UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 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, 2001
                                       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: 0-16345

                          SHELBOURNE PROPERTIES I, INC.
             (Exact name of registrant as specified in its charter)

           Delaware                                      04-3502384
----------------------------------------    ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

    c/o First Winthrop Corporation
     7 Bulfinch Place - Suite 500                          02114
             Boston, MA
----------------------------------------    ------------------------------------
(Address of principal executive offices)                (Zip Code)

                                  212-319-3400
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)



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

      Title of Each Class                   Name of Exchange on Which Registered
   Common Stock, $0.01 par value                   American Stock Exchange

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

      Title of Each Class                   Name of Exchange on Which Registered
            None                                            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 and 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 at least the past 90 days. Yes [X] 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 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. [ X ]

As of March 26, 2002, 769,878 shares of common stock with an aggregate market
value of $32,488,851 were issued and outstanding and held by non-affiliates.

<PAGE>


                                Table of Contents

                                                                            Page

PART I.........................................................................3

     Item 1.      Business.....................................................3
     Item 2.      Properties..................................................14
     Item 3.      Legal Proceedings...........................................17
     Item 4.      Submission of Matters to a Vote of Security Holders.........18

PART II.......................................................................19

     Item 5.      Market for Registrant's Common Equity and Related
                  Stockholder Matters.........................................19
     Item 6.      Selected Financial Data.....................................21
     Item 7.      Management's Discussion and Analysis of Financial Condition
                  and Results of  Operations..................................21
     Item 7A.     Quantitative and Qualitative Disclosures About Market Risk..29
     Item 8.      Financial Statements and Supplementary Data.................30
     Item 9.      Changes in and Disagreements with Accountants on Accounting
                  and Financial Disclosure....................................30

PART III......................................................................31

     Item 10.     Directors and Executive Officers............................31
     Item 11.     Compensation................................................34
     Item 12.     Security Ownership Of Certain Beneficial Owners And
                  Management..................................................35
     Item 13.     Certain Relationships and Related Transactions..............36

PART IV.......................................................................37

     Item 14.     Exhibits, Financial Statement Schedules and Reports on
                  Form 8-K....................................................37


                           Forward-Looking Statements

          This Form 10-K contains forward-looking statements relating to our
business and financial outlook, which are based on our current expectations,
estimates, forecasts and projections. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of these terms or other comparable
terminology. These forward-looking statements are not guarantees of future
performance and involve risks, uncertainties, estimates and assumptions that are
difficult to predict. Therefore, actual outcomes and results may differ
materially from those expressed in these forward-looking statements. You should
not place undue reliance on any of these forward-looking statements. Further,
any forward-looking statement speaks only as of the date on which it is made,
and we undertake no obligation to update any such statement to reflect new
information, the occurrence of future events or circumstances or otherwise.

          A number of important factors could cause actual results to differ
materially from those indicated by the forward-looking statements, including,
but not limited to, the risks described under "Item 1. Business - Risk Factors"
in this Form 10-K.

                                       2
<PAGE>


                                     PART I

Item 1.   Business

          In this Form 10-K, the terms "we," "us," "our" and "our company" refer
to the combined operations of all of Shelbourne Properties I, Inc., Shelbourne
Properties I GP, LLC and Shelbourne Properties I, LP.

                                    OVERVIEW

          Our company, Shelbourne Properties I, Inc., a Delaware corporation
(the "Corporation"), was formed on February 8, 2001 and is engaged in the
business of operating and holding for investment previously acquired
income-producing properties. Currently, we operate and hold three office
buildings and two shopping centers. See "Item 2. Properties" for a description
of our properties.

          We own our property portfolio through our directly and indirectly
wholly owned subsidiary, Shelbourne Properties I, LP (the "Operating
Partnership"), a Delaware limited partnership. The Operating Partnership is the
direct owner of our property portfolio. The general partner of the Operating
Partnership is Shelbourne Properties I GP, LLC, a Delaware limited liability
company that is wholly owned by the Corporation.

          Our primary business objective is to maximize the value of our common
stock. We seek to achieve this objective by managing our existing properties,
making capital improvements to and/or selling properties and by making
additional real estate-related investments. We may invest in a variety of real
estate-related investments, including undervalued assets and value-enhancing
situations, in a broad range of property types and geographical locations. We
may raise additional capital by mortgaging existing properties or by selling
equity or debt securities. We may acquire investments for cash or by issuing
equity securities, including limited partnership interests in the Operating
Partnership.

          Our Board of Directors currently consists of three directors. Two
director's terms expire in 2003 and one expires in 2004. Kestrel Management L.P.
("Kestrel"), an entity affiliated with former executive officers of the
Corporation, provides us with property management services for the properties
owned by the Operating Partnership. Shelbourne Management LLC ("Shelbourne
Management"), an affiliate of the Predecessor General Partners, managed the
day-to-day affairs of the Corporation under an advisory agreement until February
14, 2002. On that date, further to the transaction described under "Recent
Developments" below, Shelbourne Management ceased to provide those services to
us and Presidio Capital Investment Company, LLC ("PCIC"), a Delaware limited
liability company controlled by former directors and executive officers and a
current director of the Corporation, began providing the Corporation with
accounting, asset management, treasury, cash management and investor related
services. PCIC has agreed to furnish us with those services until February of
2003 on a transitional basis at a substantially reduced cost.

          We intend to be taxed as a real estate investment trust, or REIT, for
U.S. federal income tax purposes. To qualify as a REIT, we generally must
distribute to our stockholders at least 90% of our net taxable income each year,
excluding capital gains. As a REIT, if we distribute 100% of our taxable income
and comply with a number of organizational and operational requirements, we
generally will not be subject to U.S. federal income tax.

Corporate History

          Prior to the merger described below, the owner of the Corporation's
properties was Integrated Resources High Equity Partners, Series 85, a
California limited partnership (the "Predecessor Partnership"). The Predecessor
Partnership was formed as of August 19, 1983. In 1986, the Predecessor
Partnership offered and sold 400,000 units of limited partnership interest (the
"Units"). Upon final admission of limited partners, the Predecessor Partnership
had accepted subscriptions for 400,010 units for an aggregate of $100,002,500 in
gross proceeds, resulting in net proceeds from the offering of $98,502,500
(gross proceeds of $100,002,500 less organization and offering costs of
$1,500,000). Subsequent to the conversion discussed below, the Units were
converted into shares of the successor Corporation on a three for one basis.
Throughout the rest of this document, rather than referring to Units, we will
refer to shares on a converted basis. The Predecessor Partnership invested all
of its net proceeds in real estate.

                                       3
<PAGE>


          Resources High Equity, Inc., a Delaware corporation and a wholly owned
subsidiary of Presidio Capital Corp., a British Virgin Islands corporation
("Presidio"), was the Predecessor Partnership's managing general partner (the
"Predecessor Managing General Partner"). Effective July 31, 1998, NorthStar
Capital Investment Corp., a Maryland corporation, acquired control of Presidio.
Until November 3, 1994, Resources High Equity, Inc. was a wholly owned
subsidiary of Integrated Resources, Inc. ("Integrated"). On November 3, 1994
Integrated consummated its plan of reorganization under Chapter 11 of the United
States Bankruptcy Code at which time, pursuant to such plan of reorganization,
the newly-formed Presidio purchased substantially all of Integrated's assets.
Presidio AGP Corp., which is a wholly-owned subsidiary of Presidio, became the
associate general partner (the "Predecessor Associate General Partner") of the
Predecessor Partnership on February 28, 1995 replacing Z Square G Partners II,
which withdrew as of that date. In this annual report, the Predecessor Managing
General Partner and the Predecessor Associate General Partner are referred to as
the "Predecessor General Partners".

          In April 1999, the California Superior Court approved the terms of the
settlement of a class action and derivative litigation involving the Predecessor
Partnership. Under the terms of the settlement, the Predecessor General Partners
agreed to take the actions described below subject to first obtaining the
consent of limited partners to amendments to the Agreement of Limited
Partnership of the Predecessor Partnership (the "Predecessor Partnership
Agreement") summarized below. The settlement became effective in August 1999
following approval of the amendments.

          As amended, the Predecessor Partnership Agreement (a) provided for a
Partnership Asset Management Fee equal to 1.25% of the Gross Asset Value of the
Predecessor Partnership (as defined in that agreement) and (b) fixed the amount
that the Predecessor General Partners would be liable to pay to limited partners
upon liquidation of the Predecessor Partnership as repayment of fees previously
received (the "Fee Give-Back Amount"). As amended, the Predecessor Partnership
Agreement provided that, upon a reorganization of the Predecessor Partnership
into a REIT or other public entity, the Predecessor General Partners would have
no further liability to pay the Fee Give-Back Amount. As a result of the
conversion of the Predecessor Partnership into a REIT on April 18, 2001, as
described below, the Predecessor General Partners liability to pay the Fee
Give-Back Amount was extinguished.

          As required by the settlement, an affiliate of the Predecessor General
Partners, Millennium Funding II, LLC, made a tender offer to limited partners to
acquire up to 26,936 Units (representing approximately 6.7% of the outstanding
Units) at a price of $114.60 per unit. The offer closed in January 2000 and all
26,936 Units were acquired in the offer. On a post-conversion basis, the tender
was for the equivalent of 80,808 shares at a price of $38.20 per share.

          The final requirement of the settlement obligated the Predecessor
General Partners to use their best efforts to reorganize the Predecessor
Partnership into a REIT or other entity whose shares were listed on a national
securities exchange or on the NASDAQ National Market System. A Registration
Statement was filed with the Securities and Exchange Commission on February 11,
2000 with respect to the restructuring of the Predecessor Partnership into a
publicly traded REIT. On or about February 15, 2001 a prospectus/consent
solicitation statement was mailed to the limited partners of the Predecessor
Partnership seeking consent to the reorganization of the Predecessor Partnership
into a REIT.

          The consent of limited partners was sought to approve the conversion
of the Predecessor Partnership into the Operating Partnership. The consent
solicitation expired April 16, 2001 and holders of a majority of the Units
approved the conversion.

          On April 18, 2001, the conversion was accomplished by merging the
Predecessor Partnership into the Operating Partnership. Pursuant to the merger,
each limited partner of the Predecessor Partnership received three shares of
stock of the Corporation for each unit they owned and the Predecessor General
Partners received an aggregate of 63,159 shares of stock in the Corporation in
exchange for their general partner interests in the Predecessor Partnership. The
common stock of the Corporation is listed on the American Stock Exchange under
the symbol HXD.

          As described above, the Predecessor Partnership invested all of the
net proceeds of its offering of Units in real estate. Revenues from the
following properties represented 10% or more of the Predecessor Partnership's
and, subsequently, our gross revenues during each of the last three fiscal
years: during 2001 Southport Shopping Center

                                       4
<PAGE>


and 568 Broadway represented 33% and 29% of gross revenues, respectively; during
2000 Southport Shopping Center and 568 Broadway represented 29% and 33% of gross
revenues, respectively; during 1999 Southport Shopping Center and 568 Broadway
represented 34% and 28% of gross revenues, respectively. See "Item 2.
Properties" for a description of the Predecessor Partnership's properties.

Recent Developments

          On February 14, 2002, the Corporation, Shelbourne Properties II, Inc.
and Shelbourne Properties III, Inc. (together the "Companies") announced the
consummation of a transaction (the "Transaction") whereby the Companies (i)
purchased each of the advisory agreements (the "Advisory Agreements") between
the Companies and an affiliate of PCIC and (ii) repurchased all of the shares of
capital stock in the Companies held by a subsidiary of PCIC, Millennium Funding
II, LLC (the "Shares").

          Pursuant to the Transaction, for the Advisory Agreements and the
Shares, the Companies paid PCIC an aggregate of $44 million in cash, issued
preferred partnership interests in their respective operating partnerships with
a liquidation preference of $2.5 million, and issued notes with a stated amount
of between $54.3 million and $58.3 million, depending upon the timing of the
repayment of the notes.

          Pursuant to the Transaction, the Corporation paid PCIC approximately
$14.3 million in cash and the Operating Partnership issued preferred partnership
interests with an aggregate liquidation preference of $812,674 and a note with
an aggregate stated amount of between approximately $17.6 million and $18.9
million, depending upon the timing of the repayment of the note.

          The Transaction was unanimously approved by the Boards of Directors of
each of the Companies after recommendation by their respective Special
Committees comprised of the Companies' three independent directors.

          Houlihan Lokey Howard & Zukin Capital served as financial advisor to
the Special Committees of the Companies and rendered a fairness opinion to the
Special Committees with respect to the Transaction.

          The foregoing description of the Transaction does not purport to be
complete, and it is qualified in its entirety by reference to the Purchase and
Contribution Agreement, dated as of February 14, 2002, the Secured Promissory
Note, dated February 14, 2002 and the Partnership Unit Designations of Class A
Preferred Partnership Units of Shelbourne Properties I, L.P., copies of which
are attached as Exhibits 99.1, 99.2 and 99.3 respectively to our current report
on form 8-K filed on February 14, 2002, and are incorporated by reference
herein.

          On March 27, 2002, Michael Bebon resigned as a director of the
Corporation.

Competition

          The leasing of real estate is highly competitive. We compete for
tenants with lessors and developers of similar properties located in our
respective markets primarily on the basis of location, rent charged, services
provided, and the design and condition of our buildings. These factors are
discussed more particularly in "Item 2. Properties" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations - Real
Estate Market". In addition, various limited partnerships have been formed by
the Predecessor Managing General Partner and/or its affiliates and agents that
engage in businesses that may be competitive with the Corporation. We will also
experience competition for potential buyers at such time as we seek to sell any
of our properties.

Industry Segments and Seasonality

          Our primary business is the ownership and management of office and
retail properties. Our long-term tenants are in a variety of businesses, and no
single tenant is significant to our business. Our business is not seasonal.

                                       5

<PAGE>


Employees

          The Corporation has no employees. On May 3, 1998 Presidio entered into
a management agreement with NorthStar Presidio Management Company, LLC
("NorthStar Presidio"). Under the terms of the management agreement, NorthStar
Presidio, as the parent of the General Partner of the Predecessor Partnership,
agreed to provide the services associated with day-to-day management of Presidio
and its direct and indirect subsidiaries and affiliates, including the
Predecessor Partnership. Presidio determined that it would be more cost
effective for AP-PCC III, L.P. (the "Agent") to provide asset management and
investor services for the Corporation. Accordingly, on October 21, 1999 Presidio
entered into a Services Agreement with the Agent pursuant to which the Agent was
retained to provide asset management and investor relation services to the
Predecessor Partnership and other entities affiliated with the Predecessor
Partnership. The Agent continues to provide services to the Corporation pursuant
to that agreement.

          As a result of this agreement, the Agent has the duty to direct the
day to day affairs of the Corporation in accordance with instructions from the
Board of Directors, including, without limitation, reviewing and analyzing
potential sale, financing or restructuring proposals regarding the Corporation's
assets and making recommendations to the Board of Directors on such proposals,
preparation of all reports, maintaining records and maintaining bank accounts of
the Corporation. All of the Agent's activities are performed under the
Presidio's direct supervision.

          In order to facilitate the Agent's provision of the asset management
services and the investor relation services, effective October 25, 1999, the
officers and directors of the Predecessor General Partners resigned and nominees
of the Agent were elected as the officers and directors of the Predecessor
General Partners and served as officers until August 15, 2001. See "Item 10.
Directors and Executive Officers of the Partnership". The Agent is an affiliate
of Winthrop Financial Associates ("Winthrop"), a Boston based limited
partnership that provides asset management services, investor relation services
and property management services to over 150 limited partnerships which own
commercial property and other assets. The CEO of Winthrop, Mr. Michael L.
Ashner, beneficially owned, as of February 14, 2002, 6.73% of the common stock
of the Corporation. In addition, until August 15, 2001, Mr. Ashner served as
President of the Corporation.

          In connection with the conversion, effective April 18, 2001 the
Corporation entered into a contract with Shelbourne Management pursuant to which
Shelbourne Management provided the Corporation with all management, advisory and
property management services. For providing these services, Shelbourne
Management received (1) an annual asset management fee, payable quarterly, equal
to 1.25% of the gross asset value of the Corporation as of the last day of each
year, (2) property management fees of up to 6% of property revenues, (3)
$150,000 for non-accountable expenses and (4) reimbursement of expenses incurred
in connection with performance of its services. This agreement was contributed
to the Corporation pursuant to the Transaction described in "Recent
Developments" above.

          On February 14, 2002, PCIC entered into a Purchase and Contribution
Agreement with the Corporation, among others, which in part provided that PCIC
would provide accounting, asset management, treasury, cash management and
investor related services to the Corporation on a transitional basis at a
substantially reduced cost. As a result of the contribution of the Advisory
Agreements to the Corporation Shelbourne Management ceased to provide management
services for the Corporation. According to the terms of the current agreement,
the Corporation may terminate PCIC at any time, and PCIC's obligation to provide
such services terminates on February 14, 2003.

          Until the Transaction, the Agent continued to provide the services for
the Corporation on behalf of Shelbourne Management that it had provided
previously and continues to provide those services for the Corporation on behalf
of PCIC.

          On-site personnel perform services for the Corporation at the
properties. Salaries for such on-site personnel are paid by the management
company that services the Corporation's properties. As described above,
effective October 2000, Kestrel, an affiliate of the Agent and the Predecessor
General Partners, began providing such services.

                                       6

<PAGE>


                                  RISK FACTORS

          You should carefully consider the risks described below. These risks
are not the only ones that our company may face. Additional risks not presently
known to us or that we currently consider immaterial may also impair our
business operations and hinder our ability to make expected distributions to our
stockholders.

          This Form 10-K also contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below or elsewhere in this Form 10-K.

