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

                                   FORM 10-Q

[X]  Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
     Exchange Act of 1934, for the Quarterly Period Ended March 31, 1997.

                                       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   0-22253
                       -------------------

                      BROOKDALE LIVING COMMUNITIES, INC.
--------------------------------------------------------------------------------
            (exact name of registrant as specified in its charter)

<TABLE>
<S>                                       <C>
           DELAWARE                                    36-4103821
---------------------------------------    -------------------------------------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
 incorporation or organization)
 
          77 W. Wacker Drive
              Suite 3900
              Chicago, IL                                60601
----------------------------------------   -------------------------------------
(Address of principal executive offices)               (Zip Code)
 
 
</TABLE>
                                (312) 456-0239
--------------------------------------------------------------------------------
             (Registrant's telephone number, including area code)

                                NOT APPLICABLE
--------------------------------------------------------------------------------
  (Former name, former address, or former fiscal year, if changed since last
                                    report)

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

Yes      No  X
    ----    ----

Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.

As of June 16, 1997, 7,175,000 shares of the registrant's Common Stock, $.01 par
value per share, were outstanding.
<PAGE>
 
                      Brookdale Living Communities, Inc.
                                   Form 10-Q

                                     INDEX
                                     -----
<TABLE> 
<CAPTION> 
PART I:  FINANCIAL INFORMATION                                                        Page
                                                                                      ----
<S>                                                                                   <C> 
Item 1.   Financial Statements

          Balance Sheets of Brookdale Living Communities, Inc. as of March 31, 1997
          and December 31, 1996.                                                         1

          Notes to Balance Sheets of Brookdale Living Communities, Inc.                  2

Item 2.   Management's Discussion and Analysis of Financial Condition and Results
          of Operations                                                                  4

PART II:  OTHER INFORMATION

Item 1.   Legal Proceedings                                                              6
Item 2.   Changes in Securities                                                          6
Item 3.   Defaults Upon Senior Securities                                                6
Item 4.   Submission of Matters to a Vote of Security Holders                            6
Item 5.   Other Information                                                              6
Item 6.   Exhibits and Reports on Form 8-K                                               6

Signatures                                                                               7
</TABLE> 
<PAGE>
 
                         PART I: FINANCIAL INFORMATION


Financial Information
---------------------

Item 1:  Financial Statements


                      BROOKDALE LIVING COMMUNITIES, INC.
                                BALANCE SHEETS
                                  (Unaudited)
<TABLE>
<CAPTION>
 
                                                 March 31, 1997   December 31, 1996
                                                 --------------   -----------------
<S>                                              <C>              <C>
ASSETS:
Cash...........................................      $    1,000          $    1,000
Deferred offering costs........................       3,540,000           2,580,000
                                                     ----------          ----------
Total assets...................................      $3,541,000          $2,581,000
                                                     ==========          ==========
 
LIABILITIES AND STOCKHOLDER'S EQUITY:
Due to affiliate...............................      $3,540,000          $2,580,000
                                                     ----------          ----------
Total liabilities..............................       3,540,000           2,580,000
 
Stockholder's equity:
Common Stock, $.01 par value per share,
100 shares authorized, issued and outstanding..               1                   1
Additional paid-in capital.....................             999                 999
                                                     ----------          ----------
Total stockholder's equity.....................           1,000               1,000
                                                     ----------          ----------
Total liabilities and stockholder's equity.....      $3,541,000          $2,581,000
                                                     ==========          ==========
</TABLE>
See accompanying notes.

<PAGE>
 
                       BROOKDALE LIVING COMMUNITIES, INC.
                            NOTES TO BALANCE SHEETS


1.   Organization

     Brookdale Living Communities, Inc. (the "Company") was incorporated in
Delaware under the Delaware General Corporation Law on September 4, 1996. The
Company was formed in order to consolidate and expand the senior and assisted
living property ownership interests and operations of  The Prime Group, Inc. and
certain of its affiliates (collectively, "PGI"). In connection with an initial
public offering (the "Offering"), more fully described in the Registration
Statement and Prospectus, in the form it became effective on May 1, 1997, the
Company sold 4.5 million shares of its common stock to the public and PGI
contributed its senior and assisted living property ownership interests and
operations in exchange for 2.0 million shares of Common Stock of the Company.

