       911     3,325       -   (1,579)       911    1,746     2,657      410      Nov. 1997
Other Corporate Assets...         -         -       476       -    9,625          -   10,101    10,101    7,487
                         ------------------------------------------------ -------------------------------------------
Total.................... $ 427,445  $123,157 $ 499,016  $  943 $ 68,105  $ 124,100 $567,121 $ 691,221 $107,440
                         ------------------------------------------------ -------------------------------------------

</TABLE>








<PAGE>




                            PRIME GROUP REALTY TRUST
             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                             AS OF DECEMBER 31, 2004

(1)  See Note 4 -  Mortgage  Notes  and  Bonds  Payable  to  these  Consolidated
     Financial Statements for a description of our mortgage notes payable.
(2)  Depreciation is calculated on the  straight-line  method over the estimated
     useful lives of assets, which are as follows:

              Buildings                                  40 years
              Building improvements                      10 to 30 years
              Tenant improvements                        Term of related leases
              Furniture and equipment                    3-10 years

(3)  These properties collateralize a mortgage note payable of $15.3 million.
(4)  A pledge of 100% of the  ownership  interest in the entity  which owns this
     property is  collateral  for two mortgage  notes  payable  totaling  $195.0
     million with the same lender.

      The aggregate  gross cost of the properties  included  above,  for federal
income tax  purposes,  approximated  $521.5  million as of December 31, 2004. We
have $2.2 million in property  held or under  development  at December 31, 2004,
for which the basis for federal income tax purposes approximated $2.1 million at
December 31, 2004.  The net tax basis of our investment in  unconsolidated  real
estate  joint  ventures for federal  income tax  purposes  was $42.7  million at
December 31, 2004.

      The following table reconciles the Company's historical cost for the years
ended December 31, 2004, 2003 and 2002 (dollars in thousands):

<TABLE>


                                                                       Year ended December 31
                                                                 2004             2003             2002
                                                       ----------------------------------------------------
<S>                                                     <C>                   <C>             <C>
Balance, beginning of period.........................      $   681,933       $ 1,025,271      $   893,462
Additions during period..............................           10,128            23,788          341,664
Disposals during the period..........................             (840)         (347,204)        (190,467)
Conversion of common units to common shares..........                -           (19,022)               -
Property impairments recorded during period..........                -              (900)         (19,388)
                                                       ----------------------------------------------------
Balance, close of period.............................      $   691,221       $   681,933      $ 1,025,271
                                                       ====================================================

</TABLE>


     The following table  reconciles the accumulated  depreciation for the years
ended December 31, 2004, 2003 and 2002 (dollars in thousands):

<TABLE>



                                                                    Year ended December 31
                                                            2004             2003              2002
                                                     ------------------------------------------------------
<S>                                                  <C>                  <C>              <C>
Balance at beginning of period.....................     $     88,090      $     67,308     $     54,416
Depreciation and amortization for the period.......           20,001            26,053           33,428
Disposals during the period........................             (651)           (5,271)         (20,536)
                                                     ------------------------------------------------------
Balance, close of period...........................     $    107,440      $     88,090     $     67,308
                                                     ======================================================
</TABLE>


<PAGE>


                             Dearborn Center, L.L.C.

                              Financial Statements

                         For the Year ended December 31,
                  2004 and for the period from October 8, 2003
                      through December 31, 2003 (unaudited)



                                    Contents

Report of Independent Registered Public Accounting Firm.............1

Financial Statements

Balance Sheets......................................................2
Statements of Operations............................................3
Statements of Members' Capital......................................4
Statements of Cash Flows............................................5
Notes to Financial Statements.......................................6


<PAGE>












             Report of Independent Registered Public Accounting Firm

Board of Trustees
Prime Group Realty Trust


     We have audited the accompanying  balance sheet of Dearborn Center,  L.L.C.
as of December 31, 2004,  and the related  statements  of  operations,  members'
capital and cash flows for the year ended  December  31, 2004.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.


     We  conducted  our audit in  accordance  with the  standards  of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
consideration  of  internal  control  over  financial  reporting  as a basis for
designing audit  procedures that are appropriate in the  circumstances,  but not
for the purpose of expressing an opinion on the  effectiveness  of the Company's
internal  control  over  financial  reporting.  Accordingly,  we express no such
opinion. An audit includes examining,  on a test basis,  evidence supporting the
amounts and  disclosures  in the  financial  statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe that our audit provides a reasonable basis for our opinion.