                         Risks Relating to Our Business

          Our economic performance and the value of our real estate assets are
subject to the risks incidental to the ownership and operation of real estate
properties

          Our economic performance, the value of our real estate assets and,
therefore, the value of your investment are subject to the risks normally
associated with the ownership and operation of real estate properties,
including:

<TABLE>
<CAPTION>
<S>   <C>                                             <C>      <C>
 o    changes in the general and local economic       o        the attractiveness of our properties
      climate;                                                 to tenants;

 o    the cyclical nature of the real estate          o        changes in market rental rates and our
      industry and possible oversupply of, or                  ability to rent space on favorable terms;
      reduced demand for, space in our core markets;

 o    trends in the retail industry, in               o        the bankruptcy or insolvency of
      employment levels and in consumer spending               tenants;
      patterns;

 o    changes in household disposable income;         o        the need to periodically renovate,
                                                               repair and re-lease space and the costs
                                                               thereof;

 o    changes in interest rates and the               o        increases in maintenance, insurance
      availability of financing;                               and operating costs; and

 o    competition from other properties;              o        civil unrest, acts of terrorism,
                                                               earthquakes and other natural disasters or
                                                               acts of God that may result in uninsured
                                                               losses.
</TABLE>


          In addition, applicable federal, state and local regulations, zoning
and tax laws and potential liability under environmental and other laws may
affect real estate values. Real estate investments are relatively illiquid and,
therefore, our ability to vary our portfolio quickly in response to changes in
economic or other conditions is limited. Further, throughout the period that we
own real property regardless of whether the property is producing any income, we
must make significant expenditures, including property taxes, maintenance costs,
insurance costs and related charges and, from February 14, 2001, mortgage
payments on certain of our properties. The risks associated with real estate
investments may adversely affect our operating results and financial position,
and therefore the funds available for distribution to you as dividends.

Our inability to enter into renewal or new leases on favorable terms for all or
a substantial portion of space that is subject to expiring leases would
adversely affect our cash flows and operating results

          Scheduled lease expirations in our property portfolio over the next
five fiscal years average approximately 14% annually, based on occupied space at
December 31, 2001. When leases for our properties expire, we may be unable to
promptly renew leases with existing tenants or lease the properties to new
tenants. In addition, even if we were able to enter into renewal or new leases
in a timely manner, the terms of those leases may be less favorable to us than
the terms of expiring leases because:

                                       7
<PAGE>


          o         the rental rates of the renewal or new leases may be
                    significantly lower than those of the expiring leases; or

          o         tenant installation costs, including the cost of required
                    renovations or concessions to tenants, may be significant.

          In order to enter into renewal or new leases for space in these
properties, we may incur higher tenant installation costs. If we are unable to
enter into renewal or new leases on favorable terms for all or a substantial
portion of space that is subject to expiring leases, our cash flows and
operating results would suffer.

If a significant number of our tenants defaulted or sought bankruptcy
protection, our cash flows and operating results would suffer

          A tenant may experience a downturn in its business, which could cause
the loss of that tenant or weaken its financial condition and result in the
tenant's inability to make rental payments when due. In addition, a tenant of
any of our properties may seek the protection of bankruptcy, insolvency or
similar laws, which could result in the rejection and termination of such
tenant's lease and cause a reduction in our cash flows. Although we have not
experienced material losses from tenant bankruptcies, we cannot assure you that
tenants will not file for bankruptcy or similar protection in the future.

          We cannot evict a tenant solely because of its bankruptcy. A court,
however, may authorize a tenant to reject and terminate its lease with us. In
such a case, our claim against the tenant for unpaid, future rent would be
subject to a statutory cap that might be substantially less than the remaining
rent owed under the lease. In any event, it is unlikely that a bankrupt tenant
will pay in full amounts it owes us under a lease. The loss of rental payments
from tenants would adversely affect our cash flows and operating results.

Our business is substantially dependent on the economic climates of five markets

          Our real estate portfolio consists of office and retail properties in
five markets: Seattle, New York, San Diego, Ft. Lauderdale, and Towson,
Maryland. As a result, our business is substantially dependent on the economies
of these markets. A material downturn in demand for office or retail space in
any one of these markets could have a material impact on our ability to lease
the office or retail space in our portfolio and may adversely impact our cash
flows and operating results.

Our competitors may adversely affect our ability to lease our properties, which
may cause our cash flows and operating results to suffer

          We face significant competition from developers, managers and owners
of office, retail and mixed-use properties in seeking tenants for our
properties. Substantially all of our properties face competition from similar
properties in the same markets. These competing properties may have vacancy
rates higher than our properties, which may result in their owners being willing
to make space available at lower prices than the space in our properties.
Competition for tenants could have a material adverse effect on our ability to
lease our properties and on the rents that we may charge or concessions that we
must grant. If our competitors adversely impact our ability to lease our
properties, our cash flows and operating results may suffer.

The September 2001 terrorist attacks may adversely affect the property operating
income from our properties, as well as our ability to sell properties that we
are holding for disposition on a timely basis or on acceptable terms

          The September 2001 terrorist attacks in New York and Washington, D.C.
and related circumstances may adversely affect the U.S. economy and, in
particular, the economies of the U.S. cities where we own properties. This could
have a material adverse impact on our ability to lease the office space in our
portfolio. As a result, the property operating income from our office
properties, and therefore our operating results, may suffer.

                                       8
<PAGE>


Our financial covenants could adversely affect our financial condition and
results of operations

          As of February 14, 2002, the financings secured by our properties
contain customary covenants such as those that limit our ability, without the
prior consent of the lender, to further mortgage the applicable property or to
discontinue insurance coverage. We expect to establish a credit facility to
finance our acquisition of the Advisory Agreements and the capital stock a
subsidiary of PCIC held in the Companies. If we are unable to establish a credit
facility, or to refinance existing indebtedness, our financial condition and
results of operations would likely be adversely impacted. If we breach covenants
in the mortgages or security interest we have granted to PCIC on the Southport,
Loch Raven, Century Park I, Seattle Tower and 568 Broadway office building, PCIC
can declare a default and require us to repay the debt immediately and can
immediately take possession of the property securing the loan.

If we cannot refinance our debt at maturity on favorable terms, our financial
condition could be adversely affected

          The Note we issued and distributed to preferred shareholders as part
of the stock buy-back transaction described in "Item 1. Business - Recent
Developments" above with a principal amount at maturity of $18,939,737 is due on
August 14, 2002. We do not expect to have sufficient cash or other liquid assets
to pay this debt. As such, we intend to refinance this debt. However, financing
may not be available on terms favorable to us at that time. If we are unable to
refinance this debt on favorable terms or at all, we may need to liquidate
assets in order to meet our payment obligations on the Note. Prevailing market
conditions for a sale of assets may not be favorable at that time. As a result,
the selling price for any assets we may sell might be lower than if we had been
able to sell at a more favorable time.

Our degree of leverage may adversely affect our business and the market price of
our common stock

          Our leverage, which we define as the principal amount of our debt at
maturity divided by shareholders' equity as of our most recent financial
statements, is currently approximately 39.06%. Our degree of leverage could
adversely affect our ability to obtain additional financing for working capital,
capital expenditures, acquisitions, developments or other general corporate
purposes. Our degree of leverage could also make us more vulnerable to a
downturn in our business or the economy generally. We have entered into certain
financial agreements that contain financial and operating covenants limiting our
ability under certain circumstances to incur additional secured and unsecured
indebtedness. There is also a risk that a significant increase in the ratio of
our indebtedness to the measures of asset value used by financial analysts may
have an adverse effect on the market price of our common stock.

Because we must distribute a substantial portion of our net income to qualify as
a REIT, we may be dependent on third-party sources of capital to fund our future
capital needs

          To qualify as a REIT, we generally must distribute to our stockholders
at least 90% of our net taxable income each year, excluding capital gains.
Because of this distribution requirement, it is not likely that we will be able
to fund all of our potential future capital needs, including capital for any
property acquisitions or developments we may undertake, from our net income.
Therefore, we may have to rely on third-party sources of capital, which may not
be available on favorable terms or at all. Our access to third-party sources of
capital depends on a number of things, including the market's perception of our
growth potential and our current and potential future earnings. Moreover,
additional debt financings may substantially increase our leverage.

Environmental problems at our properties are possible, may be costly and may
adversely affect our operating results or financial condition

          We are subject to various federal, state and local laws and
regulations relating to environmental matters. Under these laws, we are exposed
to liability primarily as an owner or operator of real property and, as such, we
may be responsible for the cleanup or other remediation of contaminated
property. Contamination for which we may be liable could include historic
contamination, spills of hazardous materials in the course of our tenants'
regular business operations and spills or releases of hydraulic or other toxic
oils. An owner or operator can be liable for

                                       9
<PAGE>


contamination or hazardous or toxic substances in some circumstances whether or
not the owner or operator knew of, or was responsible for, the presence of such
contamination or hazardous or toxic substances. In addition, the presence of
contamination or hazardous or toxic substances on property, or the failure to
properly clean up or remediate such contamination or hazardous or toxic
substances when present, may materially and adversely affect our ability to sell
or rent such contaminated property or to borrow using such property as
collateral.

          Environmental laws and regulations can change rapidly, and we may
become subject to more stringent environmental laws and regulations in the
future. Compliance with more stringent environmental laws and regulations could
have a material adverse effect on our operating results or financial condition.
We believe that our exposure to environmental liabilities under currently
applicable laws is not material. We cannot assure you, however, that we
currently know of all circumstances that may give rise to such exposure.

If we were required to accelerate our efforts to comply with the Americans with
Disabilities Act, our cash flows and operating results could suffer

          All of our properties must comply with the Americans with Disabilities
Act, or the ADA. The ADA has separate compliance requirements for "public
accommodations" and "commercial facilities," but generally requires that
buildings be made accessible to people with disabilities. Compliance with ADA
requirements could require us to remove access barriers, and non-compliance
could result in the imposition of fines by the U.S. government or an award of
damages to private litigants. We believe that the costs of compliance with the
ADA will not have a material adverse effect on our cash flows or operating
results. However, if we must make changes to our properties on a more
accelerated basis than we anticipate, our cash flows and operating results could
suffer.

Additional regulations applicable to our properties may require us to make
substantial expenditures to ensure compliance, which could adversely affect our
cash flows and operating results

          Our properties are, and properties that we may acquire in the future
will be, subject to various federal, state and local regulatory requirements
such as local building codes and other similar regulations. If we fail to comply
with these requirements, governmental authorities may impose fines on us or
private litigants may be awarded damages against us.

          We believe that our properties are currently in substantial compliance
with all applicable regulatory requirements. New regulations or changes in
existing regulations applicable to our properties, however, may require us to
make substantial expenditures to ensure regulatory compliance, which would
adversely affect our cash flows and operating results.

Our insurance may not cover some potential losses

          We carry comprehensive general liability, fire, flood, extended
coverage and rental loss insurance with policy specifications, limits and
deductibles customarily carried for similar properties. Some types of risks,
generally of a catastrophic nature such as from war or environmental
contamination, however, are either uninsurable or not economically insurable. We
are not currently insured against acts of terrorism.

          We currently have insurance for earthquake risks, subject to certain
policy limits and deductibles, and will continue to carry such insurance if it
is economical to do so. We cannot assure you that earthquakes may not seriously
damage our properties, two of which are located in the States of California and
Washington, historically earthquake-prone areas, and that the recoverable amount
of insurance proceeds will be sufficient to fully cover reconstruction costs and
losses suffered. Should an uninsured or underinsured loss occur, we could lose
our investment in, and anticipated income and cash flows from, one or more of
our properties, but we would continue to be obligated to repay any recourse
mortgage indebtedness on such properties.

          Additionally, although we generally obtain owner's title insurance
policies with respect to our properties, the amount of coverage under such
policies may be less than the full value of such properties. If a loss occurs
resulting from a title defect with respect to a property where there is no title
insurance or the loss is in excess of

                                       10
<PAGE>


insured limits, we could lose all or part of our investment in, and anticipated
income and cash flows from, that property.

We do not have sole control over the properties that we hold with co-venturers
or partners or over the revenues and certain decisions associated with those
properties

          We participate in three office joint ventures or partnerships. The
office properties that we own through joint ventures or partnerships total
approximately 667,000 square feet, with our ownership interest totaling 300,300
square feet. Though our co-venturer in each case is currently under common
management with us, a joint venture or partnership involves risks, including the
risk that a co-venturer or partner:

          o         may have economic or business interests or goals that are
                    inconsistent with our economic or business interests or
                    goals;

          o         may take actions contrary to our instructions or requests,
                    or contrary to our policies or objectives with respect to
                    our real estate investments; and

          o         may have to give its consent with respect to certain major
                    decisions, including the decision to distribute cash,
                    refinance a property or sell a property.

          We do not have sole control of certain major decisions relating to the
properties in which we have less than a 100% interest. All decisions must be
made jointly by all co-venturers, including decisions relating to:

          o         the sale of the properties;

          o         refinancing;

          o         timing and amount of distributions of cash from such
                    properties to us;

          o         capital improvements; and

          o         calling for capital contributions.

          As a result of this joint decision-making power, our ability to sell
our interest in a property or a joint venture or partnership within our desired
time frame or on any other desired basis may be inhibited.

Our failure to qualify as a REIT would decrease the funds available for
distribution to our stockholders and adversely affect the market price of our
common stock

          Determination of REIT status is highly technical and complex. Even a
technical or inadvertent mistake could endanger our REIT status. The
determination that we qualify as a REIT requires an analysis of various factual
matters and circumstances that may not be within our control. For example, the
Internal Revenue Service, or IRS, could change tax laws and regulations or the
courts may issue new rulings that make it impossible for us to maintain REIT
status. We do not believe that any pending or proposed law changes could change
our REIT status.

          If we fail to qualify for taxation as a REIT in any taxable year:

          o         we would be subject to tax on our taxable income at regular
                    corporate rates;

          o         we would not be able to deduct, and would not be required to
                    make, distributions to stockholders in any year in which we
                    fail to qualify as a REIT; and

          o         unless we are entitled to relief under specific statutory
                    provisions, we would be disqualified from taxation as a REIT
                    for the four taxable years following the year during which
                    we lost our qualification.

                                       11
<PAGE>


The consequences of failing to qualify as a REIT would adversely affect the
market price of our common stock. We cannot guarantee that we will be qualified
and taxed as a REIT because our qualification and taxation as a REIT will depend
upon our ability to meet the requirements imposed under the Internal Revenue
Code of 1986, as amended, on an ongoing basis.

In order to maintain our status as a REIT, we may be forced to borrow funds
during unfavorable market conditions

          To qualify as a REIT, we generally must distribute to our stockholders
at least 90% of our net taxable income each year, excluding capital gains. This
requirement limits our ability to accumulate capital. We may not have sufficient
cash or other liquid assets to meet REIT distribution requirements. As a result,
we may need to incur debt to fund required distributions when prevailing market
conditions are not favorable. Difficulties in meeting distribution requirements
may arise as a result of:

          o         differences in timing between when we must recognize income
                    for U.S. federal income tax purposes and when we actually
                    receive income;

          o         the effect of non-deductible capital expenditures;

          o         the creation of reserves; or

          o         required debt or amortization payments.

          If we are unable to borrow funds on favorable terms, our ability to
make distributions to our stockholders and our ability to qualify as a REIT may
suffer.

                       Risks Relating to Our Capital Stock

Ownership limitations in our certificate of incorporation may adversely affect
the market price of our common stock

          Our certificate of incorporation contains an ownership limitation that
is designed to prohibit any transfer that would result in our being
"closely-held" within the meaning of Section 856(h) of the Internal Revenue Code
of 1986, as amended. This ownership limitation generally prohibits ownership,
directly or indirectly, by any single stockholder of more than 8% of the value
of outstanding shares of our capital stock. In addition, our certificate of
incorporation prohibits transfers that would result in our owning more than 10%
of the ownership interest in one of our tenants within the meaning of Section
856(d)(2)(B) of the Code; in shares of our stock (both common and preferred)
being beneficially owned by fewer than 100 persons within the meaning of Section
856(a)(5) of the Code; in our being a "pension held REIT" within the meaning of
Section 856(h)(3)(D) of the Code; in our failing to qualify as a
"domestically-controlled REIT" within the meaning of Section 897(h)(4)(B) or in
our failing to qualify for REIT status.

          The inability of holders of our common stock to sell their shares to
persons other than qualifying U.S. persons, or the perception of this inability,
as well as the limitations on transfer, may adversely affect the market price of
our common stock.

Higher market interest rates may adversely affect the market price of our common
stock

          One of the factors that investors may consider important in deciding
whether to buy or sell shares of a real estate investment trust is the dividend
with respect to such real estate investment trust's shares as a percentage of
the price of those shares, relative to market interest rates. If market interest
rates go up, prospective purchasers of shares of our common stock may require a
higher yield on our common stock. Higher market interest rates would not,
however, result in more funds for us to distribute and, to the contrary, would
likely increase our borrowing costs and potentially decrease funds available for
distribution. Thus, higher market interest rates could cause the market price of
our common stock to go down.

                                       12
<PAGE>


Limits on changes of control may discourage takeover attempts that may be
beneficial to holders of our common stock

          Provisions of our certificate of incorporation and bylaws, as well as
provisions of the Internal Revenue Code of 1986, as amended, and Delaware
corporate law, may:

          o         delay or prevent a change of control over us or a tender
                    offer for our common stock, even if those actions might be
                    beneficial to holders of our common stock; and

          o         limit our stockholders' opportunity to receive a potential
                    premium for their shares of common stock over
                    then-prevailing market prices.

          Primarily to facilitate the maintenance of our qualification as a
REIT, our certificate of incorporation generally prohibits ownership, directly
or indirectly, by any single stockholder of more than 8% of the value of
outstanding shares of our capital stock. Our board of directors may modify or
waive the application of this ownership limit with respect to one or more
persons if it receives a ruling from the Internal Revenue Service or an opinion
of counsel concluding that ownership in excess of this limit will not jeopardize
our status as a REIT. NorthStar Capital Investment Corp. until the Note issued
in connection with the stock repurchase described in "Item 1. Business - Recent
Developments" is repaid and the Operating Partnership may hold in excess of that
8% ownership limit provided that our REIT status will not be jeopardized and we
will not be deemed to be closely-held. The ownership limit, however, may
nevertheless have the effect of inhibiting or impeding a change of control over
us or a tender offer for our common stock.

          In addition, the Board of Directors has been divided into three
classes, the initial terms of which expire in 2002, 2003 and 2004 respectively,
with directors of a given class chosen for three-year terms upon expiration of
the terms of the members of that class. The staggered terms of the members of
Board of Directors may adversely affect the stockholders' ability to effect a
change in control of the Corporation, even if such a change in control were in
the best interests of some, or a majority, of the Corporation's stockholders.

