10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2005

Commission file number: 1-13762

RECKSON ASSOCIATES REALTY CORP.
(Exact name of registrant as specified in its charter)

Maryland	11-3233650
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)

225 Broadhollow Road, Melville, NY	11747
(Address of principal executive office)	(zip code)

(631) 694-6900
(Registrant’s telephone number including area code)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes   X       No      .

The company has one class of common stock, par value $.01 per share, with 81,629,693 shares outstanding as of May 5, 2005

Reckson Associates Realty Corp.
Quarterly Report
For the Three months Ended March 31, 2005

Table of Contents

Index Page

Part I.       Financial Information

Item 1.	Financial Statements	1
	Consolidated Balance Sheets as of March 31, 2005 (unaudited) and December 31, 2004	1
	Consolidated Statements of Income for the three months ended March 31, 2005 and 2004 (unaudited)	2
	Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004 (unaudited)	3
	Notes to the Consolidated Financial Statements (unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	34
Item 4.	Controls and Procedures	35

Part II.	Other Information
Item 1.	Legal Proceedings	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Submission of Matters to a Vote of Securities Holders	40
Item 5.	Other Information	40
Item 6.	Exhibits	40
Signatures

Part I – Financial Information
Item 1 – Financial Statements

Reckson Associates Realty Corp.
Consolidated Balance Sheets
(Dollars in thousands, except for share amounts)

		March 31, 2005			December 31, 2004
		(unaudited)
Assets:
Commercial real estate properties, at cost:
Land	$	419,846		$	401,350
Building and improvements		2,755,580			2,681,742
Developments in progress:
Land		98,176			88,606
Development costs		22,124			21,363
Furniture, fixtures and equipment		12,504			12,083
		3,308,230			3,205,144
Less accumulated depreciation		(584,949	)		(560,307	)
Investments in real estate, net of accumulated deprecation		2,723,281			2,644,837
Properties and related assets held for sale, net of accumulated depreciation		58,469			58,215
Investment in a real estate joint venture		6,808			6,657
Investment in notes receivable		113,254			85,855
Investments in affiliate loans and joint ventures		60,230			60,951
Cash and cash equivalents		25,537			25,137
Tenant receivables		10,427			9,532
Deferred rents receivable		139,348			132,251
Prepaid expenses and other assets		54,061			64,006
Contract and land deposits and pre-acquisition costs		256			121
Deferred leasing and loan costs.		81,074			80,046
Total Assets	$	3,272,745		$	3,167,608
Liabilities:
Mortgage notes payable	$	606,723		$	609,518
Unsecured credit facility		357,500			235,500
Senior unsecured notes		698,039			697,974
Liabilities associated with properties held for sale		757			784
Accrued expenses and other liabilities.		65,473			73,565
Deferred revenues and tenant security deposits.		54,015			50,373
Dividends and distributions payable		36,137			35,924
Total Liabilities		1,818,644			1,703,638
Minority partners’ interests in consolidated partnerships		213,297			210,678
Preferred unit interest in the operating partnership		1,200			1,200
Limited partners’ minority interest in the operating partnership		42,147			53,231

Total Minority Interests		256,644			265,109
Commitments and contingencies		—			—
Stockholders’ Equity:
Preferred stock, $.01 par value, 25,000,000 shares authorized		—			—
Common Stock, $.01 par value, 100,000,000 shares authorized 81,629,693 and 80,618,339 shares issued and outstanding, respectively		816			806
Additional paid in capital		1,265,133			1,266,547
Treasury stock, 3,318,600 shares		(68,492	)		(68,492	)
Total Stockholders’ Equity		1,197,457			1,198,861
Total Liabilities and Stockholders’ Equity	$	3,272,745		$	3,167,608

(see accompanying notes to financial statements)

1

Reckson Associates Realty Corp.
Consolidated Statements of Income
(Unaudited and in thousands, except per share and share amounts)

		Three Months Ended March 31,
		2005			2004
Property operating revenues:
Base Rents	$	117,382		$	109,408
Tenant escalations and reimbursements		18,502			17,978
Total property operating revenues		135,884			127,386
Operating Expenses:
Property operating expenses		55,088			50,739
Marketing, general and administrative		8,205			7,046
Depreciation and amortization		29,728			27,729
Total operating expenses		93,021			85,514
Operating income		42,863			41,872
Non-operating income and expenses:
Interest income on notes receivable (including $850, and $590, respectively from related parties)		2,447			1,616
Investment income and other		747			4,046
Interest:
Expense		(23,568	)		(25,661	)
Amortization of deferred financing costs		(1,038	)		(927	)
Total non-operating income and expenses		(21,412	)		(20,926	)
Income before minority interests, preferred dividends and distributions, equity in earnings of a real estate joint venture and discontinued operations		21,451			20,946
Minority partners’ interests in consolidated partnerships		(3,779	)		(6,181	)
Limited partners’ minority interest in the operating partnership		(772	)		(573	)
Distributions to preferred unit holders		—			(273	)
Equity in earnings of a real estate joint venture		151			114
Income before discontinued operations and dividends to preferred shareholders		17,051			14,033
Discontinued operations (net of minority interests):
Income from discontinued operations		305			989
Gain on sales of real estate		—			5,202
Net Income		17,356			20,224
Dividends to preferred shareholders		—			(4,260	)
Net income allocable to common shareholders	$	17,356		$	15,964

Basic net income per weighted average common share:
Common	$	.21	$	.16
Discontinued operations		—		.10
Basic net income per common share	$	.21	$	.26
Basic weighted average common shares outstanding		81,100,109		61,363,097
Diluted net income per weighted average common share	$	.21	$	.26
Diluted weighted average common shares outstanding		81,520,971		61,718,028

(see accompanying notes to financial statements)

2

Reckson Associates Realty Corp.
Consolidated Statements of Cash Flows
(Unaudited and in thousands)

			Three Months Ended March 31,
			2005			2004
Cash Flows From Operating Activities:
Net Income		$	17,356		$	20,224
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization (including discontinued operations)		31,293			29,235
	Minority partners’ interests in consolidated partnerships		3,779			6,181
	Limited partners’ minority interest in consolidated partnerships		786			936
	Gain on sales of real estate		—			(5,506	)
	Equity in earnings of a real estate joint venture		(151	)		(114	)
Changes in operating assets and liabilities:
	Deferred rents receivable		(7,097	)		(3,817	)
	Prepaid expenses and other assets		11,083			7,237
	Tenant receivables		(895	)		3,132
	Accrued expenses and other liabilities		(5,833	)		(14,656	)
Net cash provided by operating activities			50,321			42,852
Cash Flows From Investment Activities:
	Purchases of commercial real estate properties		(73,838	)		(72,691	)
	Additions to developments in progress		(10,809	)		(4,781	)
	Increase in contract and land deposits and pre-acquisition costs		(135	)		—
	Repayments of notes receivable		1,695			—
	Additions to notes receivable		(28,390	)		—
	Additions to commercial real estate properties		(17,443	)		(7,627	)
	Payment of deferred leasing costs		(4,373	)		(4,584	)
	Distributions from investments in a real estate joint venture		—			68
	Additions to furniture, fixtures and equipment		(421	)		(68	)
	Proceeds from sales of real estate		—			18,450
Net cash (used in) investing activities			(133,714	)		(71,233	)
Cash Flows From Financing Activities:
	Principal payments on secured borrowings		(2,796	)		(2,909	)
	Proceeds from issuance of senior unsecured notes, net of issuance costs		—			149,490
	Repayment of senior unsecured notes		—			(100,000	)
	Payment of loan and equity issuance costs		(95	)		(2,125	)
	Proceeds from unsecured credit facility		132,000			90,000
	Principal payments on unsecured credit facility		(10,000	)		(169,000	)
	Proceeds from issuance of common stock, net of issuance costs, and exercise of stock options		2,570			162,778
	Distributions to minority partners in consolidated partnerships		(1,313	)		(5,093	)
	Distributions to limited partners in the operating partnership		(1,674	)		(731	)
	Distributions to preferred unit holders		—			(273	)
	Dividends to common shareholders		(34,899	)		(24,277	)
	Dividends to preferred shareholders		—			(4,998	)
Net cash provided by financing activities			83,793			92,862
Net increase in cash and cash equivalents			400			64,481
Cash and cash equivalents at beginning of period			25,137			22,887
Cash and cash equivalents at end of period		$	25,537		$	87,368

(see accompanying notes to financial statements)

3

Reckson Associates Realty Corp.
Notes to the Consolidated Financial Statements
March 31, 2005
(Unaudited)

1. Organization and Formation of the Company

Reckson Associates Realty Corp. (the “Company”) is a self-administered and self managed real estate investment trust (“REIT”) engaged in the ownership, management, operation, acquisition, leasing, financing and development of commercial real estate properties, principally office and to a lesser extent industrial / R&D properties and also owns land for future development (collectively, the “Properties”) located in the New York City tri-state area (the “Tri-State Area”).

The Company was incorporated in Maryland in September 1994. In June 1995, the Company completed an Initial Public Offering (the “IPO”) and commenced operations.

The Company became the sole general partner of Reckson Operating Partnership, L.P. (the “Operating Partnership”) by contributing substantially all of the net proceeds of the IPO, in exchange for an approximate 73% interest in the Operating Partnership. All Properties acquired by the Company are held by or through the Operating Partnership. In conjunction with the IPO, the Operating Partnership executed various option and purchase agreements whereby it issued common units of limited partnership interest in the Operating Partnership (“OP Units”) to certain continuing investors and assumed certain indebtedness in exchange for (i) interests in certain property partnerships, (ii) fee simple and leasehold interests in properties and development land, (iii) certain other business assets and (iv) 100% of the non-voting preferred stock of the management and construction companies. The Company’s ownership percentage in the Operating Partnership was approximately 95.9% and 94.6% at March 31, 2005 and 2004, respectively.

2. Basis of Presentation

The accompanying interim unaudited financial statements have been prepared by the Company’s management pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosure normally included in the financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) may have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to not make the information presented misleading. The unaudited financial statements at March 31, 2005 and for the three month periods ended March 31, 2005 and 2004 include, in the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial information set forth herein. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the Company’s Form 10-K for the year ended December 31, 2004.

The accompanying consolidated financial statements include the consolidated financial position of the Company, the Operating Partnership and the Service Companies (as defined below) at March 31, 2005 and December 31, 2004 and the consolidated results of their operations and their cash flows for each of the three month periods ended March 31, 2005 and 2004. The Operating Partnership’s investments in majority owned and controlled real estate joint ventures are reflected in the accompanying financial statements on a consolidated basis with a reduction for the minority partners’ interest. The Operating Partnership also has an investment in a real estate joint venture where it owns less than a controlling interest. Such investment is reflected in the accompanying financial statements on the equity method of accounting. The Service Companies which provide management, development and construction services to the Company, the Operating Partnership and to third parties are Reckson Management Group, Inc., RANY Management Group, Inc., Reckson Construction & Development LLC and Reckson Construction Group New York, Inc. (collectively, the “Service Companies”). All significant intercompany balances and transactions have been eliminated in the consolidated financial statements.

Minority partners’ interests in consolidated partnerships represent a 49% non-affiliated interest in RT Tri-State LLC, owner of a six property suburban office portfolio, a 40% non-affiliated interest in Omni Partners, L.P., owner of a 579,000 square foot suburban office property and a 49% non-affiliated interest in Metropolitan 919 3rd Avenue, LLC, owner of the property located at 919 Third Avenue, New York, NY. Limited partners’ minority interests in the Operating Partnership was approximately 4.1% and 5.4% at March 31, 2005 and 2004, respectively.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Actual results could differ from those estimates.

4

Real Estate

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

Depreciation is computed utilizing the straight-line method over the estimated useful lives of ten to thirty years for buildings and improvements and five to ten years for furniture, fixtures and equipment. Tenant improvements, which are included in buildings and improvements, are amortized on a straight-line basis over the term of the related leases. Depreciation expense, net of discontinued operations, for each of the three month periods ended March 31, 2005 and 2004 amounted to approximately $20.6 million and $19.6 million, respectively.

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

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

We allocate a portion of the purchase price to tangible assets including the fair value of the building and building improvements on an as-if-vacant basis and to land determined either by real estate tax assessments, independent appraisals or other relevant data. Additionally, we assess fair value of identified intangible assets and liabilities based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information.

Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property. If we incorrectly estimate the values at acquisition or the undiscounted cash flows, initial allocation of purchase price and future impairment charges may be different.

Long Lived Assets

We are required to make subjective assessments as to whether there are impairments in the value of our real estate properties and other investments. An investment’s value is impaired only if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the investment are less than the carrying value of the investment. Such assessments consider factors such as cash flows, expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors. To the extent impairment has occurred it will be measured as the excess of the carrying amount of the property over the fair value of the property. These assessments have a direct impact on our net income, because recognizing an impairment results in an immediate negative adjustment to net income. In determining impairment, if any, we have followed FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets”. Statement No. 144 did not have an impact on net income allocable to common shareholders. Statement No. 144 only impacts the presentation of the results of operations and gain on sales of real estate assets for those properties sold during the period within the consolidated statements of income.

Cash Equivalents

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

Tenant’s lease security deposits aggregating approximately $4.5 million at March 31, 2005 and December 31, 2004 have been included in cash and cash equivalents on the accompanying balance sheets.

5

Deferred Costs

Tenant leasing commissions and related costs incurred in connection with leasing tenant space are capitalized and amortized over the life of the related lease. In addition, loan costs incurred in obtaining financing are capitalized and amortized over the term of the related loan.

Costs incurred in connection with equity offerings are charged to stockholders’ equity when incurred.

Income Taxes

Commencing with its taxable year ended December 31, 1995, the Company elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its adjusted taxable income to its stockholders. It is management’s current intention to adhere to these requirements and maintain the Company’s REIT status. As a REIT, the Company generally will not be subject to corporate level federal income tax on taxable income it distributes currently to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for the subsequent four taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, taxable income from non-REIT activities managed through the Service Companies as taxable REIT subsidiaries are subject to federal, state and local income taxes.

Revenue Recognition & Accounts Receivable

Minimum rental revenue is recognized on a straight-line basis, which averages minimum rents over the terms of the leases. The excess of rents recognized over amounts contractually due are included in deferred rents receivable on the accompanying balance sheets. Contractually due but unpaid rents are included in tenant receivables on the accompanying balance sheets. Certain lease agreements also provide for reimbursement of real estate taxes, insurance, common area maintenance costs and indexed rental increases, which are recorded on an accrual basis. Ancillary and other property related income is recognized in the period earned.

We make estimates of the collectibility of our accounts receivables related to base rents, tenant escalations and reimbursements and other revenue or income. We specifically analyze tenant receivables and historical bad debts, customer credit worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of our allowance for doubtful accounts. In addition, when tenants are in bankruptcy, we make estimates of the expected recovery of pre-petition administrative and damage claims. In some cases, the ultimate resolution of those claims can exceed a year. These estimates have a direct impact on our net income because a higher bad debt reserve results in less net income.

We incurred approximately $415,000 and $657,000 of bad debt expense, net of discontinued operations, for the three month periods ended March 31, 2005 and 2004, respectively, related to tenant receivables which accordingly reduced our total revenues and reported net income during those periods.

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

Reckson Construction & Development LLC (the successor to Reckson Construction Group, Inc.) and Reckson Construction Group New York, Inc. use the percentage-of-completion method for recording amounts earned on their contracts. This method records amounts earned as revenue in the proportion that actual costs incurred to date bear to the estimate of total costs at contract completion.

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

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

6

Earnings Per Share

In 1997, the FASB issued Statement No. 128, “Earnings per Share” (“Statement No. 128”) which replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share are very similar to the previously reported fully diluted earnings per share. The conversion of OP Units into common stock would not have a significant effect on per share amounts as the OP Units share proportionately with the common stock in the results of the Operating Partnership’s operations.

Stock Options

In December 2002, the FASB issued Statement No. 148, “Accounting for Stock-Based Compensation–Transition and Disclosure” (“Statement No. 148”). Statement No. 148 amends Statement No. 123 to provide alternative methods of transition for an entity that voluntarily adopts the fair value recognition method of recording stock option expense. Statement No. 148 also amends the disclosure provisions of Statement 123 and Accounting Principles Board Opinion No. 28, “Interim Financial Reporting” to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock options on reported net income and earnings per share in annual and interim financial statements.

The following table sets forth our pro forma information for common shareholders (in thousands except earnings per share data):

		Three Months Ended March 31,
		2005		2004
Net income allocable to common shareholders as reported	$	17,356	$	15,964
Add: Stock option expense included above		1		1
Deduct: Stock option expense determined under fair value recognition method for all awards		—		92
Pro forma net income allocable to common shareholders	$	17,357	$	15,873
Net income per share as reported:
Basic	$	.21	$	.26
Diluted	$	.21	$	.26
Pro forma net income per share:
Basic	$	.21	$	.26
Diluted	$	.21	$	.26

The fair value for those options was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Three Months Ended March 31,
	2005 (a)	2004
Risk free interest rate	N/A	3.0	%
Dividend yield	N/A	7.16	%
Volatility factor of the expected market price of our common stock	N/A	.191
Weighted average expected option life (in years)	N/A	5.0

(a) No options were granted or vested during the three months ended March 31, 2005. As a result, no weighted-average assumptions or calculations were required.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period.

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

7

Statement No. 123R must be adopted no later than January 1, 2006. Early adoption will be permitted in periods in which financial statements have not yet been issued. We expect to adopt Statement No. 123R on January 1, 2006.

Effective January 1, 2002, we elected to follow Statement No. 123 and use the Black-Scholes option pricing model to estimate the value of stock options granted to employees and expect to continue to use this acceptable option valuation model upon the required adoption of Statement No. 123R on January 1, 2006. Because Statement No. 123R must be applied not only to new awards but to previously granted awards that are not fully vested on the effective date, and because we adopted Statement No. 123 using the prospective transition method (which applied only to awards granted, modified or settled after the adoption date), compensation cost for some previously granted awards that were not recognized under Statement No. 123 would be recognized under Statement No. 123R. However, on January 1, 2006, the date we expect to adopt Statement No. 123R, all of the unexercised options outstanding at March 31, 2005, under our stock option plans will be fully vested. As a result, no additional expense will be recognized. In addition, had we adopted Statement No. 123R in prior periods, the impact of that standard would have approximated the impact of Statement No. 123 as described above.

Derivative Instruments

FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities,” which became effective January 1, 2001, requires us to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in accumulated other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value will be immediately recognized in earnings.

Variable Interest Entities

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), which explains how to identify variable interest entities (“VIEs”) and how to assess whether to consolidate such entities. VIEs are primarily entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision making ability. All VIEs which we are involved with must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes. The initial determination of whether an entity qualifies as a VIE shall be made as of the date at which a primary beneficiary becomes involved with the entity and reconsidered as of the date of a triggering event, as defined. The provisions of this interpretation are immediately effective for VIEs formed after January 31, 2003. In December 2003 the FASB issued FIN 46R, deferring the effective date until the period ending March 31, 2004 for interests held by public companies in VIEs created before February 1, 2003, which were non-special purpose entities. We adopted FIN 46R during the period ended March 31, 2004 and have determined that our consolidated and unconsolidated subsidiaries do not represent VIEs pursuant to such interpretation. We will continue to monitor any changes in circumstances relating to certain of its consolidated and unconsolidated joint ventures which could result in a change in the our consolidation policy.

Reclassifications

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

3. Mortgage Notes Payable

At March 31, 2005, there were 12 fixed rate mortgage notes payable with an aggregate outstanding principal amount of approximately $606.7 million. These mortgage notes are secured by properties with an aggregate carrying value at March 31, 2005 of approximately $1.2 billion and which are pledged as collateral against the mortgage notes payable. In addition, approximately $42.6 million of the $606.7 million is recourse to us. The mortgage notes bear interest at rates ranging from 6.45% to 9.25%, and mature between 2005 and 2011. The weighted average interest rate on the outstanding mortgage notes payable at March 31, 2005 was approximately 7.3%. Certain of the mortgage notes payable are guaranteed by certain limited partners in the Operating Partnership and / or the Company. In addition, consistent with customary practices in non-recourse lending, certain non-recourse mortgages may be recourse to the Company under certain limited circumstances including environmental issues and breaches of material representations.

8

The following table sets forth our mortgage notes payable at March 31, 2005, by scheduled maturity date (dollars in thousands):

Property		Principal Outstanding	Interest Rate		Maturity Date	Amortization Term (Years)
395 North Service Road, Melville, NY	$	18,791	6.45	%	October, 2005	$34 per month
200 Summit Lake Drive, Valhalla, NY		18,333	9.25	%	January, 2006	25
1350 Avenue of the Americas, NY, NY		72,773	6.52	%	June, 2006	30
Landmark Square, Stamford, CT (a)		42,577	8.02	%	October, 2006	25
100 Summit Lake Drive, Valhalla, NY		15,815	8.50	%	April, 2007	15
333 Earle Ovington Blvd., Mitchel Field, NY (b)		51,513	7.72	%	August, 2007	25
810 Seventh Avenue, NY, NY (d)		79,214	7.73	%	August, 2009	25
100 Wall Street, NY, NY (d)		34,327	7.73	%	August, 2009	25
6900 Jericho Turnpike, Syosset, NY		7,065	8.07	%	July, 2010	25
6800 Jericho Turnpike, Syosset, NY		13,386	8.07	%	July, 2010	25
580 White Plains Road, Tarrytown, NY		12,191	7.86	%	September, 2010	25
919 Third Avenue, NY, NY (c)		240,738	6.87	%	August, 2011	30
Total / Weighted average	$	606,723	7.30	%
______________

(a)	Encompasses six Class A office properties.
(b)	We have a 60% general partnership interest in this property and our proportionate share of the aggregate principal amount is approximately $30.9 million.
(c)	We have a 51% membership interest in this property and our proportionate share of the aggregate principal amount is approximately $122.8 million.
(d)	These properties are cross-collateralized.

In addition, we have a 60% interest in an unconsolidated joint venture property, 520 White Plains Road, Tarrytown, New York. Our pro rata share of the mortgage debt at March 31, 2005 was approximately $7.1 million. This mortgage note payable bears interest at 8.85% per annum and matures on September 1, 2005 at which time our share of the mortgage debt will be approximately $6.9 million.

4. Senior Unsecured Notes

At March 31, 2005, the Operating Partnership had outstanding approximately $698.0 million (net of unamortized issuance discounts) of senior unsecured notes (the “Senior Unsecured Notes”). The following table sets forth the Operating Partnership’s Senior Unsecured Notes and other related disclosures by scheduled maturity date (dollars in thousands):

Issuance		Face Amount	Coupon Rate		Term (in Years)	Maturity
June 17, 2002	$	50,000	6.00	%	5	June 15, 2007
August 27, 1997		150,000	7.20	%	10	August 28, 2007
March 26, 1999		200,000	7.75	%	10	March 15, 2009
January 22, 2004		150,000	5.15	%	7	January 15, 2011
August 13, 2004		150,000	5.875	%	10	August 15, 2014
	$	700,000

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

5. Unsecured Credit Facility

We currently have a $500 million unsecured revolving credit facility (the “Credit Facility”) from JPMorgan Chase Bank, as administrative agent, Wells Fargo Bank, National Association as syndication agent and Citicorp North America, Inc. and Wachovia Bank, National Association as co-documentation agents. The Credit Facility matures in August 2007, contains options for a one-year extension subject to a fee of 25 basis points and, upon receiving additional lender commitments, increasing the maximum revolving credit amount to $750 million. In addition, borrowings under the Credit Facility are currently priced off LIBOR plus 90 basis points and the Credit Facility carries a facility fee of 20 basis points per annum. In the event of a change in the Operating Partnership’s senior unsecured credit ratings the interest rates and facility fee are subject to change. At March 31, 2005, the outstanding borrowings under the Credit Facility aggregated $357.5 million and carried a weighted average interest rate of 3.71% per annum.

We utilize the Credit Facility primarily to finance real estate investments, fund our real estate development activities and for working capital purposes. At March 31, 2005, we had availability under the Credit Facility to borrow approximately an additional $141.3 million, subject to compliance with certain financial covenants. Such amount is net of approximately $1.2 million in outstanding undrawn standby letters of credit, which are issued under the Credit Facility.

9

In connection with the acquisition of certain properties, contributing partners of such properties have provided guarantees on certain of our indebtedness. As a result, we maintain certain outstanding balances on our Credit Facility.

6. Commercial Real Estate Investments

During January 2005, we acquired, in two separate transactions, two Class A office properties located at One and Seven Giralda Farms in Madison, New Jersey for total consideration of approximately $78 million. One Giralda Farms encompasses approximately 150,000 rentable square feet and Seven Giralda Farms encompasses approximately 203,000 rentable square feet. We made these acquisitions through borrowings under our Credit Facility.

As of March 31, 2005, we owned and operated 81 office properties (inclusive of eight office properties owned through joint ventures) comprising approximately 15.4 million square feet and eight industrial / R&D properties comprising approximately 863,000 square feet located in the Tri-State Area.

At March 31, 2005, we also owned approximately 344 acres of land in 13 separate parcels of which we can, based on current estimates, develop approximately 3.1 million square feet of office space (the “Development Parcels”). During July 2004, we commenced the ground-up development on one of the Development Parcels of a 277,000 square foot Class A office building with a total anticipated investment of approximately $61.3 million. There can be no assurances that the actual cost of this development will not exceed the anticipated amount. This development is located within our existing 404,000 square foot executive office park in Melville, New York. One of the Development Parcels, comprising 39.5 acres located in Valhalla, New York, was previously under contract for sale and contingent upon obtaining zoning for residential use of the land and other customary due diligence and approvals. Subsequent to March 31, 2005, the purchaser terminated the contract. Three of the Development Parcels, aggregating approximately 31.8 acres are classified as held for sale on our balance sheets and are expected to close between 2005 and 2006 for aggregate consideration of approximately $28.0 million. The aggregate cost basis of these three Development Parcels was approximately $25.7 million at March 31, 2005. We are currently evaluating alternative land uses for certain of the remaining Development Parcels to realize their highest economic value. These alternatives may include rezoning certain Development Parcels from commercial to residential for potential disposition. As of March 31, 2005, we had invested approximately $120.3 million in the remainder of the Development Parcels. Management has made subjective assessments as to the value and recoverability of our investments in the Development Parcels based on current and proposed development plans, market comparable land values and alternative use values.

We also own a 354,000 square foot office building in Orlando, Florida. This non-core real estate holding was acquired in May 1999 in connection with our initial New York City portfolio acquisition.

We hold a $17.0 million note receivable, which bears interest at 12% per annum and is secured by a minority partnership interest in Omni Partners, L.P., owner of the Omni, a 579,000 square foot Class A office property located in Uniondale, New York (the “Omni Note”). We currently own a 60% majority partnership interest in Omni Partners, L.P. and on March 14, 2007 may exercise an option to acquire the remaining 40% interest for a price based on 90% of the fair market value of the property.

On March 16, 2005 a wholly owned subsidiary of the Operating Partnership advanced under separate mezzanine loan agreements, each of which bear interest at 9% per annum, (i) approximately $8.0 million which matures in April 2010 and is secured, in part, by indirect ownership interests in ten suburban office properties located in adjacent office parks in Long Island, New York and (ii) approximately $20.4 million which matures in April 2012 and is secured, in part, by indirect ownership interests in twenty-two suburban office properties located in adjacent office parks in Long Island, New York. Each mezzanine loan is additionally secured by other guaranties, pledges and assurances and neither is pre-payable without penalty after 18 months from the initial funding. We made these investments through a borrowing under our Credit Facility.

At March 31, 2005, we had invested approximately $90.0 million in mezzanine loans and preferred equity investments. In general these investments are secured by a pledge of either a direct or indirect ownership interest in the underlying real estate or leasehold, other guaranties, pledges and assurances.

The following table sets forth the terms of these investments at March 31, 2005 (in thousands):

Description		Amount	Interest Rate		Funding	Maturity
Mezzanine loan	$	27,592	13.91	%(a)	September, 2003	September, 2005 (b)
Preferred equity		34,000	9.00	%	December, 2004	December, 2005 (c)
Mezzanine loan		8,031	9.00	%	March, 2005	April, 2010 (d)
Mezzanine loan		20,356	9.00	%	March, 2005	April, 2012 (d)
	$	89,979

(a) Weighted average interest rate which is based on a spread over LIBOR, with a LIBOR floor of 1.63% per annum.

(b) The borrower has rights to extend the term for three additional one-year periods and, under certain circumstances, prepay amounts outstanding.

(c) Or the earlier of refinancing. In addition, this preferred equity investment was made to an entity that is controlled by a preferred unit holder in the Operating Partnership.

(d) Prepayable without penalty after 18 months from initial funding.

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As of March 31, 2005, we held two other notes receivable, which aggregated approximately $2.4 million and carried a weighted average interest rate of 11.36% (the “Other Notes”) and collectively with the Omni Note, our mezzanine loans and preferred equity investments (the “Note Receivable Investments”). These notes are secured in part by a minority partner’s preferred unit interest in the Operating Partnership, an interest in real property and a personal guarantee. Approximately $1.4 million of the Other Notes matures on December 1, 2005 and the remaining $1.0 million on January 31, 2010.

As of March 31, 2005, management has made subjective assessments as to the underlying security value on the Note Receivable Investments. These assessments indicate an excess of market value over the carrying value and based on these assessments we believe there is no impairment to their carrying value.

We also own a 60% interest in a 172,000 square foot office building located at 520 White Plains Road in Tarrytown, New York (the “520JV”), which we manage through a wholly owned subsidiary. As of March 31, 2005, the 520JV had total assets of approximately $20.1 million, a mortgage note payable of $11.2 million and other liabilities of $185,000. Our allocable share of the 520JV mortgage note payable on March 31, 2005 was approximately $7.1 million. This mortgage note payable bears interest at 8.85% per annum and matures on September 1, 2005. The operating agreement of the 520JV requires approvals from members on certain decisions including sale of the property, refinancing of the property’s mortgage debt, and material renovations to the property. We have evaluated the impact of FIN 46R on our accounting for the 520JV and have concluded that the 520JV is not a VIE. We account for the 520JV under the equity method of accounting. In accordance with the equity method of accounting our proportionate share of the 520JV income was approximately $151,000 and $114,000 for the three month periods ended March 31, 2005 and 2004, respectively.

During July 1998, we formed Metropolitan Partners, LLC (“Metropolitan”) for the purpose of acquiring Class A office properties in New York City. Currently we own, through Metropolitan and the Operating Partnership, six New York City Class A office properties aggregating approximately 4.6 million square feet.