     The Company provides senior and assisted living services to the elderly
through its facilities located in urban and suburban areas of major metropolitan
markets. The Company's objective is to allow its residents to age in place by
providing them with a continuum of senior and assisted living services. By
providing residents a range of service options as their needs change, the
Company seeks to achieve a greater continuity of care. In addition to studio,
one-bedroom and two-bedroom units, the Company provides all residents with basic
services, such as meal service, 24-hour emergency response, housekeeping,
concierge services, transportation and recreational activities. For residents
who require additional supplemental care services, the Company provides
assistance with certain activities of daily living.

2.   Deferred Costs

     As of March 31, 1997, PGI incurred approximately $3,540,000 of legal,
accounting and related costs on behalf of the Company in connection with the
Offering, which costs have been presented as deferred offering costs on the
accompanying balance sheets. These costs, in addition to offering costs incurred
after March 31, 1997 through the date of the Offering, were deducted from the
gross proceeds of the Offering to the Company.

3.   Use of Estimates

     The preparation of the accompanying balance sheets in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect amounts reported in the balance sheets and
accompanying notes. Actual results could differ from such estimates.

4.   Subsequent Events

     On May 7, 1997 the Company completed its Offering of 4.5 million shares of
Common Stock at $11.50 per share, resulting in net cash proceeds of
approximately $43.8 million (net of underwriting discounts and commissions and 
offering costs) and began operating its senior and assisted living properties.
The Company used approximately $21.1 million of the net proceeds from the
offering

                                       2
<PAGE>
 
                      BROOKDALE LIVING COMMUNITIES, INC.
                      NOTES TO BALANCE SHEETS (CONTINUED)


to fund the acquisition of two facilities. Approximately $6.8 million of such
net proceeds was used to reimburse PGI for earnest monies previously paid by PGI
in connection with a leased facility, the acquisition of third party interests
in two properties in which PGI also had interests and proposed acquisitions of
development sites. In addition, approximately $1.6 million of such net proceeds
was used to fund a statutory escrow deposit relating to one of the Company's
facilities, $11.0 million of such net proceeds was used  to fund a cash
collateral deposit related to credit enhancement on $65.0 million of tax-exempt
bonds relating to two of the Company's facilities and approximately $1.2 million
of net proceeds was used to pay fees and transaction costs related to such 
credit enhancement. On June 2, 1997, the underwriters of the Offering exercised
their option to purchase an additional 675,000 shares of the Company's Common
Stock at $11.50 per share, less underwriting discounts and commissions,
resulting in additional net cash proceeds from the Offering of approximately
$7.2 million. The remaining net cash proceeds from the Offering will be used for
future acquisitions and developments of senior and assisted living facilities
and for working capital and general corporate purposes. For further discussion,
see Management Discussion and Analysis below.

                                       3
<PAGE>
 
Item 2:  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Overview:
--------

     The Company had no operations prior to May 7, 1997, the date on which the
Offering (as hereinafter defined) was completed.  See "Liquidity and Capital
Resources."  Since May 7, 1997, the Company has operated ten senior and assisted
living facilities containing a total of 2,168 units.  Four of such facilities
are owned by the Company, four facilities are leased by the Company from a third
party and two facilities are managed by the Company pursuant to management
contracts.  The Company's senior and assisted living facilities offer residents
a supportive, "home-like" setting and assistance with certain activities of
daily living.  By providing residents a range of service options as their needs
change, the Company seeks to achieve greater continuity of care, enabling
seniors to age in place and thereby maintain their residency for a longer time
period.  The ability to allow residents to age in place is beneficial to the
Company's residents as well as their families who are burdened with care option
decisions for their elderly relatives.

     The Company currently plans to acquire or lease approximately three to five
facilities per year containing an aggregate of approximately 600 to 1,000 units,
and to commence development of at least two new facilities per year containing
approximately 200 units each in urban and suburban areas of major metropolitan
markets.  The Company anticipates that it will use a combination of net proceeds
from the Offering, additional equity financing and debt financing, lease
transactions and cash generated from operations to fund this development
activity.  In order to achieve its growth plans, the Company will be required to
obtain a substantial amount of additional financing.  To the extent available,
the Company intends to use long-term, tax-exempt bonds to finance the
acquisition and renovation of existing facilities and the development of new
facilities.  The Company has no existing commitments for additional financing.
There can be no assurance that future financing or lease transactions will be
available as needed or on terms acceptable to the Company. A lack of funds may
require the Company to delay all or some of its acquisition plans and
development projects.

     The Company will derive its revenues from resident fees and management
fees.  Resident fees typically are paid monthly by residents, their families or
other responsible parties. The Company will also derive management services
income from the two facilities that it manages.  Resident fees and management
fees are recognized as revenues when services are provided.