          Our certificate of incorporation authorized the Board of Directors to
issue shares of preferred stock in series and to establish the rights and
preferences of any series of preferred stock so issued. The issuance of
preferred stock could also have the effect of delaying or preventing a change in
control of the Corporation.

          We have adopted a shareholder rights agreement that gives stockholders
the right to purchase securities from the Corporation at a discount if a person
or group acquires more than 15% of the outstanding shares of our common stock,
thereby diluting the acquiring person's holdings. In addition, the Board of
Directors can prevent the shareholder rights agreement from operating in the
event the Board approves of the acquiring person.

                  WHERE CAN YOU FIND MORE INFORMATION ABOUT US?

          We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), which means that we file
periodic reports, including reports on Forms 10-K and 10-Q, and other
information with the Securities and Exchange Commission ("SEC"). As well, we
distribute proxy statements annually and file those reports with the SEC. You
can read and copy these reports, statements and other information at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, NW,
Washington, D.C. 20549, as well as the regional offices at the Woolworth
Building, 233 Broadway Ave., New York, New York 10279 and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may obtain
copies of this material for a fee by writing to the SEC's Public Reference
Section of the SEC at 450 Fifth Street, NW, Washington, D.C. 20549. You may
obtain information about the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. You can also access some of this information
electronically by means of the SEC's website on the Internet at
http://www.sec.gov, which contains reports, proxy and information statements and
other information that the underlying securities issuer and the underlying
securities guarantor have filed electronically with the SEC. In addition, you
may inspect reports and other information concerning us at the offices of the
American Stock Exchange LLC, which are located at 86 Trinity Place, New York, NY
10006 and can be contacted at (212) 306-1000.

                                       13

<PAGE>


Item 2.    Properties

Property Portfolio

          The Corporation owned the following properties as of December 31, 2001
and March 25, 2002:

          (1) SOUTHPORT SHOPPING CENTER

          On April 15, 1986, the Predecessor Partnership purchased the fee
simple interest in Southport Shopping Center ("Southport"), a regional shopping
center located on the 17th Street Causeway in Fort Lauderdale, Florida near the
intercoastal waterway and beach area. The center's three buildings, comprising a
total of 143,089 square feet, are situated on a 9.45 acre site. Southport was
built in phases from 1968 to 1977 and expanded again and renovated in 1985. The
site provides parking for 563 cars. The roof on the West quadrant of the main
center building was replaced in 1998 and the center was repainted.

          Southport is highly visible from S.E. 17th Street, the major east/west
artery in the commercially-oriented area. Developments in the area are
diversified and include hotels, restaurants, retail centers, office buildings
and the 750,000 square foot Broward County Convention Center, which opened in
1991 and is within walking distance. In 1996, the new 75,000 square foot,
three-story, mixed-use NorthPort Marketplace opened on county owned land
adjacent to the Convention Center. The development has attracted national
restaurant/entertainment chains and is not considered competition for
Southport's tenants.

          Further to the transaction described under "Item 1. Business - Recent
Developments", as of February 14, 2002 we granted a mortgage on Southport
Shopping Center to Shelbourne Management LLC as security for the note we issued
as a distribution to the preferred shareholder. For more information
concerning this mortgage, please see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Overview" below.

          (2) LOCH RAVEN PLAZA

          On June 26, 1986, the Predecessor Partnership purchased the fee simple
interest in Loch Raven Plaza ("Loch Raven"), a retail/office complex located in
Townson, Maryland. It contains approximately 25,000 square feet of office and
storage space and approximately 125,000 square feet of retail space, with
parking for approximately 655 vehicles.

          Towson Marketplace, which competes directly with the Loch Raven for
tenants, has been redeveloped and includes Michael's Crafts, Marshall's, Target,
Montgomery Ward and TOYS "R" US as tenants.

          Further to the transaction described under "Item 1. Business - Recent
Developments", as of February 14, 2002 we granted a mortgage on Loch Raven Plaza
to Shelbourne Management LLC as security for the note we issued as a
distribution to the preferred shareholder. For more information concerning this
mortgage, please see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Overview" below.



          (3) CENTURY PARK I

          On November 7, 1986, a joint venture (the "Century Park Joint
Venture") comprised of the Predecessor Partnership and High Equity Partners L.P.
- Series 86 ("HEP-86"), an affiliated public limited partnership, purchased the
fee simple interest in Century Park I ("Century Park I"), an office complex. In
a transaction similar to the merger described under "Item 1. Business - Recent
Developments" above, on February 14, 2001, Shelbourne Properties II, LP became
the successor in interest to HEP-86's assets, including its interest in the
Century Park Joint Venture.

                                       14
<PAGE>


          Century Park I, situated on approximately 8.6 acres, is located in the
center of San Diego County in Kearny Mesa, California, directly adjacent to
Highway 163 at the northeast corner of Balboa Avenue and Kearny Villa Road.
Century Park I is part of an office park consisting of six office buildings and
two parking garages, in which Century Park Joint Venture owns three buildings,
comprising 200,002 net rentable square feet and one garage with approximately
810 parking spaces. One of the three buildings was completed in the latter half
of 1985, and the other two buildings were completed in February 1986.

          Century Park I competes with other office parks and office buildings
in the Kearny Mesa sub-market. New competition in the sub-market includes the
redevelopment of the adjacent property into the Cabrillo Technology Center with
141,800 square feet available plus an additional 284,000 square feet planned and
redevelopment of the 234 acre former General Dynamics site, now known as New
Century Center. Plans for New Century Center call for development of the site
with mixed use commercial, industrial, retail and entertainment areas.

          Further to the transaction described under "Item 1. Business - Recent
Developments", as of February 14, 2002 we granted a mortgage on Century Park I
to Shelbourne Management LLC as security for the note we issued as a
distribution to a preferred shareholder of the Operating Partnership. For more
information concerning this mortgage, please see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Overview" below.

          (4) 568 BROADWAY

          On December 2, 1986, a joint venture (the "Broadway Joint Venture")
comprised of the Predecessor Partnership and HEP-86 acquired a fee simple
interest in 568-578 Broadway ("568 Broadway"), a commercial building in New York
City, New York. Until February 1, 1990, the Predecessor Partnership and HEP-86
each had a 50% interest in the Broadway Joint Venture. On February 1, 1990, the
Broadway Joint Venture admitted a third joint venture partner, High Equity
Partners L.P. - Series 88 ("HEP-88"), an affiliated public limited partnership,
which contributed $10,000,000 for a 22.15% interest in the joint venture. In a
transaction similar to the merger described under "Item 1. Business - Recent
Developments" above, on February 14, 2001, Shelbourne Properties III, LP became
the successor in interest to HEP-88's assets, including its interest in the
Broadway Joint Venture. The Operating Partnership and Shelbourne Properties II,
LP each retain a 38.925% interest in the joint venture.

          568 Broadway is located in the SoHo district of Manhattan on the
northeast corner of Broadway and Prince Street. 568 Broadway is a 12-story plus
basement and sub-basement building constructed in 1898. It is situated on a site
of approximately 23,600 square feet, has a rentable square footage of
approximately 300,000 square feet and a floor size of approximately 26,000
square feet. Formerly catering primarily to industrial light manufacturing, the
building has been converted to an office building and is currently being leased
to art galleries, photography studios, retail and office tenants. 568 Broadway
competes with several other buildings in the SoHo area.

          Further to the transaction described under "Item 1. Business - Recent
Developments", as of February 14, 2002 we granted a security interest in our
joint venture interest in 568 Broadway to Shelbourne Management LLC as security
for the note we issued as a distribution to a preferred shareholder of the
Operating Partnership. For more information concerning this security interest,
please see "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Overview" below.

          (5) SEATTLE TOWER

          On December 16, 1986, a joint venture (the "Seattle Landmark Joint
Venture") comprised of the Predecessor Partnership and HEP-86 acquired a fee
simple interest in Seattle Tower, a commercial office building located in
downtown Seattle ("Seattle Tower"). The Operating Partnership and Shelbourne
Properties II, LP each have a 50% interest in the Seattle Landmark Joint
Venture.

          Seattle Tower is located at Third Avenue and University Street on the
eastern shore of Puget Sound in the financial and retail core of the Seattle
central business district. Seattle Tower, built in 1928, is a 27-story
commercial building containing approximately 167,000 rentable square feet,
including almost 10,000 square feet of retail space and approximately 2,211
square feet of storage space. The building also contains a 55-car garage.

                                       15
<PAGE>


Seattle Tower, formerly Northern Life Tower, represented the first appearance in
Seattle of a major building in the Art Deco style. It was accepted into the
National Register of Historic Places in 1975. There are approximately seventy
tenants occupying the building. Leasing efforts are focused on consolidating
space to create single floor tenants.

          In February 2001, the Seattle area was hit with an earthquake. Seattle
Tower suffered some damage in the earthquake. Repairs have been undertaken and
completed on all tenant spaces, with approximately 75% of the repairs completed
overall. The costs of the repairs are fully covered by insurance, subject to our
deductibles.

          We believe that Seattle Tower's primary direct competition comes from
three office buildings of similar size or age in the immediate vicinity of
Seattle Tower, which buildings have current occupancy rates which are comparable
to Seattle Tower's.

          Further to the transaction described under "Item 1. Business - Recent
Developments", as of February 14, 2002 we granted a mortgage on Seattle Tower to
Shelbourne Management LLC as security for the note we issued as a distribution
to a preferred shareholder of the Operating Partnership. For more information
concerning this mortgage, please see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Overview" below.

Occupancy

          The following table lists the occupancy rates of our properties at the
end of each of the last three years.

                                    OCCUPANCY
<TABLE>
<CAPTION>

PROPERTY                               12/31/2001            12/31/2000            12/31/1999
--------                               ----------            ----------            ----------
<S>                                    <C>                   <C>                   <C>
Southport Shopping Center                 97%                   95%                    98%
Loch Raven Plaza                          92%                   87%                    92%
Century Park I Office Complex             100%                  100%                  100%
568 Broadway Office Building              97%                   100%                  100%
Seattle Tower Office Building             90%                   95%                    98%
</TABLE>

                                       16

<PAGE>


          The following table contains information for each tenant that occupies
ten percent or more of the rentable square footage of any of our properties.

<TABLE>
<CAPTION>
                                       Principal      Square Feet                          Lease
                   Name of Tenant     Business of      Leased by                         Expiration     Renewal
    Property                            Tenant           Tenant        Annual Rent          Date        Options
----------------------------------------------------------------------------------------------------------------------
<S>                <C>              <C>                  <C>           <C>                  <C>         <C>

Southport          Publix           Grocery              38,132           $100,000          3/31/05      3-5 yr.
Shopping Center    Supermarket      Retailer
----------------------------------------------------------------------------------------------------------------------

Loch Raven Plaza   Greetings &      Retailer             42,166           $194,644          1/31/04      4-5 yr.
                   Readings

                   Super Fresh      Grocery              26,648            $87,000          9/30/05      5-5 yr.
                                    retailer
----------------------------------------------------------------------------------------------------------------------

Century Park       San Diego Gas    Utilities            75,969         $1,098,360         11/30/07      1-5 yr.
                   & Electric

                   Per-Se           Physician's          64,817           $855,584          7/31/05      2-5 yr.
                   Technologies     billing service

                   CitiFinancial    Loan servicing       25,988           $349,539         10/31/02      1-5 yr.
----------------------------------------------------------------------------------------------------------------------

568 Broadway       Scholastic       Publishing           87,010         $1,548,836          4/30/08      1-5 yr.
----------------------------------------------------------------------------------------------------------------------

Seattle Tower      Electric         Telephone            23,475           $463,361          8/31/09         None
                   Lightwave        switching
                                    company
</TABLE>


Capital Improvements

          See "Item 7. Management's Discussion and Analysis and Results of
Operations."

Item 3.    Legal Proceedings

          On February 22, 2002, Carl Icahn and Longacre Corp. brought a
derivative shareholder suit in the New York State Supreme Court against
NorthStar Capital Investment Corp., PCIC, Shelbourne Management, Peter W. Ahl,
David Hamamoto, David G. King, Jr., Dallas E. Lucas, W. Edward Scheetz, Michael
T. Bebon, Donald W. Coons and Robert Martin, and nominal defendants the
Corporation, Shelbourne Properties II, Inc. and Shelbourne Properties III, Inc.
for, inter alia, breach of fiduciary duties relating to the approval of the
stock repurchase transaction between the Corporation and NorthStar Capital
Investment Corp. described in "Item 1. Business" under the heading "Recent
Developments". On March 4, 2002, Icahn and Longacre brought a motion for
expedited discovery, reversal of priority of discovery and injunctive relief by
Order to Show Cause. Thereafter, the defendants moved to dismiss the case for,
among other reasons, the failure to make a demand on the Board of Directors
prior to commencing the action. At a hearing held on March 11, the court
authorized limited discovery in connection with defendant's motion to dismiss.
The court also scheduled a hearing for April 29, 2002 on defendant's motion to
dismiss.

                                       17
<PAGE>


          In addition, two shareholder derivative actions have been filed in
Delaware against the same defendants. Those actions have now been consolidated,
and defendants have moved to dismiss the consolidated action.

          With respect to the allegations in the lawsuits, we believed at the
time the Special Committee approved the transaction, and we continue to believe,
that the stock repurchase was fair and reasonable and in the best interests of
the Corporation and its shareholders.

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

          During 2001, matters were submitted to a vote of our security holders
on one occasion. The consent of limited partners was sought to approve the
conversion of the Predecessor Partnership into the Operating Partnership. The
consent solicitation expired April 16, 2001 and holders of a majority of the
Units approved the conversion. On April 18, 2001, the conversion was completed
as described in "Item 1. Business - Corporate History" on page 3 above.

                                       18

<PAGE>


                                     PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters

Market for Our Common Stock

          In May 2001, our Common Stock began trading on the American Stock
Exchange under the symbol "HXD". Prior to that date, there was no established
trading market for interests in the Predecessor Partnership.

          The high and low sales prices per share of Common Stock are set forth
below for the periods indicated.


<TABLE>
<CAPTION>
QUARTER ENDED                                            HIGH                                    LOW
-------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                                    <C>
June 30, 2001                                            $39.50                                 $25.03

September 30, 2001                                       $34.00                                 $28.00

December 31, 2001                                        $31.91                                 $27.00
</TABLE>


          On March 25, 2002, the closing sale price of the Common Stock as
reported by the ASE was $42.00. The Corporation had approximately 2,008 holders
of record of Common Stock as of March 25, 2002.

          The Corporation has authorized 2,500,000 shares of Common Stock,
issued 1,263,189 shares and has 839,286 shares outstanding as of March 25, 2002.
Prior to the merger of the Operating Partnership and the Predecessor Partnership
on April 18, 2001, the Predecessor Partnership had 400,010 Units issued and
outstanding and approximately 8,735 holders of record of Units.

Dividends

          Our management expects that any taxable income remaining after the
regular quarterly or other dividends on its Common Stock will be distributed
annually to the holders of the Common Stock on or prior to the date of the first
regular quarterly dividend payment date of the following taxable year. The
dividend policy with respect to the Common Stock is subject to revision by the
Board of Directors. All distributions in excess of those required for the
Corporation to maintain its REIT status will be made by the Corporation at the
sole discretion of the Board of Directors and will depend on the taxable
earnings of the Corporation, the financial condition of the Corporation, and
such other factors as the Board of Directors deems relevant. The Board of
Directors has not established any minimum distribution level. In order to
maintain its qualifications as a REIT, the Corporation intends to make regular
quarterly dividends to its shareholders that, on an annual basis, will represent
at least 90% of its taxable income (which may not necessarily equal net income
as calculated in accordance with generally accepted accounting principles),
determined without regard to the deduction for dividends paid and excluding any
net capital gains.

          Holders of Common Stock will be entitled to receive distributions if,
as and when the Board of Directors authorizes and declares distributions.
However, rights to distributions may be subordinated to the rights of holders of
preferred stock, when preferred stock is issued and outstanding. In any
liquidation, dissolution or winding up of the Corporation, each outstanding
share of Common Stock will entitle its holder to a proportionate share of the
assets that remain after the Corporation pays its liabilities and any
preferential distributions owed to preferred shareholders.

          The following table sets forth the dividends paid or declared by the
Corporation on its Common Stock (or distributions on the Predecessor
Partnership's Units prior to April 18, 2001) for the previous three years:

                                       19

<PAGE>


<TABLE>
<CAPTION>
                                                       STOCKHOLDER RECORD DATE              DIVIDEND / SHARE (1)
PERIOD ENDED
----------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                               <C>
March 30, 1999                                             October 1, 1998                   $0.31 / share (2)
June 30, 1999                                               March 31, 1999                   $0.31 / share (2)
August 30, 1999                                             June 30, 1999                    $0.31 / share (2)
----------------------------------------------------------------------------------------------------------------------
December 31, 2001                                          December 17, 2001                 $1.33 / share (2)
</TABLE>

          Explanatory Note:

          (1)       Commencing with the third quarter of 1999, distributions
                    were suspended while the requirements of the class action
                    and derivative litigation involving the Predecessor
                    Partnership were completed. Distributions resumed in
                    December of 2001.

          (2)       We converted from a partnership to a REIT in April 2001.
                    Each partnership unit was converted to three shares of
                    stock. All dividends in this chart are reflected on a per
                    share basis.

          Distributions to shareholders will generally be taxable as ordinary
income, although a portion of such dividends may be designated by the
Corporation as capital gain or may constitute a tax-free return of capital. The
Corporation annually furnishes to each of its shareholders a statement setting
forth the distributions paid during the preceding year and their
characterization as ordinary income, capital gain or return of capital.

          The Corporation intends to continue to declare quarterly distributions
on its Common Stock. No assurance, however, can be given as to the amounts or
timing of future distributions, as such distributions are subject to our
earnings, financial condition, capital requirements and such other factors as
our Board of Directors deems relevant.

Recent Sales of Unregistered Securities

          There were no securities sold by the registrant in 2001 that were not
registered under the Securities Act.