During September 2000, we formed a joint venture (the “Tri-State JV”) with Teachers Insurance and Annuity Association (“TIAA”) and contributed nine Class A suburban office properties aggregating approximately 1.5 million square feet to the Tri-State JV for a 51% majority ownership interest. TIAA contributed approximately $136 million for a 49% interest in the Tri-State JV, which was then distributed to us. Since the formation of the Tri-State JV, we acquired TIAA’s 49% interest in two of the properties held by the Tri-State JV and the Tri-State JV sold one of its properties to a third party. As a result of these transactions, the Tri-State JV owns six Class A suburban office properties aggregating approximately 943,000 square feet. We are responsible for managing the day-to-day operations and business affairs of the Tri-State JV and have substantial rights in making decisions affecting the properties such as leasing, marketing and financing. The minority member has certain rights primarily intended to protect its investment. For purposes of our financial statements we consolidate the Tri-State JV.

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

7. Stockholders’ Equity

Basic net income per share on the Company’s common stock was calculated using the weighted average number of shares outstanding of 81,100,109 and 61,363,097 for the three months ended March 31, 2005 and 2004, respectively.

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The following table sets forth our reconciliation of numerators and denominators of the basic and diluted net income per weighted average common share and the computation of basic and diluted net income per weighted average share for the Company’s common stock (in thousands except for earnings per share data):

			Three Months Ended March 31,
			2005		2004
Numerator:
	Income before discontinued operations and dividends to preferred stockholders	$	17,051	$	14,033
	Discontinued operations (net of share applicable to limited partners and minority interests		305		6,191
	Dividends to preferred shareholders		—		(4,260	)
Numerator for basic and diluted earnings per common share		$	17,356	$	15,964
Denominator:
	Denominator for basic earnings per share – weighted average common shares		81,100		61,363
	Effect of dilutive securities:
	Common stock equivalents		421		355
Denominator for diluted earnings per common share – adjusted weighted average shares and assumed conversions			81,521		61,718
Basic earnings per weighted average common share:
	Income from continuing operations	$	.21	$	.16
	Discontinued operations		—		.10
	Net income per common share	$	.21	$	.26
Diluted earnings per weighted average common share:
	Income from continuing operations	$	.21	$	.16
	Discontinued operations		—		.10
	Diluted net income per common share	$	.21	$	.26

In calculating diluted net income per weighted average common share the Company takes into consideration any security that may be potentially dilutive with respect to its common stock. For the three month periods ended March 31, 2005 and 2004 securities considered to be potentially dilutive include, to the extent outstanding, stock option grants, Series A preferred stock and Series B preferred stock. OP Units have a distribution rate equivalent to a share of common stock and are convertible into common stock on a one for one basis. As such, OP Units are not dilutive with respect to the common stock.

A Class A OP Unit and a share of common stock have similar economic characteristics as they effectively share equally in the net income or loss and distributions of the Operating Partnership. As of March 31, 2005, the Operating Partnership had issued and outstanding 2,334,157 Class A OP Units and 465,845 Class C OP Units. The Class A OP Units and the Company’s common stock currently receive a quarterly distribution of $0.4246 per unit. The Class C OP Units were issued in August 2003 in connection with the contribution of real property to the Operating Partnership and currently receive a quarterly distribution of $0.4664 per unit. Subject to certain holding periods, OP Units may either be redeemed for cash or, at the election of the Company, exchanged for shares of common stock on a one-for-one basis.

The limited partners’ minority interest in the Operating Partnership (“Limited Partner Equity”), which is reflected on the accompanying balance sheets, is reported at an amount equal to the limited partners’ ownership percentage of the net equity of the Operating Partnership at the end of the reporting period. The Limited Partner Equity is adjusted at the end of the period to reflect the ownership percentages at that time. The Limited Partner Equity was approximately 4.1% and 5.4% at March 31, 2005 and 2004, respectively.

During the three month period ended March 31, 2005, 102,668 shares of the Company’s common stock was issued in connection with the exercise of outstanding options to purchase stock under its stock option plans resulting in proceeds to us of approximately $2.6 million. In addition, certain limited partners in the Operating Partnership exchanged 776,559 OP Units for an equal number of shares of the Company’s common stock.

The Board of Directors of the Company initially authorized the purchase of up to 5.0 million shares of the Company’s common stock. Transactions conducted on the New York Stock Exchange have been, and will continue to be, effected in accordance with the safe harbor provisions of the Securities Exchange Act of 1934 and may be terminated by the Company at any time. Since the Board’s initial authorization, the Company has purchased 3,318,600 shares of its common stock for an aggregate purchase price of approximately $71.3 million. In June 2004, the Board of Directors re-set the Company’s common stock repurchase program back to 5.0 million shares. No purchases have been made since March, 2003.

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The Operating Partnership has issued and outstanding 1,200 preferred units of limited partnership interest with a liquidation preference value of $1,000 per unit and a stated distribution rate of 7.0%, which is subject to reduction based upon terms of their initial issuance (the “Preferred Units”). The terms of the Preferred Units provide for this reduction in distribution rate in order to address the effect of certain mortgages with above market interest rates which were assumed by the Operating Partnership in connection with properties contributed to the Operating Partnership in 1998.

In November 2004, Donald J. Rechler tendered his resignation from the Company’s Board of Directors, including his position as non-executive Chairman, in order to pursue other interests. Also, in November 2004, Scott H. Rechler was appointed Chairman of the Board and the number of directors of the Board was decreased from nine to eight. The Company’s Board currently consists of seven independents, of which four were elected during 2004, and one insider. Mr. Peter Quick serves as the Lead Independent Director of the Board. In addition, each of the Audit, Compensation and Nominating and Governance Committees is comprised solely of independent directors.

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

During 2004, the Company took certain additional actions to enhance its corporate governance policies. These actions included opting out of the Maryland Business Combination Statute, de-staggering the Board of Directors to provide that each director is subject to election by shareholders on an annual basis and modifying the Company’s “five or fewer” limitation on the ownership of its common stock so that such limitation may only be used to protect the Company's REIT status and not for anti-takeover purposes.

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

In July 2002, as a result of certain provisions of the Sarbanes-Oxley Act of 2002, we discontinued the use of stock loans in our Long Term Incentive Programs (“LTIP”). In connection with LTIP grants made prior to the enactment of the Sarbanes-Oxley Act of 2002, we currently have stock loans outstanding to certain executive officers which were used to purchase 385,000 shares of our common stock. The stock loans were priced at the market prices of our common stock at the time of issuance, bear interest at the mid-term Applicable Federal Rate and are secured by the shares purchased. Such stock loans (including accrued interest) are scheduled to vest and be ratably forgiven each year on the anniversary of the grant date based upon initial vesting periods ranging from seven to ten years. Such forgiveness is based on continued service and in part on the Company attaining certain annual performance measures. These stock loans had an initial aggregate weighted average vesting period of approximately nine years. As of March 31, 2005, there remains 191,428 shares of common stock subject to the original stock loans which are anticipated to vest between 2005 and 2011. Approximately $231,000 and $308,000 of compensation expense was recorded for the three month periods ended March 31, 2005 and 2004, respectively, related to these LTIP. Such amounts have been included in marketing, general and administrative expenses on the accompanying consolidated statements of income.

The outstanding stock loan balances due from executive officers aggregated approximately $4.0 million and $4.7 million at March 31, 2005 and December 31, 2004, respectively, and have been included as a reduction of additional paid in capital on the accompanying consolidated balance sheets. Other outstanding loans to executive and senior officers at March 31, 2005 and December 31, 2004 amounted to approximately $2.1 million and $2.7 million, respectively, and are included in investments in affiliate loans and joint ventures on the accompanying consolidated balance sheets and are primarily related to tax payment advances on stock compensation awards and life insurance contracts made to certain executive and non-executive officers.

In November 2002 and March 2003, an award of rights was granted to certain executive officers of the Company (the “2002 Rights” and “2003 Rights”, respectively, and collectively, the “Rights”). Each Right represents the right to receive, upon vesting, one share of common stock if shares are then available for grant under one of the Company’s stock option plans or, if shares are not so available, an amount of cash equivalent to the value of such stock on the vesting date. The 2002 Rights will vest in four equal annual installments which began on November 14, 2003 (and shall be fully vested on November 14, 2006). The 2003 Rights will be earned as of March 13, 2005 and will vest in three equal annual installments beginning on March 13, 2005 (and shall be fully vested on March 13, 2007). Dividends on the shares will be held by the Company until such shares become vested, and will be distributed thereafter to the applicable officer. The 2002 Rights also entitle the holder thereof to cash payments in respect of taxes payable by the holder resulting from the 2002 Rights. The 2002 Rights aggregate 62,835 shares of the Company’s common stock and the 2003 Rights aggregate 26,040 shares of common stock. As of March 31, 2005, there remains 31,417 shares of common stock reserved related to the 2002 Rights and 17,360 shares of common stock reserved related to the 2003 Rights. Approximately $104,000 and $101,000 of compensation expense was recorded for the three month periods ended March 31, 2005 and 2004, respectively, related to the Rights. Such amounts have been included in marketing, general and administrative expenses on the accompanying consolidated statements of income.

13

In March 2003, the Company established a new LTIP for its executive and senior officers (the “2003 LTIP”). The four-year plan has a core award, which provides for annual stock based compensation based upon continued service and in part based on the Company attaining certain annual performance measures. The plan also has a special outperformance component in the form of a bonus pool equal to 10% of the total return in excess of a 9% cumulative and compounded annual total return on the Company’s common equity for the period through the four-year anniversary after the date of grant (the “Special Outperformance Pool”). The aggregate amount payable to such officers from the Special Outperformance Pool is capped at an amount calculated based upon a total cumulative and compounded annual return on the common equity of 15%. An officer’s special outperformance award represents an allocation of the Special Outperformance Pool and will become vested on the fourth anniversary of the date of grant, provided that the officer remains in continuous employment with the Company or any of its affiliates until such date, and the Company has achieved on a cumulative and compounded basis, during the four fiscal years completed on the applicable anniversary date, a total return to holders of the common equity that (i) is at or above the 60^th percentile of the total return to stockholders achieved by members of the peer group during the same period and (ii) equals at least 9% per annum. Special outperformance awards will be paid in cash; however, the Compensation Committee, in its sole discretion, may elect to pay such an award in shares of common stock, valued at the date of vesting, if shares are available at such time under any of the Company’s existing stock option plans. The LTIP provides that no dividends or dividend equivalent payments will accrue with respect to the special outperformance awards. On March 13, 2003, the Company made available 827,776 shares of its common stock under its existing stock option plans in connection with the core award of the 2003 LTIP for certain of its executive and senior officers. During May 2003, the special outperformance awards of the 2003 LTIP were amended to increase the per share base price above which the four year cumulative return is measured from $18.00 to $22.40.

The Board of Directors approved an amendment to the 2003 LTIP to revise the peer group used to measure relative performance. The amendment eliminated the mixed office and industrial companies and added certain other “pure office” companies in order to revise the peer group to office sector companies. The Board has also approved the revision of the performance measurement dates for future vesting under the core component of the 2003 LTIP from the anniversary of the date of grant to December 31 of each year. This was done in order to have the performance measurement coincide with the performance period that the Company believes many investors use to judge the performance of the Company.

On December 27, 2004, the Operating Partnership entered into definitive agreements with certain executive and senior officers of the Company to revise their incentive awards under the 2003 LTIP. The revised agreements provide for (i) the rescission of the unvested portion of their core awards and (ii) an award in exchange for the rescinded core awards of an equal number of units of a new class of limited partnership interests (“LTIP Units”) of the Operating Partnership.

Each executive and senior officer participating in the 2003 LTIP was offered the option to retain all or a portion of their core awards or to rescind them in exchange for new awards of LTIP Units. On December 27, 2004, certain executive and senior officers accepted such offer and thereby amended their Amended and Restated Long-Term Incentive Award Agreement to cancel, in the aggregate, 362,500 shares of restricted stock of the Company representing all or a portion of their unvested core award, and received an equal number of LTIP Units.

The revised awards under the 2003 LTIP were designed to provide the potential for executives to retain a greater equity interest in the Company by eliminating the need for executives to sell a portion of the core awards immediately upon vesting in order to satisfy personal income taxes which are due upon vesting under the original core awards.

On March 13, 2005 and March 13, 2004 with respect to the 2003 LTIP, the Company met its annual performance measure with respect to the 2004 and 2003 annual measurement periods, respectively. As a result, it has issued to the participants of the 2003 LTIP 102,779 shares of its common stock and 206,944 shares of its common stock, respectively, related to the core component of the 2003 LTIP.

The terms of each award of LTIP Units are substantially similar to those of the core awards under the 2003 LTIP. The vesting, performance hurdles and timing for vesting remain unchanged. However, an LTIP Unit represents an equity interest in the Operating Partnership, rather than the Company. At issuance, the LTIP Unit has no value but may over time accrete to a value equal to (but never greater than) the value of one share of common stock of the Company (a “REIT Share”). Initially, LTIP Units will not have full parity with OP Units with respect to liquidating distributions. Upon the occurrence of certain “triggering events,” the Operating Partnership will revalue its assets for the purpose of the capital accounts of its partners and any increase in valuation of the Operating Partnership’s assets from the date of the issuance of the LTIP Units through the “triggering event” will be allocated to the capital accounts of holders of LTIP Units until their capital accounts are equivalent to the capital accounts of holders of OP Units. If such equivalence is reached, LTIP Units would achieve full parity with OP Units for all purposes, and therefore accrete to an economic value equivalent to REIT Shares on a one-for-one basis. After two years from the date of grant, if such parity is reached, vested LTIP Units may be redeemed for cash in an amount equal to the then fair market value of an equal number of REIT Shares or converted into an equal number of OP Units, as determined by the Company’s Compensation Committee. However, there are circumstances under which such economic equivalence would not be reached. Until and unless such economic equivalence is reached, the value that the officers will realize for vested LTIP Units will be less than the value of an equal number of REIT Shares. In addition, unlike core awards under the 2003 LTIP (wherein dividends that accumulate are paid upon vesting), LTIP Units will receive the same quarterly distributions as OP Units on a current basis, thus providing full dividend equivalence with REIT Shares. At the scheduled March 2005 vesting date, the specified performance hurdles were met, and officers that received LTIP Units received a one-time cash payment that represented payment of the full vested amount of the accrued unpaid dividends under the core award of the 2003 LTIP through December 27, 2004, the issuance date of the LTIP Units. In addition, the officers, in the aggregate, vested in 104,167 LTIP Units. In order to more closely replicate the terms of the core awards being rescinded, the Company also entered into agreements with three executive officers, which provide that in the event of a change of control the executive shall receive the equivalent value of one REIT Share for each LTIP Unit.

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In March 2005, following the recommendation of the Compensation Committee of the Board of Directors, eight senior and executive officers of the Company were awarded, in the aggregate, 272,100 LTIP Units to continue to incentivize them for the long-term (the “2005 LTIP Unit Grants”). Each such LTIP Unit awarded is deemed equivalent to an award of one share of common stock reserved under one of the Company’s stock option plans, reducing availability for other equity awards on a one-for-one basis. The terms of the 2005 LTIP Unit Grants are generally consistent with the terms of the 2003 LTIP, including with respect to the impact upon vesting in the event of a change in control.

As of March 31, 2005 and as a result of the foregoing, there remains 155,553 shares of common stock reserved for future issuance under the core award of the 2003 LTIP and 530,433 shares of common stock reserved for issuance of LTIP Units. With respect to the core award of the 2003 LTIP, the Company recorded approximately $305,000 and $699,000 of compensation expense for the three month periods ended March 31, 2005 and 2004, respectively. In addition, with respect to the LTIP Units and the 2005 LTIP Unit Grants the Company recorded compensation expense of approximately $466,000 for the three month period ended March 31, 2005. Such amounts have been included in marketing, general and administrative expenses on the accompanying consolidated statements of income. No provisions have been made with respect to the Special Outperformance Pool of the 2003 LTIP due to the uncertainty of the outcome of achieving the requisite performance measures.

8. Supplemental Disclosures of Cash Flows Information (in thousands)

		Three Months Ended March 31,
		2005		2004
Cash paid during the period for interest	$	33,976	$	31,501
Interest capitalized during the period	$	2,157	$	2,072

9. Segment Disclosure

We own all of the interests in our real estate properties directly or indirectly through the Operating Partnership. Our portfolio consists of Class A office properties located within the New York City metropolitan area and Class A suburban office and industrial / R&D properties located and operated within the Tri-State Area (the “Core Portfolio”). Our portfolio also includes one office property located in Orlando, Florida. We have formed an Operating Committee that reports directly to the President and Chief Financial Officer who have been identified as the Chief Operating Decision Makers due to their final authority over resource allocation, decisions and performance assessment.

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

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. In addition, historical amounts have been adjusted to give effect to our discontinued operations in accordance with Statement No. 144.

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The following table sets forth the components of our revenues and expenses and other related disclosures (in thousands):

	Three months ended
	March 31, 2005									March 31, 2004
		Core Portfolio			Other			Consolidated Totals			Core Portfolio			Other			Consolidated Totals
Property Operating Revenues:
Base rents, tenant escalations and reimbursements	$	134,299		$	1,585		$	135,884		$	125,395		$	1,991		$	127,386
Expenses:
Property operating expenses		54,422			666			55,088			49,971			768			50,739
Marketing, general and administrative		4,297			3,908			8,205			4,183			2,863			7,046
Depreciation and amortization		28,671			1,057			29,728			26,826			903			27,729
Total Operating Expenses		87,390			5,631			93,021			80,980			4,534			85,514
Operating Income		46,909			(4,046	)		42,863			44,415			(2,543	)		41,872
Non-Operating Income and Expenses
Interest, investment and other income		902			2,292			3,194			1,424			4,238			5,662
Interest:
Expense incurred		(11,102	)		(12,466	)		(23,568	)		(15,630	)		(10,031	)		(25,661	)
Amortization of deferred financing		(287	)		(751	)		(1,038	)		(200	)		(727	)		(927	)
Total Non-Operating Income and Expenses		(10,487	)		(10,925	)		(21,412	)		(14,406	)		(6,520	)		(20,926	)
Income (loss) before minority interests, preferred dividends and distributions, equity in earnings of a real estate joint venture and discontinued operations	$	36,422		$	(14,971	)	$	21,451		$	30,009		$	(9,063	)	$	20,946
Total Assets	$	3,004,509		$	268,236		$	3,272,745		$	2,806,966		$	330,188		$	3,137,154

10. Non-Cash Investing and Financing Activities

During the three months ended March 31, 2005, certain limited partners exchanged 776,599 OP Units for an equal number of shares of the Company’s common stock which were priced at a weighted-average price of $31.98 per share.

11. Related Party Transactions

In connection with our IPO, we were granted ten-year options to acquire ten properties (the “Option Properties”) which were either owned by certain Rechler family members who were also executive officers of the Company, or in which the Rechler family members owned a non-controlling minority interest, at prices based upon an agreed upon formula. In years prior to 2001, one Option Property was sold by the Rechler family members to a third party and four of the Option Properties were acquired by us for an aggregate purchase price of approximately $35 million, which included the issuance of approximately 475,000 Class A OP Units valued at approximately $8.8 million. During November, 2003, in connection with the sale of all but three of our 95 property, 5.9 million square foot, Long Island industrial building portfolio to members of the Rechler family, four of the five remaining options (the “Remaining Option Properties”) were terminated a long with management contracts relating to three of the properties.

As part of the Company’s REIT structure it is provided management, leasing and construction related services through taxable REIT subsidiaries as defined by the Code. These services are currently provided by the Service Companies. During the three months ended March 31, 2005, Reckson Construction & Development LLC (“RCD”) billed approximately $9,000 of market rate services and Reckson Management Group, Inc. (“RMG”) billed approximately $71,000 of market rate management fees to the Remaining Option Properties.

RMG leases approximately 26,000 square feet of office space at a Remaining Option Property located at 225 Broadhollow Road, Melville, New York for its corporate offices at an annual base rent of approximately $787,000. RMG also leases 10,722 square feet of warehouse space used for equipment, materials and inventory storage at a property owned by certain members of the Rechler family at an annual base rent of approximately $79,000. In addition, commencing April 1, 2004, RCD has been leasing approximately 17,000 square feet of space at a Remaining Option Property, located at 225 Broadhollow Road, Melville, New York, which is scheduled to terminate on September 30, 2006. Base rent of approximately $122,000 was paid by RCD during the three month period ended March 31, 2005. Commencing in April 2005, RCD sub-let the entire 17,000 square feet to a third party for approximately $35,000 per month through RCD’s September 2006 lease termination date.

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On March 28, 2005, an entity (“REP”) owned by members of the Rechler family (excluding Scott Rechler, but including his father, Roger and brother, Greg) exercised a Right of First Refusal (which was granted in connection with the 2003 sale of the industrial portfolio by us) to acquire a vacant parcel of land for a purchase price of $2 million. We have agreed to provide REP with the option to defer the closing on the purchase until September 2006, for a non-refundable deposit of $400,000 and a fee of $10,666 per month for each month that the closing is deferred. In connection therewith, REP agreed to settle a dispute concerning an easement on a separate parcel of land owned by us adjacent to one of the properties transferred to REP in the 2003 industrial transaction.

A company affiliated with an independent director of the Company leases 15,566 square feet in a property owned by us at an annual base rent of approximately $445,000.

During 1997, the Company formed FrontLine Capital Group, formerly Reckson Service Industries, Inc. (“FrontLine”) and Reckson Strategic Venture Partners, LLC (“RSVP”). RSVP is a real estate venture capital fund which invested primarily in real estate and real estate operating companies outside the Company’s core office and industrial / R&D focus and whose common equity is held indirectly by FrontLine. In connection with the formation and spin-off of FrontLine, the Operating Partnership established an unsecured credit facility with FrontLine (the “FrontLine Facility”) in the amount of $100 million for FrontLine to use in its investment activities, operations and other general corporate purposes. The Company advanced approximately $93.4 million under the FrontLine Facility. The Operating Partnership also approved the funding of investments of up to $110 million relating to RSVP (the “RSVP Commitment”), through RSVP-controlled joint ventures (for REIT-qualified investments) or advances made to FrontLine under an unsecured loan facility (the “RSVP Facility”) having terms similar to the FrontLine Facility (advances made under the RSVP Facility and the FrontLine Facility hereafter, the “FrontLine Loans”). At March 31, 2005, approximately $109.1 million had been funded through the RSVP Commitment, of which $59.8 million represents investments by the Company in RSVP-controlled (REIT-qualified) joint ventures and $49.3 million represents loans made to FrontLine under the RSVP Facility. As of March 31, 2005, interest accrued (net of reserves) under the FrontLine Facility and the RSVP Facility was approximately $19.6 million.

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

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

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

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

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

In August 2004, American Campus Communities, Inc. (“ACC”), a student housing company owned by RSVP and the joint venture between RSVP and a subsidiary of the Operating Partnership completed an initial public offering (the “ACC IPO”) of its common stock. RSVP and the joint venture between RSVP and a subsidiary of the Operating Partnership sold its entire ownership position in ACC as part of the ACC IPO. Proceeds from the ACC IPO were used in part to pay accrued interest on the RSVP Secured Loan and reduce the principal balance down to $30 million. The Company through its ownership position in the joint venture and outstanding advances made under the RSVP facility anticipates realizing approximately $30 million in the aggregate from the ACC sale. To date, the Company has received approximately $10.6 million of such proceeds. The remaining amount is expected to be received subsequent to the United States Bankruptcy Court’s approval of a plan of re-organization of FrontLine. At March 31, 2005, RSVP had approximately $22.0 million of cash and cash equivalents net of contractual reserves. There can be no assurances as to the final outcome of such Plan of re-organization.

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As a result of the foregoing, the net carrying value of the Company’s investments in the FrontLine Loans and joint venture investments with RSVP, inclusive of the Company’s share of previously accrued GAAP equity in earnings on those investments, is approximately $55.2 million which was reassessed with no change by management as of March 31, 2005. Such amount has been reflected in investments in affiliate loans and joint ventures on the Company’s consolidated balance sheet.

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

In November 2004, Concord Associates LLC and Sullivan Resorts LLC, a joint venture approximately 47% owned by RSVP, executed a binding agreement to contribute its Concord and Grossingers resort properties (excluding residential land) to Empire Resorts Inc. (NASDAQ: NYNY)(“Empire”) for consideration of 18 million shares of common stock of Empire and the right to appoint five members of the Board of Directors. It is currently anticipated that Scott H. Rechler will be appointed to fill one seat on Empire’s Board. On March 4, 2005, Empire announced that the agreement had been amended, whereby the parties agreed to waive the condition to closing which required final governmental approval of gaming in the Catskills. The transaction is subject to satisfaction of certain conditions and approvals, including the approval of Empire’s shareholders.

12. Commitments and Contingencies

The Company has entered into amended and restated employment and noncompetition agreements with three executive officers. The agreements are for five years and expire on August 15, 2005. The Company has also entered into an employment agreement with one additional officer prior to his appointment as an executive officer. This agreement expires in December 2006.

We had undrawn letters of credit outstanding against our Credit Facility of approximately $1.2 million at March 31, 2005.

A number of shareholder derivative actions have been commenced purportedly on behalf of the Company against the Board of Directors relating to the Disposition. The complaints allege, among other things, that the process by which the directors agreed to the transaction was not sufficiently independent of the Rechler family and did not involve a “market check” or third party auction process and, as a result, was not for adequate consideration. The plaintiffs seek similar relief, including a declaration that the directors violated their fiduciary duties and damages. On May 25, 2004, the Circuit Court for Baltimore City granted the Defendants’ motions to dismiss the three consolidated Maryland actions on the ground that the Plaintiffs in those actions had failed to make a pre-suit demand on the Board of Directors, or to allege facts showing that such a demand would have been futile. Final judgment was entered on June 8, 2004, and on June 30, 2004, the Plaintiffs in the Maryland actions filed a notice of appeal from that judgment to the Maryland Court of Special Appeals. The Company’s management believes that the complaints are without merit.

On April 4, 2005 the Company and the other parties to the shareholder derivative actions filed against the Company in connection with its disposition of its industrial portfolio have agreed to settle such actions pursuant to the Stipulation of Settlement, dated as of March 14, 2005 and executed subsequent thereto. The proposed settlement includes various changes to the Company’s corporate governance policies to provide for an Affiliate Transaction Committee and to require that the Company’s Board of Directors be comprised of at least two-thirds independent directors (as defined in the Company’s Corporate Governance Guidelines), as well as certain other concessions. The proposed settlement is subject to court approval.

13. Subsequent Events

On May 4, 2005 we contracted to acquire a 1.4 million square foot, 50-story, Class A, office tower located at One Court Square, Long Island City, a sub-market of New York City for approximately $470.0 million, inclusive of anticipated transfer taxes and transactional costs. In connection with the contract execution we delivered a $45.5 million irrevocable letter of credit issued under our Credit Facility as a deposit. One Court Square will be 100% leased to the seller, Citibank N.A., under a 15-year net lease. The lease contains partial cancellation options effective during years six and seven for up to 20% of the leased space and in years nine and ten for up to an additional 20% of the leased space, subject to notice and penalty. We anticipate closing on the acquisition of One Court Square during May 2005.

We have arranged for a $470.0 million unsecured bridge facility (the “Bridge Facility”) from a financial institution. The Bridge Facility will be for an initial term of six months and we have an option for a six-month extension upon paying a one-time fee of 7.5 basis points on the amount then outstanding under the Bridge Facility. The Bridge Facility will have terms including interest rates and financial covenants substantially similar to our existing Credit Facility. There can be no assurances that we will close such financing or under the terms as anticipated.

During April and May 2005, we entered into several anticipatory interest rate hedge instruments, aggregating $300.0 million, to protect ourselves against potentially rising interest rates.

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

The following discussion should be read in conjunction with the historical financial statements of Reckson Associates Realty Corp. (the "Company") and related notes thereto.

The Company considers certain statements set forth herein to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the Company’s expectations for future periods. Certain forward-looking statements, including, without limitation, statements relating to the timing and success of acquisitions and the completion of development or redevelopment of properties, the financing of the Company’s operations, the ability to lease vacant space and the ability to renew or relet space under expiring leases, involve risks and uncertainties. Many of the forward-looking statements can be identified by the use of words such as “believes”, “may”, “expects”, “anticipates”, “intends” or similar expressions. Although the Company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, the actual results may differ materially from those set forth in the forward-looking statements and the Company can give no assurance that its expectation will be achieved. Among those risks, trends and uncertainties are: the general economic climate, including the conditions affecting industries in which our principal tenants compete; changes in the supply of and demand for office in the New York Tri-State area; changes in interest rate levels; changes in the Company’s credit ratings; changes in the Company’s cost and access to capital; downturns in rental rate levels in our markets and our ability to lease or re-lease space in a timely manner at current or anticipated rental rate levels; the availability of financing to us or our tenants; financial condition of our tenants; changes in operating costs, including utility, security, real estate tax and insurance costs; repayment of debt owed to the Company by third parties; risks associated with joint ventures; liability for uninsured losses or environmental matters; and other risks associated with the development and acquisition of properties, including risks that development may not be completed on schedule, that the tenants will not take occupancy or pay rent, or that development or operating costs may be greater than anticipated. Consequently, such forward-looking statements should be regarded solely as reflections of the Company’s current operating and development plans and estimates. These plans and estimates are subject to revisions from time to time as additional information becomes available, and actual results may differ from those indicated in the referenced statements.

Critical Accounting Policies

The consolidated financial statements of the Company include accounts of the Company and all majority-owned and controlled subsidiaries. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the Company’s consolidated financial statements and related notes. In preparing these financial statements, management has utilized information available including its past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments of certain amounts included in the consolidated financial statements, giving due consideration to materiality. It is possible that the ultimate outcome as anticipated by management in formulating its estimates inherent in these financial statements may not materialize. However, application of the critical accounting policies below involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. In addition, other companies may utilize different estimates, which may impact comparability of the Company’s results of operations to those of companies in similar businesses.

Revenue Recognition and Accounts Receivable

Minimum rental revenue is recognized on a straight-line basis, which averages minimum rents over the terms of the leases. The excess of rents recognized over amounts contractually due are included in deferred rents receivable on the Company’s balance sheets. Contractually due but unpaid rents are included in tenant receivables on the Company’s balance sheets. Certain lease agreements also provide for reimbursement of real estate taxes, insurance, common area maintenance costs and indexed rental increases, which are recorded on an accrual basis. Ancillary and other property related income is recognized in the period earned.

We make estimates of the collectibility of our accounts receivables related to base rents, tenant escalations and reimbursements and other revenue or income. We specifically analyze tenant receivables and historical bad debts, customer credit worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of our allowance for doubtful accounts. In addition, when tenants are in bankruptcy, we make estimates of the expected recovery of pre-petition administrative and damage claims. In some cases, the ultimate resolution of those claims can exceed a year. These estimates have a direct impact on our net income because a higher bad debt reserve results in less net income.

We incurred approximately $415,000 and $657,000 of bad debt expense, net of discontinued operations, for the three month periods ended March 31, 2005 and 2004, respectively, related to tenant receivables which accordingly reduced our total revenues and reported net income during the period.