     The Company will classify its operating expenses into the following
categories: (i) facility operating expenses, which include lease payments,
labor, food, marketing and other direct facility expenses and real estate taxes;
(ii) general and administrative expenses, which primarily include corporate
headquarters and other overhead costs; and (iii) depreciation and amortization.

Results of Operations:
---------------------

     The Company had no operations prior to May 7, 1997, the date on which the
Offering was completed.

                                       4
<PAGE>
 
Liquidity and Capital Resources:
-------------------------------

     On May 7, 1997, the Company completed its initial public offering (the
"Offering")  of 4,500,000 shares of Common Stock, $.01 par value per share, at
$11.50 per share. The proceeds from such Offering, net of related underwriting
and offering costs, totaled approximately $43.8 million.  Concurrent with the
completion of the Offering, The Prime Group, Inc. and certain of its affiliates
(collectively "PGI") contributed their senior and assisted living property
ownership interests and operations to the Company in exchange for 2,000,000
shares of the Common Stock of the Company.

     Simultaneously with the completion of the Offering, the Company used
approximately $21.1 million of the net proceeds from the offering to fund the
acquisition of two facilities. Approximately $6.8 million of such net proceeds
was used to reimburse PGI for earnest monies previously paid by PGI in
connection with a leased facility, the acquisition of third party interests in
two properties in which PGI also had interests and proposed acquisitions of
development sites. In addition, approximately $1.6 million of such net proceeds
was used to fund a statutory escrow deposit relating to one of the Company's
facilities, $11.0 million of such net proceeds was used to fund an interest
bearing cash collateral deposit and approximately $1.2 million was used to pay
fees and transaction costs related to credit enhancement on $65.0 million of 
tax-exempt bonds relating to two of the Company's facilities.

     On June 2, 1997, the underwriters of the Offering exercised their option to
purchase 675,000 shares of the Company's Common Stock at $11.50 per share, less
underwriting discounts and commissions. The option was granted to cover over-
allotments arising in connection with the Offering. The Company received net
proceeds from the Offering of approximately $7.2 million from the sale of these
additional shares. These funds, along with the remaining net proceeds from the
Offering, after giving effect to the transactions described above, will be used
to finance a portion of future acquisitions and developments of senior and
assisted living facilities and for working capital and general corporate
purposes. Pending such uses, the Company intends to invest available cash in
short-term, interest bearing securities or certificates of deposit.

                                       5
<PAGE>
 
                          PART II:  OTHER INFORMATION

Other Information:
-----------------

       Item 1.    Legal Proceedings.

                  No material developments with respect to legal proceedings 
                  occurred during the period covered by this quarterly report.

       Item 2.    Changes in Securities.

                  None.

       Item 3.    Defaults Upon Senior Securities.

                  None.

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

                  None.
 
       Item 5.    Other Information.

                  None.

       Item 6.    Exhibits and Reports on Form 8-K.

 
       (a)  Exhibits:


       Exhibit Number       Description
       --------------       -----------

       3.1                  Restated Certificate of Incorporation of the Company

       3.2                  Amended and Restated By-laws of the Company

       4.1                  Form of certificate representing Common Stock of the
                            Company, as filed with the Securities and Exchange
                            Commission on March 17, 1997 as Exhibit 4.1 to
                            Amendment No. 4 to the Company's Registration
                            Statement on Form S-1 (Registration No. 333-12259)
                            and incorporated herein by reference

       10.1                 Form of Stock Incentive Plan, as filed with the
                            Securities and Exchange Commission on March 17, 1997
                            as Exhibit 10.14 to Amendment No. 4 to the Company's
                            Registration Statement on Form S-1 (Registration No.
                            333-12259) and incorporated herein by reference

       27.1                 Financial Data Schedule

       (b)  Reports on Form 8-K:

       The Registrant filed no reports on Form 8-K during the quarter ended
       March 31, 1997.

                                       6
<PAGE>

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


                                      BROOKDALE LIVING COMMUNITIES, INC.
                                      

Date:   June 16, 1997                 /s/ Mark J. Schulte
      --------------------------      ---------------------
                                      Mark J. Schulte
                                      President and
                                      Chief Executive Officer


Date:   June 16, 1997                 /s/ Craig G. Walczyk
      --------------------------      ---------------------
                                      Craig G. Walczyk
                                      Vice President -
                                      Chief Financial Officer

                                       7