                                       20

<PAGE>


Item 6.    Selected Financial Data

          The following financial data are derived from our audited consolidated
financial statements. The financial data set forth below should be read in
conjunction with "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and notes thereto appearing elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
                            2001                2000               1999                1998               1997
                            ----                ----               ----                ----               ----
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
<S>                         <C>                 <C>                <C>                 <C>                <C>
Total Revenue               $10,920,216         $10,952,443        $11,388,898          $9,798,441         $9,297,488
Net Income                    3,470,868           3,847,300          4,847,538        2,931,223(1)          2,134,659
Net Income per Share               2.75                3.05               3.84                2.32               1.69
Distribution per                   1.33                   -               0.63                1.25               1.19
Share (2) (3)
Total Assets                $49,268,560         $47,872,681        $44,178,753         $40,814,689        $39,600,417
</TABLE>

          (1)       Total revenue and net income for the year ended December 31,
                    1998 includes a $389,359 gain, or $0.31 per share, from the
                    sale of the Westbrook property.

          (2)       All distributions are in excess of accumulated undistributed
                    net income and therefore represent a return of capital to
                    investors on a generally accepted accounting principles
                    basis.

          (3)       Distribution made on December 21, 2001 based on total shares
                    issued and outstanding.

Item 7.    Management's Discussion and Analysis of Financial Condition and
Results of Operations

          The following should be read in conjunction with "Forward-Looking
Statements" and our combined consolidated financial statements and notes thereto
appearing elsewhere in this Form 10-K.

Overview

          The Corporation was formerly a Delaware limited partnership, High
Equity Partners L.P. - Series 85 ("HEP-85"), which was converted to a REIT on
April 18, 2001 by merging with Shelbourne Properties I LP, a Delaware limited
partnership, which is currently the operating partnership of the Corporation
(the "Operating Partnership"). The Corporation holds its investment in the
properties through its Operating Partnership in which it had a 99% direct
interest at December 31, 2001. The other 1% is held indirectly through the
general partner of the Operating Partnership, Shelbourne Properties I GP, LLC,
(the "General Partner") of which the Corporation is the sole member.

          On February 14, 2002, the Corporation repurchased the shares of a
major stockholder, Presidio Capital Investment Company ("PCIC") and paid
$14,303,060 in cash. As part of that repurchase, Shelbourne Management LLC, a
wholly-owned subsidiary of PCIC, contributed the advisory agreement between the
Corporation and the Operating Partnership and Shelbourne Management LLC, dated
as of April 18, 2001, (the "Advisory Agreement") pursuant to which it had
provided financial and investment advisory services to the Corporation and the
General Partner. As partial consideration for the Advisory Agreement, the
Operating Partnership issued 812,674 5% Class A Preferred Partnership Units
(with a liquidation preference of $1,000 per unit) to Shelbourne Management LLC.
As a result, until those preferred units are redeemed, Shelbourne Management LLC
is entitled to receive quarterly

                                       21
<PAGE>


distributions from the Operating Partnership at a rate of 5% per annum of the
aggregate liquidation preference of its preferred units. The agreement governing
the repurchase provides for pre-payment penalties in the event that the
Operating Partnership redeems these preferred units prior to February 14, 2007.
The preferred units will be automatically redeemed upon the occurrence of
certain events of default by the Corporation on its obligations under that
agreement.

          As an initial distribution on the Preferred Units, the Corporation
issued a note to Shelbourne Management (the "Note") in the principal amount of
$18,939,737, except that if the Note is repaid in full on or prior to April 30,
2002, the principal amount will be reduced to $17,639,459 and if the Note is
repaid in full after April 30, 2002 and on or prior to May 15, 2002, the
principal amount shall be reduced to $17,964,529. As security for the note,
mortgages were placed on the following properties owned by the Corporation:
Southport Shopping Center, Loch Raven Plaza, Century Park I and Seattle Tower.
In addition, the Operating Partnership granted Shelbourne Management Company LLC
a security interest in its joint venture interest in the 568 Broadway Office
Building. The Corporation agreed to repay the Note entirely from the proceeds of
new third party borrowings, which Presidio will have the option to guaranty.

          We intend to be taxed as a REIT for U.S. federal income tax purposes.
To qualify as a REIT, we generally must distribute to our stockholders at least
90% of our net taxable income each year, excluding capital gains. As a REIT, if
we distribute 100% of our taxable income and comply with a number of
organization and operational requirements, we generally will not be subject to
U.S. federal income tax.

          Our primary business objective is to maximize the value of our common
stock. We seek to achieve this objective by managing our existing properties,
making capital improvements to and/or selling properties and by making
additional real estate-related investments. We may invest in a variety of real
estate-related investments, including undervalued assets and value-enhancing
situations, in a broad range of property types and geographical locations. We
may raise additional capital by mortgaging existing properties or by selling
equity or debt securities. We may acquire investments for cash or by issuing
equity securities, including limited partnership interests in the Operating
Partnership. The Board of Directors may retain an independent consulting firm to
assist it in ascertaining the most effective means of achieving these
objectives.

Critical Accounting Policies

          The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions in certain circumstances that affect amounts reported
in the accompanying financial statements and related footnotes. In preparing
these financial statements, management has made its best estimates and judgments
of certain amounts included in the financial statements, giving due
consideration to materiality. The Corporation does not believe there is a great
likelihood that materially different amounts would be reported related to the
accounting policies described below. However, application of these accounting
policies involves the exercise of judgment and use of assumptions as to future
uncertainties and, as a result, actual results could differ from these
estimates.

          Impairment of long-lived assets. At December 31, 2001 and December 31,
2000, the Corporation had approximately $31.8 million and $31.4 million of real
estate (net), accounting for approximately 65% and 66%, respectively, of the
Corporation's total assets. Property and equipment is carried at cost net of
adjustments for impairment. The fair value of the Operating Partnership's
property and equipment is dependent on the performance of the properties.

          The Corporation evaluates recoverability of the net carrying value of
its real estate and related assets at least annually, and more often if
circumstances dictated. If there is an indication that the carrying value of a
property might not be recoverable, the Corporation prepares an estimate of the
future undiscounted cash flows expected to result from the use of the property
and its eventual disposition, generally over a five-year holding period. In
performing this review, management takes into account, among other things, the
existing occupancy, the expected leasing prospects of the property and the
economic situation in the region where the property was located.

                                       22
<PAGE>


          If the sum of the expected future undiscounted cash flows is less than
the carrying amount of the property, the Corporation recognizes an impairment
loss, and reduces the carrying amount of the asset to its estimated fair value.
Fair value is the amount at which the asset could be bought or sold in a current
transaction between willing parties, that is, other than in a forced or
liquidation sale. Management estimates fair value using discounted cash flows or
market comparables, as most appropriate for each property. Independent certified
appraisers are utilized to assist management, when warranted.

          For the years ended December 31, 2001, 2000, and 1999, no impairment
losses have been recorded. Cumulative impairment losses from previous years
amount to $38,271,150. Impairment write-downs recorded by the Corporation do not
affect the tax basis of the assets and are not included in the determination of
taxable income or loss.

          Because the cash flows used to evaluate the recoverability of the
assets and their fair values are based upon projections of future economic
events, such as property occupancy rates, rental rates, operating cost inflation
and market capitalization rates which are inherently subjective, the amounts
ultimately realized at disposition may differ materially from the net carrying
values at the balance sheet dates. The cash flows and market comparables used in
this process are based on good faith estimates and assumptions developed by
management.

          Unanticipated events and circumstances may occur and some assumptions
may not materialize; therefore, actual results may vary from the estimates and
variances may be material. The Corporation may provide additional write-downs,
which could be material in subsequent years if real estate markets or local
economic conditions change.

          Useful lives of long-lived assets. Property and equipment, and certain
other long-lived assets are amortized over their useful lives. Depreciation and
amortization are computed using the straight-line method over the useful life of
the property and equipment. The cost of properties represents the initial cost
of the properties to the Corporation plus acquisition and closing costs less
impairment adjustments. Tenant improvements and leasing costs are amortized over
the applicable lease term. Useful lives are based upon management's estimate
over the period that the assets will generate revenue.

          Revenue Recognition. Base rents are recognized on a straight-line
basis over the terms of the related leases. Percentage rents charged to retail
tenants based on sales volume are recognized when earned pursuant to Staff
Accounting Bulletin No 101, "Revenue Recognition in Financial Statements,"
issued by the Securities and Exchange Commission in December 1999, and the
Emerging Issues Tax Force's consensus on Issue 98-9, "Accounting for Contingent
Rent in Interim Financial Periods." The Corporation defers recognition of
contingent rental income (i.e., percentage/excess rent) in interim periods until
the specified target (i.e., breakpoint) that triggers the contingent rental
income is achieved. Recoveries from tenants or taxes, insurance and other
operating expenses are recognized as revenue in the period the applicable taxes
are incurred.

          Investments in Joint Ventures. Certain properties were purchased in
joint venture ownership with affiliated REITS. The Corporation owns an undivided
interest and is severally liable for indebtedness it incurs with connection with
its ownership interest in those properties. Therefore, the Corporation's
financial statements present the assets, liabilities, revenues and expenses of
the joint ventures on a pro rata basis in accordance with the percentage of
ownership.

New Accounting Policies

          Effective January 1, 2001, the Corporation adopted Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Because the Corporation does not currently
utilize derivatives or engage in hedging activities, this standard did not have
a material effect on the Corporation's financial statements.

          In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141 "Business Combinations." SFAS No. 141 requires that all business
combinations be accounted for under the purchase method of accounting. SFAS No.
141 also changes the criteria for the separate recognition of intangible assets
acquired in a

                                       23
<PAGE>


business combination. SFAS No. 141 is effective for all business combinations
initiated after June 30, 2001. There was no effect from this statement on the
Corporation's financial statements.

          In July 2001, the FASB issued SFAS No. 142 "Goodwill and Other
Intangible Assets." SFAS No. 142 addresses accounting and reporting for
intangible assets acquired, except for those acquired in a business combination.
SFAS No. 142 presumes that goodwill and certain intangible assets have
indefinite useful lives. Accordingly, goodwill and certain intangibles will not
be amortized but rather will be tested at least annually for impairment. SFAS
No. 142 also addresses accounting and reporting for goodwill and other
intangible assets subsequent to their acquisition. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001. This statement will not effect
the Corporation's financial statements.

          In August 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of a Disposal of a Business and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for
the disposal of a segment of a business. SFAS No. 144 is effective for fiscal
years beginning after December 15, 2001, and interim periods within those fiscal
years. The provisions of this Statement generally are to be applied
prospectively. We do not expect that this statement will have a material effect
on our financial statements.

Liquidity And Capital Resources

          Our objective is to ensure that there are sufficient resources to fund
ongoing operating expenses and capital expenditures and to make the
distributions required to maintain REIT status. In the next year, we believe our
needs will be funded through existing cash balances and cash flows provided by
operating activities.

Real Estate

          Our real estate properties are three office buildings and two shopping
centers, all of which were acquired for cash. Subsequent to December 31, 2001,
five of these properties became subject to mortgages or security interests,
pending repayment of the Note. When the Note is refinanced, the new lender may
take a security interest in some or all of the properties owned by the
Corporation. The Corporation generates rental revenues from its commercial
properties and is responsible for each property's operating expenses as well as
the Operating Partnership's and its own administrative expenses.

          These encumbrances on our properties may limit our ability to raise
capital to fund capital improvement projects or acquisitions. In addition, we
will have to use cash flow from operations to repay our obligation under the
Note or any subsequent loan it undertakes to refinance the Note.

          The Corporation uses working capital reserves and any undistributed
cash from operations as its primary source of liquidity. For the year ended
December 31, 2001, all capital expenditures were funded from cash flow and
working capital reserves. As of December 31, 2001 the Corporation had total
working capital reserves of approximately $13,408,418. Working capital reserves
are temporarily invested in short-term money market instruments and are
expected, together with cash flow from operations, to be sufficient to fund
future capital improvements to our properties.

          Our primary source of funds is cash flow from the operation of the
properties, principally rents received from tenants. The Corporation had
$14,191,726 of cash and cash equivalents at December 31, 2001, as compared to
$13,229,944 at December 31, 2000. During the year ended December 31, 2001, cash
and cash equivalents increased $961,782 as a result of $4,215,093 of net cash
provided by operating activities, which was offset by expenditures of $1,573,270
in improvements to real estate (investing activities) and by the cash
distribution of $1,680,041 to shareholders.

                                       24
<PAGE>


Capital Improvements and Capitalized Tenant Procurement Costs

          The following table sets forth, for each of the last three fiscal
years, the Corporation's expenditures at each of its properties for capital
improvements and capitalized tenant procurement costs:

<TABLE>
<CAPTION>
                                                                       Years Ended December 31,

PROPERTY                                                  2001                    2000                  1999
-----------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                       <C>                  <C>

Southport Shopping Center                               $269,172                 $118,287               $272,628

Loch Raven Plaza                                        $100,922                  $55,784                $95,206

Century Park I Office Complex                            $66,729                  $23,328               $173,239

568 Broadway Office Building                            $234,873                 $151,361               $154,616

Seattle Tower Office Building                          $1,208,184                 $87,155               $355,407
                                                 ----------------------------------------------------------------------
                                        Totals:        $1,879,880                $435,915             $1,051,096
                                                       ==========                ========             ==========
</TABLE>


          The capital expenditures for 2001 were mostly in the ordinary course
of business with the exception of the Seattle Tower property, where there were
exceptional expenditures relating to repair of damage caused by an earthquake.
Those expenditures, however, should be fully covered by insurance. Major capital
expenditures budgeted for 2002 consist primarily of approximately $225,000 in
facade improvements and exterior painting and approximately $49,000 in corridor
and restroom upgrades and window repairs at 568 Broadway, with the expenditures
split among the participants in the joint venture according to the percentage of
their interests therein. In addition, approximately $197,000 in elevator shaft
and roof repairs at Seattle Tower and $500,000 in additional earthquake repairs
are projected for Seattle Tower in 2002. Again, these costs are expected to be
entirely covered by insurance proceeds.

          Certain properties require periodic investments of capital for tenant
costs related to new and renewal leasing. The most significant tenant
procurement costs budgeted for 2002 include approximately $209,000 in costs
associated with making the sub-cellar at 568 Broadway into leaseable space,
approximately $208,000 in tenant improvements obligations associated with
existing leases at 568 Broadway, Southport, Loch Raven and Seattle Tower and
approximately $200,000 in projected tenant improvements costs anticipated in
conjunction with the procurement of new leases at Seattle Tower, Southport and
Loch Raven. Leasing commissions associated with these leases are budgeted to be
approximately $432,000 for 2002. Where applicable, these costs will be split
among the co-venturers in the joint venture according to the percentage of their
interest therein.

          Overall, the Corporation has budgeted expenditures for capital
improvements and capitalized tenant procurement costs of $1,529,480 in 2002.
These costs are mostly expected to be incurred in the normal course of business
and are to be funded from cash flow from operations and working capital
reserves. However, such expenditures will depend upon the level of leasing
activity and other factors that cannot be predicted with certainty.

          We expect to continue to utilize a portion of cash flow from
operations to pay for various future capital and tenant improvements to the
properties and leasing commissions, the amount of which cannot be predicted with
certainty. Capital and tenant improvements may in the future exceed the
Corporation's cash flow from operations that would otherwise be available for
distributions. We believe current working capital is sufficient for any near
term needs of the Corporation. In the event that it is not, we would utilize the
remaining working capital reserves, borrow funds or sell one or more properties
to meet those needs.

                                       25
<PAGE>


Real Estate Market

          In the markets in which our properties are located, the market values
of existing properties continue to recover from the effects of the substantial
decline in the real estate market in the early 1990's. However, in select
markets, values have been slow to recover, and high vacancy rates continue to
exist in some areas. The geographic diversity of our properties decreases the
risk of a significant devaluation resulting from an isolated market slump in a
particular region.

          The outlook continues to be particularly positive for 568 Broadway as
office and retail space in the Midtown South sub-market in which 568 Broadway is
located is becoming increasingly popular. Little new office and retail space
inventory have been introduced to offset demand in the area, resulting in a
favorable operating environment for the property. Rents are thus anticipated to
continue to increase at the property for the foreseeable future.

          Despite a significant decline in 2001 in business development in the
Puget Sound region due to a slowdown in the technological sector of the economy,
leasing activity at the property continues to be strong. The property's position
as an historically significant building and its location in a prime spot in the
central business district continue to make it desirable for many tenants.
Nonetheless, due to the age of many of the leases at the building and the
functional obsolescence of the building for many potential tenants, much of the
space at Seattle Tower is currently leased at below market rental rates. The
property thus has the potential for substantially improved operations as current
leases expire and the capital needs of the property are addressed. In an effort
to maximize rents over the next four years, in excess of $590,000 is budgeted
for capital improvements at Seattle Tower, which will be paid for by each
co-venturer according to the percentage of its interest in the joint venture.
This capital work will attempt to address the extremely outdated mechanical
systems and the lack of technological infrastructure at the property, both of
which are currently impeding the property's realization of market rental rates.
It is anticipated that these improvements coupled with expected overall growth
in the office market in downtown Seattle would position the property for a
substantial improvement in operations in the future.

          The prospects for our retail properties are also very good as demand
for retail space in the properties' sub-markets is very high and vacancy low.
Both Southport and Loch Raven are situated in well-established commercial areas,
and are extremely popular in their respective communities. The general economies
and demographic trends in both the Baltimore and Fort Lauderdale sub-markets in
which the properties operate suggest a sound outlook for the properties.

          Demand for office and research and development space in the Kearny
Mesa office sub-market in which Century Park is located is very strong,
contributing to historically high occupancy levels in the area. New supply that
is entering the marketplace is, however, expected to slow the growth of rental
rates and the market has begun to soften slightly. Nonetheless, overall growth
in the real estate market is expected to continue and the property is believed
to be well situated and adequately configured to benefit from this anticipated
improvement. The extent to which Century Park will realize the benefit of any
market appreciation will, however, be subject to the terms of the existing
leases at the property, which are not scheduled to expire for several years.

          Technological changes are also occurring which may reduce the space
needs of many tenants and potential tenants and may alter the demand for
amenities and power supplies at our properties. As a result of these changes and
the continued risk for overall market volatility, our potential for realizing
the full value of its investment in the properties is at continued risk.