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

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Reckson Construction & Development LLC (the successor to Reckson Construction Group, Inc.) and Reckson Construction Group New York, Inc. use the percentage-of-completion method for recording amounts earned on their contracts. This method records amounts earned as revenue in the proportion that actual costs incurred to date bear to the estimate of total costs at contract completion.

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

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

Real Estate

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

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

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

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

We allocate a portion of the purchase price to tangible assets including the fair value of the building and building improvements on an as-if-vacant basis and to land determined either by real estate tax assessments, independent appraisals or other relevant data. Additionally, we assess fair value of identified intangible assets and liabilities based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information.

Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property. If we incorrectly estimate the values at acquisition or the undiscounted cash flows, initial allocation of purchase price and future impairment charges may be different.

Long Lived Assets

We are required to make subjective assessments as to whether there are impairments in the value of our real estate properties and other investments. An investment’s value is impaired only if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the investment are less than the carrying value of the investment. Such assessments consider factors such as cash flows, expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors. To the extent impairment has occurred it will be measured as the excess of the carrying amount of the property over the fair value of the property. These assessments have a direct impact on our net income, because recognizing an impairment results in an immediate negative adjustment to net income. In determining impairment, if any, we have followed FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets”. Statement No. 144 did not have an impact on net income allocable to common shareholders. Statement No. 144 only impacts the presentation of the results of operations and gain on sales of real estate assets for those properties sold during the period within the consolidated statements of income.

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Stock-Based Compensation

In December 2002, the FASB issued Statement No. 148, “Accounting for Stock-Based Compensation–Transition and Disclosure” (“Statement No. 148”). Statement No. 148 amends Statement No. 123 to provide alternative methods of transition for an entity that voluntarily adopts the fair value recognition method of recording stock option expense. Statement No. 148 also amends the disclosure provisions of Statement 123 and Accounting Principles Board Opinion No. 28, “Interim Financial Reporting” to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock options on reported net income and earnings per share in annual and interim financial statements.

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

Statement No. 123R must be adopted no later than January 1, 2006. Early adoption will be permitted in periods in which financial statements have not yet been issued. We expect to adopt Statement No. 123R on January 1, 2006.

Effective January 1, 2002, we elected to follow Statement No. 123 and use the Black-Scholes option pricing model to estimate the value of stock options granted to employees and expect to continue to use this acceptable option valuation model upon the required adoption of Statement No. 123R on January 1, 2006. Because Statement No. 123R must be applied not only to new awards but to previously granted awards that are not fully vested on the effective date, and because we adopted Statement No. 123 using the prospective transition method (which applied only to awards granted, modified or settled after the adoption date), compensation cost for some previously granted awards that were not recognized under Statement No. 123 would be recognized under Statement No. 123R. However, on January 1, 2006, the date we expect to adopt Statement No. 123R, all of the unexercised options outstanding at March 31, 2005, under our stock option plans will be fully vested. As a result, no additional expense will be recognized. In addition, had we adopted Statement No. 123R in prior periods, the impact of that standard would have approximated the impact of Statement No. 123 as described in the disclosure of pro forma net income and earnings per share in Note 1 to our consolidated financial statements.

Variable Interest Entities

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), which explains how to identify variable interest entities (“VIEs”) and how to assess whether to consolidate such entities. VIEs are primarily entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision making ability. All VIEs which we are involved with must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes. The initial determination of whether an entity qualifies as a VIE shall be made as of the date at which a primary beneficiary becomes involved with the entity and reconsidered as of the date of a triggering event, as defined. The provisions of this interpretation are immediately effective for VIEs formed after January 31, 2003. In December 2003 the FASB issued FIN 46R, deferring the effective date until the period ending March 31, 2004 for interests held by public companies in VIEs created before February 1, 2003, which were non-special purpose entities. We adopted FIN 46R during the period ended March 31, 2004 and have determined that our consolidated and unconsolidated subsidiaries do not represent VIEs pursuant to such interpretation. We will continue to monitor any changes in circumstances relating to certain of its consolidated and unconsolidated joint ventures which could result in a change in our consolidation policy.

Overview and Background

The Reckson Group, the predecessor to the Company, was engaged in the ownership, management, operation, leasing and development of commercial real estate properties, principally office and industrial / R&D buildings, and also owned undeveloped land located primarily on Long Island, New York. In June 1995, the Company completed an initial public offering (the "IPO"), succeeded to the Reckson Group’s real estate business and commenced operations.

The Company is a self-administered and self managed real estate investment trust (“REIT”) engaged in the ownership, operation, acquisition, leasing, financing, management and development of commercial real estate properties, principally office and to a lesser extent industrial / R&D properties and also owns land for future development. The Company’s growth strategy is focused on the commercial real estate markets in and around the New York City tri-state area (the “Tri-State Area”). All of the Company’s interests in its real properties, land held for development and investments in notes receivable are held directly or indirectly by, and all of its operations are conducted through, Reckson Operating Partnership, L.P. (the “Operating Partnership”).

In connection with our IPO, we were granted ten-year options to acquire ten properties (the “Option Properties”) which were either owned by certain Rechler family members who were also executive officers of the Company, or in which the Rechler family members owned a non-controlling minority interest, at prices based upon an agreed upon formula. In years prior to 2001, one Option Property was sold by the Rechler family members to a third party and four of the Option Properties were acquired by us for an aggregate purchase price of approximately $35 million, which included the issuance of approximately 475,000 common units of limited partnership interest in the Operating Partnership (“OP Units”) valued at approximately $8.8 million. During November, 2003, in connection with the sale of our Long Island industrial building portfolio to members of the Rechler family, four of the five remaining options (the “Remaining Option Properties”) were terminated, along with management contracts relating to three of the properties.

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As part of the Company’s REIT structure it is provided management, leasing and construction related services through taxable REIT subsidiaries as defined by the Internal Revenue Code of 1986, as amended (the “Code”). These services are currently provided by Reckson Management Group, Inc. (“RMG”), RANY Management Group, Inc., Reckson Construction and Development LLC (“RCD”) and Reckson Construction Group New York, Inc. (collectively, the “Service Companies”). During the three months ended March 31, 2005, RCD billed approximately $9,000 of market rate services and RMG billed approximately $71,000 of market rate management fees to the Remaining Option Properties.

RMG leases approximately 26,000 square feet of office space at a Remaining Option Property located at 225 Broadhollow Road, Melville, New York for its corporate offices at an annual base rent of approximately $787,000. RMG also leases 10,722 square feet of warehouse space used for equipment, materials and inventory storage at a property owned by certain members of the Rechler family at an annual base rent of approximately $79,000. In addition, commencing April 1, 2004, RCD has been leasing approximately 17,000 square feet of space at a Remaining Option Property, located at 225 Broadhollow Road, Melville, New York, which is scheduled to terminate on September 30, 2006. Base rent of approximately $122,000 was paid by RCD during the three month period ended March 31, 2005. Commencing in April 2005, RCD sub-let the entire 17,000 square feet to a third party for approximately $35,000 per month through RCD’s September 2006 lease termination date.

On March 28, 2005, an entity (“REP”) owned by members of the Rechler family (excluding Scott Rechler, but including his father, Roger and brother, Greg) exercised a Right of First Refusal (which was granted in connection with the 2003 sale of the industrial portfolio by us) to acquire a vacant parcel of land for a purchase price of $2 million. We have agreed to provide REP with the option to defer the closing on the purchase until September 2006, for a non-refundable deposit of $400,000 and a fee of $10,666 per month for each month that the closing is deferred. In connection therewith, REP agreed to settle a dispute concerning an easement on a separate parcel of land owned by us adjacent to one of the properties transferred to REP in the 2003 industrial transaction.

A company affiliated with an independent director of the Company leases 15,566 square feet in a property owned by us at an annual base rent of approximately $445,000.

During July 1998, we formed Metropolitan Partners, LLC (“Metropolitan”) for the purpose of acquiring Class A office properties in New York City. Currently we own, through Metropolitan and the Operating Partnership, six New York City Class A office properties aggregating approximately 4.6 million square feet.

During September 2000, we formed a joint venture (the “Tri-State JV”) with Teachers Insurance and Annuity Association (“TIAA”) and contributed nine Class A suburban office properties aggregating approximately 1.5 million square feet to the Tri-State JV for a 51% majority ownership interest. TIAA contributed approximately $136 million for a 49% interest in the Tri-State JV which was then distributed to us. Since the formation of the Tri-State JV, we acquired TIAA’s 49% interest in two of the properties held by the Tri-State JV and the Tri-State JV sold one of its properties to a third party. As a result of these transactions, the Tri-State JV owns six Class A suburban office properties aggregating approximately 943,000 square feet. We are responsible for managing the day-to-day operations and business affairs of the Tri-State JV and have substantial rights in making decisions affecting the properties such as leasing, marketing and financing. The minority member has certain rights primarily intended to protect its investment. For purposes of our financial statements we consolidate the Tri-State JV.

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

As of March 31, 2005 we owned and operated 81 office properties (inclusive of eight office properties owned through joint ventures), encompassing approximately 15.4 million rentable square feet and eight industrial / R&D properties encompassing approximately 863,000 rentable square feet.

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At March 31, 2005, we also owned approximately 344 acres of land in 13 separate parcels of which we can, based on current estimates, develop approximately 3.1 million square feet of office space (the “Development Parcels”). During July 2004 we commenced the ground-up development on one of the Development Parcels of a 277,000 square foot Class A office building with a total anticipated investment of approximately $61.3 million. There can be no assurances that the actual cost of this development will not exceed the anticipated amount. This development is located within our existing 404,000 square foot executive office park in Melville, New York. One of the Development Parcels, comprising 39.5 acres located in Valhalla, New York, was previously under contract for sale and contingent upon obtaining zoning for residential use of the land and other customary due diligence and approvals. Subsequent to March 31, 2005, the purchaser terminated the contract. Three of the Development Parcels, aggregating approximately 31.8 acres are classified as held for sale on our balance sheets and are expected to close between 2005 and 2006 for aggregate consideration of approximately $28.0 million. The aggregate cost basis of these three Development Parcels was approximately $25.7 million at March 31, 2005. We are currently evaluating alternative land uses for certain of the remaining Development Parcels to realize their highest economic value. These alternatives may include rezoning certain Development Parcels from commercial to residential for potential disposition. As of March 31, 2005, we had invested approximately $120.3 million in the remainder of the Development Parcels. Management has made subjective assessments as to the value and recoverability of our investments in the Development Parcels based on current and proposed development plans, market comparable land values and alternative use values.

We also own a 354,000 square foot office building located in Orlando, Florida. This non-core real estate holding was acquired in May 1999 in connection with our initial New York City portfolio acquisition.

We hold a $17.0 million note receivable, which bears interest at 12% per annum and is secured by a minority partnership interest in Omni Partners, L.P., owner of the Omni, a 579,000 square foot Class A office property located in Uniondale, New York (the “Omni Note”). We currently own a 60% majority partnership interest in Omni Partners, L.P. and on March 14, 2007 may exercise an option to acquire the remaining 40% interest for a price based on 90% of the fair market value of the property.

On March 16, 2005 a wholly owned subsidiary of the Operating Partnership advanced under separate mezzanine loan agreements, each of which bear interest at 9% per annum, (i) approximately $8.0 million which matures in April 2010 and is secured, in part, by indirect ownership interests in ten suburban office properties located in adjacent office parks in Long Island, New York and (ii) approximately $20.4 million which matures in April 2012 and is secured, in part, by indirect ownership interests in twenty-two suburban office properties located in adjacent office parks in Long Island, New York. Each mezzanine loan is additionally secured by other guaranties, pledges and assurances and neither is pre-payable without penalty after 18 months from the initial funding. We made these investments through a borrowing under our Credit Facility.

At March 31, 2005, we had invested approximately $90.0 million in mezzanine loans and preferred equity investments. In general these investments are secured by a pledge of either a direct or indirect ownership interest in the underlying real estate or leasehold, other guaranties, pledges and assurances.

The following table sets forth the terms of these investments at March 31, 2005 (in thousands):

Description		Amount	Interest Rate		Funding	Maturity
Mezzanine loan	$	27,592	13.91	%(a)	September, 2003	September, 2005 (b)
Preferred equity		34,000	9.00	%	December, 2004	December, 2005 (c)
Mezzanine loan		8,031	9.00	%	March, 2005	April, 2010 (d)
Mezzanine loan		20,356	9.00	%	March, 2005	April, 2012 (d)
	$	89,979

(a) Weighted average interest rate which is based on a spread over LIBOR, with a LIBOR floor of 1.63% per annum.

(b) The borrower has rights to extend the term for three additional one-year periods and, under certain circumstances, prepay amounts outstanding.

(c) Or the earlier of refinancing. In addition, this preferred equity investment was made to an entity that is controlled by a preferred unit holder in the Operating Partnership.

(d) Prepayable without penalty after 18 months from initial funding.

As of March 31, 2005, we also held two other notes receivable, which aggregated approximately $2.4 million and carried a weighted average interest rate of 11.36% per annum (the “Other Notes”) and collectively with the Omni Note, our mezzanine loans and preferred equity investments (the “Note Receivable Investments”). These notes are secured in part by a minority partner’s preferred unit interest in the Operating Partnership, an interest in real property and a personal guarantee. Approximately $1.4 million of the Other Notes matures on December 1, 2005 and the remaining $1.0 million on January 31, 2010.

As of March 31, 2005, management has made subjective assessments as to the underlying security value on the Note Receivable Investments. These assessments indicate an excess of market value over the carrying value and based on these assessments we believe there is no impairment to their carrying value.

We also own a 60% interest in a 172,000 square foot office building located at 520 White Plains Road in Tarrytown, New York (the “520JV”), which we manage through a wholly owned subsidiary. As of March 31, 2005, the 520JV had total assets of approximately $20.1 million, a mortgage note payable of $11.2 million and other liabilities of $185,000. Our allocable share of the 520JV mortgage note payable on March 31, 2005 was approximately $7.1 million. This mortgage note payable bears interest at 8.85% per annum and matures on September 1, 2005. The operating agreement of the 520JV requires approvals from members on certain decisions including sale of the property, refinancing of the property’s mortgage debt, and material renovations to the property. We have evaluated the impact of FIN 46R on our accounting for the 520JV and have concluded that the 520JV is not a VIE. We account for the 520JV under the equity method of accounting. In accordance with the equity method of accounting our proportionate share of the 520JV income was approximately $151,000 and $114,000 for the three month periods ended March 31, 2005 and 2004, respectively.

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On May 4, 2005 we contracted to acquire a 1.4 million square foot, 50-story, Class A, office tower located at One Court Square, Long Island City, a sub-market of New York City for approximately $470.0 million, inclusive of anticipated transfer taxes and transactional costs. In connection with the contract execution we delivered a $45.5 million irrevocable letter of credit issued under our Credit Facility as a deposit. One Court Square will be 100% leased to the seller, Citibank N.A., under a 15-year net lease. The lease contains partial cancellation options effective during years six and seven for up to 20% of the leased space and in years nine and ten for up to an additional 20% of the leased space, subject to notice and penalty. We anticipate closing on the acquisition of One Court Square during May 2005.

We have arranged for a $470.0 million unsecured bridge facility (the “Bridge Facility”) from a financial institution. The Bridge Facility will be for an initial term of six months and we have an option for a six-month extension upon paying a one-time fee of 7.5 basis points on the amount then outstanding under the Bridge Facility. The Bridge Facility will have terms including interest rates and financial covenants substantially similar to our existing Credit Facility. There can be no assurances that we will close such financing or under the terms as anticipated.

Our market capitalization at March 31, 2005 was approximately $4.1 billion. Our market capitalization is based on the sum of (i) the market value of the Company’s common stock and OP Units (assuming conversion) of $30.70 per share / unit (based on the closing price of the Company’s common stock on March 31, 2005), (ii) the liquidation preference value of the Operating Partnership’s preferred units of $1,000 per unit and (iii) approximately $1.5 billion (including our share of consolidated and unconsolidated joint venture debt and net of minority partners’ interests share of consolidated joint venture debt) of debt outstanding at March 31, 2005. As a result, our total debt to total market capitalization ratio at March 31, 2005 equaled approximately 37.1%.

During 1997, the Company formed FrontLine Capital Group, formerly Reckson Service Industries, Inc. (“FrontLine”) and Reckson Strategic Venture Partners, LLC (“RSVP”). RSVP is a real estate venture capital fund which invested primarily in real estate and real estate operating companies outside the Company’s core office and industrial / R&D focus and whose common equity is held indirectly by FrontLine. In connection with the formation and spin-off of FrontLine, the Operating Partnership established an unsecured credit facility with FrontLine (the “FrontLine Facility”) in the amount of $100 million for FrontLine to use in its investment activities, operations and other general corporate purposes. The Company advanced approximately $93.4 million under the FrontLine Facility. The Operating Partnership also approved the funding of investments of up to $110 million relating to RSVP (the “RSVP Commitment”), through RSVP-controlled joint ventures (for REIT-qualified investments) or advances made to FrontLine under an unsecured loan facility (the “RSVP Facility”) having terms similar to the FrontLine Facility (advances made under the RSVP Facility and the FrontLine Facility hereafter, the “FrontLine Loans”). At March 31, 2005, approximately $109.1 million had been funded through the RSVP Commitment, of which $59.8 million represents investments by the Company in RSVP-controlled (REIT-qualified) joint ventures and $49.3 million represents loans made to FrontLine under the RSVP Facility. As of March 31, 2005, interest accrued (net of reserves) under the FrontLine Facility and the RSVP Facility was approximately $19.6 million.

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

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

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

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

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

In August 2004, American Campus Communities, Inc. (“ACC”), a student housing company owned by RSVP and the joint venture between RSVP and a subsidiary of the Operating Partnership completed an initial public offering (the “ACC IPO”) of its common stock. RSVP and the joint venture between RSVP and a subsidiary of the Operating Partnership sold its entire ownership position in ACC as part of the ACC IPO. Proceeds from the ACC IPO were used in part to pay accrued interest on the RSVP Secured Loan and reduce the principal balance down to $30 million. The Company through its ownership position in the joint venture and outstanding advances made under the RSVP facility anticipates realizing approximately $30 million in the aggregate from the ACC sale. To date, the Company has received approximately $10.6 million of such proceeds. The remaining amount is expected to be received subsequent to the United States Bankruptcy Court’s approval of a plan of re-organization of FrontLine. At March 31, 2005, RSVP had approximately $22.0 million of cash and cash equivalents net of contractual reserves. There can be no assurances as to the final outcome of such Plan of re-organization.

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As a result of the foregoing, the net carrying value of the Company’s investments in the FrontLine Loans and joint venture investments with RSVP, inclusive of the Company’s share of previously accrued GAAP equity in earnings on those investments, is approximately $55.2 million which was reassessed with no change by management as of March 31, 2005. Such amount has been reflected in investments in affiliate loans and joint ventures on the Company’s consolidated balance sheet.

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

In November 2004, Concord Associates LLC and Sullivan Resorts LLC, a joint venture approximately 47% owned by RSVP, executed a binding agreement to contribute its Concord and Grossingers resort properties (excluding residential land) to Empire Resorts Inc. (NASDAQ: NYNY)(“Empire”) for consideration of 18 million shares of common stock of Empire and the right to appoint five members of the Board of Directors. It is currently anticipated that Scott H. Rechler will be appointed to fill one seat on Empire’s Board. On March 4, 2005, Empire announced that the agreement had been amended, whereby the parties agreed to waive the condition to closing which required final governmental approval of gaming in the Catskills. The transaction is subject to satisfaction of certain conditions and approvals, including the approval of Empire’s shareholders.

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Results of Operations

The following table is a comparison of the results of operations for the three month period ended march 31, 2005 to the three month period ended March 31, 2004 (dollars in thousands):

	Three months ended March 31,
					Change
	2005		2004		Dollars			Percent
Property Operating Revenues:
Base rents	$	117,382	$	109,408	$	7,974			7.3	%
Tenant escalations and reimbursements		18,502		17,978		524			2.9	%
Total property operating revenues	$	135,884	$	127,386	$	8,498			6.7	%
Property Operating Expenses:
Operating expenses	$	32,806	$	30,389	$	2,417			8.0	%
Real estate taxes		22,282		20,350		1,932			9.5	%
Total property operating expenses	$	55,088	$	50,739	$	4,349			8.6	%
Investment and Other Income	$	3,194	$	5,662	$	(2,468	)		(43.6	%)
Other Expenses:
Interest expense incurred	$	23,568	$	25,661	$	(2,093	)		(8.2	%)
Amortization of deferred financing costs		1,038		927		111			12.0	%
Marketing, general and administrative		8,205		7,046		1,159			16.4	%
Total other expenses	$	32,811	$	33,634	$	(823	)		(2.4	%)

The Company’s property operating revenues, which include base rents and tenant escalations and reimbursements (“Property Operating Revenues”), increased by $8.5 million for the three months ended March 31,2005 as compared to the 2004 period. Property Operating Revenues increased by $5.5 million attributable to newly acquired properties during 2005 and $6.5 million in built-in-rent increases and straight line rental revenue increases in the Company’s same store properties. In addition, Property Operating Revenues increased by $1.5 million resulting in the recovery of bad debts previously written off. These increases were off-set by a $5.0 million decrease in termination fees.

The Company’s property operating expenses, real estate taxes and ground rents (“Property Expenses”) increased by $4.3 million for the three months ended March 31, 2005 as compared to the 2004 period. The increase is due to a $1.5 million increase in real estate taxes and operating expenses related to the company’s same store properties. Newly acquired properties in 2005 increased property expenses by $2.4 million. The increase in real estate taxes is attributable to the significant increases levied by certain municipalities, particularly in New York City and Westchester County, New York.

Investment and other income decreased by $2.5 million or 43.6% for the three months ended March 31, 2005 as compared to the 2004 period. This increase is primarily attributable to the gain recognized in the first quarter of 2004 related to a land sale and build-to-suit transaction of approximately $4.6 million with no corresponding gain in 2005. To a lesser extent, during the 2005 period we had increased costs related to investment opportunities that were not consummated in the amount of approximately $295,000 and decreases in property tax refunds of approximately $860,000. These aggregate decreases of $5.8 million were mitigated by an increase in interest income of approximately $1.3 million on certain of our note receivable investments which were funded subsequent to the 2004 period as well as from other interest income and an aggregate net increase of $1.9 million in income through our Service Companies.

Interest expense incurred decreased by $2.1 million or 8.2% for the three months ended March 31, 2005 as compared to the 2004 period. This decrease is attributable to decreases in interest expense of approximately $276,000 incurred under our same store mortgage portfolio and a decrease in interest expense of approximately $4.8 million incurred during the 2004 period from two mortgage notes payable which were subsequently satisfied. These aggregate decreases of $5.1 million were off-set by an increase in interest expense of $1.1 million attributable to a net increase of $150 million in the Operating Partnership’s senior unsecured notes and an increase of $2.1 million of interest expense incurred under our unsecured revolving credit facility (the “Credit Facility”). The increase in interest expense incurred under our unsecured credit facility is a result of an increase in the weighted average balance outstanding and to a lesser extent an increase in the weighted average interest rate from 3.5% to 3.9%. The weighted average balance outstanding under our unsecured credit facility was $320.1 million for the three months ended March 31, 2005 as compared to $119.7 million for the three months ended March 31, 2004.

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Marketing, general and administrative expenses increased by $1.2 million or 16.4% for the three months ended March 31, 2005 as compared to the 2004 period. This overall net increase is attributable to increased costs of maintaining offices and infrastructure in each of our five divisional markets, higher compensation costs including amortization expense related to restricted stock awards to non-executive officers, higher professional fees primarily due to maintaining compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. Marketing, general and administrative costs represented 5.9% of total revenues from continuing operations (excluding gains on sales of depreciable real estate assets) in the 2005 period as compared to 5.3% in the 2004 period.

Discontinued operations net of minority interests decreased by approximately $5.9 million for the three months ended March 31, 2005 as compared to the 2004 period. This decrease is primarily attributable to the gain on sales related to those properties sold, including their income from discontinued operations of 468,000, during the 2004 period of approximately $5.7 million with no corresponding gain or income in the 2005 period. To a lesser extent, for those properties classified as held for sale at March 31, 2005, there was a decrease of $217,000 in income from discontinued operations from the 2004 period as compared to the 2005 period.

Liquidity and Capital Resources

Historically, rental revenue has been the principal source of funds to pay operating expenses, debt service and non-incremental capital expenditures, excluding incremental capital expenditures. We expect to meet our short-term liquidity requirements generally through our net cash provided by operating activities along with our Credit Facility described below. The Credit Facility contains several financial covenants with which we must be in compliance in order to borrow funds thereunder. During recent quarterly periods, we have incurred significant leasing costs as a result of increased market demands from tenants and high levels of leasing transactions that result from the re-tenanting of scheduled expirations or space vacated as a result of early terminations of leases. We are also expending costs on tenants that are renewing or extending their leases earlier than scheduled. We have recently experienced high tenanting costs including tenant improvement costs, leasing commissions and free rent in all of its markets. For the three month period ended March 31, 2005, we paid or accrued approximately $16.1 million for tenanting costs including tenant improvement costs and leasing commissions. As a result of these and / or other operating factors, our cash flow from operating activities was not sufficient to pay 100% of the dividends paid on our common equity. However, we are beginning to see a moderation in the cost of retenanting our properties, particularly in terms of free rent concessions and costs to renew existing tenants. To meet the short-term funding requirements relating to the higher leasing costs, we have used proceeds of property sales or borrowings under our Credit Facility. Based on our forecasted leasing, we anticipate that we will continue to incur shortfalls during 2005. We currently intend to fund any shortfalls with proceeds from non-income producing asset sales or borrowings under our Credit Facility. We periodically review our dividend policy to determine the appropriateness of our dividend rate relative to our cash flows. We adjust our distribution rate based on such factors as leasing activity, market conditions and forecasted increases and decreases in our cash flow as well as required distributions of taxable income to maintain REIT status. There can be no assurance that we will maintain the current quarterly distribution level on our common equity.

We expect to meet most of our financing requirements through long-term unsecured borrowings and the issuance of debt and equity securities of the Company. In certain situations, primarily in joint venture transactions, we use secured debt in connection with the acquisition of properties. During the year ended December 31, 2004, the Company issued approximately $436.2 million of common stock and the Operating Partnership issued $300 million of senior unsecured debt securities. There can be no assurance that there will be adequate demand for the Company’s equity at the time or at the price in which the Company desires to raise capital through the sale of additional equity. Similarly, there can be no assurance that the Operating Partnership will be able to access the unsecured debt markets at the time when the Operating Partnership desires to sell its unsecured notes. In addition, when valuations for commercial real estate properties are high, we will seek to sell certain land inventory to realize value and profit created. We will then seek opportunities to reinvest the capital realized from these dispositions back into value-added assets in our core Tri-State Area markets. However, there can be no assurances that we will be able to identify such opportunities that meet our underwriting criteria. Additionally, we are actively seeking joint venture relationships to access new sources of equity capital. We anticipate that we may sell assets or interests in assets to establish such joint ventures. We may realize cash proceeds from these sales. We would also seek to utilize these joint ventures to acquire assets where we would own a joint venture interest. There can be no assurances that we will be able to successfully execute this strategy. We will refinance existing mortgage indebtedness, senior unsecured notes or indebtedness under our Credit Facility at maturity or retire such debt through the issuance of additional unsecured debt securities or additional equity securities. We anticipate that the current balance of cash and cash equivalents and cash flows from operating activities, together with cash available from borrowings, equity offerings and proceeds from sales of land and non-income producing assets, will be adequate to meet our capital and liquidity requirements in both the short and long-term. Our senior unsecured debt is currently rated “BBB-” by Fitch Ratings, “BBB-” by Standard & Poor’s and “Baa3” by Moody’s Investors Service. The rating agencies review the ratings assigned to an issuer such as us on an ongoing basis. Negative changes in our ratings may result in increases in our borrowing costs, including borrowings under our Credit Facility.

Our markets are currently experiencing a recovery in the economic cycle. As a result of current economic conditions, we have experienced higher renewal rates and a lower number of lease terminations. Our results reflect decreased vacancy rates in our markets and our asking rents in our markets have stabilized and in some instances have begun to trend higher. Landlords are still required to grant concessions such as free rent and tenant improvements but at a lower rate than had been experienced in the prior year. Our markets continue to experience higher real estate taxes and utility rates. We believe that trends are moving positively from a landlord’s perspective and that the above average tenant costs relating to leasing are decreasing. This trend is supported by increased occupancy and reduced vacancy rates in all of our markets, by the general economic recovery in the market resulting in job growth and the limited new supply of office space.

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We carry comprehensive liability, fire, extended coverage and rental loss insurance on all of its properties. Six of our properties are located in New York City. As a result of the events of September 11, 2001, insurance companies were limiting coverage for acts of terrorism in “all risk” policies. In November 2002, the Terrorism Risk Insurance Act of 2002 was signed into law, which, among other things, requires insurance companies to offer coverage for losses resulting from defined “acts of terrorism” through 2005. Our current property insurance coverage, which expires on June 2, 2006, provides for full replacement cost of its properties, including for acts of terrorism up to $500 million on a per occurrence basis, except for one asset which is insured up to approximately $400.0 million.

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

In order to qualify as a REIT for federal income tax purposes, the Company is required to make distributions to its stockholders of at least 90% of REIT taxable income. We expect to use our cash flow from operating activities for distributions to stockholders and for payment of recurring, non-incremental revenue-generating expenditures. We intend to invest amounts accumulated for distribution in short-term investments.

We currently maintain our $500 million Credit Facility from JPMorgan Chase Bank, as administrative agent, Wells Fargo Bank, National Association as syndication agent and Citicorp North America, Inc. and Wachovia Bank, National Association as co-documentation agents. The Credit Facility matures in August 2007, contains options for a one-year extension subject to a fee of 25 basis points and, upon receiving additional lender commitments, increasing the maximum revolving credit amount to $750 million. In addition, borrowings under the Credit Facility are currently priced off LIBOR plus 90 basis points and the Credit Facility carries a facility fee of 20 basis points per annum. In the event of a change in the Operating Partnership’s senior unsecured credit ratings the interest rates and facility fee are subject to change. At March 31, 2005, the outstanding borrowings under the Credit Facility aggregated $357.5 million and carried a weighted average interest rate of 3.71% per annum.

We utilize the Credit Facility primarily to finance real estate investments, fund our real estate development activities and for working capital purposes. At March 31, 2005, we had availability under the Credit Facility to borrow approximately an additional $141.3 million subject to compliance with certain financial covenants. Such amount is net of approximately $1.2 million in outstanding undrawn standby letters of credit, which are issued under the Credit Facility.

In connection with the acquisition of certain properties, contributing partners of such properties have provided guarantees on certain of our indebtedness. As a result, we maintain certain outstanding balances on our Credit Facility.