     In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the financial position of Dearborn Center,  L.L.C. at
December 31, 2004,  and the results of its operations and its cash flows for the
year  then  ended  in  conformity  with  U.S.  generally   accepted   accounting
principles.


                                  /s/ Ernst & Young LLP
                                  ---------------------


Chicago, Illinois
February 21, 2005


<PAGE>


                             Dearborn Center, L.L.C.

                                 Balance Sheets



                                                        December 31
                                                  2004               2003
                                           -------------------------------------
Assets                                                            (unaudited)
Real estate:
   Land                                       $   22,621,876     $   22,621,876
   Building and improvements                     280,654,208        279,140,911
   Tenant improvements                            45,215,227         41,313,676
                                           -------------------------------------
                                                 348,491,311        343,076,463
   Accumulated depreciation                      (18,479,626)        (7,444,897)
                                           -------------------------------------
                                                 330,011,685        335,631,566

Cash                                              14,787,010          5,583,880
Restricted cash escrows                           20,585,320         19,532,774
Receivables:
   Tenant                                          8,605,602          5,228,406
   Deferred rent                                   9,003,586          4,375,048
   Note                                           12,295,833         10,745,187
Deferred costs, net                               37,430,498         40,295,313
Prepaid expenses                                      11,744              5,101
                                           -------------------------------------
Total assets                                   $ 432,731,278      $ 421,397,275
                                           =====================================

Liabilities and members' capital
Mortgage note payable                          $ 270,000,000      $ 247,500,000
Accrued interest payable                           3,760,863          3,459,775
Rents received in advance                          2,022,671          1,312,615
Accrued tenant improvement allowances                514,500         13,627,379
Accounts payable and accrued liabilities             615,676            405,074
Due to affiliate                                     596,303            290,209
Development costs payable                            876,885            958,550
Accrued real estate taxes                         14,310,000          9,759,485
Other                                                 25,000             25,000
                                           -------------------------------------

Total liabilities                                292,721,898        277,338,087
Members' capital                                 140,009,380        144,059,188
                                           -------------------------------------
Total liabilities and members' capital         $ 432,731,278      $ 421,397,275
                                           =====================================

See notes to financial statements.


<PAGE>


                             Dearborn Center, L.L.C.

                            Statements of Operations



                                                            For the period from
                                                              October 8, 2003
                                            Year ended           through
                                         December 31 2004    December 31 2003
                                       -----------------------------------------
                                                                (unaudited)
 Revenue
 Rental                                    $ 28,919,989          $ 6,461,018
 Tenant reimbursements                       15,328,416            2,784,867
 Other                                        1,690,502              372,194
                                       -----------------------------------------
 Total revenue                               45,938,907            9,618,079

 Expenses
 Property operations                          8,904,529            1,828,783
 Real estate taxes                           12,933,879            2,265,820
 Depreciation                                11,034,729            2,174,122
 Amortization                                 2,133,650              344,172
 Interest                                    14,141,928            3,196,531
                                       -----------------------------------------
 Total expenses                              49,148,715            9,809,428
                                       -----------------------------------------
 Net loss                                   $(3,209,808)         $  (191,349)
                                       =========================================

See notes to financial statements.


<PAGE>


                             Dearborn Center, L.L.C.

                         Statements of Members' Capital

                    For the Year ended December 31, 2004 and
                       for the period from October 8, 2003
                            through December 31, 2003

<TABLE>




                                                                UST                Prime              Total
                                                   -----------------------------------------------------------
<S>                                                <C>                      <C>                  <C>
 Members' capital at October 8, 2003                   $  101,239,465       $  43,442,255      $  144,681,720
 Net income (loss)                                          2,431,183          (2,622,532)           (191,349)
 Contribution                                               1,400,000             600,000           2,000,000
 Distributions                                             (2,431,183)                  -          (2,431,183)
                                                   -----------------------------------------------------------
 Members' capital at December 31, 2003
  (unaudited)                                             102,639,465          41,419,723         144,059,188
                                                   -----------------------------------------------------------

 Net income (loss)                                         10,640,000         (13,849,808)         (3,209,808)
 Contribution                                               9,800,000                   -           9,800,000
 Distributions                                            (10,640,000)                  -         (10,640,000)
                                                   -----------------------------------------------------------

 Members' capital at December 31, 2004                 $  112,439,465       $  27,569,915      $  140,009,380
                                                   ===========================================================

</TABLE>

See notes to financial statements.