Impairment Of Assets

          The Corporation evaluates the recoverability of the net carrying value
of its real estate and related assets at least annually, and more often if
circumstances dictate as required by SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." If there is an indication that the carrying
amount of a property may not be recoverable, the Corporation prepares an
estimate of the future undiscounted cash flows expected to result from the use
of the property and its eventual disposition, generally over a five-year holding
period. In performing this review, management takes into account, among other
things, the existing occupancy, the expected leasing prospects of the property
and the economic situation in the region where the property is located.

                                       26
<PAGE>


          If the sum of the expected future undiscounted cash flow is less than
the carrying amount of the property, the Corporation recognizes an impairment
loss, and reduces the carrying amount of the asset to its estimated fair value
as required by SFAS No. 144. Fair value is the amount at which the asset could
be bought or sold in a current transaction between willing parties, that is,
other than in a forced or liquidation sale. Management estimates fair value
using discounted cash flows or market comparables, as most appropriate for each
property. Independent certified appraisers are utilized to assist management,
when warranted.

          Impairment adjustments to reduce the carrying value of the real estate
assets recorded by the Corporation do not affect the tax basis of the assets and
are not included in the determination of taxable income or loss.

          Management is not aware of any other current trends, events, or
commitments that will have a significant impact on the long-term value of the
properties. However, because the cash flows used to evaluate the recoverability
of the assets and their fair values are based upon projections of future
economic events such as property occupancy rates, rental rates, operating cost
inflation and market capitalization rates which are inherently subjective, the
amounts ultimately realized at disposition may differ materially from the net
carrying values at the balance sheet dates. The cash flows and market
comparables used in this process are based on good faith estimates and
assumptions developed by management. Unanticipated events and circumstances may
occur and some assumptions may not materialize. Actual results may vary from the
estimates, and the variances may be material.

          All of our properties have experienced varying degrees of operating
difficulties and the Corporation recorded significant impairment adjustments in
prior years. Improvements in the real estate market and in property operations
resulted in no adjustments for impairment being needed from 1996 through
December 31, 2001.

          The following table represents the historical cost less accumulated
depreciation, the December 31, 2001 carrying value and the impairment
adjustments recorded to date against our properties held as of December 31,
2001:

<TABLE>
<CAPTION>
                                                    HISTORICAL COST
                                                          LESS                  ADJUSTMENT              12/31/01
                                                       ACCUMULATED                 FOR                  CARRYING
              DESCRIPTION                             DEPRECIATION              IMPAIRMENT                VALUE

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

Southport Shopping Center                              $18,615,564              $4,900,000            $13,715,564
Fort Lauderdale, Florida

Loch Raven Plaza                                        10,322,463               4,800,000              5,522,463
Retail/Office Complex
Towson, Maryland

Century Park I Office                                   15,685,443              11,700,000              3,985,443
Complex Kearny Mesa,
California (50% owned)

568 Broadway Office                                     15,609,948              10,821,150              4,788,798
Building New York,
New York (38.925% owned)

Seattle Tower Office                                     9,820,959               6,050,000              3,770,959
Building Seattle, Washington
(50% owned)
                                                -----------------------------------------------------------------------

                                        Total:         $70,054,377             $38,271,150            $31,783,227
                                                       ===========             ===========            ===========
</TABLE>

                                       27
<PAGE>


Funds from Operations

          Management believes that funds from operations, as defined by the
Board of Governors of the National Association of Real Estate Investment Trusts,
or NAREIT, to be an appropriate measure of performance for an equity REIT. While
funds from operations is a relevant and widely used measure of operating
performance of equity REITs, it does not represent cash flows from operations or
net income as defined by GAAP, and it should not be considered as an alternative
to these indicators in evaluating our liquidity or operating performance.

          Funds from Operations for the years ended December 31, 2001, 2000 and
1999 are summarized in the following table:

<TABLE>
<CAPTION>
                                                                      2001           2000           1999
                                                                      ----           ----           ----
--------------------------------------------------------------------------------------------------------------

<S>                                                                <C>            <C>            <C>
Net Income                                                         $3,470,868     $3,847,300     $4,847,538

Plus: Depreciation and amortization related to real estate          1,510,579      1,419,420      1,343,257
                                                                  --------------------------------------------
                                          Funds from Operations:   $4,981,447     $5,266,720     $6,190,795
                                                                   ==========     ==========     ==========
</TABLE>


Results of Operations

          The following discussion is based on our financial statements for the
years ended December 31, 2001, 2000 and 1999.

Comparison of the Year Ended December 31, 2001 to the Year Ended December 31,
2000

          Net Income

          The Corporation experienced a decrease in net income of $376,432, or
9.78%, for the year ended December 31, 2001, to $3,470,868 compared to the prior
year net income of $3,847,300. This decrease was due to an increase in costs and
expenses and reductions in interest and other income.

          Rental Revenue

          Rental revenues remained relatively constant during the year ended
December 31, 2001 increasing to $10,337,996 from $10,335,197 for the same period
in 2000.

          Interest and Other Income

          Interest income decreased by $17,084, or 3.00%, to $551,031 in 2001
due to lower interest rates paid on our short-term investment instruments. Other
income decreased by $17,942 during the year ended December 31, 2001 to $31,189
compared to $49,131 in 2000 due to a reduction in transfer fees as a result of
the conversion of the Predecessor Partnership to a REIT.

          Costs and Expenses

          Costs and expenses increased by $244,205, or 4.84%, during the year
ended December 31, 2001 to $7,449,348 compared to $7,105,143 for the same period
in 2000, primarily due to increases in operating expenses and depreciation and
amortization which more than offset a decrease in the property management fee.
The asset management fees increased to $1,071,503 in 2001 from $926,084 in 2000
due to an increase in the gross asset value of the Corporation. Operating
expense increased by $207,580, or 1.07%, to $3,516,980 as compared to $3,479,665

                                       28
<PAGE>


in 2000 due to an increase in taxes, insurance costs, utilities and security,
which was partially offset by a decrease in repair and maintenance costs.
Depreciation and amortization increased by $91,159 or 6.42% primarily due to the
expenditures for tenant improvements and lease commissions made in connection
with leasing activity in the previous two years. Administrative expenses for the
year ended December 31, 2001 increased by $73,761 or 7.65% compared to 2000 due
to the added legal expenses incurred in the conversion of the Predecessor
Partnership and expenses incurred for the first time that were solely associated
with operation as a REIT.

Comparison of the Year Ended December 31, 2000 to the Year Ended December 31,
1999

          Net Income

          The Predecessor Partnership experienced a decrease in net income of
$1,000,238, or 20.63%, for the year ended December 31, 2000 to $3,847,300
compared to the prior year net income of $4,847,538. This decrease was due to
reductions in rental revenue income, an increase in costs and expenses and a
reduction in other income, partially offset by an increase in interest income.

          Rental Revenues

          Rental revenues decreased during the year ended December 31, 2000 to
$10,335,197 from $10,941,322 for the same period in 1999 due to decreases in
step lease rental adjustments recorded for accounting purposes (adjustments to
account for the recognition of rent on a straight-line basis) of $1,232,063,
which was partially offset by an increase in base rent and escalations of
$625,938.

          Interest and Other Income

          Interest income increased by $233,999, or 70%, to $568,115 in 2000 due
to higher interest rates and higher invested cash balances during the current
year compared to 1999. Other income decreased by $64,329 during the year ended
December 31, 2000 to $49,131 compared to $113,460 in 1999 due to an decrease in
fees from investor servicing primarily related to a decrease in investor
transfer.

          Costs and Expenses

          Costs and expenses increased by $563,783, or 8.6%, during the year
ended December 31, 2000 to $7,105,143 compared to $6,541,360 for the same period
in 1999, primarily due to increases in partnership management fee, operating
expenses and depreciation and amortization, which more than offset a decrease in
administrative expenses. Partnership management fees increased to $926,084 in
2000 from $418,768 in 1999 due to the amendment to the partnership agreement,
which significantly reduced the amount payable in 1999 and changed the method of
calculating such fee in subsequent years. Operating expense increased by
$207,580, or 6.34%, to $3,479,665 as compared to $3,272,085 in 1999 due to
increases in real estate taxes and utilities partially offset by savings in
repairs and maintenance. Depreciation and amortization increased $76,163 or 5.7%
due to higher depreciation recorded in 2000 on certain capitalized tenant
improvements. Administrative expenses for the year ended December 31, 2000
decreased $251,511 or 20.7% compared to 1999 due to lower professional fees
associated with the settlement of the litigation and reorganization of the
Predecessor Partnership.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

          Market risk is the risk of loss from adverse changes in market prices
and interest rates. As of December 31, 2001, we did not have any debt
outstanding or any investments in long-term financial instruments that exposed
us to market risks. However, as described under "Item 1. Business - Recent
Developments", as of February 14, 2002, we issued a note to Shelbourne
Management LLC (the "Note") in the principal amount of $18,939,737 with a
maturity date of August 14, 2002. If the Note is repaid from third party
indebtedness, it will bear an effective rate of interest equal to the initial
rate of interest applicable to that third party indebtedness. If the Note is not
repaid from third party indebtedness, the interest rate payable at maturity or
earlier repayment is 8% per annum. As such, our exposure to market risk for
changes in interest rates is contingent upon refinancing this indebtedness. If
we do refinance this indebtedness, our exposure will depend on the level of
interest rates at the time of that potential

                                       29
<PAGE>


refinancing. If we do not refinance this indebtedness, we will not be exposed to
market risks from changing interest rates.

Item 8.    Financial Statements and Supplementary Data

          Our consolidated balance sheets as of December 31, 2001 and 2000, and
the related consolidated statements of operations, equity and cash flows for the
years ended December 31, 2001, 2000 and 1999, and the notes thereto, and the
independent auditor's report thereon and the financial statement schedule are
set forth on pages F-1 through F-15 and S-1 and S-2 of this report.

Item 9.    Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

          None.

                                       30

<PAGE>


                                    PART III

Item 10.    Directors and Executive Officers

          The table below sets forth certain information relating to the current
directors and executive officers of the Corporation. The Corporation currently
has three directors, Donald W. Coons, Robert Martin and W. Edward Scheetz and
one executive officer, Dallas Lucas, who serves as treasurer.



<TABLE>
<CAPTION>
       Name                                Age              Position Held                  Term of Service
       --------------------------------------------------------------------------------------------------------------
<S>                                       <C>          <C>                        <C>

       Donald W. Coons                     38                 Director            February 8, 2001-present

       Dallas Lucas                        39           Director, Secretary,      February 8, 2001-February 14,
                                                         Treasurer and Chief      2002, as Director
                                                          Financial Officer

                                                                                  November 20, 2001-February 14,
                                                                                  2002 as Secretary and Chief
                                                                                  Financial Officer


                                                                                  November 20, 2001-present, as
                                                                                  Treasurer

       Robert Martin                       40                 Director            February 8, 2001-present

       W. Edward Scheetz                   37            Director, Co-Chief       February 8, 2001-present, as
                                                          Executive Officer       Director


                                                                                  August 15, 2001-February 14,
                                                                                  2002, as Co-Chief Executive
                                                                                  Officer
</TABLE>

                                       31

<PAGE>


          The table below sets forth information relating to all directors and
officers who served the Corporation for any period from February 8, 2001, the
date of incorporation through December 31, 2001 but who no longer have those
positions.


<TABLE>
<CAPTION>
       Name                                Age              Position Held                  Term of Service
       --------------------------------------------------------------------------------------------------------------
<S>                                       <C>        <C>                          <C>

       Peter Ahl                           37         Director, Vice President    February 8, 2001-February 14,
                                                                                  2002, as Director


                                                                                  August 15, 2001-February 14,
                                                                                  2002, as Vice President

       Michael Ashner                      49            Director, President      February 8, 2001-August 15, 2001
                                                                                  as President and Director

       Michael Bebon                       40                 Director            February 8, 2001-March 27, 2002

       Peter Braverman                     48              Vice President         February 8, 2001-August 15, 2001
                                                                                  as Vice President

       David T. Hamamoto                   43            Director, Co-Chief       February 8, 2001-February 14,
                                                          Executive Officer       2002, as Director


                                                                                  August 15, 2001-February 14,
                                                                                  2002, as Co-Chief Executive
                                                                                  Officer

       Steven B. Kauff                     40              Vice President         February 8, 2001-February 14, 2002

       David G. King, Jr.                  39         Director, Vice President    February 8, 2001-February 14, 2002

       Lara Sweeney                        29         Vice President, Secretary   February 8, 2001-August 15, 2001

       Carolyn Tiffany                     35         Vice President, Treasurer   February 8, 2001-April 10, 2001,
                                                                                  as treasurer

                                                                                  February 8, 2001-August 15, 2001,
                                                                                  as Vice President
</TABLE>


          Pursuant to our certificate of incorporation, the directors are
classified into three classes, as equal in number as possible, with respect to
the term for which they hold office. The terms of the current directors will
expire at the annual meeting of stockholders as follows: Robert Martin in 2003,
Edward Scheetz in 2003 and Donald W. Coons in 2004.

          Until March 27, 2002, our audit committee consists solely of
independent directors, Michael Bebon, Donald Coons, Robert Martin. As our audit
committee charter requires that three directors serve on our audit committee,
subsequent to Michael Bebon's resignation on March 27, the Board of Directors
elected Edward Scheetz to serve on the audit committee. Our audit committee is
charged with recommending to the Board of Directors the independent public
accountants to be selected to audit the Corporation's annual financial
statements, approving (i) any special assignments given to such accountants,
(ii) such

                                       32
<PAGE>


accountant's letter of comments and management's responses thereto and (iii) any
major accounting changes made or contemplated, and reviewing the effectiveness
and adequacy of the Corporation's internal accounting controls.

          Robert Martin and Donald Coons are the members of the corporate
governance committee and the compensation committee.

          The following is a summary of the background of each director and
officer who served the Corporation for some period during 2001.

          Peter Ahl. Mr. Ahl has been a Vice President of NorthStar Capital
Investment Corp. since 1997. Prior to joining NorthStar, he was a director in
the Alternate Investment Group of AEW Capital Management, L.P. Mr. Ahel is a
Level 3 Chartered Financial Analyst.

          Michael Ashner. Mr. Ashner has been the Chief Executive Officer of
Winthrop Financial Associates, a limited partnership since 1996 as well as the
Chief Executive Officer of the New Kirk Group from 1997. From 1994 to 1996, Mr.
Ashner was a Director, President and Co-chairman of National Property Investors,
Inc., a real estate investment company. In addition, since 1981, Mr. Ashner has
been President of Exeter Capital Corporation, a firm that has organized and
administered real estate limited partnerships. Mr. Ashner currently serves as a
director of Interstate Hotel Corporation, Nexthealth Corp., Great Bay Hotel and
Casino Inc., Burnham Pacific Properties, Inc. and NBTY, Inc.

          Michael Bebon. Mr. Bebon is a Vice President of Sales at each of
Commonwealth Land Title Insurance Company and Lawyers Title Insurance
Corporation, both subsidiaries of LandAmerica Financial Group, Inc., a New York
Stock Exchange listed title insurance company. Mr. Bebon has been a Vice
President of Lawyers Title Insurance Corporation for more than five years.

          Peter Braverman. Mr. Braverman has been a Vice President of Presidio
AGP Corp. since November 1999. Mr. Braverman has served as the Executive Vice
President of Winthrop Financial Associates and its affiliates since January
1996. Mr. Braverman also serves as the Executive Vice President of The Newkirk
Group. From June 1995 until January 1996, Mr. Braverman was a Vice President of
National Property Investors, Inc. and NPI Property Management Corporation.

          Donald W. Coons. Mr. Coons is a director and the President and Chief
Executive Officer of The Loyalist Insurance Group, a public company that trades
on the Canadian Venture Exchange. Mr. Coons is also the President of Loyalist
Insurance Brokers Limited and Loyalist Insurance Managers and a director and the
President of Canadian Shortline Insurance Services and The Loyalist Insurance
Company. Mr. Coons serves as a director of American Special Risks Limited.

          David T. Hamamoto. Mr. Hamamoto is a co-founder and Co-Chief Executive
Officer of NorthStar Capital Investment Corp. Prior to founding NorthStar in
1997, he was a co-head of the Whitehall Funds, a real estate principal
investment business at Goldman Sachs & Co., and a partner at Goldman Sachs as
well. Mr. Hamamoto is a director of Emeritus Corporation, one of the largest
publicly traded owners and operators of assisted living facilities, and of U.S.
Franchise Systems, a publicly traded franchising concern.

          Steven B. Kauff. Mr. Kauff has been a Vice President of NorthStar
Capital Investment Corp. since July 1999. He is also a Vice President of
Presidio Capital Corp. Prior to joining NorthStar Capital Investment Corp., Mr.
Kauff was with Arthur Andersen LLP in the Real Estate and Hospitality Services
Group from 1996 to 1999, where he specialized in transaction consulting, due
diligence and tax products for real estate ventures, including real estate
investment trust and partnerships. From 1994 to 1996, Mr. Kauff was with Price
Waterhouse LLP in the Real Estate Industry Services Group.

          David G. King, Jr. Mr. King has been a Vice President and Assistant
Treasurer of NorthStar Capital Investment Corp. since November 1997, as well as
a Vice President of Presidio Capital Corp. Prior to joining NorthStar Capital
Investment Corp., Mr. King was a Senior Vice President of Finance at Olympia &
York Companies (USA).

                                       33

<PAGE>


          Dallas Lucas. Mr. Lucas has been a director, Vice President, Treasurer
and Chief Financial Officer of NorthStar Capital Investment Corp. since August
1998. He is also a Vice President of Presidio Capital Corp. From 1994 until
August 1998, he was the Chief Financial Officer and Senior Vice President of
Crescent Real Estate Equities Company. Mr. Lucas is a Certified Public
Accountant.

          Robert Martin. Mr. Martin is an Executive Managing Director at
Insignia/ESG., Inc., a global commercial real estate brokerage firm, where he
has been employed since 1995. Prior to joining Insignia/ESG, Mr. Martin was a
managing director at Grubb & Ellis, a commercial real estate brokerage firm.