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

A Class A OP Unit and a share of common stock have similar economic characteristics as they effectively share equally in the net income or loss and distributions of the Operating Partnership. As of March 31, 2005, the Operating Partnership had issued and outstanding 2,334,157 Class A OP Units and 465,845 Class C OP Units. The Class A OP Units and the Company’s common stock currently receive a quarterly distribution of $.4246 per unit. The Class C OP Units were issued in August 2003 in connection with the contribution of real property to the Operating Partnership and currently receive a quarterly distribution of $.4664 per unit. Subject to certain holding periods, OP Units may either be redeemed for cash or, at the election of the Company, exchanged for shares of common stock on a one-for-one basis.

During the three month period ended March 31, 2005, 102,668 shares of the Company’s common stock was issued in connection with the exercise of outstanding options to purchase stock under its stock option plans resulting in proceeds to us of approximately $2.6 million. In addition, certain limited partners in the Operating Partnership exchanged 776,559 OP Units for an equal number of shares of the Company’s common stock.

During January 2005, we acquired, in two separate transactions, two Class A office properties located at One and Seven Giralda Farms in Madison, New Jersey for total consideration of approximately $78 million. One Giralda Farms encompasses approximately 150,000 rentable square feet and Seven Giralda Farms encompasses approximately 203,000 rentable square feet. We made these acquisitions through borrowings under our Credit Facility.

The Board of Directors of the Company initially authorized the purchase of up to 5.0 million shares of the Company’s common stock. Transactions conducted on the New York Stock Exchange have been, and will continue to be, effected in accordance with the safe harbor provisions of the Securities Exchange Act of 1934 and may be terminated by the Company at any time. Since the Board’s initial authorization, the Company has purchased 3,318,600 shares of its common stock for an aggregate purchase price of approximately $71.3 million. In June 2004, the Board of Directors re-set the Company’s common stock repurchase program back to 5.0 million shares. No purchases have been made since March, 2003.

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The Operating Partnership has issued and outstanding 1,200 preferred units of limited partnership interest with a liquidation preference value of $1,000 per unit and a stated distribution rate of 7.0%, which is subject to reduction based upon terms of their initial issuance (the “Preferred Units”). The terms of the Preferred Units provide for this reduction in distribution rate in order to address the effect of certain mortgages with above market interest rates, which were assumed by the Operating Partnership in connection with properties contributed to the Operating Partnership in 1998.

Capitalization

Our indebtedness at March 31, 2005 totaled approximately $1.5 billion (including our share of consolidated and unconsolidated joint venture debt and net of minority partners’ interests share of consolidated joint venture debt) and was comprised of $357.5 million outstanding under the Credit Facility, approximately $698.0 million of senior unsecured notes and approximately $475.3 million of mortgage indebtedness with a weighted average interest rate of approximately 7.42% and a weighted average maturity of approximately 3.7 years. Based on our total market capitalization of approximately $4.1 billion at March 31, 2005 (calculated based on the sum of (i) the market value of the Company’s common stock and OP Units, assuming conversion, (ii) the liquidation preference value of the Preferred Units and (iii) the $1.5 billion of debt), our debt represented approximately 37.1% of our total market capitalization.

Contractual Obligations and Commercial Commitments

The following table sets forth our significant consolidated debt obligations by scheduled principal cash flow payments and maturity date and our commercial commitments by scheduled maturity at March 31, 2005 (in thousands):

	Maturity Date
	2005		2006		2007		2008		2009		Thereafter		Total
Mortgage notes payable (1)	$	9,229	$	11,485	$	8,835	$	7,705	$	7,143	$	7,049	$	51,446
Mortgage notes payable (2)(3)		18,553		129,920		60,535		—		100,254		246,015		555,277
Senior unsecured notes		—		—		200,000		—		200,000		300,000		700,000
Unsecured credit facility		—		—		357,500		—		—		—		357,500
Land lease obligations (4)		2,803		3,891		3,907		3,935		4,020		85,893		104,449
Air rights lease obligations		271		362		362		362		362		3,618		5,337
Operating leases		1,107		1,389		1,038		555		14		—		4,103
	$	31,963	$	147,047	$	632,177	$	12,557	$	311,793	$	642,575	$	1,778,112

(1) Scheduled principal amortization payments.

(2) Principal payments due at maturity.

(3) In addition, we have a 60% interest in an unconsolidated joint venture property, 520 White Plains Road, Tarrytown, New York. Our pro rata share of the mortgage debt at March 31, 2005 was approximately $7.1 million. This mortgage note payable bears interest at 8.85% per annum and matures on September 1, 2005 at which time our share of the mortgage debt will be approximately $6.9 million.

(4) We lease, pursuant to noncancellable operating leases, the land on which eleven of our buildings were constructed. The leases, certain of which contain renewal options at our direction, expire between 2043 and 2090. The leases either contain provisions for scheduled increases in the minimum rent at specified intervals or for adjustments to rent based upon the fair market value of the underlying land or other indices at specified intervals. Minimum ground rent is recognized on a straight-line basis over the terms of the leases and includes lease renewals if reasonably assured that we will exercise that option.

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

As indicated above, on March 31, 2005, we had approximately $1.5 billion of debt outstanding. During the three month period ended March 31, 2005, we incurred interest costs related to our debt, including capitalized interest and amortization of deferred finance costs, of approximately $26.8 million. Our rental revenues are our principal source of funds along with our net cash provided by operating activities to meet these and future interest obligations.

At March 31, 2005, we had approximately $1.2 million in outstanding undrawn standby letters of credit issued under the Credit Facility. In addition, approximately $42.6 million, or 7.0%, of our mortgage debt is recourse to us.

Corporate Governance

In November 2004, Donald J. Rechler tendered his resignation from the Company’s Board of Directors, including his position as non-executive Chairman, in order to pursue other interests. Also, in November 2004, Scott H. Rechler was appointed Chairman of the Board and the number of directors of the Board was decreased from nine to eight. The Company’s Board currently consists of seven independents, of which four were elected during 2004, and one insider. Mr. Peter Quick serves as the Lead Independent Director of the Board. In addition, each of the Audit, Compensation and Nominating and Governance Committees is comprised solely of independent directors.

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

During 2004, the Company took certain additional actions to enhance its corporate governance policies. These actions included opting out of the Maryland Business Combination Statute, de-staggering the Board of Directors to provide that each director is subject to election by shareholders on an annual basis and modifying the Company’s "five or fewer" limitation on the ownership of its common stock so that such limitation may only be used to protect the Company's REIT status and not for anti-takeover purposes.

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

A number of shareholder derivative actions have been commenced purportedly on behalf of the Company against the Board of Directors relating to the Disposition. The complaints allege, among other things, that the process by which the directors agreed to the transaction was not sufficiently independent of the Rechler family and did not involve a “market check” or third party auction process and, as a result, was not for adequate consideration. The plaintiffs seek similar relief, including a declaration that the directors violated their fiduciary duties and damages. On May 25, 2004, the Circuit Court for Baltimore City granted the Defendants’ motions to dismiss the three consolidated Maryland actions on the ground that the Plaintiffs in those actions had failed to make a pre-suit demand on the Board of Directors, or to allege facts showing that such a demand would have been futile. Final judgment was entered on June 8, 2004, and on June 30, 2004, the Plaintiffs in the Maryland actions filed a notice of appeal from that judgment to the Maryland Court of Special Appeals. The Company’s management believes that the complaints are without merit.

On April 4, 2005 the Company and the other parties to the shareholder derivative actions filed against the Company in connection with its disposition of its industrial portfolio have agreed to settle such actions pursuant to the Stipulation of Settlement, dated as of March 14, 2005 and executed subsequent thereto. The proposed settlement includes various changes to the Company’s corporate governance policies to provide for an Affiliate Transaction Committee and to require that the Company’s Board of Directors be comprised of at least two-thirds independent directors (as defined in the Company’s Corporate Governance Guidelines), as well as certain other concessions. The proposed settlement is subject to court approval.

Other Matters

In July 2002, as a result of certain provisions of the Sarbanes-Oxley Act of 2002, we discontinued the use of stock loans in our Long Term Incentive Programs (“LTIP”). In connection with LTIP grants made prior to the enactment of the Sarbanes-Oxley Act of 2002, we currently have stock loans outstanding to certain executive officers which were used to purchase 385,000 shares of our common stock. The stock loans were priced at the market prices of our common stock at the time of issuance, bear interest at the mid-term Applicable Federal Rate and are secured by the shares purchased. Such stock loans (including accrued interest) are scheduled to vest and be ratably forgiven each year on the anniversary of the grant date based upon initial vesting periods ranging from seven to ten years. Such forgiveness is based on continued service and in part on the Company attaining certain annual performance measures. These stock loans had an initial aggregate weighted average vesting period of approximately nine years. As of March 31, 2005, there remains 191,428 shares of common stock subject to the original stock loans which are anticipated to vest between 2005 and 2011. Approximately $231,000 and $308,000 of compensation expense was recorded for the three month periods ended March 31, 2005 and 2004, respectively, related to these LTIP. Such amounts have been included in marketing, general and administrative expenses on our consolidated statements of income.

The outstanding stock loan balances due from executive officers aggregated approximately $4.0 million and $4.7 million at March 31, 2005 and December 31, 2004, respectively, and have been included as a reduction of additional paid in capital on our consolidated balance sheets. Other outstanding loans to executive and senior officers at March 31, 2005 and December 31, 2004 amounted to approximately $2.1 million and $2.7 million, respectively, and are included in investments in affiliate loans and joint ventures on the accompanying consolidated balance sheets and are primarily related to tax payment advances on stock compensation awards and life insurance contracts made to certain executive and non-executive officers.

In November 2002 and March 2003, an award of rights was granted to certain executive officers of the Company (the “2002 Rights” and “2003 Rights”, respectively and collectively, the “Rights”). Each Right represents the right to receive, upon vesting, one share of common stock if shares are then available for grant under one of the Company’s stock option plans or, if shares are not so available, an amount of cash equivalent to the value of such stock on the vesting date. The 2002 Rights will vest in four equal annual installments which began on November 14, 2003 (and shall be fully vested on November 14, 2006). The 2003 Rights will be earned as of March 13, 2005 and will vest in three equal annual installments beginning on March 13, 2005 (and shall be fully vested on March 13, 2007). Dividends on the shares will be held by the Company until such shares become vested, and will be distributed thereafter to the applicable officer. The 2002 Rights also entitle the holder thereof to cash payments in respect of taxes payable by the holder resulting from the 2002 Rights. The 2002 Rights aggregate 62,835 shares of the Company’s common stock and the 2003 Rights aggregate 26,040 shares of common stock. As of March 31, 2005, there remains 31,417 shares of common stock reserved related to the 2002 Rights and 17,360 shares of common stock reserved related to the 2003 Rights. Approximately $104,000 and $101,000 of compensation expense was recorded for the three month periods ended March 31, 2005 and 2004, respectively, related to the Rights. Such amounts have been included in marketing, general and administrative expenses on our consolidated statements of income.

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In March 2003, the Company established a new LTIP for its executive and senior officers (the “2003 LTIP”). The four-year plan has a core award, which provides for annual stock based compensation based upon continued service and in part based on the Company attaining certain annual performance measures. The plan also has a special outperformance component in the form of a bonus pool equal to 10% of the total return in excess of a 9% cumulative and compounded annual total return on the Company’s common equity for the period through the four-year anniversary after the date of grant (the “Special Outperformance Pool”). The aggregate amount payable to such officers from the Special Outperformance Pool is capped at an amount calculated based upon a total cumulative and compounded annual return on the common equity of 15%. An officer’s special outperformance award represents an allocation of the Special Outperformance Pool and will become vested on the fourth anniversary of the date of grant, provided that the officer remains in continuous employment with the Company or any of its affiliates until such date, and the Company has achieved on a cumulative and compounded basis, during the four fiscal years completed on the applicable anniversary date, a total return to holders of the common equity that (i) is at or above the 60^th percentile of the total return to stockholders achieved by members of the peer group during the same period and (ii) equals at least 9% per annum. Special outperformance awards will be paid in cash; however, the Compensation Committee, in its sole discretion, may elect to pay such an award in shares of common stock, valued at the date of vesting, if shares are available at such time under any of the Company’s existing stock option plans. The LTIP provides that no dividends or dividend equivalent payments will accrue with respect to the special outperformance awards. On March 13, 2003, the Company made available 827,776 shares of its common stock under its existing stock option plans in connection with the core award of the 2003 LTIP for certain of its executive and senior officers. During May 2003, the special outperformance awards of the 2003 LTIP were amended to increase the per share base price above which the four year cumulative return is measured from $18.00 to $22.40.

The Board of Directors approved an amendment to the 2003 LTIP to revise the peer group used to measure relative performance. The amendment eliminated the mixed office and industrial companies and added certain other “pure office” companies in order to revise the peer group to office sector companies. The Board has also approved the revision of the performance measurement dates for future vesting under the core component of the 2003 LTIP from the anniversary of the date of grant to December 31 of each year. This was done in order to have the performance measurement coincide with the performance period that the Company believes many investors use to judge the performance of the Company.

On December 27, 2004, the Operating Partnership entered into definitive agreements with certain executive and senior officers of the Company to revise their incentive awards under the 2003 LTIP. The revised agreements provide for (i) the rescission of the unvested portion of their core awards and (ii) an award in exchange for the rescinded core awards of an equal number of units of a new class of limited partnership interests (“LTIP Units”) of the Operating Partnership.

Each executive and senior officer participating in the 2003 LTIP was offered the option to retain all or a portion of their core awards or to rescind them in exchange for new awards of LTIP Units. On December 27, 2004, certain executive and senior officers accepted such offer and thereby amended their Amended and Restated Long-Term Incentive Award Agreement to cancel, in the aggregate, 362,500 shares of restricted stock of the Company representing all or a portion of their unvested core award, and received an equal number of LTIP Units.

The revised awards under the 2003 LTIP were designed to provide the potential for executives to retain a greater equity interest in the Company by eliminating the need for executives to sell a portion of the core awards immediately upon vesting in order to satisfy personal income taxes which are due upon vesting under the original core awards.

On March 13, 2005 and March 13, 2004 with respect to the 2003 LTIP, the Company met its annual performance measure with respect to the 2004 and 2003 annual measurement periods, respectively. As a result, it has issued to the participants of the 2003 LTIP 102,779 shares of its common stock and 206,944 shares of its common stock, respectively, related to the core component of the 2003 LTIP.

The terms of each award of LTIP Units are substantially similar to those of the core awards under the 2003 LTIP. The vesting, performance hurdles and timing for vesting remain unchanged. However, an LTIP Unit represents an equity interest in the Operating Partnership, rather than the Company. At issuance, the LTIP Unit has no value but may over time accrete to a value equal to (but never greater than) the value of one share of common stock of the Company (a “REIT Share”). Initially, LTIP Units will not have full parity with OP Units with respect to liquidating distributions. Upon the occurrence of certain “triggering events,” the Operating Partnership will revalue its assets for the purpose of the capital accounts of its partners and any increase in valuation of the Operating Partnership’s assets from the date of the issuance of the LTIP Units through the “triggering event” will be allocated to the capital accounts of holders of LTIP Units until their capital accounts are equivalent to the capital accounts of holders of OP Units. If such equivalence is reached, LTIP Units would achieve full parity with OP Units for all purposes, and therefore accrete to an economic value equivalent to REIT Shares on a one-for-one basis. After two years from the date of grant, if such parity is reached, vested LTIP Units may be redeemed for cash in an amount equal to the then fair market value of an equal number of REIT Shares or converted into an equal number of OP Units, as determined by the Company’s Compensation Committee. However, there are circumstances under which such economic equivalence would not be reached. Until and unless such economic equivalence is reached, the value that the officers will realize for vested LTIP Units will be less than the value of an equal number of REIT Shares. In addition, unlike core awards under the 2003 LTIP (wherein dividends that accumulate are paid upon vesting), LTIP Units will receive the same quarterly distributions as OP Units on a current basis, thus providing full dividend equivalence with REIT Shares. At the scheduled March 2005 vesting date, the specified performance hurdles were met, and officers that received LTIP Units received a one-time cash payment that represented payment of the full vested amount of the accrued unpaid dividends under the core award of the 2003 LTIP through December 27, 2004, the issuance date of the LTIP Units. In addition, the officers, in the aggregate, vested in 104,167 LTIP Units. In order to more closely replicate the terms of the core awards being rescinded, the Company also entered into agreements with three executive officers, which provide that in the event of a change of control the executive shall receive the equivalent value of one REIT Share for each LTIP Unit.

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In March 2005, following the recommendation of the Compensation Committee of the Board of Directors, eight senior and executive officers of the Company were awarded, in the aggregate, 272,100 LTIP Units to continue to incentivize them for the long-term (the “2005 LTIP Unit Grants”). Each such LTIP Unit awarded is deemed equivalent to an award of one share of common stock reserved under one of the Company’s stock option plans, reducing availability for other equity awards on a one-for-one basis. The terms of the 2005 LTIP Unit Grants are generally consistent with the terms of the 2003 LTIP, including with respect to the impact upon vesting in the event of a change in control.

As of March 31, 2005 and as a result of the foregoing, there remains 155,553 shares of common stock reserved for future issuance under the core award of the 2003 LTIP and 530,443 shares of common stock reserved for issuance of LTIP Units. With respect to the core award of the 2003 LTIP, the Company recorded approximately $305,000 and $699,000 of compensation expense for the three month periods ended March 31, 2005 and 2004, respectively. In addition, with respect to the LTIP Units and the 2005 LTIP Unit Grants the Company recorded compensation expense of approximately $466,000 for the three month period ended March 31, 2005. Such amounts have been included in marketing, general and administrative expenses on our consolidated statements of income. No provisions have been made with respect to the Special Outperformance Pool of the 2003 LTIP due to the uncertainty of the outcome of achieving the requisite performance measures.

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

All of our properties have been subjected to a Phase I or similar environmental audit (which involved general inspections without soil sampling, ground water analysis or radon testing) completed by independent environmental consultant companies. These environmental audits have not revealed any environmental liability that would have a material adverse effect on our business.

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

In March 2004, we received notification from the Internal Revenue Service indicating that they have selected the 2001 tax return of the Operating Partnership for examination. On April 13, 2005, we received a “No Adjustments Letter” from the Internal Revenue Service which effectively closed the examination.

Seven of our office properties, which were acquired by the issuance of OP Units, are subject to agreements limiting our ability to transfer them prior to agreed upon dates without the consent of the limited partner who transferred the respective property to us. In the event we transfer any of these properties prior to the expiration of these limitations, we may be required to make a payment relating to taxes incurred by the limited partner. These limitations expire between 2011 and 2013.

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

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Off Balance Sheet Arrangements

Our only off-balance sheet arrangements are our 60% non-controlling interest in the 520 JV and our joint venture interest in RSVP. (for a more detailed description of these arrangements see “Overview and Background” of this Item 7)

Funds from Operations

Funds from Operations (“FFO”) is defined by the National Association of Real Estate Investment Trusts (“NAREIT”) as net income or loss, excluding gains or losses from sales of depreciable properties plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. We present FFO because we consider it an important supplemental measure of our operating performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. As a result, FFO provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities, interest costs and other matters without the inclusion of depreciation and amortization, providing perspective that may not necessarily be apparent from net income.

We compute FFO in accordance with the standards established by NAREIT. FFO does not represent cash generated from operating activities in accordance with GAAP and is not indicative of cash available to fund cash needs. FFO should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow as a measure of liquidity. Since all companies and analysts do not calculate FFO in a similar fashion, our calculation of FFO presented herein may not be comparable to similarly titled measures as reported by other companies.

The following table presents our FFO calculations (in thousands):

	Three Months Ended March 31,
	2005		2004
Net income allocable to common shareholders	$	17,356	$	15,964
Adjustments for basic Funds From Operations
Add:
Limited partners’ minority interest in the operating partnership		697		936
Real estate depreciation and amortization		27,313		25,561
Minority partners’ interests in consolidated partnerships		6,712		9,321
Deduct:
Gain on sales of depreciable real estate		—		5,156
Amounts distributable to minority partners’ in consolidated partnerships		5,724		8,504
Basic Funds From Operations		46,354		38,122
Add:
Dividends and distributions on dilutive shares and units		—		4,484
Diluted Funds From Operations	$	46,354	$	42,606
Weighted Average Shares/OP Units outstanding (1)		84,313		64,914
Diluted Weighted Average Shares/OP Units outstanding (1)		84,775		73,705

(1) Assumes conversion of limited partnership units of the Operating Partnership.

Inflation

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

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The Credit Facility and one of our mezzanine loan investments bear interest at variable rates, which will be influenced by changes in short-term interest rates, and are sensitive to inflation.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The primary market risk facing us is interest rate risk on our long-term debt and notes receivable. We will, when advantageous, hedge our interest rate risk using financial instruments. We are not subject to foreign currency risk.

We manage our exposure to interest rate risk on our variable rate indebtedness by borrowing on a short-term basis under our Credit Facility until such time as we are able to retire the short-term variable rate debt with either a long-term fixed rate unsecured debt offering, equity offerings or through sales or partial sales of assets.

We will recognize all derivatives on our balance sheet at fair value. Derivatives that are not hedges will be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value will be immediately recognized in earnings.

During April and May 2005, we entered into several anticipatory interest rate hedge instruments, aggregating $300.0 million, to protect ourselves against potentially rising interest rates.

The fair market value (“FMV”) of our long term debt and notes receivable is estimated based on discounting future cash flows at interest rates that we believe reflects the risks associated with long term debt and notes receivable of similar risk and duration.

The following table sets forth our long-term debt obligations by scheduled principal cash flow payments and maturity date, weighted average interest rates and estimated FMV at March 31, 2005 (dollars in thousands):

	For the Year Ended December 31
	2005			2006			2007			2008			2009			Thereafter			Total (1)			FMV
Long term debt:
Fixed rate	$	27,782		$	141,405		$	269,370		$	7,705		$	307,397		$	553,064		$	1,306,723		$	1,359,498
Weighted average interest rate		6.83	%		7.38	%		7.14	%		7.35	%		7.73	%		6.19	%		6.90	%
Variable rate	$	—		$	—		$	357,500		$	—		$	—		$	—		$	357,500		$	357,500
Weighted average interest rate		—			—			3.71	%		—			—			—			3.71	%

(1) Includes aggregate unamortized issuance discounts of approximately $2.0 million on the senior unsecured notes which are due at maturity.

In addition, we have has assessed the market risk for our variable rate debt, which is based upon LIBOR, and believe that a one percent increase in the LIBOR rate would have an approximate $3.6 million annual increase in interest expense based on $357.5 million of variable rate debt outstanding at March 31, 2005.

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The following table sets forth our notes receivable by scheduled maturity date, weighted average interest rates and estimated FMV at March 31, 2005 (dollars in thousands):

	For the Year Ended December 31
	2005			2006		2007			2008		2009			Thereafter			Total (1)			FMV
Notes receivable:
Fixed rate	$	35,350		$	—	$	16,990		$	—	$	—		$	29,387		$	81,727		$	82,484
Weighted average Interest rate		9.11	%		—		12.00	%		—		—			9.05	%		9.69	%
Variable rate	$	27,592		$	—	$	—		$	—	$	500		$	—		$	28,092		$	28,092
Weighted average Interest rate		13.91	%		—		—			—		3.40	%		—			13.72	%

(1) Excludes interest receivables and unamortized acquisition costs aggregating approximately $3.4 million.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 is reported within the time periods specified in the SEC’s rules and forms. In this regard, we have formed a Disclosure Committee currently comprised of all of our executive officers as well as certain other members of our senior management with knowledge of information that may be considered in the SEC reporting process.  The Committee has responsibility for the development and assessment of the financial and non-financial information to be included in the reports filed by us with the SEC and supports our Chief Executive Officer and Chief Financial Officer in connection with their certifications contained in our SEC reports.  The Committee meets regularly and reports to the Audit Committee on a quarterly or more frequent basis. Our Chief Executive Officer and Chief Financial Officer have evaluated, with the participation of our senior management, our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that such disclosure controls and procedures are effective.

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

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Selected Portfolio Information

The following table sets forth our schedule of top 25 tenants based on base rental revenue as of March 31, 2005:

	Tenant Name (1) (2) (3)	Wtd. Avg. Term Remaining (years)	Total Square Feet	Percent of Pro-Rata Share of Annualized Base Rental Revenue	Percent of Consolidated Annualized Base Rental Revenue
*	Debevoise & Plimpton	16.8	465,420	3.1%	5.4%
	King & Spalding	16.7	180,391	2.3%	2.0%
	Verizon Communications Inc.	2.3	263,569	1.9%	1.7%
*	American Express	8.5	129,818	1.8%	1.6%
*	Schulte Roth & Zabel	15.7	279,746	1.6%	2.8%
	Amerada Hess Corporation	22.8	127,300	1.5%	1.3%
*	Bank of America/Fleet Bank	5.1	208,705	1.3%	1.2%
*	Fuji Photo Film USA	7.4	194,984	1.3%	1.2%
*	MCI	1.8	244,730	1.2%	1.1%
	Dun & Bradstreet Corp.	7.5	123,000	1.1%	1.0%
	D.E. Shaw	9.6	105,295	1.1%	1.0%
	Arrow Electronics Inc.	8.8	163,762	1.1%	1.0%
*	Schering-Plough Corporation	1.3	152,970	1.0%	0.9%
	T.D. Waterhouse	2.4	103,381	0.9%	0.8%
	Westdeutsche Landesbank	11.1	53,000	0.9%	0.8%
	North Fork Bank	13.8	126,770	0.9%	0.8%
	Practicing Law Institute	8.9	77,500	0.9%	0.8%
*	Banque Nationale De Paris	11.3	145,834	0.8%	1.5%
	Vytra Healthcare	2.8	105,613	0.8%	0.7%
*	State Farm	3.6	189,310	0.8%	1.2%
*	Kramer Levin Nessen Kamin	0.1	158,144	0.8%	1.4%
	Heller Ehrman White	0.2	64,526	0.8%	0.7%
	P.R. Newswire Associates	3.1	67,000	0.7%	0.7%
	County of Nassau	16.6	219,066	0.7%	0.6%
	Laboratory Corp. Of America	2.2	108,000	0.7%	0.6%

(1)	Ranked by pro-rata share of annualized base rental revenue adjusted for pro rata share of joint venture interests.
(2)	Excludes One Orlando Centre in Orlando, Florida.
(3)	Total square footage is based on currently leased space and excludes expansions or leases with future start dates.
*	Part or all of space occupied by tenant is in a 51% or more owned joint venture building.

Historical Non-Incremental Revenue-Generating Capital Expenditures, Tenant Improvement Costs and Leasing Commissions

The following table sets forth annual and per square foot non-incremental revenue-generating capital expenditures in which we paid or accrued, during the respective periods, to retain revenues attributable to existing leased space (at 100% of cost) for the years 2001 through 2004 and for the three month period ended March 31, 2005 for our consolidated office and industrial / R&D properties other than One Orlando Centre in Orlando, FL:

	2001		2002		2003			2004		Average 2001-2004		YTD 2005
Suburban Office Properties
Total	$	4,606,069	$	5,283,674	$	6,791,336		$	7,034,154	$	5,928,783	$	1,937,426
Per Square Foot	$	0.45	$	0.53	$	0.67		$	0.69	$	0.58	$	0.18
NYC Office Properties
Total	$	1,584,501	$	1,939,111	$	1,922,209		$	2,515,730	$	1,990,388	$	865,371
Per Square Foot	$	0.45	$	0.56	$	0.55		$	0.56	$	0.53	$	0.19
Industrial Properties
Total	$	711,666	$	1,881,627	$	1,218,401	(1)	$	207,028	$	1,004,681	$	0
Per Square Foot	$	0.11	$	0.28	$	0.23		$	0.23	$	0.21	$	0.00

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

36

The following table sets forth annual and per square foot non-incremental revenue-generating tenant improvement costs and leasing commissions (at 100% of cost) which we committed to perform, during the respective periods, to retain revenues attributable to existing leased space for the years 2001 through 2004 and for the three month period ended March 31, 2005 for our consolidated office and industrial / R&D properties other than One Orlando Centre in Orlando, FL:

	2001		2002			2003			2004			Average 2001-2004		2005		New		Renewal
Long Island Office Properties
Tenant Improvements	$	2,722,457	$	1,917,466		$	3,774,722		$	4,856,604		$	3,317,812	$	1,260,677	$	465,767	$	794,910
Per Square Foot Improved	$	8.47	$	7.81		$	7.05		$	8.78		$	8.03	$	7.88	$	5.61	$	10.31
Leasing Commissions	$	1,444,412	$	1,026,970		$	2,623,245		$	2,345,325		$	1,859,988	$	480,207	$	291,920	$	188,287
Per Square Foot Leased	$	4.49	$	4.18		$	4.90		$	4.24		$	4.45	$	3.00	$	3.52	$	2.44
Total Per Square Foot	$	12.96	$	11.99		$	11.95		$	13.02		$	12.48	$	10.88	$	9.13	$	12.75
Westchester Office Properties
Tenant Improvements	$	2,584,728	$	6,391,589	(1)	$	3,732,370			$ 6,323,134		$	4,757,955	$	1,432,071	$	1,362,564	$	69,507
Per Square Foot Improved	$	5.91	$	15.05		$	15.98		$	11.95		$	12.22	$	14.37	$	27.52	$	1.39
Leasing Commissions	$	1,263,012	$	1,975,850	(1)	$	917,487		$	2,671,548		$	1,706,974	$	473,827	$	404,524	$	69,303
Per Square Foot Leased	$	2.89	$	4.65		$	3.93		$	5.05		$	4.13	$	4.75	$	8.17	$	1.39
Total Per Square Foot	$	8.80	$	19.70		$	19.91		$	17.00		$	16.35	$	19.12	$	35.69	$	2.78
Connecticut Office Properties
Tenant Improvements	$	213,909	$	491,435		$	588,087			$ 3,051,833		$	1,086,316	$	1,004,228	$	695,297	$	308,931
Per Square Foot Improved	$	1.46	$	3.81		$	8.44		$	12.71		$	6.60	$	10.52	$	29.04	$	4.32
Leasing Commissions	$	209,322	$	307,023		$	511,360		$	1,493,664		$	630,342	$	298,696	$	142,623	$	156,073
Per Square Foot Leased	$	1.43	$	2.38		$	7.34		$	6.22		$	4.34	$	3.13	$	5.96	$	2.18
Total Per Square Foot	$	2.89	$	6.19		$	15.78		$	18.93		$	10.94	$	13.65	$	35.00	$	6.50
New Jersey Office Properties
Tenant Improvements	$	1,146,385	$	2,842,521		$	4,327,295			$ 1,379,362		$	2,423,891	$	195,816	$	128,391	$	67,425
Per Square Foot Improved	$	2.92	$	10.76		$	11.57		$	7.12		$	8.09	$	8.84	$	16.10	$	4.76
Leasing Commissions	$	1,602,962	$	1,037,012		$	1,892,635		$	832,658		$	1,341,317	$	41,791	$	7,410	$	34,381
Per Square Foot Leased	$	4.08	$	3.92		$	5.06		$	4.30		$	4.34	$	1.89	$	0.93	$	2.43
Total Per Square Foot	$	7.00	$	14.68		$	16.63		$	11.42		$	12.43	$	10.73	$	17.03	$	7.19
New York City Office Properties
Tenant Improvements	$	788,930	$	4,350,106		$	5,810,017	(2)(3)	$	9,809,822	(3)(4)	$	5,189,719	$	3,449,805	$	3,449,805	$	0
Per Square Foot Improved	$	15.69	$	18.39		$	32.84		$	23.21		$	22.53	$	27.21	$	32.41	$	0.00
Leasing Commissions	$	1,098,829	$	2,019,837		$	2,950,330	(2)	$	3,041,141	(4)	$	2,277,534	$	1,625,519	$	1,595,542	$	29,977
Per Square Foot Leased	$	21.86	$	8.54		$	16.68		$	7.19		$	13.57	$	12.82	$	14.99	$	1.47
Total Per Square Foot	$	37.55	$	26.93		$	49.52		$	30.40		$	36.10	$	40.03	$	47.40	$	1.47
Industrial Properties
Tenant Improvements	$	1,366,488	$	1,850,812		$	1,249,200			$ 310,522		$	1,194,256	$	85,293	$	85,293	$	0
Per Square Foot Improved	$	1.65	$	1.97		$	2.42		$	2.27		$	2.08	$	14.60	$	14.60	$	0.00
Leasing Commissions	$	354,572	$	890,688		$	574,256		$	508,198		$	581,928	$	0	$	0	$	0
Per Square Foot Leased	$	0.43	$	0.95		$	1.11		$	3.71		$	1.55	$	0.00	$	0.00	$	0.00
Total Per Square Foot	$	2.08	$	2.92		$	3.53		$	5.98		$	3.63	$	14.60	$	14.60	$	0.00

(1)	Excludes tenant improvements and leasing commissions related to a 163,880 square foot leasing transaction with Fuji Photo Film U.S.A.. Leasing commissions on this transaction amounted to $5.33 per square foot and tenant improvement allowance amounted to $40.88 per square foot.
(2)	Excludes $15.5 million of tenant improvements and $2.2 million of leasing commissions related to a new 121,108 square foot lease to Debevoise and Plimpton with a lease commencement date in 2005.
(3)	2003 numbers exclude tenant improvements of $0.2 million for Sandler O’Neil Partners (7,446 square feet) for expansion space with a lease commencement date in the second quarter of 2004.
(4)	Excludes 86,800 square foot Westpoint Stevens early renewal. There were no tenant improvements or leasing costs associated with this transaction. Also excludes $1.4 million of tenant improvements and $1.2 million of leasing commissions related to a 74,293 square foot lease to Harper Collins Publishers with a lease commencement date in 2006. Also excludes Bank of America retail lease with $0.6 million of tenant improvements and $0.8 million of leasing commissions.