<PAGE>


                             Dearborn Center, L.L.C.

                            Statements of Cash Flows

<TABLE>

                                                                                          For the period from
                                                                            Year ended     October 8, 2003
                                                                            December 31   through December 31
                                                                               2004               2003
                                                                       --------------------------------------
                                                                                             (unaudited)
<S>                                                                     <C>                 <C>
Operating activities
Net loss                                                              $   (3,209,808)    $     (191,349)
Adjustments to reconcile net loss to
   net cash provided by operating
   activities:
     Depreciation and amortization                                          13,168,379        2,518,294
     Amortization of costs for leases assumed (included in rental
       revenue)                                                              1,950,175          477,635
     Changes in operating assets and liabilities:
       Tenant receivables                                                   (6,151,721)      (1,540,244)
       Deferred rent receivable                                             (4,628,538)      (1,153,192)
       Accrued interest on note receivable                                    (962,875)        (206,714)
       Prepaid expenses                                                         (6,645)          (5,101)
       Accrued interest payable                                                301,088        3,196,531
       Rents received in advance                                               710,056         (700,154)
       Accounts payable and accrued liabilities                                158,903          216,203
       Due to affiliate                                                        306,095          458,622
       Accrued real estate taxes                                             9,225,961        2,285,056
                                                                       ------------------------------------
Net cash provided by operating activities                                   10,861,070        5,355,587

Investing activities
Additions to real estate                                                    (7,345,733)      (2,015,435)
Decrease in accrued tenant improvement allowances                          (13,112,879)        (574,408)
Leasing costs                                                               (1,214,186)         (31,726)
Increase in restricted cash escrows                                         (1,052,546)       2,595,774
Increase in note receivable                                                   (587,771)               -
                                                                       ------------------------------------
Net cash used in investing activities                                      (23,313,115)         (25,795)

Financing activities
Contributions from member                                                    9,800,000        2,000,000
Distributions to member                                                    (10,640,000)      (2,431,183)
Additional proceeds from mortgage note payable                              22,500,000                -
Financing costs                                                                 (4,825)            (371)
                                                                       ------------------------------------
Net cash provided by (used in) financing activities                         21,655,175         (431,554)
                                                                       ------------------------------------
Net change in cash                                                           9,203,130        4,898,238
Cash at beginning of period                                                  5,583,880          685,642
                                                                       ------------------------------------
Cash at end of period                                                  $    14,787,010    $   5,583,880
                                                                       ====================================
See notes to financial statements.

</TABLE>



<PAGE>


                             Dearborn Center, L.L.C.

                          Notes to Financial Statements


1.  Summary of Significant Accounting Policies

Formation and Organization of the Company

Dearborn Center,  L.L.C.  (the Company) is a Delaware limited  liability company
that was formed on September 27, 2000,  to develop,  own,  lease,  and operate a
37-story  office  building  containing  approximately  1.5  million  square feet
located in downtown Chicago, Illinois (the Property).

On October 8, 2003 (the Transaction Date), Prime Group Realty, L.P. (Prime), the
prior sole member of the Company, sold 70% of its interest in the Company to UST
XI Dearborn,  Ltd.  (UST),  a limited  partnership  organized  under the laws of
Florida.  At  the  closing,   UST  paid  Prime  $105,000,000  and  made  a  cash
contribution   to  the  Company  of   $1,400,000  as  working   capital.   Prime
correspondingly made a $600,000 cash contribution to the Company.  UST's opening
capital balance  represents an allocation of 70% of Prime's  historical  capital
balance.  The Company's  organizational  documents  were amended and restated to
reflect the admission of UST. For reporting  purposes,  no adjustments have been
made to the carrying values of the Company's  assets and liabilities as a result
of the sales  transaction in accordance with the practices of the Securities and
Exchange Commission.

Under  the  terms of the  Contribution  Agreement  between  Prime  and  UST,  an
additional  capital  contribution  in the amount of $9,800,000 was to be made by
UST (the Leasing  Earnout) and  distributed  to Prime when the Company leases an
additional 40,000 square feet of space in the Property over and above the square
footage leased in the Property as of August 4, 2003. This  contribution was made
in December 2004.