          W. Edward Scheetz. Mr. Scheetz is Co-Chief Executive Officer of
NorthStar Capital Investment Corp., a company he co-founded in July 1997. From
1993 to 1997, Mr. Scheetz was a partner at Apollo Real Estate Advisors, where he
was responsible for the investment activities of Apollo Real Estate Investment
Funds I and II. From 1989 to 1993, Mr. Scheetz was a principal with Trammell
Crow Ventures where he was responsible for that firm's opportunistic real estate
investment activities.

          Lara Sweeney. Ms. Sweeney has been a Vice President and Secretary of
Presidio AGP Corp. since November 1999. Ms. Sweeney has been a Senior Vice
President of Winthrop Financial Associates since 1996. Ms. Sweeney was Director
of Investor Relations for National Property Investors, Inc. from 1994 until
1996.

          Carolyn Tiffany. Ms. Tiffany has been a Vice President and Treasurer
of Presidio AGP Corp. since November 1999 and has been with Winthrop Financial
Associates since January 1993. From 1995 to 1997, she was a Vice President in
the asset management and investor relations departments of Winthrop Financial
Associates and became Chief Operating Officer of Winthrop Financial Associates
in December 1997. Ms. Tiffany is also the Chief Operating Officer of The Newkirk
Group.

          There are no family relationships among the current or former
directors and officers of the Corporation.

Item 11.    Compensation

(a)       Executive Compensation.

          None of our executive officers received compensation from us in 2001.
Our executive officers were compensated by Shelbourne Management LLC in their
capacities as officers and employees of that company. Please see "Item 1 -
Business" and "Item 13 - Certain Relationships and Related Transactions" for a
description of those arrangements between us and Shelbourne Management LLC.

(b)       Director Compensation.

          Our independent directors, currently Donald W. Coons and Robert
Martin, receive $6,667 annually for their services as directors. In addition,
solely for their services as members of the Special Committee, which was
organized to review and evaluate the fairness of the repurchase by the
Corporation of the shares of common stock held by PCIC, Michael Bebon, Donald W.
Coons and Robert Martin received a one-time payment of $20,000. All directors
are reimbursed for travel expenses and other out-of-pocket expenses incurred in
connection with their serving as directors of the Corporation.

                                       34

<PAGE>


Item 12.    Security Ownership Of Certain Beneficial Owners And Management

(a)       Security Ownership of Certain Beneficial Owners.

          Except as set forth below, no person or group is known by us to be the
beneficial owner of more than 5% of the outstanding shares of the Corporation's
common stock at March 26, 2002:

Name of Beneficial Owner         Number of Shares owned               % of Class
--------------------------------------------------------------------------------
HX Investors, L.P. (1)                  67,108                          7.996%

          (1)       The principal business address of HX Investors, L.P. is 100
                    Jericho Quadrangle, Suite 214, Jericho, New York 11753. The
                    sole general partner of HX Investors LP is Exeter Capital
                    Corporation. Mr. Michael L. Ashner is the sole shareholder
                    and director of Exeter Capital. Mr. Ashner is principally
                    employed as the Chief Executive Officer of Winthrop
                    Financial Associates, a limited partnership affiliated with
                    the management company that provides all management services
                    for the Corporation.

(b)       Security Ownership of Management.

          Except as set forth below, no member of the management of the
Corporation is known by us to be a beneficial holder of its stock.

Name of Beneficial Owner         Number of Shares Owned               % of Class
--------------------------------------------------------------------------------
Michael Bebon, Director (1)              1,000                           .12%

Robert Martin, Director                  1,300                           .15%

          (1)       On March 27, 2002, Michael Bebon resigned from his position
                    as director of the Corporation.

(c)       Changes in Control.

          There exists no arrangement known to us the operation of which may at
a subsequent date result in a change in control of the Corporation.

                                       35

<PAGE>


Item 13.    Certain Relationships and Related Transactions

Compensation for Services

          The Predecessor General Partners and certain affiliated entities have,
during the year ended December 31, 2001, earned or received compensation or
payments for services or reimbursements from us, the Predecessor Partnership, or
Presidio subsidiaries as follows:


<TABLE>
<CAPTION>
<S>                                      <C>                                    <C>
                                                                                      Compensation from us, the
                                                                                 Predecessor Partnership or Presidio
Name of Recipient                              Capacity in Which Served                     subsidiaries
----------------------------------------------------------------------------------------------------------------------
Resources High Equity Inc.               Predecessor Managing General           $358,685(1)
                                         Partner
Presidio AGP Corp.                       Predecessor Associate General          $1,391(2)
                                         Partner

Kestrel Management, L.P.                 Affiliated Property Managers           $312,777 (3)

Shelbourne Management LLC                Business Manager                       $862,818(4)
</TABLE>


(1)       $44,583 represents payment for non-accountable expenses of the
          Predecessor Managing General Partner and $314,102 represents a
          Partnership Management Fee for managing the affairs of the Predecessor
          Partnership. Furthermore, under the Predecessor Partnership's Limited
          Partnership Agreement which was in effect until April 18, 2001, 5% of
          the Predecessor Partnership's net income and net loss is allocated to
          the Predecessor General Partners (0.1% to the Predecessor Associate
          General Partner and 4.9% to the Predecessor Managing General Partner).
          Pursuant thereto, for the year ended December 31, 2001, $68,164 of the
          Predecessor Partnership's net income was allocated to the Predecessor
          General Partners.
(2)       For the year ended December 31, 2001, $1,391 of the Predecessor
          Partnership's net income was allocated to the Predecessor Associate
          General Partner.
(3)       This amount was earned pursuant to a management agreement with Kestrel
          Management, L.P. for performance of certain functions relating to the
          management of our properties.
(4)       This amount was earned pursuant to an advisory agreement with
          Shelbourne Management LLC for performance of certain functions
          relating to the management of our business. $105,417 represents
          reimbursement expenses of Shelbourne Management LLC and $757,401
          represents an asset management fee for managing the affairs of the
          Corporation, property management fees and $150,000 for non-accountable
          expenses.


Recent Developments

          On February 14, 2002, the Corporation, Shelbourne Properties II, Inc.
and Shelbourne Properties III, Inc. (together the "Companies") announced the
consummation of a transaction whereby the Companies (i) purchased each of the
advisory agreements between the Companies and an affiliate of PCIC and (ii)
repurchased all of the shares of capital stock in the Companies held by PCIC.
Pursuant to the Transaction, for the Advisory Agreements and the Shares, the
Companies paid PCIC an aggregate of $44 million in cash, preferred partnership
interests in their respective operating partnerships with a liquidation
preference of $2.5 million, and notes with a stated amount of between $54.3
million and $58.3 million, depending upon the timing of the repayment of the
notes. For further details concerning this transaction, please see "Item 1.
Business - Recent Developments" on page 3 above.

          On March 27, 2002, Michael Bebon resigned as a director of the
Corporation.

                                       36

<PAGE>


                                     PART IV

Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K

          (a)       Financial Statements and Financial Statement Schedules

          (1)       Financial Statements

                    Independent Auditor's Report

                    Consolidated Balance Sheets as of December 31, 2001 and 2000

                    Consolidated Statements of Operations for the years ended
                    December 31, 2001, 2000 and 1999

                    Consolidated Statements of Equity for the year ended
                    December 31, 2001, 2000 and 1999

                    Consolidated Statements of Cash Flows for the years ended
                    December 31, 2001, 2000 and 1999

          (2)       Financial Statement Schedules

                    III - Real Estate and Accumulated Depreciation

                    All other schedules are omitted because they are not
                    applicable or not required.

          (b)       Reports on Form 8-K

                    None.

          (c)       Exhibits

          Exhibit
          Number    Description

          2.1       Form of Merger Agreement*

          3.1       Amended and Restated Certificate of Incorporation of the
                    Corporation*

          3.2       Amended and Restated Bylaws of the Corporation*

          4.1       Amended and Restated Agreement of Limited Partnership of the
                    Operating Partnership*

          4.2       Shareholder Rights Agreement*

          4.3       Amendment of Shareholders Rights Agreement between American
                    Stock Transfer and Trust Co. as rights agent, dated as of
                    February 14, 2002 **

          4.4       Certificate of Designations, Preferences and Rights of
                    Series A Preferred Stock*

          10.1      Indemnification Agreement between the Corporation and each
                    of its directors and executive officers*

          21.1      Listing of Subsidiaries

          99.1      Purchase and Contribution Agreement, dated as of February
                    14, 2002, by and among PCIC, certain subsidiaries of PCIC,
                    Northstar Capital Investment Corp., Shelbourne Management,
                    the Companies, the Operating Partnership, Shelbourne
                    Properties II, L.P. and Shelbourne Properties III, L.P.**

          99.2      Secured Promissory Note between the Operating Partnership
                    and Shelbourne Management dated as of February 14, 2002**

          99.3      Partnership Unit Designation of the Class A Preferred
                    Partnership Units of the Operating Partnership**

          99.4      Deed of Trust, Security Agreement, Financing Statement,
                    Fixture Filing and Assignment of Leases, Rents and Security
                    Deposits (Townson, Maryland) dated as of February 14,

                                       37
<PAGE>


                    2002 among the Operating Partnership, Shelbourne Management
                    and John T. Kieley as Trustee

          99.5      Mortgage, Security Agreement, Financing Statement, Fixture
                    Filing and Assignment of Leases, Rents and Security Deposits
                    (Ft. Lauderdale, Florida) dated as of February 14, 2002
                    between the Operating Partnership and Shelbourne Management
                    and Chicago Title Insurance as Trustee

          99.6      Security Agreement dated as of February 14, 2002 between the
                    Operating Partnership and Shelbourne Management

          99.7      First Amendment to Security Agreement dated as of March 15,
                    2002 between the Operating Partnership and Shelbourne
                    Management

          99.8      Negative Covenant and Declaration by Century Park I Joint
                    Venture, as Declarant, to Shelbourne Management, as
                    Beneficiary, dated as of March 15, 2002

          *         incorporated by reference to the Registration Statement of
                    the Corporation on form S-4 filed on February 11, 2000 as
                    amended

          **        incorporated by reference to the Current Report of the
                    Corporation on form 8-K filed on February 14, 2002

          (d)       Financial Statements

                    None


                                       38


<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.

                                   SHELBOURNE PROPERTIES I, INC.


Dated:  March 29, 2002             By:          /s/ Dallas Lucas
                                         ---------------------------------------
                                         Name:  Dallas Lucas
                                         Title: Treasurer




          Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.



Dated:  March 29, 2002             By:          /s/ Don W. Coons
                                         ---------------------------------------
                                         Name:  Don W. Coons
                                         Title: Director


                                   By:          /s/ Robert Martin
                                         ---------------------------------------
                                         Name:  Robert Martin
                                         Title: Director


                                   By:          /s/ W. Edward Scheetz
                                         ---------------------------------------
                                         Name:  W. Edward Scheetz
                                         Title: Director

                                       39
<PAGE>


                          SHELBOURNE PROPERTIES I, INC.

                             A DELAWARE CORPORATION

                        CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2001, 2000 and 1999

                                    I N D E X

                                                                            Page
                                                                          Number
                                                                          ------

Independent Auditors' Report................................................F-1

Consolidated financial statements, years ended December 31, 2001,
2000 and 1999

Consolidated Balance Sheets.................................................F-2

Consolidated Statements of Operations.......................................F-3

Consolidated Statements of Equity...........................................F-4

Consolidated Statements of Cash Flows.......................................F-5

Notes to Consolidated Financial Statements..................................F-6





<PAGE>


INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders of Shelbourne Properties I, Inc.

We have audited the accompanying balance sheets of Shelbourne Properties I,
Inc., (formerly High Equity Partners LP-Series 85), (the "Company") as of
December 31, 2001 and 2000, and the related consolidated statements of
operations, equity, and cash flows for each of the three years in the period
ended December 31, 2001. Our audits also included the financial statement
schedule listed in the Index at Item 14(a) 2. 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 audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company and its subsidiaries as
of December 31, 2001 and 2000, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.


DELOITTE & TOUCHE LLP

Boston, Massachusetts
March 25, 2002

                                      F-1
<PAGE>


                          SHELBOURNE PROPERTIES I, INC.

                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                December 31,
                                               ---------------------------------------------
                                                        2001                   2000
                                               ----------------------- ---------------------
<S>                                              <C>                     <C>
ASSETS
Real estate, net                                  $    31,783,227        $    31,385,741
Cash and cash equivalents                              14,191,726             13,229,944
Other assets                                            3,013,830              3,040,423
Receivables, net of allowances of
     $92,074 and $170,309, respectively                   279,777                216,573
                                                  ---------------        ---------------
TOTAL ASSETS                                      $    49,268,560        $    47,872,681
                                                  ===============        ===============




LIABILITIES AND EQUITY

Accounts payable and accrued expenses             $       783,308        $       781,936
Due to affiliates                                               -                396,320
                                                  ---------------        ---------------

     Total liabilities                                    783,308              1,178,256

COMMITMENTS AND CONTINGENCIES (Notes 6 and 7)


EQUITY:

Common stock:
     $.01 par value per share; authorized
     2,500,000 shares; issued and outstanding
     1,263,189 shares                                      12,632                      -
Additional capital                                     48,072,897                      -
Retained earnings                                         399,723                      -

Limited partners' equity (400,010 units
     issued and outstanding)                                    -             44,358,754
General partners' equity                                        -              2,335,671
                                                  ---------------        ---------------

     Total equity                                      48,485,252             46,694,425
                                                  ---------------        ---------------

TOTAL LIABILITIES AND EQUITY                      $    49,268,560        $    47,872,681
                                                  ===============        ===============
</TABLE>



                 See notes to consolidated financial statements.



                                      F-2

<PAGE>


                          SHELBOURNE PROPERTIES I, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                          For the Year Ended December 31,
                                               ------------------------------------------------------
                                                      2001              2000              1999
                                               ----------------- ------------------ -----------------
<S>                                              <C>               <C>              <C>

Rental Revenue                                   $   10,337,996    $   10,335,197    $   10,941,322
                                                 --------------    --------------    --------------

Costs and Expenses:
         Operating expenses                           3,516,980         3,479,665         3,272,085
         Depreciation and amortization                1,510,579         1,419,420         1,343,257
         Asset management fee                         1,071,503           926,084           418,768
         Administrative expenses                      1,037,509           963,748         1,215,259
         Property management fee                        312,777           316,226           291,991
                                                 --------------    --------------    --------------
                                                      7,449,348         7,105,143         6,541,360
                                                 --------------    --------------    --------------

Income before interest and other income               2,888,648         3,230,054         4,399,962

         Interest income                                551,031           568,115           334,116
         Other income                                    31,189            49,131           113,460
                                                 --------------    --------------    --------------

Net Income                                       $    3,470,868    $    3,847,300    $    4,847,538
                                                 ==============    ==============    ==============

Earnings Per Share - Basic and Diluted

Net income per common share                      $         2.75    $         3.05    $         3.84
                                                 ==============    ==============    ==============

Weighted average common shares                        1,263,189         1,263,189         1,263,189
                                                 ==============    ==============    ==============
</TABLE>



                 See notes to consolidated financial statements



                                      F-3

<PAGE>


                          SHELBOURNE PROPERTIES I, INC.

                        CONSOLIDATED STATEMENTS OF EQUITY



<TABLE>
<CAPTION>
                                              Partners' Equity                            Shareholders' Equity
                                           General        Limited                      Additional       Retained
                                          Partners        Partners     Common Stock      Capital        Earnings         Total
<S>                                    <C>              <C>           <C>             <C>             <C>            <C>

Balance January 1, 1999                $ 1,940,510      $36,850,676   $           -    $        -      $       -     $38,791,186

Net income                                 242,377        4,605,161               -             -              -       4,847,538

Distributions ($.63 per share)             (39,581)        (752,018)              -             -              -        (791,599)
                                      ------------     ------------    ------------    ----------      ---------     -----------

Balance, December 31, 1999               2,143,306       40,703,819               -             -              -      42,847,152

Net income                                 192,365        3,654,935               -             -              -       3,847,300
                                      ------------     ------------    ------------    ----------      ---------     -----------

Balance, December 31, 2000               2,335,671       44,358,754               -             -              -      46,694,425

Net income through April 18, 2001           69,555        1,321,549               -             -              -       1,391,104

Conversion of Partnership to REIT       (2,405,226)     (45,680,303)         12,632     48,072,897             -               -

Net income after conversion                      -                -               -              -     2,079,764       2,079,764

Distributions ($1.33 per share)                  -                -               -              -    (1,680,041)     (1,680,041)
                                      ------------     ------------    ------------    -----------    ----------     -----------
Balance, December 31, 2001             $         -      $         -          12,632    $48,072,897    $  399,723     $48,485,252
                                      ============     ============    ============    ===========    ==========     ===========
</TABLE>



                 See notes to consolidated financial statements



                                      F-4

<PAGE>


                                  SHELBOURNE PROPERTIES I, INC.

                              CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                          For the Years Ended December 31,
                                                                ----------------------------------------------------
                                                                     2001               2000              1999
                                                                --------------     --------------     -------------
<S>                                                             <C>                <C>               <C>

CASH FLOW FROM OPERATING ACTIVITIES:

Net income                                                      $    3,470,868     $    3,847,300    $    4,847,538
Adjustments to reconcile net income to net cash provided by
     operating activities
     Depreciation and amortization                                   1,510,579          1,419,420         1,343,257
     Straight line adjustment for stepped lease rentals                120,451            (18,920)       (1,250,983)
Changes in operating assets and liabilities:
     Accounts payable and accrued expenses                               1,372           (442,437)          (40,891)
     Receivables                                                       (63,204)            (7,155)          (61,995)
     Due to affiliates                                                (396,320)           289,065          (255,185)
     Other assets                                                     (428,653)          (223,141)         (418,340)
                                                                ---------------    ---------------   ---------------

Net cash provided by (used in) operating activities                  4,215,093          4,864,132         4,163,401
                                                                --------------     --------------    --------------

CASH FLOWS FROM INVESTING ACTIVITIES

     Improvements to real estate                                    (1,573,270)          (155,558)         (756,274)
                                                                ---------------    ---------------   ---------------

CASH FLOWS FROM FINANCING ACTIVITIES

     Distributions                                                  (1,680,041)                 -        (1,187,398)
                                                                ---------------    --------------    ---------------

Increase in Cash and Cash Equivalents                                  961,782          4,708,574         2,219,729

Cash and Cash Equivalents, Beginning of Year                        13,229,944          8,521,370         6,301,641
                                                                --------------     --------------    --------------

Cash and Cash Equivalents, End of Year                          $   14,191,726     $   13,229,944    $    8,521,370
                                                                ==============     ==============    ==============
</TABLE>



                 See notes to consolidated financial statements



                                      F-5

<PAGE>


                          SHELBOURNE PROPERTIES I, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.        ORGANIZATION

          Integrated Resources High Equity Partners, Series 85 (the "Predecessor
          Partnership"), A California Limited Partnership, was converted to a
          Real Estate Investment Trust ("REIT") on April 18, 2001 named
          Shelbourne Properties I, Inc. ("Shelbourne" or the "Corporation") by
          merging with Shelbourne's subsidiary, Shelbourne Properties I LP, a
          Delaware limited partnership, that is the operating partnership of the
          REIT. Shelbourne currently invests in two shopping center and three
          office properties.