37

As noted, incremental revenue-generating tenant improvement costs and leasing commissions are excluded from the tables previously set forth. The historical capital expenditures, tenant improvement costs and leasing commissions previously set forth are not necessarily indicative of future non-incremental revenue-generating capital expenditures or non-incremental revenue-generating tenant improvement costs and leasing commissions that may be incurred to retain revenues on leased space.

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

	Three months ended March 31,
	2005		2004
Capital expenditures:
Non-incremental	$	3,082	$	2,020
Incremental		2,593		233
Tenant improvements:
Non-incremental		5,051		4,469
Incremental		6,717		905
Additions to commercial real estate properties	$	17,443	$	7,627
Leasing costs:
Non-incremental	$	2,694	$	3,239
Incremental		1,679		1,345
Payment of deferred leasing costs	$	4,373	$	4,584
Acquisition and development costs	$	10,809	$	4,781

38

The following table sets forth our lease expiration table, as adjusted for pre-leased space, at April 1, 2005 for its Total Portfolio of properties, its Office Portfolio and its Industrial / R&D Portfolio:

Total Portfolio
	Number of	Square	% of Total		Cumulative
Year of	Leases	Feet	Portfolio		% of Total
Expiration	Expiring	Expiring	Sq Ft		Portfolio Sq Ft
2005	138	955,873	5.9	%	5.9	%
2006	188	1,786,864	11.0	%	16.9	%
2007	122	1,274,336	7.8	%	24.7	%
2008	128	1,117,041	6.8	%	31.5	%
2009	117	1,266,419	7.8	%	39.3	%
2010 and thereafter	442	8,630,832	53.0	%	92.3	%
Total/Weighted Average	1,135	15,031,365	92.3	%
Total Portfolio Square Feet		16,276,558
Office Portfolio
	Number of	Square	% of Total		Cumulative
Year of	Leases	Feet	Office		% of Total
Expiration	Expiring	Expiring	Sq Ft		Portfolio Sq Ft
2005	136	908,723	5.9	%	5.9	%
2006	185	1,701,879	11.0	%	16.9	%
2007	119	1,221,814	8.0	%	24.9	%
2008	126	1,084,798	7.0	%	31.9	%
2009	116	1,221,438	7.9	%	39.8	%
2010 and thereafter	434	8,239,575	53.5	%	93.3	%
Total/Weighted Average	1,116	14,378,227	93.3	%
Total Office Portfolio Square Feet		15,413,163
Industrial/R&D Portfolio
	Number of	Square	% of Total		Cumulative
Year of	Leases	Feet	Industrial/R&D		% of Total
Expiration	Expiring	Expiring	Sq Ft		Portfolio Sq Ft
2005	2	47,150	5.5	%	5.5	%
2006	3	84,985	9.8	%	15.3	%
2007	3	52,522	6.1	%	21.4	%
2008	2	32,243	3.7	%	25.1	%
2009	1	44,981	5.2	%	30.3	%
2010 and thereafter	8	391,257	45.3	%	75.6	%
Total/Weighted Average	19	653,138	75.6	%
Total Industrial/R&D Portfolio Square Feet		863,395

39

Part II – Other Information

Item 1. Legal Proceedings

On April 4, 2005 the Company and the other parties to the shareholder derivative actions filed against the Company in connection with its disposition of its industrial portfolio have agreed to settle such actions pursuant to the Stipulation of Settlement, dated as of March 14, 2005 and executed subsequent thereto. The proposed settlement includes various changes to the Company’s corporate governance policies to provide for an Affiliate Transaction Committee and to require that the Company’s Board of Directors be comprised of at least two-thirds independent directors (as defined in the Company’s Corporate Governance Guidelines), as well as certain other concessions. The proposed settlement is subject to court approval.

Except as provided above, the Company is not presently subject to any material litigation nor, to the Company's knowledge, is any litigation threatened against the Company, other than routine actions for negligence or other claims and administrative proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance and all of which collectively are not expected to have a material adverse effect on the liquidity, results of operations or business or financial condition of the Company.

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

Item 3. Defaults Upon Senior Securities – None

Item 4. Submission of Matters to a Vote of Securities Holders – None

Item 5. Other information

a) None

b) There have been no material changes to the procedures by which stockholders may recommend nominees to the Company’s Board of Directors.

Item 6. Exhibits

Exhibits

10.1	Purchase and sale agreement dated as of May 4, 2005 by and between Citibank, N.A. and Reckson Court Square, LLC.
31.1	Certification of Scott H. Rechler, Chairman of the Board, Chief Executive Officer, President and Director of the Registrant, pursuant to Rule 13a – 14(a) or Rule 15(d) – 14(a).

31.2 Certification of Michael Maturo, Executive Vice President, Treasurer and Chief Financial Officer of the Registrant, pursuant to Rule 13a – 14(a) or Rule 15(d) – 14(a).

32.1 Certification of Scott H. Rechler, Chairman of the Board, Chief Executive Officer, President and Director of the Registrant, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.

32.2 Certification of Michael Maturo, Executive Vice President, Treasurer and Chief Financial Officer of the Registrant, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.

Signatures

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

Reckson Associates Realty Corp.          

By:    /s/ Scott H. Rechler	By: /s/ Michael Maturo
Scott H. Rechler	Michael Maturo
Chairman of the Board, Chief	Executive Vice President,
Executive Officer, President and Director	Treasurer and Chief Financial Officer

Date: May 5, 2005

40

EX-10.1

                                                                    EXHIBIT 10.1

                           PURCHASE AND SALE AGREEMENT

                  THIS AGREEMENT is entered into as of the 4th day of May, 2005,
by and between CITIBANK, N.A., a national banking association (the "Seller"),
and RECKSON COURT SQUARE, LLC, a Delaware limited liability company (the
"Purchaser").

                               W I T N E S S E T H

                  WHEREAS, Seller is the fee owner of the land described in
EXHIBIT A attached hereto (the "Land"), together with the office tower, low-rise
building, connecting rotunda and all other improvements erected thereon
(collectively, the "Building");

                  WHEREAS, Seller wishes to sell the Property (as such term is
hereinafter defined) to Purchaser;

                  WHEREAS, Purchaser desires to purchase the Property from
Seller;

                  WHEREAS, Purchaser has agreed to lease to Seller, and Seller
has agreed to lease from Purchaser, the Citi Leased Premises (as such term is
hereinafter defined) in the manner hereinafter set forth; and

                  WHEREAS, the parties hereto are desirous of setting forth
their respective rights and obligations with respect to the transactions
contemplated by this Agreement;

                  NOW THEREFORE, in consideration of the mutual promises herein
set forth and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Seller and Purchaser agree as follows:

                                   ARTICLE I
                                   DEFINITIONS

                  Section 1.1 Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated below:

                  "Adjourned Closing Date" has the meaning given to such term in
Section 4.1(c) of this Agreement.

                  "Agreement" means this Purchase and Sale Agreement, including
all Exhibits and Schedules hereto.

                  "Bill of Sale" has the meaning given to such term in Section
5.2(b) of this Agreement.

                  "Building" has the meaning given to such term in the first
"WHEREAS" clause of this Agreement.




                  "Business Day" means every day other than Saturdays, Sundays,
all days observed by the federal or New York State government as legal holidays
and all days on which commercial banks in New York State are required by law to
be closed.

                   "Citi Lease" has the meaning given to such term in Section
2.4 of this Agreement.

                  "Citi Leased Premises" means the space demised to Seller
pursuant to the terms of the Citi Lease.

                  "Citi Lease Estoppel" has the meaning given to such term in
Section 5.2(h) of this Agreement.

                  "Citi Lease SNDA" has the meaning given to such term in
Section 5.4(d) of this Agreement.

                  "City Agreements" means, collectively, (i) the Lamppost
Agreement, (ii) the Revocable Consent Agreement, (iii) the Subway Agreement and
(iv) the Parks Department Agreement.

                  "City Transfer Tax" has the meaning given to such term in
Section 5.5(b) of this Agreement.

                  "Closing" means the consummation of transactions described in
Article II hereof.

                  "Closing Date" means the date upon which the Closing shall
occur, which date shall in no event or under any circumstance (but subject to
Section 5.1) be later than the Outside Closing Date (as hereinafter defined),
TIME BEING OF THE ESSENCE.

                  "Code" means the Internal Revenue Code of 1986, as amended.

                  "Contracts" means the service, supply, management, leasing,
franchise, maintenance, security and all other agreements or contracts
(including any amendment, modification or amendment and restatement of any of
the foregoing) entered into in connection with, and exclusively relating to, the
operation, leasing, maintenance and repair of the Property (and not any other
property) including, without limitation, (i) the construction contracts and
other agreements with respect to work that is normally capitalized instead of
expensed in accordance with generally accepted accounting principles
consistently applied, which is being performed or to be performed at the
Property, (ii) any leases of any of the personal property included in this
transaction, (iii) any contracts pertaining to displays of artwork or similar
matters and (iv) the City Agreements and any other contracts with the City of
New York or any other municipal, governmental or quasi-governmental entity or
agency relating to the Property or its use, operation, leasing, maintenance or
repair.

                   "Controlled Affiliate" has the meaning given to such term in
Section 16.5 of this Agreement.

                  "Deed" has the meaning given to such term in Section 5.2(a) of
this Agreement.


                                       2


                  "Deposit" has the meaning given to such term in Section 2.2(a)
of this Agreement.

                  "Escrow Agent" has the meaning given to such term in Section
2.2(a) of this Agreement.

                  "Excluded Property" means (i) all art work located in the
Building, which art work will be permitted to remain in the Building in its
current location or such other location designated by Seller, (ii) all
furniture, fixtures, furnishings, equipment or other personal property
(including, without limitation, trade fixtures in, on, around or affixed to the
Property) owned or leased by any tenant, subtenant, managing agent, contractor
or employee at the Property, (iii) Lessee's Equipment and Personalty, (iv) the
Leases other than the Citi Lease and (v) all tenant improvements installed after
the date hereof, or in progress on the Closing Date, in any portion of the
Property which will constitute part of the Citi Leased Premises.

                  "Existing Property Manager" means Cushman & Wakefield, Inc.

                  "FIRPTA Affidavit" has the meaning given to such term in
Section 5.2(g) of this Agreement.

                  "Lamppost Agreement" means that certain Agreement dated ____,
1990 between Seller and The City of New York, as renewed by that certain
Revocable Consent Agreement dated ______, 2000.

                  "Land" has the meaning given to such term in the first
"WHEREAS" clause of this Agreement.

                  "Leases" means all space leases, licenses, occupancy
agreements or other agreements, granting any rights of use, occupancy or
possession in or to the Property or any portion thereof, and shall include,
without limitation, all guaranties of such agreements, as all of the same may
have been amended, modified and/or restated.

                  "Lessee's Equipment and Personalty" means all furniture,
equipment and personal property of Seller, which includes, without limitation,
inventory, racking, shelving, conveyer equipment, lifts (other than the
hydraulic dock leveling system), cabling, antennae, machinery, air compressors,
battery chargers, communication equipment, video production/edit equipment
(including, without limitation, televisions and video cameras), security
equipment (including, without limitation, security cameras, security card
readers and security servers), health club equipment, cafeteria equipment, data
cabinets, automated teller machines, hoist equipment, lockers, plug-in light
fixtures, propane tanks, storage racks, tools, signs (including, without
limitation, signage in, on or around the Building, whether exterior or
interior), desks, movable partitions, vending machines, computer software and
hardware, movable storage and utility rooms, removable trade fixtures and
equipment, even if bolted or otherwise affixed to the floors, in each case, as
now or may hereafter exist in or on any portion of the Property and any other
personal property which is owned or leased by Seller or otherwise used by Seller
in connection with the operation of its business (in contradistinction to the
operation of the Building). In no case shall Lessee's Equipment and Personalty
include fixtures or built-in heating, ventilating, air-conditioning, and
electrical equipment (including power panels) or other building systems utilized
in connection with the operation of the Property or the Back-Up Power System (as
such term is defined in the Citi Lease).



                                       3


                  "New Closing Notice" has the meaning given to such term in
Section 4.4 of this Agreement.

                  "Non-Objectionable Encumbrances" has the meaning given to such
term in Section 4.1(c) of this Agreement.

                  "notices" has the meaning given to such term in Section 11.1
of this Agreement.

                  "Outside Closing Date" has the meaning given to such term in
Section 5.1 of this Agreement.

                  "Parks Department Agreement" means that certain Agreement
dated August 13, 1986 between Seller and The City of New York, acting by and
through the Commissioner of the Department of parks and Recreation, as amended
by Amendment of Agreement dated January 10, 1990.

                  "Permitted Encumbrances" has the meaning given to such term in
Section 3.1 of this Agreement.

                  "Proceeds" has the meaning given to such term in Section 10.5
of this Agreement.

                  "Property" means the Land, the Building and all other
improvements, fixtures, appurtenances, equipment and other personal property
(other than the Excluded Property) owned or leased by the Seller in connection
with the operation and management of the Building, as more particularly
described in Section 2.3 below.

                  "Property Taxes" means the real estate taxes, sewer rents and
taxes, water rates and charges and any other governmental or quasi governmental
taxes, charges or assessments levied or assessed against the Property.

                  "Purchase Price" means Four Hundred Fifty-Five Million and
00/100 Dollars ($455,000,000.00).

                  "Purchaser" has the meaning given to such term in the preamble
to this Agreement.

                  "Purchaser Indemnified Parties" means Purchaser and any
disclosed or undisclosed officer, director, employee, trustee, shareholder,
partner, principal, parent, subsidiary or other direct or indirect affiliate of
Purchaser, or any officer, director, employee, trustee, shareholder, partner or
principal of any such shareholder, partner, principal, parent, subsidiary or
other direct or indirect affiliate or any advisor or consultant of any of the
foregoing.

                  "Representatives" means, with respect to any person or entity,
such person's or entity's agents or representatives, including, without
limitation, its directors, officers, employees, affiliates, partners, agents,
contractors, engineers, attorneys, accountants, consultants, brokers or
financial advisors.



                                       4


                  "Restrictive Covenant" has the meaning given to such term in
Section 5.2(i) of this Agreement.

                  "Revocable Consent Agreement" means that certain Revocable
Consent Agreement dated November 6, 1996 given by The City of New York
Department of Transportation and accepted by Seller, as modified by modification
thereto dated _____, 2002.

                  "Scheduled Closing Date" has the meaning given to such term in
Section 5.1 of this Agreement.

                  "Seller" has the meaning given to such term in the preamble to
this Agreement.

                  "Seller Indemnified Parties" means Seller and any disclosed or
undisclosed officer, director, employee, trustee, shareholder, partner,
principal, parent, subsidiary or other direct or indirect affiliate of Seller,
or any officer, director, employee, trustee, shareholder, partner or principal
of any such shareholder, partner, principal, parent, subsidiary or other direct
or indirect affiliate or any advisor or consultant of any of the foregoing.

                  "Seller Knowledge Individual" has the meaning given to such
term in Section 10.1 of this Agreement.

                  "State Transfer Tax" has the meaning given to such term in
Section 5.5(b) of this Agreement.

                  "Subway Agreement" means that certain Subway Agreement dated
as of July 8, 1986 between Seller and Perennially Green, Inc. (all right, title
and interest of Perennially Green Inc. therein having since been assigned to,
and the obligations thereunder assumed by, Seller pursuant to that certain
Assignment and Assumption of Subway Agreement dated April 16, 1987) with The New
York City Transit Authority acting for itself and on behalf of The City of New
York, and recorded in the Office of the City Register for Queens County, New
York in Reel 2185, Page 1055, as modified by letter agreement dated March 27,
1987, and as further modified by Amendment to Subway Agreement dated July __,
1988.

                  "Taking" has the meaning given to such term in Section 14.1 of
this Agreement.

                  "Title Commitment" has the meaning given to such term in
Section 4.1(a) of this Agreement.

                  "Title Companies" means, the title companies, as selected and
having the proportionate liabilities (with respect to 50% of the aggregate value
of the Title Policy, as selected by Purchaser, and with respect to 50% of the
aggregate value of the Title Policy, as selected by Seller) as provided in
SCHEDULE 4.1.

                  "Title Cure Notice" has the meaning given to such term in
Section 4.1(c) of this Agreement.



                                       5


                  "Title Cure Period" has the meaning given to such term in
Section 4.1(c) of this Agreement.

                  "Title Objections" has the meaning given to such term in
Section 4.1(a) of this Agreement.

                  "Title Policy" has the meaning given to such term in Section
4.7 of this Agreement.

                  "Update Exception" has the meaning given to such term in
Section 4.1(b) of this Agreement.

                  "Update Objection Date" has the meaning given to such term in
Section 4.1(b) of this Agreement.

                                   ARTICLE II
                               PURCHASE AND SALE;
                         PAYMENT OF THE PURCHASE PRICE;
                   SCOPE OF SALE; LEASEBACK; ESCROW PROVISIONS

                  Section 2.1 Purchase and Sale. Subject to the terms,
conditions and provisions set forth in this Agreement, on the Closing Date: (a)
Seller shall transfer or cause to be transferred all of Seller's right, title
and interest in the Property to Purchaser and (b) Purchaser shall pay the
Purchase Price to Seller as provided in Section 2.2.

                  Section 2.2 Payment of the Purchase Price. The Purchase Price
(subject to the prorations described in Article VI below) is payable by
Purchaser as follows:

                          (a) Simultaneously with the execution of this
Agreement by Purchaser, Purchaser is delivering to Chicago Title Insurance
Company, as escrow agent (the "Escrow Agent") the sum of Forty-Five Million Five
Hundred Thousand and 00/100 Dollars ($45,500,000.000), which payment is to be
made by wire transfer to a bank account designated by Escrow Agent in writing
(such deposit which is made pursuant to this subsection (a) being hereinafter
referred to as the "Deposit").

                          (b) The Deposit shall be held by Escrow Agent in
accordance with the provisions of Section 2.5. Escrow Agent has executed this
Agreement for the sole and exclusive purpose of evidencing its agreement to the
provisions of this Article II (including, without limitation, the provisions of
Section 2.2(c) hereof). Upon receipt by Escrow Agent of the Deposit, Escrow
Agent shall cause the same to be deposited into an interest bearing account in
the name of Escrow Agent, as escrow agent. Escrow Agent shall not be liable for
the loss of principal or interest on any investment made pursuant to the
foregoing direction. If the Closing shall occur, the interest on the Deposit, if
any, shall be paid to Purchaser on the Closing Date. If the Closing shall not
occur and this Agreement shall be terminated, then the interest earned on the
Deposit shall be paid to the party entitled to receive the Deposit as provided
in this Agreement. The party receiving the interest earned on the Deposit shall
pay any income taxes thereon. Seller represents and warrants that Seller's tax
identification number is 13-5266470. Purchaser represents and warrants that
Purchaser's tax identification number is 20-2766403.



                                       6


                          (c) At the Closing, the Deposit shall be paid to
Seller and Purchaser shall deliver the balance of the Purchase Price (i.e., the
Purchase Price less the Deposit) to Seller, as adjusted pursuant to Article VI
hereof, which payment shall be made by wire transfer on or before 2:00 p.m.
Eastern Time on the Closing Date to a bank account designated by Seller in
writing.

                          (d) Notwithstanding the foregoing, Purchaser shall
have the right, upon execution and delivery of this Agreement, to deliver a
letter of credit (the "Letter of Credit") in lieu of the entire (but not less
than the entire) cash Deposit on the following terms and conditions (and all
references to the "Deposit" shall be deemed to include the Letter of Credit, or
the proceeds thereof upon conversion of the Letter of Credit to cash):

                              (i) The Letter of Credit (1) shall be in the
amount of $45,500,000, (2) shall be issued not later than the date of this
Agreement, (3) shall be issued for the account of Purchaser in favor of Escrow
Agent, as the named beneficiary, by a New York City money center bank reasonably
acceptable to Seller (the "Issuing Bank"), (4) shall be clean, irrevocable and
unconditional, (5) shall be transferable, (6) shall have an expiration date of
July 31, 2005 and shall be automatically renewed, without amendment, to July 31,
2006 (the "Outside L/C Date") unless the Issuing Bank sends written notice (a
"Non-Renewal Notice") to Escrow Agent by certified or registered mail, return
receipt requested or reputable overnight courier, not less than thirty (30) days
next preceding the then expiration date of the Letter of Credit, that it elects
not to renew the Letter of Credit and (7) shall otherwise be substantially in
the form attached hereto as EXHIBIT K.

                              (ii) If, at the Closing, Escrow Agent is holding a
Letter of Credit in accordance with the provisions of this Section 2.2(d) in
lieu of a cash Deposit, then notwithstanding anything to the contrary contained
in this Section 2.2, at the Closing (a) Purchaser shall pay the full Purchase
Price to Seller, as adjusted pursuant to Article VI hereof, which payment shall
be made by wire transfer on the Closing Date to a bank account designated by
Seller in writing, and (b) upon Escrow Agent's confirmation of Seller's receipt
of the full Purchase Price, Escrow Agent shall deliver the original of the
Letter of Credit to Purchaser for cancellation.

                              (iii) If Purchaser shall deliver to Escrow Agent a
Letter of Credit in accordance with the provisions of this Section 2.2(d), then
Escrow Agent is hereby irrevocably instructed and directed to draw upon the
Letter of Credit in the full face amount thereof, and to hold the cash proceeds
thereof as a cash Deposit pursuant to the terms of this Agreement: (x) upon (or
at any time after, but prior to the applicable expiration date of the Letter of
Credit) the date which is eight (8) Business Days after Escrow Agent shall have
received a Non-Renewal Notice from the Issuing Bank, unless prior to the
expiration of such eight (8) Business Day period, Purchaser shall have provided
to Escrow Agent a substitute Letter of Credit which (1) is issued prior to the
expiration of the aforementioned eight (8) Business Day period, (2) has an
expiration date of not earlier than the Outside L/C Date and (3) otherwise
satisfies the requirements of this Section 2.2(d), as determined by Seller or
(y) at any time within the twelve (12) Business Day period immediately preceding
the Outside L/C Date (or within the twelve (12) Business Day period immediately
preceding any extended expiration date under a substitute Letter of Credit
provided to Escrow Agent in compliance with the provisions of this Section
2.2(d)) unless, prior thereto, Purchaser shall have provided to Escrow Agent a
substitute Letter of Credit which (i) has an expiration date of not earlier than
the first anniversary of the expiration date under the substitute Letter of
Credit then being replaced in accordance with the provisions of this Section
2.2(d) and (2) otherwise satisfies the requirements of this Sections 2.2(d), as
determined by Seller. Purchaser waives any right it may have to obtain an
injunction or other equitable relief to prevent Escrow Agent from drawing on the
Letter of Credit in accordance with the foregoing provisions.



                                       7


                  Section 2.3 Scope of Sale. Included in the sale of the
Property is all of the Seller's right, title and interest in and to the
following:

                          (a) the Land;

                          (b) (i) all easements, covenants, servitudes and other
rights now belonging or appertaining to, or comprising a part of, the Land and
(ii) all land lying in the bed of any street, road, avenue or alley, open or
closed, in front of or behind or otherwise adjoining the Land and to the center
line thereof;

                          (c) the Building and all other buildings, structures,
fixtures and other improvements, and the furniture, equipment, supplies, tools,
machinery, security systems and other personal property which are now located on
or attached to the Land or the Building, and any leases under which any of the
same may be under lease to the Seller for use at the Building;

                          (d) to the extent they may be transferred under
applicable law, all licenses, permits, approvals and authorizations required for
the use and operation of all or any part of the Building;

                          (e) to the extent they may be transferred, warranties
covering any portion of the Building;

                          (f) all existing surveys, blueprints, drawings, plans
and specifications (including, without limitation, structural, HVAC, mechanical
and plumbing plans and specifications) pertaining to the Building in Seller's
possession or control;

                          (g) all available booklets and manuals concerning the
Building or used in connection with the operation of the Building, or any part
thereof, to the extent any of the foregoing are located at the Building or the
Existing Property Manager's office or otherwise in Seller's possession and
control, and shall specifically exclude any internal books and records of Seller
maintained at any of Seller's offices, internal and external appraisals of the
Property and any other privileged or proprietary information not otherwise in
the possession of the Existing Property Manager; and

                          (h) all other intangible personal property owned by
Seller or in which Seller otherwise has an interest, and used solely in
connection with or arising in connection with the operation of the Building in
contradistinction to the operation of Seller's business (whether conducted on or
from the Building or any part thereof) or elsewhere, but specifically excluding,
however, any names or marks of Seller or any affiliates of Seller.



                                       8


Seller and Purchaser acknowledge and agree that (i) there is expressly excluded
from the items described in (a) - (h) above all Excluded Property and (ii) the
value of the personal property that is included in the transaction contemplated
by this Agreement is de minimis and no part of the Purchase Price is allocable
thereto.

                  Section 2.4 Leaseback. On the Closing Date, Purchaser shall
lease to Seller and Seller shall lease from Purchaser the Citi Leased Premises,
pursuant to the terms and conditions of the lease attached hereto as EXHIBIT B
(the "Citi Lease").

                  Section 2.5 Escrow Provisions. Escrow Agent agrees to hold any
cash Deposit delivered to Escrow Agent pursuant to this Agreement (including any
cash Deposit delivered to Escrow Agent upon conversion of the Letter of Credit)
in the Escrow for application in accordance with the provisions of this
Agreement, upon the following terms:

                          (a) Escrow Agent shall have no duties or
responsibilities other than those expressly set forth herein. Escrow Agent shall
have no duty to enforce any obligation of any person to make any payment or
delivery or to enforce any obligation of any person to perform any other act.
Escrow Agent shall be under no liability to the other parties hereto or to
anyone else by reason of any failure on the part of any party hereto or any
maker, guarantor, endorser or other signatory of any document or any other
person to perform such person's obligations under any such document. Except for
amendments to this Agreement hereinafter referred to and except for joint
instructions given to Escrow Agent by Seller and Purchaser relating to the
Deposit, Escrow Agent shall not be obligated to recognize any agreement between
any or all of the persons referred to herein, notwithstanding that references
thereto may be made herein and whether or not it has knowledge thereof.

                          (b) In its capacity as Escrow Agent, Escrow Agent
shall not be responsible for the genuineness or validity of any security,
instrument, document or item deposited with it and shall have no responsibility
other than to faithfully follow the instructions contained herein, and it is
fully protected in acting in accordance with any written instrument given to it
hereunder by any of the parties hereto and believed by Escrow Agent to have been
signed by the proper person. Escrow Agent may assume that any person purporting
to give any notice hereunder has been duly authorized to do so. Escrow Agent is
acting as a stakeholder only with respect to the Deposit. In the event that for
any reason there is any dispute or uncertainty concerning any action to be taken
hereunder, Escrow Agent shall take no action until it shall have received
instructions in writing concurred to by Seller and Purchaser or until directed
by a final order of judgment of a court of competent jurisdiction, whereupon
Escrow Agent shall take such action in accordance with such instructions or such
order.

                          (c) It is understood and agreed that the duties of
Escrow Agent are purely ministerial in nature. Escrow Agent shall not be liable
to the other parties hereto or to anyone else for any action taken or omitted by
it, including, without limitation, drawing on the Letter of Credit in accordance
with Section 2.2(d)(iii) above, or any action suffered by it to be taken or
omitted, in good faith and in the exercise of reasonable judgment, except for
acts of willful misconduct or negligence. Escrow Agent may rely conclusively and
shall be protected in acting upon any order, notice, demand, certificate,
opinion or advice of counsel (including counsel chosen by Escrow Agent),
statement, instrument, report or other paper or document (not only as to its due
execution and the validity and effectiveness of its provisions, but also as to
the truth and acceptability of any information therein contained) which is
reasonably believed by Escrow Agent to be genuine and to be signed or presented
by the proper person or persons. Escrow Agent shall not be bound by any notice
or demand, or any waiver, modification, termination or rescission of this
Agreement or any of the terms hereof, unless evidenced by a final judgment or
decree of a court of competent jurisdiction in the State of New York or a
Federal court in such State, or a writing delivered to Escrow Agent signed by
the proper party or parties and, if the duties or rights of Escrow Agent are
affected, unless it shall give its prior written consent thereto.