UST is the  administrative  member of the Company and Prime has approval  rights
over major  decisions.  At  closing,  Prime  received  a credit to its  invested
capital account (as defined in the Contribution Agreement) in the Company in the
amount of  $45,600,000,  representing  30% of the total invested  capital of the
Company,  and  UST  received  a  credit  to  its  invested  capital  account  of
$106,400,000,  representing  70% of the total  invested  capital of the Company.
Prime  will also  receive a credit to its  invested  capital  account,  upon the
satisfaction of the Leasing Earnout, of an additional $4,200,000.

In  connection  with the  admittance  of UST as a partner in the Company,  Prime
deposited $19,908,658 with an escrow agent, which is to be used to fund: (a) the
payment of completion  costs for the core and shell of the Property (which Prime
and UST  acknowledge  were  $5,670,959  as of the closing  date),  (b) the costs
related to tenant improvements and allowances with respect to existing leases at
the Property (which Prime and UST acknowledge were $14,201,787 as of the closing
date) and (c) the payment of any outstanding  lease  commissions with respect to
existing leases of the Property (which Prime and UST acknowledge were $35,912 as
of the closing  date).  The balances in this escrow account at December 31, 2004
and 2003 were  $1,500,946  and  $18,532,812,  respectively.  In addition to this
escrow, Prime conveyed another escrow to the Company in the amount of $1,356,942
related  to  completion  costs for the core and shell of the  Property  incurred
prior to the closing date.  The balances in this escrow at December 31, 2004 and
2003 were $925,175 and $999,962, respectively.

UST is  entitled  to receive out of  available  annual cash flow  (Distributable
Cash), a 10%  non-cumulative  preferred  return on its invested  capital,  after
which  Prime will  receive a 10%  non-cumulative,  non-compounded  return on its
invested  capital.  Any  remaining  Distributable  Cash after  repayment  of all
amounts then due and payable  pursuant to the loan  documents and other expenses
and liabilities of the Company then due and payable after  establishment of such
reserves as UST may reasonably  determine for specific anticipated purposes will
be distributed 50% to Prime and 50% to UST.

To the extent the Company's earnings exceed UST's return in any year, Prime will
record 100% of the excess up to its 10% return on invested capital.  Thereafter,
earnings  will be  allocated  50% to Prime  and 50% to UST.  To the  extent  the
Company's   earnings  are  less  than  the  amount   distributable   to  UST,  a
corresponding loss will be allocated to Prime to the extent of any difference.

In accordance  with the Limited  Liability  Company  Agreement,  the Company has
perpetual  existence  unless sooner  dissolved  upon the occurrence of a defined
termination  event.  No Member  can  transfer  its  interest  in any part of the
Company  without  obtaining the prior written consent of the other Member unless
the transfer is made to an affiliate or Prime  transfers or sells its membership
interests in connection with any merger,  consolidation,  reorganization,  sale,
liquidation or other similar transaction.

Presentation

The financial  statements  and  disclosures  as of December 31, 2003 and for the
period from October 8, 2003 to December 31, 2003 are unaudited.

Real Estate

Real estate is carried at its historical  cost, less  accumulated  depreciation.
Expenditures for ordinary  maintenance and repairs are expensed to operations as
incurred. Significant renovations and improvements,  which improve and/or extend
the  useful  life of the  asset,  are  capitalized  and  depreciated  over their
estimated useful life.


Depreciation is calculated on the straight-line method over the estimated useful
lives of assets, which are as follows:

     Building                                        40 years
     Building improvements                           15 to 30 years
     Tenant improvements                             Term of related lease

The City of Chicago,  ("City") has provided tax increment  financing  assistance
for the  Property  pursuant to which the Company is entitled to receive from the
City up to $10,000,000 in tax increment assistance,  subject to the satisfaction
of certain requirements. The obligation of the City is evidenced by a promissory
note in the  maximum  principal  amount of  $10,000,000  (which  was  subject to
reduction  if certain  requirements  were not  satisfied).  Interest on the note
accrues  at the  rate of 9.5% per  year.  Under  the  agreement  with the  City,
payments of the tax increment  assistance are to be made each January 1 from 50%
of  the  incremental  real  estate  taxes  attributable  to  the  Property.  The
promissory  note matures on December 31, 2008, and, to the extent any portion of
the note  remains  unpaid as of the  maturity  date,  the Company is required to
forego such amounts.  The Company  initially  recorded a note  receivable in the
amount of $9,412,228,  which was net of a reserve for amounts anticipated due to
the City for failure to meet certain of the requirements.