2.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          Basis of Presentation

          The consolidated financial statements include the accounts of
          Shelbourne Properties I, Inc. and its wholly owned subsidiaries,
          Shelbourne Properties I, LP and Shelbourne Properties I GP, LLC.
          Intercompany accounts and transactions have been eliminated in
          consolidation.

          Financial Statements

          The financial statements are prepared on the accrual basis of
          accounting. The preparation of financial statements in conformity with
          accounting principles generally accepted in the United States of
          America 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.

          Cash and Cash Equivalents

          Shelbourne considers all short-term investments that have original
          maturities of three months or less from the date of issuance to be
          cash equivalents.

          Revenue Recognition

          Base rents are recognized on a straight-line basis over the terms of
          the related leases. Percentage rents charged to retail tenants based
          on sales volume are recognized when earned. Pursuant to Staff
          Accounting Bulletin No 101, "Revenue Recognition in Financial
          Statements," issued by the Securities and Exchange Commission in
          December 1999, and the Emerging Issues Task Force's consensus on Issue
          98-9, "Accounting for Contingent Rent in Interim Financial Periods,"
          Shelbourne defers recognition of contingent rental income (i.e.,
          percentage/excess rent) in interim periods until the specified target
          (i.e., breakpoint) that triggers the contingent rental income is
          achieved. Recoveries from tenants for taxes, insurance and other
          operating expenses are recognized as revenue in the period the
          applicable costs are incurred.

          Investments in Joint Ventures

          Certain properties were purchased in joint venture ownership with an
          affiliated REIT. Shelbourne owns an undivided interest and is
          severally liable for indebtedness it incurs in connection with its
          ownership interest in those properties. Therefore, Shelbourne's
          financial statements present the assets, liabilities, revenues and
          expenses of the joint ventures on a pro rata basis in accordance with
          the percentage of ownership.

          Real Estate

          Real estate is carried at cost, net of adjustments for impairment.
          Repairs and maintenance are charged to expense as incurred.
          Replacements and betterments are capitalized. Shelbourne evaluates the

                                      F-6

<PAGE>


                          SHELBOURNE PROPERTIES I, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          recoverability of the net carrying value of its real estate and
          related assets at least annually, and more often if circumstances
          dictate. If there is an indication that the carrying amount of a
          property may not be recoverable, Shelbourne prepares an estimate of
          the future undiscounted cash flows expected to result from the use of
          the property and its eventual disposition, generally over a five-year
          holding period. In performing this review, management takes into
          account, among other things, the existing occupancy, the expected
          leasing prospects of the property and the economic situation in the
          region where the property is located.

          If the sum of the expected undiscounted future cash flows is less than
          the carrying amount of the property, Shelbourne recognizes an
          impairment loss, and reduces the carrying amount of the asset to its
          estimated fair value. Fair value is the amount at which the asset
          could be bought or sold in a current transaction between willing
          parties, that is, other than in a forced or liquidation sale.
          Management estimates fair value using discounted cash flows or market
          comparables, as most appropriate for each property. Independent
          certified appraisers are utilized to assist management, when
          warranted.

          Impairment write-downs recorded by the Predecessor Partnership do not
          affect the tax basis of the assets and are not included in the
          determination of taxable income or loss.

          Because the cash flows used to evaluate the recoverability of the
          assets and their fair values are based upon projections of future
          economic events such as property occupancy rates, rental rates,
          operating cost inflation and market capitalization rates which are
          inherently subjective, the amounts ultimately realized at disposition
          may differ materially from the net carrying values at the balance
          sheet dates. The cash flows and market comparables used in this
          process are based on good faith estimates and assumptions developed by
          management.

          Unanticipated events and circumstances may occur and some assumptions
          may not materialize; therefore, actual results may vary from the
          estimates and the variances may be material. Shelbourne may provide
          additional write-downs, which could be material in subsequent years if
          real estate markets or local economic conditions change.

          Depreciation and Amortization

          Depreciation is computed using the straight-line method over the
          useful life of the property, which is estimated to be 40 years. The
          cost of properties represents the initial cost of the properties to
          Shelbourne plus acquisition and closing costs less impairment
          adjustments. Tenant improvements and leasing costs are amortized over
          the applicable lease term.

          Income Taxes

          Shelbourne is operating with the intention of qualifying as a REIT
          under Sections 856-860 of the Internal Revenue Code of 1986 as
          amended. Under those sections, a REIT which distributes at least 90%
          of its taxable income as a dividend to its shareholders each year and
          which meets certain other conditions will not be taxed on that portion
          of its taxable income which is distributed to its shareholders.

                                      F-7
<PAGE>


                          SHELBOURNE PROPERTIES I, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


          Shelbourne distributed to shareholders an amount greater than its
          taxable income therefore no provision for Federal income taxes is
          required. For federal income tax purposes, the cash dividends
          distributed to shareholders are characterized as follows:


                                                    2001
                                              -----------------

                    Ordinary Income                 100%

                    Return of Capital                 0%
                                              -----------------

                                  Total:            100%
                                              =================


          Prior to the conversion, no provisions were made for federal, state
          and local income taxes since they were the personal responsibility of
          the partners. A final tax return and K-1's were issued for the short
          tax year ending April 18, 2001.

          Taxable income differs from net income for financial reporting
          purposes principally because of differences in the timing of
          recognition of rental income and depreciation. As a result of these
          differences, and the impairment of long-lived assets and the initial
          write off of organization costs for book purposes, the tax basis of
          Shelbourne's or the Predecessor Partnership's net assets exceeded its
          book value by $23,000,260 and $24,141,207 at December 31, 2001 and
          2000, respectively.

          Amounts per Share

          Basic earnings per share is computed based on average shares
          outstanding. The number of limited partner interest units outstanding
          prior to the conversion has been restated to reflect effects of the
          conversion.

          Distributions per Share

          On December 7, 2001 the Board of Directors declared a dividend of
          $1.33 per share. The distribution was subsequently paid on December
          21, 2001 to all shareholders of record as of December 17, 2001.

          Net Income and Distributions per Unit of Limited Partnership Interest
          Prior to Conversion

          Prior to the conversion, net income and distributions per unit of
          limited partnership interest were calculated based upon the number of
          limited partnership units outstanding (400,010) for each of the years
          ended December 31, 2000, and 1999. No distributions were paid in 2000.

          Recently Issued Accounting Standards

          Effective January 1, 2001, Shelbourne adopted Statement of Financial
          Accounting Standards (SFAS) No. 133, "Accounting for Derivative
          Instruments and Hedging Activities." Because Shelbourne does not
          currently utilize derivatives or engage in hedging activities, this
          standard did not have a material effect on Shelbourne's financial
          statements.

          In July 2001, the Financial Accounting Standards Board ("FASB") issued
          SFAS No. 141 "Business Combinations." SFAS No. 141 requires that all
          business combinations be accounted for under the purchase method of
          accounting. SFAS No. 141 also changes the criteria for the separate
          recognition of intangible assets acquired in a business combination.
          SFAS No. 141 is effective for all business combinations initiated
          after June 30, 2001. There was no effect from this statement on
          Shelbourne's financial statements.

                                      F-8

<PAGE>


                          SHELBOURNE PROPERTIES I, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          In July 2001, the FASB issued SFAS No. 142 "Goodwill and Other
          Intangible Assets." SFAS No. 142 addresses accounting and reporting
          for intangible assets acquired, except for those acquired in a
          business combination. SFAS No. 142 presumes that goodwill and certain
          intangible assets have indefinite useful lives. Accordingly, goodwill
          and certain intangibles will not be amortized but rather will be
          tested at least annually for impairment. SFAS No. 142 also addresses
          accounting and reporting for goodwill and other intangible assets
          subsequent to their acquisition. SFAS No. 142 is effective for fiscal
          years beginning after December 15, 2001. This statement will not
          effect Shelbourne's financial statements.

          In August 2001, the FASB issued SFAS No. 144 "Accounting for the
          Impairment or Disposal of Long-Lived Assets," which addresses
          financial accounting and reporting for the impairment or disposal of
          long-lived assets. This statement supersedes SFAS No. 121, "Accounting
          for the Impairment of Long-Lived Assets and for Long-Lived Assets to
          be Disposed Of" and the accounting and reporting provisions of APB
          Opinion No. 30, "Reporting the Results of Operations - Reporting the
          Effects of a Disposal of a Business and Extraordinary, Unusual and
          Infrequently Occurring Events and Transactions," for the disposal of a
          segment of a business. SFAS No. 144 is effective for fiscal years
          beginning after December 15, 2001, and interim periods within those
          fiscal years. The provisions of this Statement generally are to be
          applied prospectively. Shelbourne does not expect that this statement
          will have a material effect on its financial statements.

3.        CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES

          Due to the conversion of the Predecessor Partnership into a REIT (as
          described in Note 1 above) on April 18, 2001, the nature of the
          relevant conflicts of interest and related party transactions changed
          during the fiscal year ended December 31, 2001. In addition, the stock
          repurchase described at Note 7 again affected the relevant conflicts
          of interest and changed the nature of some related party transactions.
          This Note 3 is divided into two sections: (A) Prior to April 18, 2001
          and (B) April 18, 2001 to December 31, 2001.

          A.        Prior to April 18, 2001

          Until April 18, 2001, the General Partners of the Predecessor
          Partnership were entitled to receive certain fees and reimbursement
          for expenses as permitted under the terms of the Predecessor
          Partnership's partnership agreement. The Managing General Partner of
          the Predecessor Partnership, Resources High Equity Inc., is a wholly
          owned subsidiary of Presidio Capital Corp. ("Presidio"). Presidio AGP
          Corp., which is also a wholly owned subsidiary of Presidio, is the
          Associate General Partner (together with the Managing General Partner,
          the "Predecessor General Partners").

          Affiliates of the Predecessor General Partners were engaged in
          businesses related to the acquisition and operation of real estate.

          Presidio is the parent of other corporations that are or may in the
          future be engaged in business that may be in competition with
          Shelbourne. Accordingly, conflicts of interest may have arisen between
          the Predecessor Partnership and such other businesses. Subject to the
          rights of the Limited Partners under the Limited Partnership Agreement
          (the "Agreement"), Presidio controlled the Predecessor Partnership
          through its indirect ownership of all the shares of the Predecessor
          General Partners. Effective July 31, 1998, Presidio was indirectly
          controlled by NorthStar Capital Investment Corp., a Maryland
          Corporation.

          Effective as of August 28, 1997, Presidio had a management agreement
          with NorthStar Presidio Management Company LLC ("NorthStar Presidio"),
          an affiliate of NorthStar Capital Investment Corp., pursuant to which
          NorthStar Presidio provided the day-to-day management of Presidio and
          its direct and indirect subsidiaries and affiliates. For the years
          ended December 31, 2001, 2000 and 1999, reimbursable expenses incurred
          by NorthStar Presidio, which is related to the Predecessor
          Partnership) amounted to

                                      F-9

<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.        CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
          (Continued)

          approximately $0, $0 and $57,739 respectively. Effective October 21,
          1999, Presidio entered into a Services Agreement with AP-PCC III, L.P.
          (the "Agent") pursuant to which the Agent was retained to provide
          asset management and investor relation services to the Predecessor
          Partnership and other entities affiliated with the Predecessor
          Partnership.

          As a result of this agreement, the Agent had the duty to direct the
          day-to-day affairs of the Predecessor Partnership, including, without
          limitation, reviewing and analyzing potential sale, financing or
          restructuring proposals regarding the Predecessor Partnership's
          assets, preparation of all reports, maintaining records and
          maintaining bank accounts of the Predecessor Partnership. The Agent
          was not permitted, however, without the consent of Presidio, or as
          otherwise required under the terms of the Limited Partnership
          Agreement to, among other things, cause the Predecessor Partnership to
          sell or acquire an asset or file for bankruptcy protection.

          In order to facilitate the Agent's provision of the asset management
          services and the investor relation services, effective October 25,
          1999, the officers and directors of the Predecessor General Partner
          resigned and nominees of the Agent were elected as the officers and
          directors of the Predecessor Partnership (and subsequently of
          Shelbourne). The Agent is an affiliate of Winthrop Financial
          Associates, a Boston based company that provides asset management
          services, investor relation services and property management services
          to over 150 limited partnerships which own commercial property and
          other assets.

          The fees payable to the Predecessor General Partners prior to April
          17, 2001 and to Shelbourne Management from and after April 18, 2001
          consist of (i) a maximum non-accountable expense reimbursement of
          $150,000 per year, (ii) an annual management fee of 1.25% of the Gross
          Asset Value of the Partnership/Company (as defined), (iii) property
          management fees of up to 6% of property revenues, and (iv)
          reimbursement of expenses incurred in connection with the performance
          of its services. Gross Asset Value is the gross asset value of all
          assets owned by the Operating Partnership based on the latest
          appraisal of real estate assets by an independent appraiser of
          national reputation selected by the advisor and the amount of other
          assets as reflected on the balance sheet. Since the asset management
          fee was based on gross assets, the amount payable to Shelbourne
          Management increased to the extent Shelbourne acquired new
          investments, whether for cash, or by causing Shelbourne to incur
          indebtedness or otherwise.

          Prior to the merger in April 2001, the Predecessor Partnership had a
          property management services agreement with Resources Supervisory
          Management Corp. ("Resources Supervisory"), an affiliate of the
          Managing General Partner, to perform certain functions relating to the
          management of the properties of the Partnership. Portions of the
          property management fees were paid to unaffiliated management
          companies, which were engaged for the purpose of performing the
          management functions for certain properties. Effective October 2000,
          Kestrel Management L.P. ("Kestrel"), an affiliate of the Agent began
          performing all property management services directly for the
          Predecessor Partnership. For the years ended December 31, 2000, and
          1999, Resources Supervisory was entitled to receive an aggregate of
          $221,642, and $291,991 respectively, of which $137,022 was received by
          Kestrel in 2000 and $78,652, and $220,011 was paid to unaffiliated
          management companies, respectively. From October 1, 2000 through
          December 31, 2000 Kestrel received $94,584.  For the year ended
          December 31, 2001 Kestrel received $312,777.

          For the administration of the Predecessor Partnership the Managing
          General Partner was entitled to receive non-accountable reimbursement
          of expenses of a maximum of $150,000 per year.

          Pursuant to the amendment to the Agreement, which became effective on
          August 20, 1999, the annual partnership management fee for 1999 was
          reduced to $418,769. Further, the Partnership Agreement was amended
          (for the year 2000 and beyond) so that the partnership management fee
          will be calculated equal to 1.25% of the Gross Asset Value of the
          Partnership. For the years ended December 31, 2000 and 1999 the
          Managing General Partner earned $926,084, and $418,769 respectively.

                                      F-10
<PAGE>


                          SHELBOURNE PROPERTIES I, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.        CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
          (Continued)

          Prior to the conversion, the General Partners were allocated 5% of the
          net income of the Predecessor Partnership that amounted to $192,365
          and $242,377 in 2000 and 1999, respectively. The General Partners were
          also entitled to receive 5% of distributions that amounted to $39,581
          in 1999. There were no distributions were paid in 2000.

          In connection with a tender offer for units of the Predecessor
          Partnership made March 12, 1998 (the "Offer") by Olympia Investors,
          L.P., a Delaware limited partnership controlled by Carl Ichan
          ("Olympia"), Olympia and Presidio entered into an agreement dated
          March 6, 1998 (the "Olympia Agreement"). Subsequent to the expiration
          of the offer, Olympia announced that it had accepted for payment
          31,132 units properly tendered pursuant to the Offer. Pursuant to the
          Olympia Agreement, Presidio purchased 50% of the units owned by
          Olympia as a result of the Offer, or 15,566 units, for $101.81 per
          unit. Presidio may be deemed to beneficially own the remaining units
          owned by Olympia as a consequence of the Olympia Agreement. Subsequent
          to the expiration of the tender offer described above, Millennium
          Funding II Corp. purchased 18,042 limited partnership units from
          August 1998 through February 1999. The total of these purchases and
          the units purchased from Olympia (as described above) represented
          approximately 18.2% of the outstanding limited partnership units of
          the Predecessor Partnership. On a post conversion basis, the tender
          offer was for the equivalent of 80,808 shares at a price of $38.20 per
          share

          As required by the settlement (see Note 6), an affiliate of the
          Predecessor General Partners, Millennium Funding II, LLC, made a
          tender offer to limited partners to acquire up to 26,936 Units
          (representing approximately 6.7% of the outstanding Units) at a price
          of $114.60 per Unit. The offer closed in January 2000 and all 26,936
          Units were acquired in the offer.

          B.        April 18, 2001 to December 31, 2001

          On April 18, 2001, further to the settlement of litigation described
          in Note 6, the Predecessor Partnership was converted to a REIT as
          described in Note 1.

          Effective April 18, 2001, Shelbourne entered into a contract with
          Shelbourne Management, LLC ("Shelbourne Management"), which contract
          has a term of 10 years, pursuant to which Shelbourne Management agreed
          to provide Shelbourne with all management, advisory and property
          management services. Shelbourne Management is owned by Presidio
          Capital Investment Company, LLC ("PCIC"), an entity controlled and
          principally owned by affiliates of former senior management of the
          Company. For providing these services, Shelbourne Management was to
          receive (1) an annual asset management fee, payable quarterly, equal
          to 1.25% of the gross asset value of Shelbourne as of the last day of
          each year, (2) property management fees of up to 6% of property
          revenues, (3) $150,000 for non-accountable expenses and (4)
          reimbursement of expenses incurred in connection with the performance
          of its services. This agreement was terminated on February 14, 2002 as
          part of the transaction described in Note 7 below.