                                       9


                          (d) Escrow Agent shall have the right to assume in the
absence of written notice to the contrary from the proper person or persons that
a fact or an event by reason of which an action would or might be taken by
Escrow Agent does not exist or has not occurred, without incurring liability to
the other parties hereto or to anyone else for any action taken or omitted, or
any action suffered by it to be taken or omitted, in good faith and in the
exercise of reasonable judgment, in reliance upon such assumption.

                          (e) Except in connection with Escrow Agent's willful
misconduct or negligence, Escrow Agent shall be indemnified and held harmless
jointly and severally by the other parties hereto from and against any and all
expenses or loss suffered by Escrow Agent (as Escrow Agent), including
reasonable attorneys' fees, in connection with any action, suit or other
proceeding involving any claim, which arises out of or relates to this
Agreement, the services of Escrow Agent hereunder or the monies held by it
hereunder. Promptly after the receipt by Escrow Agent of notice of any demand or
claim or the commencement of any action, suit or proceeding, Escrow Agent shall,
if a claim in respect thereof is to be made against any of the other parties
hereto, notify such other parties hereto in writing; but the failure by Escrow
Agent to give such notice shall not relieve any party from any liability which
such party may have to Escrow Agent hereunder.

                          (f) From time to time on and after the date hereof,
Seller and Purchaser shall deliver or cause to be delivered to Escrow Agent such
further documents and instruments and shall do and cause to be done such further
acts as Escrow Agent shall reasonably request (it being understood that Escrow
Agent shall have no obligation to make any such request) to carry out more
effectively the provisions and purposes of this Agreement, to evidence
compliance herewith or to assure itself that it is protected in acting
hereunder.

                          (g) If for any reason the Closing does not occur and
either party makes a written demand upon Escrow Agent for payment or refund, as
the case may be, of the Deposit (which shall, for the avoidance of doubt,
include the draw on, or the return of, the Letter of Credit) or any portion
thereof, Escrow Agent shall give written notice to the other party of such
demand. If Escrow Agent shall receive written notice from either party within
ten (10) Business Days after delivery of such notice instructing Escrow Agent
not to deliver the Deposit to the other party or to otherwise hold the Deposit,
or if for any reason there is any dispute or uncertainty concerning any action
to be taken pursuant to this Section 2.5(g) (but at all times subject to the
obligations of Escrow Agent under Section 2.2(d)(iii) hereof), Escrow Agent
shall take no action and shall continue to hold the Deposit until it has
received instructions in writing concurred to by Seller and Purchaser or until
directed by a final order of judgment of a court of competent jurisdiction,
whereupon Escrow Agent shall take such action in accordance with such
instructions or such order. If Escrow Agent does not receive a written objection
from the other party to the proposed payment or refund, as the case may be,
within ten (10) Business Days after the giving of the notice described in the
preceding sentence, Escrow Agent is hereby authorized to make such payment or
refund (and if the Deposit is a Letter of Credit, Escrow Agent may cause the
Letter of Credit to be drawn and the proceeds thereof to be delivered to Seller
or the Letter of Credit returned to Purchaser, as the case may be); provided,
however, if for any reason Escrow Agent in good faith shall elect not to make
such payment, Escrow Agent shall continue to hold such amount until otherwise
directed by written instructions from the parties to this Agreement or a final
judgment of a court of competent jurisdiction. Notwithstanding the foregoing,
Escrow Agent shall have the right at any time to deposit any cash Deposit
(including the proceeds of any Letter of Credit if converted to cash in
accordance with the provisions hereof) with the Clerk of the Supreme Court of
Queens County, New York, it being understood and agreed that in no event or
under any circumstance shall Escrow Agent be permitted to deposit the Letter of
Credit with the Clerk as aforesaid. Escrow Agent shall give written notice of
such deposit to Seller and Purchaser. Upon such deposit, Escrow Agent shall be
relieved and discharged of all further obligations and responsibilities
hereunder. Purchaser waives any right it may have to obtain an injunction or
other equitable relief to prevent Escrow Agent from drawing on the Letter of
Credit and depositing the same with the Clerk of the Supreme Court of Queens
County, New York.



                                       10


                          (h) Escrow Agent may resign at any time as Escrow
Agent hereunder upon giving five (5) Business Days' prior written notice to that
effect to each of Seller and Purchaser. In such event, the successor Escrow
Agent shall be a nationally recognized title insurance company or a nationally
recognized law firm selected by Purchaser and reasonably accepted by Seller.
Such party that will no longer be serving as Escrow Agent shall deliver, against
receipt, to such successor Escrow Agent, the Deposit held by such party, to be
held by such successor Escrow Agent pursuant to the terms and provisions of this
Agreement. If no such successor has been designated on or before such party
ceases to be Escrow Agent hereunder, whether by resignation or otherwise, its
obligations as Escrow Agent shall continue until such successor is appointed;
provided, however, its sole obligation thereafter shall be to safely keep all
monies then held by it and to deliver the same to the person, firm or
corporation designated as its successor or until directed by a final order or
judgment of a court of competent jurisdiction, whereupon Escrow Agent shall make
disposition thereof in accordance with such order. If no successor Escrow Agent
is designated and qualified within five (5) Business Days after its resignation
is effective, such party that will no longer be serving as Escrow Agent shall
apply to the Clerk of the Supreme Court of Queens County, New York, for the
appointment of a successor Escrow Agent. Notwithstanding the foregoing, at any
time that Escrow Agent is holding the Letter of Credit, it shall be a condition
to such resignation that, and no resignation shall be effective until, the
Letter of Credit shall have been transferred to the successor Escrow Agent in
compliance with the requirements of the Letter of Credit. All costs of any such
transfer shall be paid by Purchaser.



                                       11


                                  ARTICLE III
                               STATUS OF THE TITLE

                  Section 3.1 Permitted Encumbrances. Subject to the terms and
provisions of this Agreement, Seller's interest in the Property shall be sold,
assigned and conveyed by Seller to Purchaser, and Purchaser shall accept same,
subject only to the following (collectively, the "Permitted Encumbrances"):

                          (a) the state of facts disclosed on the survey
prepared by Joseph Nicoletti Associates Professional Land Surveyors, P.C. dated
October 24, 2002, and revised and redated by visual examination on February 22,
2005;

                          (b) the standard printed exceptions from coverage
contained in the ALTA form of owner's title policy currently in use in New York,
with the standard New York endorsement, and the easements, conditions,
restrictions, agreements and encumbrances as set forth on SCHEDULE 3.1(b)
annexed hereto;

                          (c) Non-Objectionable Encumbrances and any liens,
encumbrances or other title exceptions approved or waived by Purchaser as
provided in Section 4.1 of this Agreement;

                          (d) Property Taxes which are a lien but not yet due
and payable, subject to Section 6.1 of this Agreement;

                          (e) any and all present and future laws, rules,
regulations, statutes, ordinances, orders, special permits, approvals or other
legal requirements affecting the Property, including, without limitation, those
relating to zoning and land use;

                          (f) any utility company rights, easements and
franchises for electricity, water, steam, gas, telephone or other service or the
right to use and maintain poles, lines, wires, cables, pipes, boxes and other
fixtures and facilities in, over, under and upon the Property;

                          (g) any installment not yet due and payable of
assessments imposed after the date hereof and affecting the Property or any
portion thereof, subject to Section 6.1 of this Agreement;

                          (h) the City Agreements;

                          (i) the Restrictive Covenant;

                          (j) all violations of laws, rules, regulations,
statutes, ordinances, orders or requirements, now or hereafter issued or noted,
and any liens arising therefrom, if any; and

                          (k) the rights and interests held by Seller under the
Citi Lease.




                                       12


                                   ARTICLE IV
                             TITLE INSURANCE, LIENS

                  Section 4.1 Title Objections. (a) The parties acknowledge that
Seller (at Purchaser's expense) has delivered or caused to be delivered to
Purchaser, and Purchaser has had an opportunity to review, title commitment
number LT050081 issued by Lawyers Title Insurance Corporation, title commitment
number 3605-00046 issued by Chicago Title Insurance Company and title commitment
number 3008-74662 issued by First American Title Insurance Company of New York
(collectively, the "Title Commitment") for an owner's policy of title insurance
with respect to Purchaser's acquisition of the Property. Purchaser shall
purchase and accept such owner's policy of title insurance from the Title
Companies, as co-insurers, each having the proportionate liabilities (with
respect to 50% of the aggregate value of the Title Policy, as selected by
Purchaser, and with respect to 50% of the aggregate value of the Title Policy,
as selected by Seller) as provided on SCHEDULE 4.1 with First American Title
Insurance Company of New York as the lead insurer, and Purchaser shall cause any
entity financing Purchaser's acquisition of the Property at Closing to similarly
accept its mortgagee's policy of title insurance from the Title Companies on the
same proportionate basis. Purchaser has heretofore given Seller notice of
Purchaser's objections (the "Title Objections") to those liens, encumbrances or
other title exceptions (other than Permitted Encumbrances) revealed by the Title
Commitment or has otherwise waived its right to do so. Any liens, encumbrances
and other title exceptions appearing on the Title Commitment which have not been
expressly objected to in a written notice to Seller prior to the date hereof
shall not constitute Title Objections and shall be deemed Permitted
Encumbrances.

                          (b) If, on or prior to the Closing Date, any of the
Title Companies shall deliver any update to the Title Commitment which discloses
additional liens, encumbrances or other title exceptions which were not
disclosed by the Title Commitment (each, an "Update Exception"), then Purchaser
shall have until the earlier of (x) five (5) Business Days after delivery of
such update or (y) the Business Day immediately preceding the Closing Date (or,
if the update was not delivered until the Closing Date, the Closing Date), time
being of the essence (the "Update Objection Date") to deliver notice to Seller
objecting to any of the Update Exceptions. If Purchaser fails to deliver such
objection notice by the Update Objection Date, Purchaser shall be deemed to have
waived its right to object to any Update Exceptions (and the same shall not be
deemed Title Objections and shall be deemed Permitted Encumbrances). If
Purchaser shall deliver such objection notice by the Update Objection Date, any
Update Exceptions which are not objected to in such notice shall not constitute
Title Objections and shall be deemed Permitted Encumbrances.

                          (c) Purchaser shall not be entitled to object to, and
shall be deemed to have approved, any liens, encumbrances or other title
exceptions (and the same shall not constitute Title Objections but shall be
deemed Permitted Encumbrances) (1) over which the Title Companies are willing to
insure (without additional cost to Purchaser), (2) against which the Title
Companies are willing to provide affirmative insurance (without additional cost
to Purchaser), or (3) which will be extinguished upon the transfer of the
Property (collectively, the "Non-Objectionable Encumbrances"). Notwithstanding
anything to the contrary contained herein, if Seller is unable to eliminate the
Title Objections set forth in the Title Commitment or any update thereto by the
Scheduled Closing Date, unless the same are waived by Purchaser without any
abatement in the Purchase Price, Seller may, upon at least two (2) Business
Days' prior notice (the "Title Cure Notice") to Purchaser (except with respect
to matters first disclosed during such two (2) Business Day period, as to which
matters notice may be given at any time through and including the Scheduled
Closing Date) adjourn the Scheduled Closing Date (such date to which Seller
adjourns the Scheduled Closing Date is herein referred to as the "Adjourned
Closing Date"), for a period not to exceed ninety (90) days ("the Title Cure
Period"), in order to attempt to eliminate such exceptions.



                                       13


                  Section 4.2 Elections. If Seller is unable to eliminate any
Title Objection within the Title Cure Period, unless the same is waived by
Purchaser, then, Purchaser may (i) accept the Property subject to such Title
Objection without abatement of the Purchase Price, in which event (x) such Title
Objection shall be deemed to be, for all purposes, a Permitted Encumbrance, (y)
Purchaser shall close hereunder notwithstanding the existence of same, and (z)
Seller shall have no obligations whatsoever after the Closing Date with respect
to Seller's failure to cause such Title Objection to be eliminated, or (ii)
terminate this Agreement by notice given to Seller within ten (10) Business Days
following expiration of the Title Cure Period (or, if Seller does not elect to
adjourn the Scheduled Closing Date to enable Seller to eliminate a Title
Objection, within ten (10) Business Days following the Scheduled Closing Date),
time being of the essence, in which event Purchaser shall be entitled to a
return of the Deposit (together with any interest accrued thereon). If Purchaser
shall fail to deliver the termination notice described in clause (ii) of the
preceding sentence within the 10 Business Day period described therein, time
being of the essence, Purchaser shall be deemed to have made the election under
clause (i) of the preceding sentence. Upon the timely giving of any termination
notice under such clause (ii), this Agreement shall terminate and neither party
hereto shall have any further rights or obligations hereunder other than those
which are expressly provided to survive the termination hereof.

                  Section 4.3 No Actions. It is expressly understood that in no
event shall Seller be required to bring any action or institute any proceeding,
or to otherwise incur any costs or expenses in order to attempt to eliminate any
Title Objections or to otherwise cause title in the Property to be in accordance
with the terms of this Agreement on the Closing Date. Notwithstanding the
foregoing, Seller shall be obligated to expend up to $1,000,000 to cure any
Title Objection which can be satisfied, cured, discharged or otherwise removed
by the payment of a sum of money (including, without limitation, by depositing
up to $1,000,000 with the Title Companies in accordance with the provisions of
Section 4.5). The $1,000,000 cap described in the preceding sentence shall not
apply to liens which are voluntarily placed on the Property by Seller after the
date of this Agreement.

                  Section 4.4 Rescheduled Closing Date. If Seller shall have
adjourned the Scheduled Closing Date in order to cure Title Objections in
accordance with the provisions of Section 4.1, Seller shall, upon the
satisfactory cure thereof, promptly reschedule the Scheduled Closing Date, upon
at least five (5) Business Days' prior notice to Purchaser (the "New Closing
Notice").

                  Section 4.5 Disposition of Liens and Encumbrances. In lieu of
satisfying any liens or encumbrances required to be satisfied under this
Agreement, Seller may, at its option, deposit with the Title Companies such sum
of money or deliver to the Title Companies such affidavits and certificates as
may be determined by the Title Companies as being sufficient to induce the Title
Companies (i) to insure Purchaser and Purchaser's successors and assigns (at the
then current rate(s) of the Title Companies) against collection of liens and/or
encumbrances required to be eliminated by Seller (as hereinabove set forth) out
of or against the Property or Purchaser or such successors and assigns, and (ii)
to omit such liens and encumbrances from any title insurance policy issued to
any unrelated arm's-length lenders of Purchaser and Purchaser's successors and
assigns and the successors and assigns of such lenders, without additional
charge or premium, and provided further that the Title Companies agree, in
writing, to defend any action commenced by the holder of any lien or encumbrance
so insured against to enforce or collect the same at the sole cost and expense
of the Title Companies, in which event such liens and encumbrances shall not be
objections to title.



                                       14


                  Section 4.6 Seller Affidavits. If the Title Commitment
discloses judgments, bankruptcies or other returns against other persons having
names the same as, or similar to, that of Seller, Seller shall deliver to the
Title Companies affidavits (if truthful) showing that such judgments,
bankruptcies or other returns are not against Seller in order to induce the
Title Companies to omit exceptions with respect to such judgments, bankruptcies
or other returns or to insure over same. In addition, Seller shall deliver to
the Title Companies, all customary affidavits (if truthful) required to omit (i)
exceptions with respect to municipal emergency repairs, (ii) exceptions with
respect to (A) retroactive street vault charges, together with interest and
penalties thereon, and (B) work done by the City of New York upon the Property
or any demand made by the City of New York for any such work that may result in
charges by the New York City Department of Environmental Protection for water
tap closings or any related work, (iii) exceptions with respect to fees for
inspections, reinspections, examinations and services performed by the
Department of Buildings or for permits issued by the Department of Buildings,
and (iv) any other exceptions of a similar type; provided that any of the
exceptions enumerated in clauses (i) - (iv) are customarily omitted from a title
report on the basis of an affidavit from the owner of the property being
insured, without the expenditure of money by such owner.

                  Section 4.7 Title Insurance. At Closing, the Title Companies
shall issue to Purchaser or be irrevocably committed to issue to Purchaser an
ALTA 1992 owner's form title insurance policy (the "Title Policy"), in the
amount of the Purchase Price, insuring that fee simple title to the Property is
vested in Purchaser subject only to the Permitted Encumbrances. Purchaser shall
be entitled to request that the Title Companies provide such endorsements (or
amendments) to the Title Policy as Purchaser may reasonably require, provided
that (a) such endorsements (or amendments) shall be at no cost to, and shall
impose no additional liability on, Seller, (b) Purchaser's obligations under
this Agreement shall not be conditioned upon Purchaser's ability to obtain such
endorsements and, if Purchaser is unable to obtain such endorsements, Purchaser
shall nevertheless be obligated to proceed to close the transaction contemplated
by this Agreement without reduction or set off against the Purchase Price, and
(c) the Closing shall not be delayed as a result of Purchaser's request.

                                    ARTICLE V
                                     CLOSING

                  Section 5.1 Closing. The Closing of the purchase and sale of
the Property shall be held on May 6, 2005 (such date, or the date Seller sets
for the Closing if Seller shall elect to extend this date pursuant to Section
4.1, or the date to which Purchaser adjourns the Closing in accordance with the
provisions of this Section 5.1, is herein referred to as the "Scheduled Closing
Date"), at 9:30 a.m. Eastern Time, at the offices of Paul, Hastings, Janofsky &
Walker LLP, 75 East 55th Street, New York, New York 10022. Purchaser shall have
the right to adjourn the Scheduled Closing Date from May 6, 2005 to a later
date, which adjournment may be exercised on up to, but not in excess of, three
(3) separate occasions, by written notice to Seller given at any time on or
before the then Scheduled Closing Date; provided, however, in no event or under
any circumstance shall the Scheduled Closing Date be extended, or the Closing
Date occur, beyond May 20, 2005 (the "Outside Closing Date"). In order to
facilitate the timely and expeditious closing of title and the payment of the
Purchase Price on the Scheduled Closing Date, Seller and Purchaser shall conduct
and complete a comprehensive pre-closing on the Business Day prior to the
Scheduled Closing Date. Time is of the essence as to the parties' obligation to
close the transactions contemplated herein on the Outside Closing Date.



                                       15


                  Section 5.2 Seller's Closing Items. At the Closing, Seller
agrees to execute, deliver and/or provide to Purchaser, or cause to be executed,
delivered and provided to Purchaser, the following:

                          (a) a bargain and sale deed for the Property without
covenants against grantor's acts and otherwise in accordance with all
requirements of applicable law (the "Deed"), in the form attached hereto as
EXHIBIT C;

                          (b) a bill of sale covering the personal property
(other than the Excluded Personal Property) at the Property in the form attached
hereto as EXHIBIT D (the "Bill of Sale");

                          (c) such evidence of Seller's authority to consummate
the transactions contemplated by this Agreement (including an executed and
acknowledged Incumbency Certificate certifying to the authority of the officers
of Seller to execute the documents to be delivered by such entity on the Closing
Date) as may reasonably be required to enable the Title Companies to issue the
Title Policy without exception regarding Seller's authorization and authority
and as may be reasonably necessary to assure Purchaser that Seller has authority
to execute and deliver the Citi Lease;

                          (d) a "non-foreign person" certification from Seller
pursuant to Section 1445 of the Code in the form attached hereto as EXHIBIT E
(the "FIRPTA Affidavit");

                          (e) any bonds, warranties or guarantees, and any
licenses and permits, which are in any way applicable to the Building or any
part thereof in the possession or control of Seller;

                          (f) all architectural, mechanical or electrical plans
and specifications, interior floor plans, "as built" plans and surveys relating
to the Building, as well as all changes thereto, in the possession or control of
Seller;

                          (g) a certificate, dated as of the Closing Date,
stating that the representations and warranties of Seller contained in this
Agreement are true and correct in all material respects as of the Closing Date
(except to the extent Seller has identified any such representations and
warranties which are not, or are then no longer, true and correct and the state
of facts giving rise to the change do not have a material adverse effect on the
Property or the transactions contemplated herein);



                                       16


                          (h) an estoppel certificate substantially in the form
contemplated by the Citi Lease, dated as of the Closing Date, duly executed by
Seller as the tenant under the Citi Lease (the "Citi Lease Estoppel");

                          (i) a Declaration of Restrictive Covenant in the form
attached hereto as EXHIBIT F (the "Restrictive Covenant");

                          (j) the affidavits or similar documents contemplated
by Section 4.6 of this Agreement; and

                          (k) such other documents as may be reasonably
necessary or appropriate to effect the consummation of the transactions that are
the subject of this Agreement.

Seller shall be deemed to have delivered the items set forth in clauses (e) and
(f) above if the same are left in the management office of the Building on the
Closing Date.

                  Section 5.3 Purchaser's Closing Items. At the Closing,
Purchaser agrees to execute, deliver and/or provide to Seller, or cause to be
executed, delivered and/or provided to Seller, the following:

                          (a) the balance of the Purchase Price, in the manner
required by Section 2.2 of this Agreement;

                          (b) if requested, a Letter of Direction from Purchaser
directing Escrow Agent to pay the Purchase Price and all other amounts due at
Closing, in accordance with the provisions of this Agreement, to Seller or any
other person as Seller shall designate;

                          (c) a Secretary's Certificate certifying that the
Board of Directors of Purchaser has duly adopted resolutions authorizing the
within transaction and an executed and acknowledged Incumbency Certificate
certifying to the authority of the officers of such entity to execute the
documents to be delivered by such entity on the Closing Date;

                          (d) a certificate, dated as of the Closing Date,
stating that the representations and warranties of Purchaser contained in this
Agreement are true and correct in all material respects as of the Closing Date
(except to the extent that the last sentence of Section 10.2(c) is no longer
true and correct and the state of facts giving rise to such change is in
compliance with Section 16.5 of this Agreement and does not otherwise constitute
a breach by Purchaser of its obligations hereunder); and

                          (e) such other documents as may be reasonably
necessary or appropriate to effect the consummation of the transactions that are
the subject of this Agreement.



                                       17


                  Section 5.4 Documents Jointly Executed by Seller and
Purchaser. Seller and Purchaser shall each execute and deliver the following
documents:

                          (a) the City Transfer Tax and State Transfer Tax
returns provided for in Section 5.5, to be delivered to the Title Companies;

                          (b) the Citi Lease;

                          (c) a Memorandum of the Citi Lease, in proper
statutory form for recording;

                          (d) a subordination, non-disturbance and attornment
agreement among Seller, Purchaser and Purchaser's lender, if any, in the form
attached as Exhibit D to the Citi Lease (the "Citi Lease SNDA");

                          (e) a Petition Form For Assignment of a Revocable
Consent with respect to the Lampost Agreement in the form attached hereto as
EXHIBIT G-1 (it being agreed that, upon receipt of the consent being requested
pursuant to the aforementioned Petition, Seller and Purchaser shall each execute
and deliver an assignment and assumption of Seller's obligations under the
Lamppost Agreement in the form attached hereto as EXHIBIT G-2, it being further
agreed that the obligations of Seller and Purchaser set forth in this
parenthetical shall survive the Closing);

                          (f) a Petition Form For Assignment of a Revocable
Consent with respect to the Revocable Consent Agreement in the form attached
hereto as EXHIBIT H-1 (it being agreed that, upon receipt of the consent being
requested pursuant to the aforementioned Petition, Seller and Purchaser shall
each execute and deliver an assignment and assumption of Seller's obligations
under the Revocable Consent Agreement in the form attached hereto as EXHIBIT
H-2, it being further agreed that the obligations of Seller and Purchaser set
forth in this parenthetical shall survive the Closing);

                          (g) an assignment and assumption of Seller's
obligations under the Subway Agreement in the form attached hereto as EXHIBIT I;

                          (h) the documentation necessary to comply with Section
5.7 of this Agreement; and

                          (i) such other documents as may be reasonably
necessary or appropriate to effect the consummation of the transactions that are
the subject of this Agreement.

                  Section 5.5 Transfer and Recordation Taxes. (a) At the
Closing, all recording fees, recording taxes and sales taxes, if any, imposed in
connection with the conveyance of the Property pursuant to this Agreement shall
be paid by Purchaser.

                          (b) At the Closing, Purchaser shall pay the New York
State Real Estate Transfer Tax (the "State Transfer Tax") in accordance with
Article 31 of the Tax Law of the State of New York, and the New York City Real
Property Transfer Tax (the "City Transfer Tax") imposed by Chapter 21, Title 11
of the Administrative Code of the City of New York, in connection with the
conveyance of the Property to Purchaser in accordance with the provisions of
this Agreement.



                                       18


                          (c) Seller and Purchaser shall each execute and/or
swear to the returns or statements required in connection with the State
Transfer Tax and the City Transfer Tax, and any other taxes referred to in this
Section 5.5 or otherwise applicable to the transactions contemplated by this
Agreement, and shall deliver same, together with the payment thereof which is
required of Purchaser, to the Title Companies on the Closing Date. All such tax
payments shall be made by certified or bank check payable directly to the order
of the appropriate governmental officer, or in such other manner as the Title
Companies shall reasonably require and accept.

                          (d) The agreement of Seller and Purchaser set forth in
this Section with respect to the taxes described above shall not extend to any
additional fees, penalties or interest charges payable in addition to such taxes
as a result of (i) the negligence or willful failure to act by either party,
(ii) any incorrect or incomplete information in any return or form filed by
either party, or (iii) the failure of a party to file any such return or form,
it being agreed that the full amount of any such additional fees, penalties or
interest charges shall be paid by the party whose negligence or willful failure
to act, who has caused the incorrect or incomplete return or form to be prepared
or who was required by law to file the return or form which was not filed, as
the case may be, leads to the imposition of such additional fees, penalties or
interest charges.

                          (e) The provisions of this Section 5.5 shall survive
the Closing.

                  Section 5.6 Title Insurance and Survey Costs. The costs of
examination of title (including all UCC, tax and other searches) and title
premiums for the issuance by the Title Companies of the Title Policy shall be
paid by Purchaser. The cost of the filing fees for submitting the Petition Forms
referenced in Sections 5.3(e) and (f) above shall be paid by Seller. The cost of
obtaining the survey for the Property, and any updates thereto, shall be paid by
Seller. The provisions of this Section 5.6 shall survive the Closing.

                  Section 5.7 1099 Compliance. Seller and Purchaser shall
execute, acknowledge and deliver to the other party such instruments, and take
such other actions, as such other party may reasonably request in order to
comply with Section 6045(e) of the Code, or any successor provision or any
regulations promulgated pursuant thereto, insofar as the same requires reporting
of information in respect of real estate transactions. The parties designate the
Title Companies as the responsible party for reporting this information as
required by law. The provisions of this Section 5.7 shall survive the Closing.

                  Section 5.8 Attorney's Fees. Seller and Purchaser shall each
bear the costs of their respective counsel in connection with the sale and
purchase of the Property.

                  Section 5.9 Conditions Precedent. (a) The obligation of
Purchaser to consummate the transaction contemplated by this Agreement shall be
conditioned solely upon the following:

                          (i) Seller's delivery of the documents and instruments
                  required to be delivered by Seller pursuant to Section 5.2 and
                  Section 5.4 of this Agreement;



                                       19


                          (ii) All of the representations and warranties by
                  Seller set forth in this Agreement shall be true and correct
                  in all material respects as of the Closing Date except to the
                  extent Seller has identified in such certificate any such
                  representations or warranties which are no longer true and
                  correct and the state of facts giving rise to the change do
                  not have a material adverse effect on the Property or the
                  transactions contemplated herein;

                          (iii) The Title Companies shall be in a position to
                  issue the Title Policy in accordance with the first sentence
                  of Section 4.7; and

                          (iv) Subject to the terms and provisions of Section
                  15.2 of this Agreement, Seller shall have performed and
                  observed, in all material respects, all covenants and
                  agreements of this Agreement (other than it's obligations
                  under Section 5.2 and Section 5.4 of this Agreement) to be
                  performed and observed by Seller as of the Closing Date.

                          (b) The obligation of Seller to consummate the
transaction contemplated by this Agreement shall be conditioned solely upon the
following:

                          (i) Purchaser's payment of the Purchase Price;

                          (ii) Purchaser's delivery of the documents and
                  instruments required to be delivered by Purchaser pursuant to
                  Section 5.3 and Section 5.4 of this Agreement;

                          (iii) All of the representations and warranties by
                  Purchaser set forth in this Agreement shall be true and
                  correct in all material respects as of the Closing Date except
                  to the extent that the last sentence of Section 10.2(c) is no
                  longer true and correct and the state of facts giving rise to
                  such change is in compliance with Section 16.5 of this
                  Agreement and does not otherwise constitute a breach by
                  Purchaser of its obligations hereunder; and

                          (iv) Subject to the terms and provisions of Section
                  15.1 of this Agreement, Purchaser shall have performed and
                  observed, in all material respects, all covenants and
                  agreements of this Agreement (other than it's obligations
                  under Section 5.3 and Section 5.4 of this Agreement) to be
                  performed and observed by Purchaser as of the Closing Date.

                          (c) Purchaser acknowledges and agrees that in no event
or under any circumstance shall Purchaser's obligation to purchase the Property
be contingent or conditioned upon Purchaser's ability to obtain, or Purchaser's
receipt of, financing of any kind.



                                       20


                                   ARTICLE VI
                               CLOSING ADJUSTMENTS

                  Section 6.1 Closing Adjustments. Insofar as Purchaser and
Seller will be entering into the Citi Lease at the Closing, there shall not be
any apportionments or adjustments between Seller and Purchaser with respect to
income and expenses for the Property. Seller shall be responsible for all
expenses of the Property for all periods preceding the Closing Date as the same
become due and payable. From and after the Closing Date, Seller shall pay and
discharge any and all expenses of the Property to the extent provided in the
Citi Lease.

                                  ARTICLE VII
                                  TAX PROTESTS

                  Section 7.1 Tax Protests. As of the date of this Agreement,
Seller may have engaged various law firms or consultants to protest the
valuation of the Property ("Protest Proceedings"), as more particularly
described in SCHEDULE 10.1(F) attached hereto, for the purpose of protesting the
amount of ad valorem taxes for certain tax fiscal periods, some of which may
have been paid by Seller and some of which either are not yet due and payable or
have not been paid. With respect to the tax fiscal period in progress on the
Closing Date or any prior tax fiscal period, all ad valorem taxes imposed on the
Property are the responsibility of Seller, and further, any refund payable to
Seller by virtue of a favorable determination resulting from such protests shall
belong exclusively to Seller.