On August 11, 2004,  payments  were made to the City  comprised of $587,771 from
the Company and $447,845 from Prime.  The payment by the Company was funded by a
loan  Prime  made to the  Company  in the  amount of  $587,771.  The loan  bears
interest at 10.0% per year.  The total of $1,035,616  represented  the Company's
obligation  under its  redevelopment  agreement with the City. The City issued a
Certificate of Completion in regards to the Property and acknowledged the amount
of the note  receivable,  which included  principal of $10,000,000  and interest
through August 11, 2004 of $1,929,028.

The  balance of the note  receivable  at  December  31,  2004 and 2003  includes
accrued interest of $2,295,833 and 1,332,959, respectively.

Deferred Charges

Costs  incurred  in  connection  with  financings  are  capitalized  as deferred
financing  costs and are amortized  over the terms of the related loan.  Leasing
commissions  and other leasing costs directly  attributable to tenant leases are
capitalized  as deferred  leasing costs and are  amortized on the  straight-line
method over the terms of the related lease agreements.


Rental Revenue

Rental  revenue is  recorded on the  straight-line  method over the terms of the
related lease agreements.  Differences between rental revenue earned and amounts
due per the respective lease agreements are credited or charged,  as applicable,
to deferred rent receivable. Rental payments received prior to their recognition
as income are classified as rent received in advance.

Income Taxes

The  Company is taxed as a  partnership,  and  accordingly,  no federal or state
income taxes are payable by the Company.  The Members'  respective  share of the
Company's  taxable income or loss is includable on the respective tax returns of
the Members.

Use of Estimates

The  preparation  of the  financial  statements in  accordance  with  accounting
principles  generally accepted in the United States requires  management to make
estimates  and  assumptions  that  affect  amounts  reported  in  the  financial
statements  and  accompanying  notes.  Actual  results  could  differ from those
estimates.

2.   Deferred Costs

Deferred costs consist of the following:

                                                  December 31
                                             2004             2003
                                      ------------------------------------
Financing costs                        $     7,377,041     $   7,372,215
Leasing commissions                         13,422,418        12,349,757
Leasing costs                                8,428,643         8,287,120
Lease assumption costs                      20,507,230        20,507,230
                                      ------------------------------------
                                            49,735,332        48,516,322
Less:  Accumulated amortization            (12,304,834)       (8,221,009)
                                      ------------------------------------
                                        $   37,430,498     $  40,295,313
                                      ====================================


3.  Mortgage Note Payable

In  connection  with the  admittance  of UST as a partner  in the  Company,  the
Company  simultaneously  closed on a $270,000,000 mortgage loan with a financial
institution  (the  Loan),  a  portion  of  which  was  used to repay in full the
existing  construction  loan and mezzanine loan  encumbering  the Property,  and
$22,500,000 of which was funded post-closing to pay for tenant improvement costs
and other leasing costs under  subsequent and future leases at the Property (the
TI Amount).

The Loan bears  interest  at a fixed rate of 5.47% per year,  except that the TI
Amount,  when and as funded,  bore  interest at a floating  rate of one or three
month  LIBOR  plus  1.20%,  as  defined.  The  Company  had the right to fix the
interest  rate on the TI Amount,  as funded,  in  $5,000,000  increments,  at an
interest rate equal to the lender's  then-current  cost of funds plus 1.20%.  On
September 30, 2004,  the Company fixed the rate on the loan for the TI amount at
5.18% and drew down $18,772,291  representing the remaining  proceeds  available
under the original loan commitment.

This  advance of the TI Amount was  disbursed  into an  interest-bearing  escrow
account  (with  interest  payable  monthly to the  Company)  with future  tenant
improvement  costs and leasing  commissions  of the Property  payable out of the
escrow. The balance in this escrow at December 31, 2004 was $18,159,200.

The Loan requires interest only payments  quarterly in arrears for the first two
years of the loan term and  payments of  principal  and  interest  pursuant to a
30-year amortization  schedule  thereafter.  The Loan has a term of seven years.
The Company is obligated to pay a $50,000 agency fee to the lender each year.

The Loan  documents  provide  that if the  debt  service  coverage  ratio of the
Property (as defined in the loan documents and tested on June 30 and December 31
of each year)  falls  below 1.1, it is a default  under the Loan.  In  addition,
beginning on June 30, 2006, in the event the debt service  coverage ratio of the
Property falls below 1.30,  then the excess net cash flow from the Property will
be deposited  in an interest  bearing  escrow  account with the lender until the
debt service coverage ratio test of 1.30 is met.