          Subsequent to the conversion, all Partnership units owned were
          converted to common stock at three shares for 1 partnership unit.
          Affiliates of the Predecessor General Partner owned 423,903 shares and
          received a distribution in the amount of $563,791 in 2001.

          The nominees of the Agent resigned as officers and directors of
          Shelbourne in August 2001, and certain officers of Presidio were
          elected as officers of Shelbourne, though the Agent continued to
          provide services to Shelbourne.

                                      F-11
<PAGE>


                          SHELBOURNE PROPERTIES I, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.        CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
          (Continued)

          The following table summarizes the amounts paid to the Predecessor
          General Partners and Shelbourne Management on account of such fees for
          the twelve-month periods ended December 31, 2001, 2000 and 1999.

<TABLE>
<CAPTION>
                                                                    Twelve Months Ended
                                              December 31, 2001           December 31, 2000      December 31, 1999
                                              -----------------           -----------------      -----------------
                                          Predecessor
                                          General        Shelbourne         Predecessor            Predecessor
                                          Partners       Management       General Partners       General Partners
<S>                                       <C>             <C>              <C>                    <C>

        Expense Reimbursement             $ 44,583        $105,417         $150,000               $150,000
        Asset Management Fee              $314,102        $757,401         $926,084               $418,768
</TABLE>

4.        REAL ESTATE

          The following table is a summary of Shelbourne's real estate as of:

<TABLE>
<CAPTION>
                                                                        December 31,
                                                           ---------------------------------------
                                                                  2001                 2000
                                                           -----------------      ----------------
<S>                                                         <C>                   <C>

                     Land                                   $   10,370,965        $   10,370,965

                     Buildings and improvements                 39,444,906            37,871,636
                                                            --------------        --------------
                                                                49,815,871            48,242,601

                     Less:  Accumulated depreciation           (18,032,644)          (16,856,860)
                                                            --------------        --------------

                                                            $   31,783,227        $   31,385,741
                                                            ==============        ==============
</TABLE>

          During 2001, revenues from the Southport and 568 Broadway properties
          represented 33% and 29% of gross revenues. During 2000, Southport and
          568 Broadway properties represented 35% and 29% of gross revenues.
          During 1999, Southport and 568 Broadway properties represented 34% and
          28% of gross revenues. No single tenant accounted for more than 10% of
          Shelbourne's rental revenues.

          The following is a summary of Shelbourne's share of anticipated future
          receipts under noncancellable leases:

<TABLE>
<CAPTION>
                      2002          2003          2004          2005          2006        Thereafter       Total
                      ----          ----          ----          ----          ----        ----------       -----

<S>               <C>           <C>           <C>           <C>           <C>           <C>            <C>
        Total:    $8,417,084    $7,529,965    $6,740,483    $5,516,399    $4,077,425    $10,957,827    $43,239,183
                  ==========    ==========    ==========    ==========    ==========    ===========    ===========
</TABLE>

                                      F-12

<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4.        REAL ESTATE (Continued)

          The Predecessor Partnership recorded substantial write-downs for
          impairment prior to 1996. No write-downs were required for 1999, 2000
          or 2001. The following table summarizes write-downs recorded on the
          properties held by the Predecessor Partnership at December 31, 2001:

                 Property

                 Seattle Tower            $   6,050,000
                 Century Park I              11,700,000
                 568 Broadway                10,821,150
                 Loch Raven                   4,800,000
                 Southport                    4,900,000
                                          -------------

                                          $  38,271,150
                                          =============

5.        DUE TO AFFILIATES

<TABLE>
<CAPTION>
                                                                   December 31,
                                                         ------------------------------
                                                             2001               2000
                                                         -----------        -----------
<S>                                                      <C>                <C>
         Predecessor Partnership management fee          $         -        $   358,820
         Non-accountable expense reimbursement                     -             37,500
                                                         -----------        -----------
                                                         $         -        $   396,320
                                                         ===========        ===========
</TABLE>



6.        SETTLEMENT OF LAWSUIT

          In April 1999, the California Superior Court approved the terms of the
          settlement of a class action and derivative litigation involving the
          Predecessor Partnership. Under the terms of the settlement, the
          Predecessor General Partners agreed to take the actions described
          below subject to first obtaining the consent of limited partners to
          amendments to the Agreement summarized below. The settlement became
          effective in August 1999 following approval of the amendments. As
          amended, the Agreement (a) provided for a Partnership Asset Management
          Fee equal to 1.25% of the gross asset value of the Predecessor
          Partnership and a fixed 1999 Partnership Asset Management Fee of
          $418,769 or $426,867 less than the amount that would have been paid
          for 1999 under the prior formula and (b) fixed the amount that the
          Predecessor General Partners would be liable to pay to limited
          partners upon liquidation of the Predecessor Partnership as repayment
          of fees previously received (the "Fee Give-Back Amount"). As amended,
          the Agreement provided that, upon a reorganization of the Predecessor
          Partnership into a real estate investment trust or other public
          entity, the Predecessor General Partners will have no further
          liability to pay the Fee Give-Back Amount.

          As required by the settlement, as discussed above, Millennium Funding
          II, LLC, made a tender offer to limited partners to acquire up to
          80,808 shares.

          The final requirement of the settlement obligated the Predecessor
          General Partners to use their best efforts to reorganize the
          partnership into a real estate investment trust or other entity whose
          shares were listed on a national securities exchange or on the NASDAQ
          National Market System. A Registration Statement was filed with the
          Securities and Exchange Commission on February 11, 2000 with respect
          to the restructuring of the Predecessor Partnership into a
          publicly-traded real estate investment trust. On or about February 15,
          2001, a prospectus/consent solicitation statement was mailed to the
          limited partners of the Predecessor Partnership seeking their consent
          to the reorganization of the Predecessor Partnership into a real
          estate investment trust.

                                      F-13
<PAGE>


                          SHELBOURNE PROPERTIES I, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


6.        SETTLEMENT OF LAWSUIT (Continued)

          The consent of limited partners was sought to approve the conversion
          of the Predecessor Partnership into a publicly-traded real estate
          investment trust called Shelbourne Properties I, Inc. ("Shelbourne").

          The consent solicitation period expired on April 16, 2001 and holders
          of a majority of the Units approved the conversion.

          On April 18, 2001 the conversion was accomplished by merging the
          Predecessor Partnership into the Operating Partnership. Pursuant to
          the merger, each limited partner received three shares of stock of the
          Corporation for each unit they owned and the general partners received
          an aggregate of 63,159 shares of stock in the Corporation in exchange
          for their general partner interests. The common stock of the
          Corporation is listed on the American Stock Exchange under the symbol
          HXD.

7.        SUBSEQUENT EVENTS

          On February 14, 2002, Shelbourne, Shelbourne Properties II, Inc. and
          Shelbourne Properties III, Inc. (together the "Companies") announced
          the consummation of a transaction (the "Transaction") whereby the
          Companies (i) purchased each of the advisory agreements (the "Advisory
          Agreements") between the Companies and an affiliate of PCIC and (ii)
          repurchased all of the shares of capital stock in the Companies held
          by PCIC (the "Shares").

          Pursuant to the Transaction, Shelbourne paid PCIC $14,303,060 in cash
          and its operating partnership, Shelbourne Properties I LP issued
          preferred partnership interests with an aggregate liquidation
          preference of $812,674 and issued a note with an aggregate stated
          amount of $18,939,737.

          The Transaction was unanimously approved by the Boards of Directors of
          each of the Companies after recommendation by their respective Special
          Committees comprised of the Companies' three independent directors.

          Houlihan Lokey Howard & Zukin Capital served as financial advisor to
          the Special Committees of the Companies and rendered a fairness
          opinion to the Special Committees with respect to the Transaction.

          On February 22, 2002, Carl Icahn and Longacre Corp. brought a
          derivative shareholder suit in the New York State Supreme Court
          against NorthStar Capital Investment Corp., PCIC, Shelbourne
          Management, Peter W. Ahl, David Hamamoto, David G. King, Jr., Dallas
          E. Lucas, W. Edward Scheetz, Michael T. Bebon, Donald W. Coons and
          Robert Martin, and nominal defendants the Corporation, Shelbourne
          Properties II, Inc. and Shelbourne Properties III, Inc. for, inter
          alia, breach of fiduciary duties relating to the approval of the stock
          repurchase transaction between the Corporation and NorthStar Capital
          Investment Corp. On March 4, 2002, Icahn and Longacre brought a
          motion for expedited discovery, reversal of priority of discovery and
          injunctive relief by Order to Show Cause. Thereafter, the defendants
          moved to dismiss the case for, among other reasons, the failure to
          make a demand on the Board of Directors prior to commencing the
          action. At a hearing held on March 11, the court authorized limited
          discovery in connection with defendant's motion to dismiss. The court
          also scheduled a hearing for April 29, 2002 on defendant's motion to
          dismiss.

          In addition, two shareholder derivative actions have been filed in
          Delaware against the same defendants. Those actions have now been
          consolidated, and defendants have moved to dismiss the consolidated
          action.

          With respect to the allegations in the lawsuits, we believed at the
          time the Special Committee approved the transaction, and we continue
          to believe, that the stock repurchase was fair and reasonable and in
          the best interests of the Corporation and its shareholders.

          On March 27, 2002, Michael Bebon resigned from the Board of Directors
          of the Corporation.

                                      F-14
<PAGE>

                                            SHELBOURNE PROPERTIES I, INC.

                                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8.        QUARTERLY DATA

          The following table presents the unaudited financial data by quarter
          for the years ended December 31, 2001 and December 31, 2000.

<TABLE>
<CAPTION>
                            2001         2001          2001          2001         2000          2000          2000         2000
                          4th Qtr       3rd Qtr      2nd Qtr       1st Qtr       4th Qtr      3rd Qtr       2nd Qtr       1st Qtr
                          -------       -------      -------       -------       -------      -------       -------       -------
<S>                       <C>           <C>          <C>           <C>           <C>          <C>           <C>           <C>
Rental Revenues           $2,431,844    $2,414,141   $2,432,586    $3,059,425    $2,791,955   $2,444,132    $2,216,883    $2,882,227
                        ------------------------------------------------------------------------------------------------------------

  Operating
  Expenses                   935,633       928,904      835,568       816,875     1,018,715      919,204       713,743       828,003
  Depreciation &
  Amortization               369,604       398,976      359,938       382,061       364,422      365,832       343,678       345,488
  Asset
  Management Fee             271,610       268,799      267,524       263,570       358,820      222,226       172,519       172,519
  Administrative
  Expenses                   176,040       123,921      275,325       462,223       189,710      186,993       298,761       288,284
  Property
  Management Fee              76,521        71,572       77,043        87,641        94,584       52,538        81,360        87,744
                        ------------------------------------------------------------------------------------------------------------
                           1,829,408     1,792,172    1,815,398     2,012,370     2,026,251    1,746,793     1,610,061     1,722,038
                        ------------------------------------------------------------------------------------------------------------

Income Before Interest
And Other Income             602,436       621,969      617,188     1,047,055       765,704      697,339       606,822     1,160,189


  Interest Income            103,098       115,411      149,440       183,082       199,801      150,495       123,163        94,656

  Other Income                 1,932        11,291        2,320        15,646        19,931       19,700         9,500             -
                        ------------------------------------------------------------------------------------------------------------

Net Income                  $707,466      $748,671     $768,948    $1,245,783      $985,436     $867,534      $739,485    $1,254,845
                        ============================================================================================================

Net Income Per Common
Share                          $0.56         $0.59        $0.61         $0.99         $0.78        $0.69         $0.59         $0.99
                        ============================================================================================================

Weighted Average
Common Shares              1,263,189     1,263,189    1,263,189     1,263,189     1,263,189    1,263,189     1,263,189     1,263,189
                        ============================================================================================================
</TABLE>

                                      F-15
<PAGE>


                          SHELBOURNE PROPERTIES I, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                         SHELBOURNE PROPERTIES I, INC.,
                             A DELAWARE CORPORATION

                             ADDITIONAL INFORMATION

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

                                      INDEX

                                                                           Page
                                                                          Number

Additional financial information furnished pursuant to the
requirements of Form 10-K:

Schedules - December 31, 2001, 2000 and 1999

   Schedule III - Real estate and accumulated depreciation                  S-1

   Note to Schedule III - Real estate and accumulated depreciation          S-2


<PAGE>



SHELBOURNE PROPERTIES I, INC

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                    Reductions
                                                                                                     Recorded
                                                                 Costs Capitalized Subsequent to   Subsequent to
                                              Initial Cost                Acquisition               Acquisition      Gross Amount at
                                      --------------------------  ------------------------------   ----------------  ---------------
                                                  BuildingsAndI
               Descrip.     Encumb.      Land      mprovements      Improvement  Carrying Costs       Write Downs           Land
            ------------ ------------ ---------- ---------------  -------------- ----------------  ----------------  ---------------
<S>           <C>         <C>        <C>           <C>             <C>           <C>                 <C>              <C>
RETAIL:

Southport     Ft.         $      -   $ 6,961,667   $13,723,333     $ 2,286,024   $ 1,866,962         $ (4,900,000)    $ 5,998,194
Shopping      Lauderdale,
Center        FL

Loch Raven    Townson, MD        -     2,469,871     6,860,748       2,976,507       953,837           (4,800,000)      1,507,227
Shopping
Center                    --------   -----------   -----------     -----------   -----------         ------------     -----------
                                 -     9,431,538    20,584,081       5,262,531     2,820,799           (9,700,000)      7,505,421

OFFICE:

Century Park  Kearny Mesa,       -     3,122,064    12,717,936       2,137,346     1,353,130          (11,700,000)      1,123,811
Office        CA
Complex

568 Broadway  New York,          -     2,318,801     9,821,517       5,354,460     1,556,212          (10,821,150)        977,120
Office        NY
Building

Seattle       Seattle, WA        -     2,163,253     5,030,803       3,803,159       609,392           (6,050,000)        764,613
Tower Office
Building                  --------   -----------   -----------     -----------   -----------         ------------     -----------
                                 -     7,604,118    27,570,256      11,294,965     3,518,734          (28,571,150)      2,865,544
                          --------   -----------   -----------     -----------   -----------         ------------     -----------

                          $      -   $17,035,656   $48,154,337     $16,557,496    $6,339,533         $(38,271,150)    $10,370,965
                          ========   ===========   ===========     ===========    ==========         =============    ===========
</TABLE>


<TABLE>
<CAPTION>
                            Which Carried at Close of Period
                           ----------------------------- ----------------------- --------------------------
                            BuildingsAndI                    AccumulatedDe
                            mprovements       Total          preciation              Date Acquired
                           ----------------- ----------- ----------------------- --------------------------
<S>                        <C>             <C>               <C>                       <C>

RETAIL:

Southport     Ft.          $13,939,792     $19,937,986       $6,222,422                1986
Shopping      Lauderdale,
Center        FL

Loch Raven    Townson, MD    6,953,736       8,460,963        2,938,500                1986
Shopping                   -----------     -----------       ----------
Center
                            20,893,528      28,398,949        9,160,922

OFFICE:

Century Park  Kearny Mesa,   6,506,665       7,630,476        3,645,033                1986
Office        CA
Complex

568 Broadway  New York,      7,252,720       8,229,840        3,441,042                1986
Office        NY
Building

Seattle       Seattle, WA    4,791,993       5,556,607        1,785,647                1986
Tower Office
Building
                            18,551,378      21,416,923        8,871,722

                           $39,444,906     $49,815,871     $ 18,032,644
                           ===========     ===========     ============

</TABLE>



Note: The aggregate cost for Federal income tax purposes is $84,560,029 December
31, 2001



                                      S-1

<PAGE>


SHELBOURNE PROPERTIES I, INC

NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001


(A)       RECONCILIATION OF REAL ESTATE OWNED:

<TABLE>
<CAPTION>
                                                                           For the Years Ended December 31,
                                                                  --------------------------------------------------
                                                                       2001              2000              1999
                                                                  --------------    --------------    --------------

<S>                                                               <C>               <C>               <C>
BALANCE AT BEGINNING OF YEAR                                      $   48,242,601    $   48,087,043    $   47,330,768

ADDITIONS DURING THE YEAR
     Improvements to Real Estate                                       1,573,270           155,558           756,275

SUBTRACTIONS DURING THE YEAR
     Sales - Net                                                              --                --                --
                                                                  --------------    --------------    --------------

BALANCE AT END OF YEAR (1)                                        $   49,815,871    $   48,242,601    $   48,087,043
                                                                  ==============    ==============    ==============
</TABLE>


(1)       INCLUDES THE INITIAL COST OF THE PROPERTIES PLUS ACQUISITION AND
          CLOSING COSTS.


(B)       RECONCILIATION OF ACCUMULATED DEPRECIATION:

<TABLE>
<CAPTION>
                                                                           For the Years Ended December 31,
                                                                  --------------------------------------------------
                                                                       2001              2000              1999
                                                                  --------------    --------------    --------------
<S>                                                               <C>               <C>               <C>

BALANCE AT BEGINNING OF YEAR                                      $   16,856,860    $   15,734,329    $   14,643,333

ADDITIONS DURING THE YEAR
     Depreciation Expense(1)                                           1,175,784         1,122,531         1,090,996

SUBTRACTIONS DURING THE YEAR
     Sales                                                                    --                --                --
                                                                  --------------    --------------    --------------

BALANCE AT END OF YEAR                                            $   18,032,644    $   16,856,860    $   15,734,329
                                                                  ==============    ==============    ==============
</TABLE>


(1)       DEPRECIATION IS PROVIDED ON BUILDINGS USING THE STRAIGHT-LINE METHOD
          OVER THE USEFUL LIFE OF THE PROPERTY, WHICH IS ESTIMATED TO BE 40
          YEARS AND ON TENANT IMPROVEMENTS OVER THE ESTIMATED TERM OF THE
          RELATED LEASE.


                                      S-2