                                  ARTICLE VIII
                                CERTAIN COVENANTS

                  Section 8.1 Seller Covenants. (a) During the period from the
date hereof until the Closing Date, Seller shall:

                              (i) subject to subsections (b)(i) and (iii) below,
operate and maintain the Property in substantially the same manner as operated
and maintained prior to the date hereof;

                              (ii) be permitted to perform capital improvements
and/or capital repairs to the Property (provided no such capital improvements
and/or repairs (x) would have a material adverse effect upon the value of the
Property or (y) would have a material adverse effect upon the structural
integrity of the Building);

                              (iii) maintain, in full force and effect, the
insurance policies currently in effect with respect to the Property; and

                              (iv) promptly deliver to Purchaser copies of (a)
written default notices, notices of lawsuits and notices of violations affecting
the Property that are sent or actually received by Seller during such period,
and (b) without duplication of anything contained in the preceding clause (a),
any notice received by Seller during such period from the City of New York, any
taxing authority and any other municipal, governmental or quasi-governmental
entity or agency pertaining to the Property.



                                       21


                          (b) During the period from the date hereof until the
Closing Date, Seller shall not, except as permitted under Section 8.1(a) above,
without Purchaser's prior approval:

                              (i) bring (or knowingly permit to be brought) on
to, or remove or dispose from, the Property, any hazardous substances or
materials in violation of applicable environmental laws;

                              (ii) enter into, amend or modify (other than
non-material amendments or modifications) or renew any Contracts to the extent
that such Contracts will be binding on Purchaser (rather than Seller) following
the Closing, unless such Contracts expire by their terms on or prior to the
Expiration Date (as such term is defined in the Citi Lease) or can be terminated
by the owner of the Property without penalty upon not more than thirty (30)
days' prior notice;

                              (iii) sell, assign, or convey any right, title or
interest whatsoever in or to the Property, or create or permit to exist any
lien, security interest, easement, encumbrance, charge or condition affecting
the Property (other than a Permitted Encumbrance), without the prior consent of
Purchaser except to the extent relating to items approved in writing or deemed
approved by Purchaser in accordance with the terms of this Agreement;

                              (iv) enter into, amend or modify (other than
non-material amendments or modifications) or renew any Leases, except to the
extent Seller would be permitted to do so (in its capacity as tenant under the
Citi Lease) without the landlord's consent under the Citi Lease if the Citi
Lease was in effect on the date hereof; or

                              (v) perform or cause to be performed any
improvements, changes or alterations to the Property which (x) would have a
material adverse effect upon the value of the Property or (y) would have a
material adverse effect upon the structural integrity of the Building.

                          (c) Whenever in Section 8.1(b) hereof Seller is
required to obtain Purchaser's approval with respect to any transaction
described therein, Purchaser shall, within five (5) Business Days after receipt
of Seller's request therefor, notify Seller of its approval or disapproval of
same and, if Purchaser fails to notify Seller of its disapproval within said
five (5) Business Day period, Purchaser shall be deemed to have approved same.

                  Section 8.2 Purchaser's Inspection of the Property. (a) If
Purchaser shall hereafter inspect, test, investigate or survey all or any
portion of the Property, Purchaser shall restore such portion of the Property to
its condition existing immediately prior to Purchaser's inspection, testing,
investigation or survey thereof. Purchaser shall be liable for all damage or
injury to any person or property (including other portions of the Property)
resulting from, relating to or arising out of any such inspection, testing,
investigation or survey, whether occasioned by the acts of Purchaser or any of
its Representatives, and Purchaser shall promptly satisfy any lien that may
arise or be filed against Seller or the Property in connection with any such
inspection, testing, investigation or survey. Purchaser shall indemnify, defend
and hold harmless Seller and its agents, employees, officers, directors,
affiliates, advisors and asset managers from any and all claims, damages or
liabilities resulting from any such inspection, testing, investigation or survey
or lien filed against Seller or the Property in connection therewith. This
indemnification by Purchaser shall survive the Closing or the termination of
this Agreement.



                                       22


                          (b) In conducting any inspection, testing,
investigation or surveying of the Property (or any portion thereof), neither
Purchaser nor any of Purchaser's Representatives shall (i) contact or have any
discussions with any of Seller's employees, agents or representatives, or with
any property managers of, tenants at, or contractors providing services to, the
Property, unless in each case Purchaser obtains the prior written consent of
Seller, it being agreed that all such contacts or discussions shall, pending any
such approval, be directed to Brian MacDonald, Citigroup, 666 Third Avenue, 21st
Floor, New York, New York 10017, Tel: (212) 551-7239, (ii) interfere with the
business of Seller conducted at the Property or (iii) damage the Property or any
portion thereof. In conducting any inspection, testing, investigation or
surveying, Purchaser and Purchaser's Representatives shall at all times comply
with, and shall be subject to, all other terms, covenants and conditions of this
Agreement. Seller may from time to time establish reasonable rules of conduct
for Purchaser and Purchaser's Representatives in furtherance of the foregoing.
Purchaser shall schedule and coordinate all inspections, testing, investigation,
or surveying, including, without limitation, any environmental test, with Seller
and shall give Seller at least two (2) Business Days' prior notice thereof.
Seller shall be entitled to have a representative present at all times during
each such inspection, testing, investigation or surveying. All inspection fees,
appraisal fees, survey fees, engineering fees and other costs and expenses of
any kind incurred by Purchaser or Purchaser's Representatives relating to such
inspection, testing, investigation or surveying of the Property (or any portion
thereof) shall be borne solely by Purchaser. Without limiting any other
requirements contained herein, prior to conducting any physical inspection,
testing, investigation or surveying of the Property, other than mere visual
examination, Purchaser shall obtain, and during the period of such inspection,
testing, investigation or surveying shall maintain, at Purchaser's sole cost and
expense, commercial general liability insurance, including a contractual
liability endorsement, and personal injury liability coverage, naming Seller,
its agents and employees as additional insureds, from an insurer reasonably
acceptable to Seller, which insurance must have limits for bodily injury and
death or damage to property of not less than $5,000,000 for any one occurrence.
Prior to making any such physical inspection, testing, investigation or
surveying, Purchaser shall furnish to Seller a certificate of insurance
evidencing the foregoing coverage. Purchaser and Purchaser's Representatives
shall not be permitted to conduct borings of the Property or drilling in or on
the Property in connection with the preparation of an environmental audit or in
connection with any other testing, inspection or investigation of the Property
without the prior written consent of Seller (and, if such consent is given,
Purchaser shall be obligated to pay to Seller on demand the cost of repairing
and restoring any damage as aforesaid). The provisions of this Section 8.2(b)
shall survive any termination of this Agreement.

                  Section 8.3 Post Closing Covenant. Purchaser expressly
acknowledges that the Lamppost Agreement and the Revocable Consent Agreement
cannot be assigned by Seller without the prior written consent of the Department
of Transportation of the City of the New York (the "Department"). Immediately
after the Closing, Seller and Purchaser shall submit to the Department (i) the
original (plus five (5) copies of the) fully executed Petition Forms referenced
in Sections 5.4(e) and (f) of this Agreement, (ii) a copy of the Deed, as fully
executed and acknowledged, (iii) a copy of Purchaser's certificate of formation,
(iii) the filing fees required by Section 7-08 of Title 34, Chapter 7 of the
Rules of the City of New York and (iv) such other additional materials as may
reasonably be required by the Department. Except for the payment of the filing
fees in connection with the submission to the Department of the aforementioned
Petition Forms, Seller shall not be obligated to incur any expense or agree to
any conditions or requirements that may be imposed by the Department in order to
obtain such consent. If the Department refuses to consent to such assignment,
(i) Seller shall have the right (but not the obligation) to petition the
Department for a discontinuance of either or both of the Lamppost Agreement and
the Revocable Consent Agreement and Seller shall be obligated to pay all costs
and expenses arising from and directly related to the discontinuance and
termination thereof (including any alterations thereunder) and (ii) except as
provided in the immediately following sentence, Seller shall not have any
liability to Purchaser as a result of the failure to obtain such consent. Seller
shall indemnify and hold Purchaser harmless from all direct losses, costs,
damages (but expressly excluding consequential damages) and expenses (including
reasonable attorney fees) actually incurred by Purchaser (except to the extent
arising out of the negligence or willful misconduct of Purchaser) arising from
and directly related to Seller's discontinuance and termination of the Lamppost
Agreement and/or the Revocable Consent Agreement if the Department is unwilling
to consent to the assignment thereof to Purchaser. If the Department consents to
such assignment, then (y) Seller and Purchaser shall execute and deliver to each
other the assignment and assumptions referenced in the parentheticals contained
in Sections 5.4 (e) and (f) of this Agreement and (z) the security deposits
previously posted by Seller under the Lamppost Agreement and the Revocable
Consent Agreement shall be assigned by Seller to Purchaser and Seller shall
receive a credit against its next monthly obligation to pay fixed rent under the
Citi Lease in the amount of the security deposits previously posted by Seller
under the Lamppost Agreement ($2,000) and the Revocable Consent Agreement
($8,750). The provisions of this Section 8.3 shall survive the Closing.



                                       23


                                   ARTICLE IX
                                   [RESERVED]



                                   ARTICLE X
                         REPRESENTATIONS AND WARRANTIES

                  Section 10.1 Representations and Warranties By Seller. Seller
hereby represents and warrants to Purchaser as of the date hereof that:

                          (a) Seller is a national banking association, duly
organized and validly existing under the laws of the United States of America;

                          (b) Seller has the legal right, power and authority to
enter into this Agreement and perform all of its obligations hereunder, and the
execution and delivery of this Agreement and the performance by Seller of its
obligation hereunder, (x) has been duly authorized, and (y) will not conflict
with, or result in a breach of, any of the terms, conditions and provisions of
its organizational and governance documents or any law, statute, rule or
regulation, or order, judgment, writ, injunction or decree of any court or
governmental instrumentality, or any contract, agreement or instrument to which
it is a party or by which it is bound, or to which it or any portion of its
property is subject and (z) except for the consent to the assignment of the
Lamppost Agreement and the Revocable Consent Agreement contemplated hereby, will
not require the consent, approval, authority or order of any court or
governmental agency that has not been previously obtained in writing or
delivered to the Purchaser;



                                       24


                          (c) there are no litigations, governmental or
administrative proceedings or arbitrations presently pending or, to Seller's
actual knowledge, threatened in writing with respect to any of the Property
(exclusive of tort and other liability proceeding for which adequate insurance
coverage is available, and exclusive of the proceedings, if any, set forth on
SCHEDULE 10.1(c) hereto). Purchaser shall have no liability under, or any
obligation to pursue, such litigation or proceedings;

                          (d) Seller has not received written notice of any
pending condemnation, eminent domain or similar proceedings with respect to the
Property, and has no actual knowledge that any such proceedings are threatened
or contemplated;

                          (e) the fixtures, furniture, furnishings, equipment,
machinery and other personal property attached to, appurtenant to or located on
the Property and being transferred to Purchaser pursuant to this Agreement
(i.e., other than the Excluded Property, which is not being transferred) have
been fully paid for and are owned by Seller free and clear of all liens and
encumbrances;

                          (f) a true and complete list of the Protest
Proceedings, if any, and the law firms or consultants representing the Seller
with respect thereto, is attached hereto as SCHEDULE 10.1(f);

                          (g) there are no Leases in effect as of the date
hereof except as set forth on SCHEDULE 10.1(g);

                          (h) Seller has not granted any person the option or
right (including any right of refusal) to purchase the Property; and

                          (i) Seller is not a "foreign person" within the
meaning of Section 1445(f)(3) of the Code.

Any and all uses of the phrase, "to the best of the Seller's knowledge" or other
references to Seller's knowledge in this Agreement shall mean the actual,
present, conscious knowledge of Brian MacDonald (the "Seller Knowledge
Individual") as to a fact at the time given without investigation or inquiry.
Without limiting the foregoing, Purchaser acknowledges that the Seller Knowledge
Individual has not performed and is not obligated to perform any investigation
or review of any files or other information in the possession of Seller, or to
make any inquiry of any persons, or to take any other actions in connection with
the representations and warranties of Seller set forth in this Agreement.
Neither the actual, present, conscious knowledge of any other individual or
entity, nor the constructive knowledge of the Seller Knowledge Individual or of
any other individual or entity, shall be imputed to the Seller Knowledge
Individual.



                                       25


                  Section 10.2 Representations and Warranties By Purchaser.
Purchaser hereby represents and warrants to Seller as of the date hereof that:

                          (a) Purchaser is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Delaware;

                          (b) Purchaser has the legal right, power and authority
to enter into this Agreement and perform all its obligations hereunder, and the
execution and delivery of this Agreement and the performance by Purchaser of its
obligations hereunder, (x) have been duly authorized, and (y) will not conflict
with, or result in a breach of, any of the terms, conditions and provisions of
its organizational and governance documents or any law, statute, rule or
regulation, or order, judgment, writ, injunction or decree of any court or
governmental instrumentality, or any contract, agreement or instrument to which
Purchaser is a party or by which it is bound, or to which it or any portion of
its property is subject and (z) will not require the consent, approval,
authority or order of any court or governmental agency that has not been
previously obtained in writing and delivered to Seller; and

                          (c) Purchaser is an entity controlled (as such term is
defined in Section 16.5) by Reckson Operating Partnership, L.P. The
organizational chart of Purchaser attached hereto as SCHEDULE 10.2(c) fully and
accurately indicates the ownership of Purchaser.

                  Section 10.3 Acknowledgments of Purchaser. Purchaser
acknowledges and agrees for the benefit of Seller that:

                          (a) EXCEPT AS OTHERWISE EXPRESSLY STATED IN THIS
AGREEMENT OR IN ANY AGREEMENT OR INSTRUMENT EXECUTED AND DELIVERED BY SELLER TO
PURCHASER CONTEMPORANEOUSLY HEREWITH, INCLUDING BY WAY OF EXAMPLE BUT NOT
LIMITED TO REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 10.1 OF THIS
AGREEMENT AND THE LIMITED WARRANTY OF TITLE EXPRESSLY SET FORTH IN THE DEED
(HEREINAFTER COLLECTIVELY REFERRED TO IN THIS SECTION 10.3 AS THE "SURVIVING
REPRESENTATIONS"), SELLER HEREBY EXPRESSLY DISCLAIMS ANY AND ALL REPRESENTATIONS
AND WARRANTIES OF ANY KIND OR CHARACTER, EXPRESS OR IMPLIED, WITH RESPECT TO THE
PROPERTY, AND PURCHASER AGREES TO ACCEPT THE PROPERTY "AS IS, WHERE IS, WITH ALL
FAULTS". WITHOUT LIMITING THE GENERALITY OF THE PRECEDING SENTENCE OR ANY OTHER
DISCLAIMER SET FORTH HEREIN, SELLER AND PURCHASER HEREBY AGREE THAT, EXCEPT FOR
THE SURVIVING REPRESENTATIONS, SELLER HAS NOT MADE AND IS NOT MAKING ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WRITTEN OR ORAL, AS TO (A)
THE NATURE OR CONDITION, PHYSICAL OR OTHERWISE, OF THE PROPERTY OR ANY ASPECT
THEREOF, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF HABITABILITY,
SUITABILITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE, OR THE
ABSENCE OF REDHIBITORY OR LATENT VICES OR DEFECTS IN THE PROPERTY, (B) THE
NATURE OR QUALITY OF CONSTRUCTION, STRUCTURAL DESIGN OR ENGINEERING OF THE
IMPROVEMENTS OR THE STATE OF REPAIR OR LACK OR REPAIR OF ANY OF THE
IMPROVEMENTS, (C) THE QUALITY OF THE LABOR OR MATERIALS INCLUDED IN THE
IMPROVEMENTS, (D) THE SOIL CONDITIONS, DRAINAGE CONDITIONS, TOPOGRAPHICAL
FEATURES, ACCESS TO PUBLIC RIGHTS-OF-WAY, AVAILABILITY OF UTILITIES OR OTHER
CONDITIONS OR CIRCUMSTANCES WHICH AFFECT OR MAY AFFECT THE PROPERTY OR ANY USE
TO WHICH THE PROPERTY MAY BE PUT, (E) ANY CONDITIONS AT OR WHICH AFFECT OR MAY
AFFECT THE PROPERTY WITH RESPECT TO ANY PARTICULAR PURPOSE, USE, DEVELOPMENT
POTENTIAL OR OTHERWISE, (F) THE AREA, SIZE, SHAPE, CONFIGURATION, LOCATION,
CAPACITY, QUANTITY, QUALITY, CASH FLOW, EXPENSES OR VALUE OF THE PROPERTY OR ANY
PART THEREOF, (G) THE NATURE OR EXTENT OF TITLE TO THE PROPERTY, OR ANY
EASEMENT, SERVITUDE, RIGHT-OF-WAY, POSSESSION, LIEN, ENCUMBRANCE, LICENSE,
RESERVATION, CONDITION OR OTHERWISE THAT MAY AFFECT TITLE TO THE PROPERTY, (H)
ANY ENVIRONMENTAL, GEOLOGICAL, STRUCTURAL, OR OTHER CONDITION OR HAZARD OR THE
ABSENCE THEREOF HERETOFORE, NOW OR HEREAFTER AFFECTING IN ANY MANNER THE
PROPERTY, INCLUDING BUT NOT LIMITED TO, THE PRESENCE OR ABSENCE OF ASBESTOS OR
ANY ENVIRONMENTALLY HAZARDOUS SUBSTANCE ON, IN, UNDER OR ADJACENT TO THE
PROPERTY, (I) THE COMPLIANCE OF THE PROPERTY OR THE OPERATION OR USE OF THE
PROPERTY WITH ANY APPLICABLE RESTRICTIVE COVENANTS, OR WITH ANY LAWS, ORDINANCES
OR REGULATIONS OF ANY GOVERNMENTAL BODY (INCLUDING SPECIFICALLY, WITHOUT
LIMITATION, ANY ZONING LAWS OR REGULATIONS, ANY BUILDING CODES, ANY
ENVIRONMENTAL LAWS, AND THE AMERICANS WITH DISABILITIES ACT OF 1990, 42 U.S.C.
12101 ET SEQ.). THE PROVISIONS OF THIS SECTION 10.3 SHALL BE BINDING ON
PURCHASER AND SHALL SURVIVE THE CLOSING.



                                       26


                          (b) PURCHASER HAS BEEN GIVEN THE OPPORTUNITY TO
INSPECT THE PROPERTY, AND THE LEASES, CONTRACTS AND OTHER MATERIALS (INCLUDING,
WITHOUT LIMITATION, TITLE MATERIALS AND FINANCIAL REPORTS) RELATING TO THE
PROPERTY THAT PURCHASER DEEMED NECESSARY TO INSPECT AND REVIEW IN CONNECTION
WITH THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT, AND PURCHASER HAS RETAINED
SUCH ENVIRONMENTAL CONSULTANTS, STRUCTURAL ENGINEERS AND OTHER EXPERTS AS IT
DEEMED NECESSARY TO INSPECT THE PROPERTY AND REVIEW SUCH MATERIALS. PURCHASER IS
RELYING ON ITS OWN INVESTIGATION AND THE ADVICE OF ITS EXPERTS REGARDING THE
PROPERTY, AND UPON ITS REVIEW OF LEASES, CONTRACTS, AND OTHER MATERIALS, AND NOT
ON ANY REPRESENTATIONS OR WARRANTIES OF SELLER (OTHER THAN THE SURVIVING
REPRESENTATIONS). PURCHASER ACKNOWLEDGES THAT SELLER MAKES ABSOLUTELY NO
REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY OR COMPLETENESS OF
ANY INFORMATION, REPORTS OR OTHER MATERIALS DELIVERED TO PURCHASER, EXCEPT AS
MAY BE EXPRESSLY SET FORTH IN THE SURVIVING REPRESENTATIONS OR ELSEWHERE IN THIS
AGREEMENT OR IN THE INSTRUMENTS EXECUTED AND DELIVERED AT CLOSING.



                                       27


                  Section 10.4 No Financing Contingency. Purchaser acknowledges
and agrees that its obligations under this Agreement shall not be subject to any
financing or other contingency and Purchaser shall have no right to terminate
this Agreement or receive a return of the Deposit (or the accrued interest
thereon) except as expressly provided for in Sections 4.2, 13.1(b), 14.1(b) and
15.2 hereof.

                  Section 10.5 Damages for Breach of Representations. In the
event the Closing occurs and it is determined subsequent to the Closing that
there was a material breach with respect to any representation or warranty made
by Seller or Purchaser under this Agreement, the non-breaching party shall be
entitled to pursue a claim for the actual damages suffered by such non-breaching
party with respect to such breach if and only if (i) the non-breaching party did
not have actual or constructive knowledge prior to the Closing that such
representation or warranty was untrue, inaccurate or incorrect (provided,
however, to the extent information furnished or made available to, or otherwise
obtained by, the non-breaching party contains information which is inconsistent
with such representation or warranty, the non-breaching party shall be deemed to
have actual knowledge that a representation or warranty was untrue, inaccurate
or incorrect), (ii) written notice of such breach is given to the breaching
party on or prior to the expiration of the applicable Survival Period (as
hereinafter defined) for such breach, which notice must contain a reasonably
detailed description of the facts relating to the claimed breach, and (iii) the
liability and losses arising out of such breach, when aggregated with all other
breaches, if any, of representations and warranties under this Agreement, shall
exceed $500,000. In no event shall Purchaser be entitled to receive, in
connection with any and all breaches of the representations and warranties of
Seller hereunder, an amount in excess of the net sales proceeds received by
Seller from Purchaser at the Closing (the "Proceeds"). Any such damages shall be
refunded from such Proceeds within thirty (30) days following the entry of such
final, non-appealable order and delivery of a copy thereof to Seller. Purchaser
acknowledges and agrees that, in the event that Seller shall be in breach of any
of the representations and warranties contained herein, Purchaser shall have no
recourse to the property or other assets of Seller (excluding the Proceeds), and
Purchaser's sole remedy, in such event, shall be to receive a refund from the
Proceeds in the amount described above. For purposes of this Section 10.5,
"Survival Period" shall mean: with respect to the representations and warranties
in Sections 10.1(a), 10.1(b), 10.2(a) and 10.2(b), a period without expiration,
and with respect to all other representations and warranties, a period of one
(1) year commencing on the day following the Closing Date. The provisions of
this Section 10.5 shall survive the Closing.



                                       28


                                   ARTICLE XI
                                     NOTICES

                  Section 11.1 Notices. All notices, demands, requests,
approvals or other communications ("notices") required to be given or which may
be given hereunder shall be in writing and shall be given by personal delivery
with receipt acknowledged or by United States registered or certified mail,
return receipt requested, postage prepaid or by Federal Express or other
reputable national overnight courier service, and shall be deemed given when
received or refused at the following addresses:

                  If to Seller:
                                           Citibank, N.A.
                                           666 Fifth Avenue-12th Floor
                                           New York, New York 10103
                                           Attention:  Joseph Sprouls
                  With copies to:
                                           Citigroup
                                           One Court Square
                                           8th Floor
                                           Long Island City, New York  11120
                                           Attention:  Patrick R. Thornton
                  and:
                                           Citigroup Inc.
                                           909 Third Avenue
                                           15th Floor
                                           New York, New York  10043
                                           Attention: Associate General Counsel
                                           of Real Estate
                  and:
                                           Paul, Hastings, Janofsky & Walker LLP
                                           75 East 55th Street
                                           New York, New York  10022
                                           Attention:  Dean A. Stiffle, Esq.
                  If to Purchaser:
                                           Reckson Court Square, LLC
                                           c/o Reckson Associates Realty Corp.
                                           225 Broadhollow Road
                                           Melville, New York  11747
                                           Attention:  General Counsel


                                       29


                  With copies to:
                                           Fried, Frank, Harris, Shriver &
                                           Jacobson LLP
                                           1 New York Plaza
                                           New York, New York  10004
                                           Attention:  Joshua Mermelstein, Esq.

                  If to Escrow Agent:
                                           Chicago Title Insurance Company
                                           711 Third Avenue
                                           New York, New York  10017
                                           Attention:  Jack A. Marino, Esq.

Each party may designate a change of address (or additional or substitute
parties for notice) by notice to the other party, given at least fifteen (15)
days before such change of address is to become effective. The giving of any
notice required hereunder may be waived in writing by the party entitled to
receive such notice.

                                  ARTICLE XII
                       CONFIDENTIALITY AND PRESS RELEASES

                  Section 12.1 Confidentiality. Purchaser acknowledges and
agrees that it shall be bound by all of the terms and conditions of that certain
confidentiality letter agreement between Reckson Operating Partnership, L.P. and
Seller dated March 29, 2005. Between the date hereof through and including the
Closing Date and except as otherwise expressly provided in Section 12.2 below,
Purchaser and Seller shall not (and shall use reasonable efforts to cause
Purchaser's and Seller's respective agents, employees, attorneys and advisors
including, without limitation, financial institutions to not) disclose, make
known, divulge, disseminate or communicate the Purchase Price or any of the
terms of this Agreement or this transaction or any agreement, document or
understanding pertinent to the instant transaction without the consent of the
other party, except (i) as required by law, (ii) to Purchaser's or Seller's
employees and advisors involved in the transaction, (iii) to Purchaser's
prospective lenders or investors or (iv) to Seller's lender or investors.

                  Section 12.2 Press Releases. Neither Seller nor Purchaser
shall issue any press releases with respect to the transaction contemplated by
this Agreement except as hereinafter provided. From and after the date hereof
through and including the fifth (5th) anniversary of the date of this Agreement,
Purchaser shall submit to Seller, for informational purposes only (except as
hereinafter provided), a copy of all proposed press releases and/or
advertisements concerning or touching upon the Citi Lease and/or the
transactions contemplated by this Agreement prior to the public issuance
thereof. Purchaser shall promptly after the execution of this Agreement issue a
press release the form of EXHIBIT J attached hereto. After Closing, Purchaser
and Seller shall collaborate and promptly issue a joint press release pertaining
to the transaction contemplated by this Agreement in form and substance
reasonably satisfactory to Seller and Purchaser.

                  Section 12.3 Survival. The provisions of this Article XII
shall survive the Closing or earlier termination of this Agreement.



                                       30


                                  ARTICLE XIII
                             DAMAGE AND DESTRUCTION

                  Section 13.1 Effect of Damage. If all or any part of the
Property is damaged by fire or other casualty occurring following the date
hereof and prior to the Closing Date, whether or not such damage affects a
material part of the Property, then:

                          (a) if the estimated cost of repair or restoration is
less than or equal to $50,000,000 and if the estimated time to complete such
repair or restoration is twelve (12) months or less, neither party shall have
the right to terminate this Agreement and the parties shall nonetheless
consummate this transaction in accordance with this Agreement, without any
abatement of the Purchase Price or any liability or obligation on the part of
Seller by reason of said destruction or damage, except as hereinafter provided.
In such event, (i) Seller shall have the right to adjourn the Closing for a
period of time reasonably necessary in order to complete such repairs, (ii)
Seller shall have the right to make a claim for all insurance proceeds which
Seller may be entitled to receive as a result of such fire or other casualty,
and to retain all casualty insurance proceeds actually received under the
insurance policies in effect with respect to the Property on account of said
physical damage or destruction as shall be necessary to perform repairs to the
Building and/or to rebuild the Building to substantially the same condition as
it existed prior to the occurrence of such fire or other casualty and (iii)
Seller shall diligently pursue such repairs to completion.

                          (b) if the estimated cost of repair or restoration
exceeds $50,000,000 or if the estimated time to complete such repair or
restoration exceeds twelve (12) months, both Purchaser and Seller shall have the
option, exercisable within thirty (30) days after receipt of notice of the
occurrence of such fire or other casualty and such factual information regarding
the casualty and availability of insurance proceeds as is reasonably sufficient
to enable Purchaser or Seller, as the case may be, to make an informed decision
about whether or not to proceed to Closing, time being of the essence, to
terminate this Agreement by delivering notice thereof to the other party,
whereupon the Deposit (together with any interest accrued thereon) shall be
returned to Purchaser and this Agreement shall be deemed canceled and of no
further force or effect, and neither party shall have any further rights or
liabilities against or to the other except for such provisions which are
expressly provided in this Agreement to survive the termination hereof. If a
fire or other casualty described in this clause (b) shall occur and neither
Purchaser nor Seller shall have timely elected to terminate this Agreement, then
Purchaser and Seller shall consummate this transaction in accordance with this
Agreement, without any abatement of the Purchase Price or any liability or
obligation on the part of Seller by reason of said destruction or damage and, in
such event, Seller shall have the right to make a claim for and to retain any
casualty insurance proceeds received under the casualty insurance policies in
effect with respect to the Property on account of said physical damage or
destruction as shall be necessary to perform repairs to the Building and/or to
rebuild the Building to substantially the same condition as it existed prior to
the occurrence of such fire or other casualty.

                  Section 13.2 Estimates. The estimated cost to repair and/or
restore and the estimated time to complete contemplated in Section 13.1 above
shall be established by estimates obtained by Seller from independent
contractors, subject to Purchaser's review and reasonable approval of the same
and the provisions of Section 13.3 below.



                                       31


                  Section 13.3 Disputes. The provisions of this Article XIII
supersede the provisions of Section 5-1311 of the General Obligations Law of the
State of New York. Any disputes under this Article XIII as to the cost of repair
or restoration or the time for completion of such repair or restoration shall be
resolved by expedited arbitration before a single arbitrator acceptable to both
Seller and Purchaser in their reasonable judgment in accordance with the
commercial arbitration rules of the American Arbitration Association; provided
that if Seller and Purchaser fail to agree on an arbitrator within five (5) days
after a dispute arises, then either party may request The Real Estate Board of
New York, Inc., to designate an arbitrator. Such arbitrator shall be an
independent architect or engineer having at least ten (10) years of experience
in the construction of office buildings in New York City. The determination of
the arbitrator shall be conclusive and binding upon the parties. The costs and
expenses of such arbitrator shall be borne equally by Seller and Purchaser.

                                  ARTICLE XIV
                                  CONDEMNATION

                  Section 14.1 Effect of Condemnation. If, prior to the Closing
Date, any part of the Property is taken (other than a temporary taking), or if
Seller shall receive an official notice from any governmental authority having
eminent domain power over the Property of its intention to take, by eminent
domain proceeding, any part of the Property (a "Taking"), then:

                          (a) if such Taking involves ten percent (10%) or less
of the rentable area of the Building, neither party shall have any right to
terminate this Agreement, and the parties shall nonetheless consummate this
transaction in accordance with this Agreement, without any abatement of the
Purchase Price or any liability or obligation on the part of Seller by reason of
such Taking; provided, however, that Seller shall, on the Closing Date, (i)
assign and remit to Purchaser, and Purchaser shall be entitled to receive and
keep, the net proceeds of any award or other proceeds of such Taking which may
have been collected by Seller as a result of such Taking less the reasonable
expenses incurred by Seller in connection with such Taking, or (ii) if no award
or other proceeds shall have been collected, deliver to Purchaser an assignment
of Seller's right to any such award or other proceeds which may be payable to
Seller as a result of such Taking and Purchaser shall reimburse Seller for the
reasonable expenses incurred by Seller in connection with such Taking.