The following  represents the Company's future minimum principal payments due on
its mortgage note payable outstanding at December 31, 2004:

     Year ending December 31
     2005                                                      $    762,449
     2006                                                         3,656,546
     2007                                                         3,861,373
     2008                                                         3,998,047
     2009                                                         4,263,966
     2010                                                       253,457,619
                                                          -------------------
                                                               $270,000,000
                                                          ===================

4.  Related Party Transactions

In connection with operating the Property, Prime is entitled to receive fees for
services  performed and  reimbursement  for costs paid on behalf of the Company.
Amounts  incurred for these  services for the year ended  December 31, 2004, and
the period October 8, 2003 through December 31, 2003 are as follows:

                                                2004             2003
                                         ------------------------------------
Management fee (a)                           $    728,776      $    148,522
Payroll and other operating costs (b)           1,379,423           336,905
Leasing commissions                               283,541                 -

(a)  Management  fee equal to 2% of the monthly gross  revenues  calculated on a
     cash basis (included in property operations expense).

(b)  Reimbursement  for payroll and other  operating costs paid on behalf of the
     Company.

UST also  receives  a  monthly  administrative  fee of  $50,000,  which  totaled
$600,000 and $138,710 for the year ended  December 31, 2004 and the period ended
December 31, 2003, respectively.



<PAGE>


5.  Leases

The length of the lease terms range up to 15 and 40 years at lease inception for
office and  retail  tenants,  respectively.  The leases  generally  provide  for
tenants to share in  increases  in  operating  expenses and real estate taxes in
excess of specified base amounts.

The total future  minimum rental to be received  under  noncancelable  operating
leases  executed at December 31, 2004,  exclusive of tenant  reimbursements  and
contingent rentals, are as follows:

     Year ending December 31
     2005                                                   $  27,693,322
     2006                                                      28,753,185
     2007                                                      29,526,969
     2008                                                      30,294,687
     2009                                                      31,127,215
     Thereafter                                               218,808,672
                                                        ---------------------
                                                             $366,204,050
                                                        =====================


The Property was approximately 76.5% leased at December 31, 2004, of which three
tenants lease  approximately  70.1% and represent  approximately 96.6% of rental
and tenant reimbursements  revenue,  excluding  amortization of lease assumption
costs for the year ended December 31, 2004.

6.  Fair Values of Financial Instruments

SFAS No. 107,  Disclosures About Fair Value of Financial  Instruments,  and SFAS
No. 119,  Disclosure  About Derivative  Financial  Instruments and Fair Value of
Financial  Instruments,  require disclosure of the fair value of certain on- and
off-balance-sheet financial instruments for which it is practicable to estimate.
Fair value is  defined  by SFAS No.  107 as the  amount at which the  instrument
could be exchanged in a current  transaction  between willing parties other than
in a forced or liquidation sale.

The Company used the following  methods and  assumptions  in estimating the fair
value disclosures for financial instruments.

The carrying amount of cash and restricted cash escrows  reported in the balance
sheets approximates their fair value.

The Company  maintains its cash and restricted cash escrows at various financial
institutions.  The combined account  balances at each  institution  periodically
exceed FDIC insurance  coverage,  and as a result,  there is a concentration  of
credit risk related to amounts on deposit in excess of FDIC insurance  coverage.
The Company believes that the risk is not significant.

The carrying values of the Company's tenant receivables and accounts payable and
accrued liabilities approximate their fair values due to the short maturities of
such   instruments.   The  carrying  value  of  the  Company's  note  receivable
approximates its fair value based on the expected amount to be received from the
City. The carrying amount of mortgage note payable  (including accrued interest)
approximates fair value based on the current borrowing rate for similar types of
debt.

7.  Subsequent Events

In January 2005, the Company executed a lease expansion  amendment with a tenant
for 47,235 square feet effective as of December 1, 2004 for a term of nine years
and one month.  As a result of this lease  amendment,  the  Leasing  Earnout was
achieved and $9,800,000 was distributed to Prime on January 24, 2005.



<PAGE>


                                  EXHIBIT 12.1

                            PRIME GROUP REALTY TRUST

             STATEMENTS REGARDING COMPUTATION OF RATIOS OF EARNINGS
             TO COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDENDS

                             (DOLLARS IN THOUSANDS)

<TABLE>



                                                                  Year Ended December 31
                                          ------------------------------------------------------------------------

                                               2004          2003          2002           2001          2000
                                          ------------------------------------------------------------------------
<S>                                       <C>           <C>           <C>            <C>           <C>
Earnings (1) (2):
  (Loss) income from continuing
   operations before minority
   interest per  the consolidated
   financial statements ..............    $  (21,069)   $  (20,350)   $   (9,348)    $  (17,981)    $  14,858
  Interest expense....................        28,500        47,853        30,660         29,032        29,885
  Amortization of debt issuance costs.         1,667         6,957         3,691          2,978         3,786
                                          ------------------------------------------------------------------------
Earnings..............................    $    9,098    $   34,460    $   25,003     $   14,029     $  48,529
                                          ========================================================================

Fixed Charges (1) (2):
  Interest expense....................    $   28,500    $   47,853    $   30,660     $   29,032     $  29,885
  Capitalization of interest expense..             -         3,715        29,946         23,874        14,232
  Amortization of debt issuance costs.         1,667         6,957         3,691          2,978         3,786
  Preferred share dividends...........         9,000         9,000        11,280         12,150        12,147
                                          ------------------------------------------------------------------------
Total fixed charges...................    $   39,167    $   67,525    $   75,577     $   68,034     $  60,050
                                          ========================================================================
  Ratio of earnings to combined
   fixed charges and preferred
   share dividends....................             -             -             -              -             -
                                          ========================================================================
  Deficit of earnings to combined
   fixed charges and preferred
   share dividends....................    $  (30,069)   $  (33,065)   $  (50,574)    $  (54,005)    $ (11,521)
                                          ========================================================================
Funds from Operations (1) (2):
  Funds from operations...............    $   21,689    $    7,915    $  (18,644)    $   27,936     $  52,609
  Interest expense....................        28,500        47,853        30,660         29,032        29,885
  Amortization of debt issuance costs.         1,667         6,957         3,691          2,978         3,786
                                          ------------------------------------------------------------------------
Adjusted funds from operations........    $   51,856    $   62,725    $   15,707     $   59,946     $  86,280
                                          ========================================================================
Fixed Charges (1) (2):
  Interest expense....................    $   28,500    $   47,853    $   30,660     $   29,032     $  29,885
  Capitalization of interest expense..             -         3,715        29,946         23,874        14,232
  Amortization of debt issuance costs.         1,667         6,957         3,691          2,978         3,786
  Preferred share dividends...........         9,000         9,000        11,280         12,150        12,147
                                          ------------------------------------------------------------------------
Total fixed charges...................    $   39,167    $   67,525    $   75,577     $   68,034     $  60,050
                                          ========================================================================
  Ratio of funds from operations
   to combined fixed charges and
   preferred share dividends..........          1.32             -             -              -          1.44
                                          ========================================================================
  Excess (deficit)  of funds from
   operations to combined fixed
   charges and preferred share
   dividends..........................    $   12,689    $   (4,800)   $  (59,870)    $   (8,088)    $  26,230
                                          ========================================================================

</TABLE>




(1)      Information for the years ended December 31, 2003,  2002, 2001 and 2000
         have  been  restated  for  the  effect  of  adopting  SFAS  144 for the
         reclassification of the operations of properties sold during 2004, 2003
         and 2002 from continuing operations to discontinued operations.

(2)      Amortization  of debt issuance  costs for the years ended  December 31,
         2001 and 2000 have been  restated for the effects of adopting  SFAS 145
         by   $0.2   million   and   $3.5   million,   respectively,   for   the
         reclassification  of  extinguishment  of  debt  from  extraordinary  to
         continuing operations.


<PAGE>


                                  EXHIBIT 21.1

                            PRIME GROUP REALTY TRUST

                         SUBSIDIARIES OF THE REGISTRANT

                                DECEMBER 31, 2004


      The following  represents the Prime Group Realty  Trust's (the  "Company")
and  Prime  Group  Realty,  L.P.'s  (the  "Operating   Partnership")   operating
subsidiaries (the Company and the Operating Partnership have a majority interest
or control,  except in the case of 77 West Wacker  Drive,  L.L.C.  and  Dearborn
Center,  L.L.C.  the  ownership of which are further  described in the footnotes
below) and related properties as of December 31, 2004:

<TABLE>



             Entity                                                 Property
------------------------------------------------------------------------------------------------
<S>                                                      <C>
77 West Wacker Drive, L.L.C. (1), (2)                    77 West Wacker Drive
77 West Wacker Limited Partnership (3), (4), (5)         IBM Plaza, Brush Hill Office Center
180 N. LaSalle Holdings, L.L.C. (4), (1)                 Member of 180 N. LaSalle II, L.L.C.
180 N. LaSalle II, L.L.C.                                180 N. LaSalle
280 Shuman Blvd., L.L.C. (1)                             280 Shuman Blvd. (Atrium)
330 N. Wabash Avenue, L.L.C. (1)                         IBM Plaza
330 N. Wabash Mezzanine, L.L.C. (1)                      Member of 330 N. Wabash Avenue, L.L.C.
800 Jorie Blvd., L.L.C. (4), (1)                         800-810 Jorie Blvd.
800 Jorie Blvd. Mezzanine, L.L.C. (1)                    Member of 800 Jorie Blvd., L.L.C.
1051 N. Kirk Road, L.L.C. (4), (1)                       1051 N. Kirk Road
1600 167th Street, L.L.C. (4), (1)                       1600-1700 167th Street (Narco River Business Center)
2305 Enterprise Drive, L.L.C. (1)                        2305 Enterprise Drive
4343 Commerce Court, L.L.C. (4), (1)                     4343 Commerce Court (The Olympian Office Center)
7100 Madison, L.L.C. (1)                                 7100 Madison
Brush Hill Office Center, L.L.C. (1)                     Brush Hill Office Court
Dearborn Center, L.L.C. (6), (1), (7)                    Bank One Center
LaSalle-Adams, L.L.C.                                    208 South LaSalle Street
Libertyville Corporate Office Park II, L.L.C. (1)        Owner of Vacant Land adjacent to 80 Pine Meadow
                                                            Corporate Office Park
PGR Finance II, Inc. (8)                                 Member of LaSalle-Adams, L.L.C.
PGR Finance IV, Inc. (8)                                 Member of 1600 167th Street., L.L.C.
PGR Finance VIII, Inc. (8)                               Limited Partner of 77 West Wacker Limited Partnership
PGR Finance XI, Inc. (8)                                 Member of 180 N. LaSalle, L.L.C.
PGR Finance XIV, Inc. (8)                                Member in 1051 N. Kirk Road, L.L.C. of 4343
                                                            Commerce Court, L.L.C.
PGR Finance XV, L.L.C. (1)                               Member of Brush Hill Office Center, L.L.C.
PGR Finance XVII, Inc. (8)                               Member of 800 Jorie Blvd., L.L.C.
PGR Finance XXI, L.L.C. (1)                              Member of 2305 Enterprise, L.L.C.
Phoenix Office, L.L.C. (1)                               Investment in Plumcor/Thistle, L.L.C., owner of
                                                            Thistle Landing in Phoenix, Arizona
Prime Group Management, L.L.C. (1)                       Manager of Continental Towers
Prime Rolling Meadows, L.L.C. (6), (1)                   Property adjacent to Continental Towers

</TABLE>

(1)  Delaware Limited liability Company
(2)  The  Operating  Partnership  owns a 50% common  interest  and  manages  the
     property.
(3)  Represents  entities  and  properties  previously  owned  by the  Company's
     predecessor   and  whose   operations   were   included  in  the  Company's
     predecessor's combined financial statements.
(4)  We have an indirect  ownership  interest in these  entities  through wholly
     owned subsidiaries (PGR Finance I-XIV and XVI-XVII, Inc.).
(5)  Illinois Limited Partnership
(6)  These  entities  own parcels of land that are  currently  held for or under
     development.
(7)  The  Operating  Partnership  owns a 30%  subordinated  common  interest and
     manages the property.
(8)  Delaware Corporation



<PAGE>


                                  EXHIBIT 23.1







            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

      We consent to the incorporation by reference in the Registration Statement
(Form  S-8  No.333-67940)  pertaining  to the Prime  Group  Realty  Trust  Share
Incentive  Plan of our reports  dated  February  21,  2005,  with respect to the
consolidated  financial  statements  and schedule of Prime Group  Realty  Trust,
Prime Group  Realty  Trust  management's  assessment  of internal  control  over
financial  reporting,  and the  effectiveness of internal control over financial
reporting of Prime Group Realty Trust and the  financial  statements of Dearborn
Center,  L.L.C.,  included in this Annual  Report (Form 10-K) for the year ended
December 31, 2004.



                                                  /s/ Ernst & Young LLP
                                                  ---------------------

Chicago, Illinois
March 1, 2005