                          (b) if such Taking involves more than ten percent
(10%) of the rentable area of the Building, both Purchaser and Seller shall have
the option, exercisable within thirty (30) days after receipt of notice of such
Taking and such factual information regarding the Taking and the availability of
awards or other proceeds of such Taking as is reasonably sufficient to enable
Purchaser or Seller, as the case may be, to make an informed decision about
whether or not to proceed to Closing, time being of the essence, to terminate
this Agreement by delivering notice thereof to the other party, whereupon the
Deposit (together with any interest earned thereon) shall be returned to
Purchaser and this Agreement shall be deemed canceled and of no further force or
effect, and neither party shall have any further rights or liabilities against
or to the other except pursuant to the provisions of this Agreement which are
expressly provided to survive the termination hereof. If a Taking described in
this clause (b) shall occur and neither Purchaser nor Seller shall have timely
elected to terminate this Agreement, then Purchaser and Seller shall consummate
this transaction in accordance with this Agreement, without any abatement of the
Purchase Price or any liability or obligation on the part of Seller by reason of
such Taking; provided, however, that Seller shall, on the Closing Date, (i)
assign and remit to Purchaser, and Purchaser shall be entitled to receive and
keep, the net proceeds of any award or other proceeds of such Taking which may
have been collected by Seller as a result of such Taking less the reasonable
expenses incurred by Seller in connection with such Taking, or (ii) if no award
or other proceeds shall have been collected, deliver to Purchaser an assignment
of Seller's right to any such award or other proceeds which may be payable to
Seller as a result of such Taking and Purchaser shall reimburse Seller for the
reasonable expenses incurred by Seller in connection with such Taking.



                                       32


                  Section 14.2 Estimates. The estimated extent of a Taking
contemplated in Section 14.1 above shall be established by estimates obtained by
Seller from an independent architect, subject to Purchaser's review and
reasonable approval of the same and the provisions of Section 14.3 below.

                  Section 14.3 Disputes. The provisions of this Article XIV
supersede the provisions of Section 5-1311 of the General Obligations Law of the
State of New York. Any disputes under this Article XIV as to whether the Taking
involves more than ten percent (10%) of the rentable area of the Building shall
be resolved by expedited arbitration before a single arbitrator acceptable to
both Seller and Purchaser in their reasonable judgment in accordance with the
commercial arbitration rules of the American Arbitration Association; provided
that if Seller and Purchaser fall to agree on an arbitrator within five (5) days
after a dispute arises, then either party may request The Real Estate Board of
New York, Inc. to designate an arbitrator. Such arbitrator shall be an
independent architect having at least ten (10) years of experience in the
construction of office buildings in New York City. The costs and expenses of
such arbitrator shall be borne equally by Seller and Purchaser.

                                   ARTICLE XV
                         DEFAULT BY PURCHASER OR SELLER

                  Section 15.1 Purchaser Default. If (i) Purchaser shall default
in the payment of the Purchase Price or if Purchaser shall default in the
performance of any of its other obligations to be performed on the Closing Date,
or (ii) Purchaser shall default in the performance of any of its obligations to
be performed prior to the Closing Date and, with respect to any default under
this clause (ii) only, such default shall continue for ten (10) days after
notice to Purchaser, Seller's sole remedy by reason thereof shall be retain the
Deposit (and any interest earned thereon), as liquidated damages for Purchaser's
default hereunder (it being agreed that the damages by reason of Purchaser's
default are difficult, if not impossible, to ascertain and the Deposit (and any
interest earned thereon) is a reasonable estimate of Seller's actual damages in
such event), and upon such receipt of the Deposit this Agreement shall be
terminated and thereafter Purchaser and Seller shall have no further rights or
obligations under this Agreement except for those that are expressly provided in
this Agreement to survive the termination hereof. If Seller terminates this
Agreement pursuant to a right given to it hereunder and Purchaser takes any
action which interferes with Seller's ability to sell, exchange, transfer,
lease, dispose of or finance the Property or takes any other actions with
respect thereto (including, without limitation, the filing of any lis pendens or
other form of attachment against the Property), then the named Purchaser (and
any assignee of Purchaser's interest hereunder) shall be liable for all loss,
cost, damage, liability or expense (including, without limitation, reasonable
attorneys' fees, court costs and disbursements and consequential damages)
incurred by Seller by reason of such action to contest by Purchaser.



                                       33


                  Section 15.2 Seller Default. If (i) Seller shall default in
any of its obligations to be performed on the Closing Date, or (ii) Seller shall
default in the performance of any of its obligations to be performed prior to
the Closing Date and, with respect to any default under this clause (ii) only,
such default shall continue for ten (10) days after notice to Seller, Purchaser,
as its sole remedy by reason of such default (in lieu of prosecuting an action
for damages or proceeding with any other legal course of conduct, the right to
bring such actions or proceedings being expressly and voluntarily waived by
Purchaser, to the extent legally permissible, following and upon advice of its
counsel) shall have the right, subject to the other provisions of this Section
15.2, (x) to receive a return of the Deposit (together with any interest earned
thereon) or (y) solely in the event of a willful default by Seller, to seek to
obtain specific performance of Seller's obligations hereunder, provided that any
action for specific performance shall be commenced within sixty (60) days after
such default, it being understood that if Purchaser fails to commence an action
for specific performance within sixty (60) days after such default, Purchaser's
sole remedy shall be to receive a return of the Deposit (together with any
interest earned thereon). Upon such return and delivery, this Agreement shall
terminate and neither party hereto shall have any further obligations hereunder
except for those that are expressly provided in this Agreement to survive the
termination hereof. Notwithstanding the foregoing, Purchaser shall have no right
to seek specific performance if Seller shall be prohibited from performing its
obligations hereunder by reason of any law, regulation or other legal
requirement applicable to Seller.

                  Section 15.3 Survival. The provisions of this Article XV shall
survive the termination hereof.

                                  ARTICLE XVI
                            MISCELLANEOUS PROVISIONS

                  Section 16.1 Severability. Each part of this Agreement is
intended to be severable. If any term, covenant, condition or provision hereof
is unlawful, invalid, or unenforceable for any reason whatsoever, this Agreement
shall be construed without such term, covenant, condition or provision.

                  Section 16.2 Rights Cumulative; Waivers. The rights of each of
the parties under this Agreement are cumulative and may be exercised as often as
any party considers appropriate. The rights of any of the parties hereunder
shall not be capable of being waived or varied otherwise than by an express
waiver or variation in writing executed by all of the parties hereto. Failure to
exercise or any delay in exercising any of such rights also shall not operate as
a waiver or variation of that or any other such right. Defective or partial
exercise of any of such rights shall not preclude any other or further exercise
of that or any other such right. No act or course of conduct or negotiation on
the part of any party shall in any way preclude such party from exercising any
such right or constitute a suspension or any variation of any such right.



                                       34


                  Section 16.3 Headings. The headings contained in this
Agreement are inserted for convenience only and shall not affect the meaning or
interpretation of this Agreement or any provision hereof.

                  Section 16.4 Construction. Unless the context otherwise
requires, singular nouns and pronouns, when used herein, shall be deemed to
include the plurals of such nouns or pronouns and pronouns of one gender shall
be deemed to include the equivalent pronouns of the other gender.

                  Section 16.5 Assignment. Purchaser shall not assign its rights
under this Agreement to any other party without the prior written consent of
Seller; provided, however, that the Purchaser named herein shall have the
one-time right to assign this Agreement to a "Controlled Affiliate" (as defined
below). "Controlled Affiliate" shall mean any entity (i) controlled by Reckson
Operating Partnership, L.P. and (ii) at least twenty-five percent (25%) of the
beneficial interests in which are owned, directly or indirectly, by Reckson
Operating Partnership, L.P. as of the date of the assignment and the Closing
Date. "Controlled by" means the power and authority to direct the business and
affairs of the assignee by reason of the ownership of a majority of the
beneficial interests in such assignee, by contract or otherwise. Any such
assignment shall be conditioned upon Purchaser delivering to Seller an executed
original of the assignment and assumption agreement wherein the assignee assumes
all of the obligations of the Purchaser named herein and proof reasonably
satisfactory to Seller that the assignee constitutes a "Controlled Affiliate".
An assignment or transfer of this Agreement shall not relieve the Purchaser
named herein of any of its obligations hereunder or the transactions
contemplated hereby and the Purchaser named herein shall remain liable on a
joint and several basis with such assignee for the payment and performance of
Purchaser's obligations under this Agreement and the transactions contemplated
hereby which accrued prior to the date of such assignment. Except as set forth
in Section 16.9 below, this Agreement and the terms, covenants, conditions, and
provisions hereof, and the obligations, undertakings, rights and benefits
hereunder, including the exhibits and schedules hereto, shall be binding upon,
and shall inure to the benefit of, the undersigned parties and their respective
successors and assigns.

                  Section 16.6 Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall constitute one and the same
instrument, and either party hereto may execute this Agreement by signing any
such counterpart.

                  Section 16.7 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED,
AND THE RIGHTS AND OBLIGATIONS OF SELLER AND PURCHASER HEREUNDER DETERMINED, IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK AND FEDERAL STATUTORY
OR COMMON LAW, AS APPLICABLE, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF
LAWS.

                  Section 16.8 Jurisdiction; Venue. For the purposes of any
suit, action or proceeding involving this Agreement, the parties hereto hereby
expressly submit to the jurisdiction of all federal and state courts sitting in
New York County in the State of New York and consent that any order, process,
notice of motion or other application to or by any such court or a judge thereof
may be served within or without such court's jurisdiction by registered mail or
by personal service, provided that a reasonable time for appearance is allowed,
and the parties hereto agree that such court shall have exclusive jurisdiction
over any such suit, action or proceeding commenced under this Agreement. Each
party hereby irrevocably waives any objection that it may have now or hereafter
to the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement brought in any federal or state court sitting in New
York County in the State of New York and hereby further irrevocably waives any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.



                                       35


                  Section 16.9 No Third-Party Beneficiaries. No person, firm or
other entity other than the parties hereto (and to the extent provided herein,
the other Seller Indemnified Parties and the other Purchaser Indemnified
Parties) shall have any rights or claims under this Agreement. The
representations, warranties, covenants and indemnities of each party hereunder
shall run to the benefit of the parties hereto only (and to the extent provided
herein, the other Seller Indemnified Parties and the other Purchaser Indemnified
Parties), and not to any successors, assigns or other third parties.

                  Section 16.10 Waiver of Trial by Jury. THE PARTIES HERETO
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE (TO THE EXTENT PERMITTED BY
APPLICABLE LAW) ANY RIGHT TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR
RELATING TO THIS AGREEMENT AND AGREE THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE
A JUDGE SITTING WITHOUT A JURY.

                  Section 16.11 Brokers and Advisors. (a) Seller and Purchaser
each warrants and represents to the other that it has not dealt or negotiated
with any broker other than Citigroup Global Markets Inc. in connection with the
sale of the Property as provided by this Agreement. Seller and Purchaser each
hereby agrees to indemnify and hold the other harmless from all loss, cost,
damage or expense (including reasonable attorney's fees) incurred by the other
as a result of any claim arising out of the acts of the indemnifying party (or
others on its behalf) for a commission, finder's fee or similar compensation
made by any broker, finder or any party (except Purchaser shall not have any
obligation to indemnify Seller against any such claim of Citigroup Global
Markets Inc. hereunder) who claims to have dealt with such party.

                          (b) Seller shall be responsible for the payment of any
sums due Citigroup Global Markets Inc. in its capacity as financial advisor to
Seller and for the payment of all professionals and other advisors retained by
the Seller in connection with the sale of the Property as provided by this
Agreement. Purchaser shall be responsible for the payment of all professionals
and advisors retained by Purchaser in connection with the sale of the Property
as provided by this Agreement.

                          (c) The provisions of this Section 16.11 shall survive
the Closing.

                  Section 16.12 Integration. This Agreement sets forth the
entire agreement and understanding of the parties hereto with respect to the
specific matters agreed to herein and supersedes all prior agreements or
understandings between the parties with respect to the matters contained herein.
The parties hereto acknowledge that no oral or other agreements, understandings,
representations or warranties exist with respect to this Agreement or with
respect to the obligations of the parties hereto under this Agreement, except
those specifically set forth in this Agreement.



                                       36


                  Section 16.13 ERISA. Purchaser represents and warrants to
Seller that Purchaser is not an employee benefit plan or a governmental plan, or
a party in interest of either of such plans, and that the funds being used to
acquire the Property are not plan assets or subject to state laws regulating
investment of, and fiduciary obligations with respect to, a governmental plan.
As used in this Section 16.13, the terms "employee benefit plan", "party in
interest", "plan assets" and "governmental plan" shall have the respective
meanings assigned to them in the Employee Retirement Income Security Act of
1974, as amended, and the Regulations promulgated in connection therewith. The
representations and warranties contained in this Section 16.13 shall survive the
Closing or the termination of this Agreement.

                  Section 16.14 Amendments. This Agreement may not be changed,
modified or terminated, except by an instrument in writing signed by the parties
hereto.

                  Section 16.15 Further Assurances; Cooperation. The parties
will execute, acknowledge and deliver all and every such further acts, deeds,
conveyances, assignments, notices, transfers and assurances as may be reasonably
required for the better assuring, conveying, assigning, transferring and
confirming unto Purchaser the Property and for carrying out the intentions or
facilitating the consummation of the transactions contemplated by this
Agreement. In furtherance thereof, the parties hereto shall cooperate with each
other to effectuate the transactions contemplated by this Agreement and to
minimize transaction costs. The provisions of this Section 16.15 shall survive
the Closing for a period without expiration.

                  Section 16.16 Like Kind Exchange. (a) Seller has informed
Purchaser that it may seek in full or partial payment of the Purchase Price
like-kind property for the purpose of effectuating an exchange pursuant to
Section 1031 of the Code, and the regulations promulgated thereunder. To
facilitate such exchange, and as a material inducement to Seller to enter into
this Agreement, Purchaser consents (i) to an assignment by Seller of this
Agreement or of any of Seller's rights hereunder, including the right to receive
all or any portion of the Purchase Price, to a Qualified Intermediary (as
defined in Treasury Regulations Section 1.1031(k)-1(g)(4)) and (ii) to take such
other actions as are reasonably necessary to facilitate such like-kind exchange,
which shall in no event involve Purchaser acquiring title to or owning any
replacement property on behalf of Seller or incurring material expenses or
liability (unless such expenses or liability are reimbursed to Purchaser by
Seller). Purchaser agrees to reasonably cooperate with Seller in effectuating
the like-kind exchange and to execute all documents (subject to the reasonable
approval of Purchaser and its legal counsel) reasonably necessary in connection
therewith provided that such cooperation shall not (i) result in a reduction of
Purchaser's rights or an increase in Purchaser's obligations under this
Agreement other than to a de minimis extent, (ii) subject Purchaser to any
additional risks not expressly contemplated by this Agreement or (iii) delay the
Closing Date beyond the Outside Closing Date. Seller hereby agrees to indemnify
and hold harmless Purchaser from all loss, cost, damage, claim, liability and
expense (including without limitation, reasonable attorneys' fees) that may be
suffered or incurred by Purchaser, including any and all taxes, related to or
payable by reason of and as a direct result of (x) such exchange and/or (y) the
documents relating to or evidencing the exchange. In the event of a like-kind
exchange, on the Closing Date, (a) Seller shall, at the direction of the
Qualified Intermediary, convey title to the Property to Purchaser, (b) Purchaser
shall pay the balance of the Purchase Price (or the portion so assigned) to the
Qualified Intermediary or the Escrow Agent under this Agreement, (c) the Escrow
Agent shall pay over the Deposit to the Qualified Intermediary, and (d)
Purchaser shall execute such documents (subject to the reasonable approval of
Purchaser and its legal counsel) as may be reasonably necessary to acknowledge
the exchange. The Qualified Intermediary shall have the right to direct the
payment of the balance of the Purchase Price to separate accounts and/or
different persons, and Purchaser agrees to comply with such direction from the
Qualified Intermediary.



                                       37


                          (b) Purchaser has informed Seller that it may acquire
the Property as part of an exchange pursuant to Section 1031 of the Code, and
the regulations promulgated thereunder. To facilitate such exchange, and as a
material inducement to Purchaser to enter into this Agreement, Seller consents
(i) to an assignment by Purchaser of this Agreement or of any of Purchaser's
rights hereunder to a Qualified Intermediary (as defined in Treasury Regulations
Section 1.1031(k)-1(g)(4)) and (ii) to take such other actions as are reasonably
necessary to facilitate such like-kind exchange, which shall in no event involve
Seller acquiring title to or owning or conveying any replacement property on
behalf of Purchaser or incurring material expenses or liability (unless such
expenses or liability are reimbursed to Seller by Purchaser). Seller agrees to
reasonably cooperate with Purchaser in effectuating the like-kind exchange and
to execute all documents (subject to reasonable approval of Seller and its legal
counsel) reasonably necessary in connection therewith provided that such
cooperation shall not (i) result in a reduction of Seller's rights or an
increase in Seller's obligations under this Agreement, other than to a de
minimis extent, (ii) subject Seller to any additional risks not expressly
contemplated by this Agreement or (iii) delay the Closing Date beyond the
Outside Closing Date. Purchaser hereby agrees to indemnify and hold harmless
Seller from all loss, cost, damage, claim, liability and expense (including
without limitation, reasonable attorneys' fees) that may be suffered or incurred
by Seller, including any and all taxes, related to or payable by reason of and
as a direct result of (x) such exchange and/or (y) the documents relating to or
evidencing the exchange. Nothing contained in Section 16.5 hereof shall restrict
any assignment described in this Section. No permitted assignment under this
Section shall relieve Purchaser of liability under this Agreement.
Notwithstanding the foregoing, whether or not Purchaser elects to acquire the
Property as part of an exchange pursuant to Section 1031 of the Code, the
transferee under the Deed to be delivered at the Closing shall be the Purchaser
named herein or a Controlled Affiliate of Purchaser.

                          (c) The indemnification provision contained in this
Section 16.16 shall survive the Closing.

                  Section 16.17 Intentionally Deleted.

                  Section 16.18 Citi Lease. Seller acknowledges that
notwithstanding anything to the contrary contained in this Agreement (including
Section 10.3 hereof), nothing in this Agreement shall be deemed to modify, limit
or waive any of the rights or obligations that the parties hereto may have to
the other with respect to matters arising subsequent to the Closing, as landlord
or tenant, as applicable, under the Citi Lease. The provisions of this Section
16.18 shall survive the Closing.



                                       38


                  Section 16.19 Continuing Seller Obligations; Indemnification.
(a) Seller agrees that Purchaser is not (pursuant to the terms of this
Agreement) assuming any of Seller's obligation under the Leases or the Contracts
or with respect to any Building employees and that, pursuant to the terms and
provisions of the Citi Lease, such obligations shall remain the obligations of
Seller subsequent to the Closing, subject to the terms and provisions of the
Citi Lease. From and after the Closing Date, Seller shall indemnify and hold
Purchaser harmless from all loss, cost, damages or expense (including reasonable
attorney's fees) incurred by Purchaser (except to the extent arising out of the
willful misconduct of Purchaser) to the extent the same arises out of third
party claims relating to the acts or omissions of Seller occurring prior to the
Closing Date under the Leases or the Contracts or with respect to Building
employees who were employed by Seller with respect to the operation of the
Property.

                          (b) If any claim is made with respect to which
Purchaser is entitled to indemnification under Section 16.19(a) above, Purchaser
shall provide written notice to Seller promptly after Purchaser has knowledge of
such claim, describing in reasonable detail the facts and circumstances giving
rise to such indemnification claim (but the failure to do so shall not relieve
Seller of its obligation to indemnify Purchaser as provided in Section 16.19(a)
above, except to the extent that Seller is prejudiced as a result of such
failure). In the case of any indemnification claim which is covered by
insurance, Purchaser shall cooperate in all reasonable respects with the
insurers in the exercise of their rights to investigate, defend or compromise
such indemnification claim as may be required to retain the benefits of such
insurance with respect to such indemnification claim.

                          (c) Seller shall have the sole right (to the exclusion
of Purchaser unless such claim is not being defended (by insurers or otherwise)
in a commercially reasonable manner by or on behalf of Seller, in which event
Purchaser shall have the right to participate in the defense of such claim) to
defend any third party claim for which indemnification is sought, and, at the
Seller's expense, Purchaser shall cooperate with all reasonable requests of
Seller in connection therewith. Purchaser shall supply Seller or such insurer
with such information and documents, and shall make such personnel available, as
may be requested by Seller or such insurer, that are reasonably necessary for
Seller or such insurer to defend or participate, or both, in any indemnification
claim. In addition, Seller shall have the sole right to compromise or otherwise
settle any third party claim for which indemnification is sought, subject to the
prior approval of Purchaser, which approval shall not be unreasonably withheld,
conditioned or delayed; provided, however, no such approval shall be required in
connection with any settlement where there is no admission of any wrong doing on
the part of Purchaser and no obligation or liability other than the payment of a
sum of money, which sum shall be fully paid by Seller, and Purchaser shall have
no other liability in connection therewith.

                          (d) Where the insurer under a policy of insurance
undertakes the defense of a claim for which indemnification is sought, or where
the same is otherwise being defended in a commercially reasonable manner, no
additional legal fees or expenses of the Purchaser in connection with the
defense of such claim shall be indemnified under Section 16.19(a) above unless
such fees or expenses were incurred at the request of Seller or such insurer;
provided, however, if the defendants in any such claim include both Seller and
Purchaser, and Purchaser has reasonably concluded that there are legal defenses
available to it which are inconsistent with those available to Seller, Purchaser
shall have the right to select separate counsel (subject to the reasonable
approval of Seller) to assert such legal defenses and to otherwise participate
in the defense of such action on behalf of Purchaser; provided, further,
however, that Seller shall not, in connection with any claim, be liable for the
expenses of more than one separate counsel at any time for Purchaser.



                                       39


                          (e) Upon payment in full of any indemnification claim
by Seller to or on behalf of Purchaser, Seller, without further action, shall be
subrogated to any and all claims that Purchaser may have in respect thereof
(other than claims in respect of insurance policies maintained by Purchaser at
its own expense or claims against an affiliate of Purchaser), and Purchaser
shall cooperate with Seller and give such further assurances as are reasonably
necessary to enable Seller vigorously to pursue such claims. Should Purchaser
receive any refund, in whole or in part, with respect to any indemnification
claim paid by Seller under Section 16.19(a) above, it shall promptly pay the
amount refunded over to Seller.

                          (f) The provisions of this Section 16.19 shall survive
the Closing.

                  Section 16.20 No Recording. Neither this Agreement nor any
memorandum hereof may be recorded without first obtaining Seller's consent
thereto.


                                       40




                  IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first referenced above.

                                   SELLER:


                                   CITIBANK, N.A.


                                   By:
                                       ------------------------------------
                                       Name:  Joseph W. Sprouls
                                       Title: Vice President


                                   PURCHASER:


                                   RECKSON COURT SQUARE, LLC


                                   By: Reckson Operating Partnership, L.P., a
                                   Delaware limited partnership, its sole member


                                       By:  Reckson Associates Realty Corp., a
                                            Maryland corporation, its general
                                            partner


                                            By:
                                               ------------------------------
                                               Name:
                                               Title:


                                   ESCROW AGENT:

                                   CHICAGO TITLE INSURANCE COMPANY


                                   By:
                                       --------------------------------------
                                       Name:
                                       Title:



                                       41



                                    EXHIBIT A

                             Description of the Land

                                LEGAL DESCRIPTION

ALL THAT CERTAIN PLOT, PIECE, OR PARCEL OF LAND, SITUATE, LYING, AND BEING IN
THE BOROUGH AND COUNTY OF QUEENS, CITY AND STATE OF NEW YORK, BOUNDED AND
DESCRIBED AS FOLLOWS:

BEGINNING AT THE CORNER FORMED BY THE INTERSECTION OF THE NORTHWESTERLY SIDE OF
JACKSON AVENUE WITH THE WESTERLY SIDE OF COURT SQUARE;

RUNNING THENCE SOUTH 33 DEGREES 20 MINUTES 00 SECONDS WEST AND ALONG THE
NORTHWESTERLY SIDE OF JACKSON AVENUE, 220.449 FEET TO THE NORTHERLY SIDE OF 45TH
AVENUE;

THENCE SOUTH 75 DEGREES 17 MINUTES 05.2 SECONDS WEST AND ALONG THE NORTHERLY
SIDE OF 45TH AVENUE, 286.083 FEET;

THENCE NORTHERLY AT RIGHT ANGLES TO THE NORTHERLY SIDE OF 45TH AVENUE, 25.003
FEET;

THENCE WESTERLY PARALLEL WITH THE NORTHERLY SIDE OF 45TH AVENUE, 90.027 FEET TO
THE EASTERLY SIDE OF 23RD STREET;

THENCE NORTH 14 DEGREES 42 MINUTES 54.8 SECONDS WEST AND ALONG THE EASTERLY SIDE
OF 23RD STREET, 75.011 FEET;

THENCE EASTERLY AT RIGHT ANGLES TO THE EASTERLY SIDE OF 23RD STREET, 115.013
FEET;

THENCE NORTHERLY AT RIGHT ANGLES TO THE LAST MENTIONED COURSE, 100.015 FEET TO
THE SOUTHERLY SIDE OF 44TH DRIVE;

THENCE NORTH 75 DEGREES 17 MINUTES 05.2 SECONDS EAST AND ALONG THE SOUTHERLY
SIDE OF 44TH DRIVE, 425.048 FEET TO THE CORNER FORMED BY THE INTERSECTION OF THE
SOUTHERLY SIDE OF 44TH DRIVE WITH THE WESTERLY SIDE OF COURT SQUARE;

RUNNING THENCE SOUTH 14 DEGREES 42 MINUTES 54.8 SECONDS EAST AND ALONG THE
WESTERLY SIDE OF COURT SQUARE 52.659 FEET TO THE CORNER FORMED BY THE
INTERSECTION OF THE NORTHWESTERLY SIDE OF JACKSON AVENUE WITH THE WESTERLY SIDE
OF COURT SQUARE, THE POINT OR PLACE OF BEGINNING.


FOR INFORMATION ONLY:               BLOCK 79 LOT 30






                                    EXHIBIT B
                              (Form of Citi Lease)






                                 SCHEDULE 3.1(b)
                            (PERMITTED ENCUMBRANCES)


1. Telephone Easement recorded in Reel 1185 Page 256

2. Subway Agreement recorded 9/23/86 in Reel 2185 Page 1055, as amended.

3. Waiver of Legal Grade recorded 1/9/89 in Reel 2744 Page 2366.

4. Final Certificate of Eligibility recorded 5/7/92 in Reel 3312 Page 1348.

5. Assignment of Billboard Rights recorded 10/29/82 in Reel 1471 Page 1185.

6. Railroad Consent recorded in Liber 3887 CP 315.

7. The Restrictive Covenant to be recorded as contemplated by this Agreement.







                                       2






                                  SCHEDULE 4.1
                                (TITLE COMPANIES)

Purchaser selected allocation:

A title insurance company selected by Liberty Title Agency, LLC- 10% Lawyers
Title Insurance Corporation - 20% First American Title Insurance Company of New
York - 20%


Seller selected allocation:

Chicago Title Insurance Company  -  30%
Lawyers Title Insurance Corporation  -  10%
First American Title Insurance Company of New York  -  10%







                                       3




                                SCHEDULE 10.1(c)
                             (DISCLOSED LITIGATION)


None







                                       4



                                SCHEDULE 10.1(f)
                              (PROTEST PROCEEDINGS)



There are appeals pending for tax years 2003/2004 through 2005/2006

Seller is represented by the Law Firm of Lawrence J. Berger, P.C. (Steven E.
Resnick, Esq.), 200 Madison Avenue, Suite 1902, New York, New York 10016








                                       5



                                SCHEDULE 10.1(g)
                                    (LEASES)


                              [Please see attached]






                                       6



                                SCHEDULE 10.2(c)
                       (ORGANIZATIONAL CHART OF PURCHASER)






                             ----------------------
                             | Reckson Operating  |
                             | Partnership, L.P.  |
                             ----------------------
                                        |
                                        |
                                        |
                                100%    |
                                        |
                                        |
                                        |
                         -----------------------------
                         | Reckson Court Square, LLC |
                         -----------------------------





                                       7



===============================================================================


                            CITIBANK, N.A., as Seller



                                       and



                     RECKSON COURT SQUARE, LLC, as Purchaser



                       -----------------------------------
                           PURCHASE AND SALE AGREEMENT
                       -----------------------------------


                            Dated: As of May 4, 2005





                           Property: One Court Square
                           Long Island City, New York




===============================================================================







                                TABLE OF CONTENTS
                                -----------------



                                                                                    Page
                                                                                    ----
                                                                              
ARTICLE I             DEFINITIONS.......................................................1

         Section 1.1       Definitions..................................................1

ARTICLE II            PURCHASE AND SALE; PAYMENT OF THE PURCHASE
                      PRICE; SCOPE OF SALE; LEASEBACK; ESCROW PROVISIONS................6

         Section 2.1       Purchase and Sale............................................6

         Section 2.2       Payment of the Purchase Price................................6

         Section 2.3       Scope of Sale................................................8

         Section 2.4       Leaseback....................................................8

         Section 2.5       Escrow Provisions............................................9

ARTICLE III           STATUS OF THE TITLE..............................................11

         Section 3.1       Permitted Encumbrances......................................11

ARTICLE IV            TITLE INSURANCE, LIENS...........................................12

         Section 4.1       Title Objections............................................12

         Section 4.2       Elections...................................................13

         Section 4.3       No Actions..................................................13

         Section 4.4       Rescheduled Closing Date....................................13

         Section 4.5       Disposition of Liens and Encumbrances.......................14

         Section 4.6       Seller Affidavits...........................................14

         Section 4.7       Title Insurance.............................................14

ARTICLE V             CLOSING..........................................................15

         Section 5.1       Closing.....................................................15

         Section 5.2       Seller's Closing Items......................................15

         Section 5.3       Purchaser's Closing Items...................................16

         Section 5.4       Documents Jointly Executed by Seller and Purchaser..........17

         Section 5.5       Transfer and Recordation Taxes..............................17

         Section 5.6       Title Insurance and Survey Costs............................18

         Section 5.7       1099 Compliance.............................................18

         Section 5.8       Attorney's Fees.............................................18

         Section 5.9       Conditions Precedent........................................18





                                TABLE OF CONTENTS
                                   (Continued)




                                                                                    Page
                                                                                    ----
                                                                              
ARTICLE VI            CLOSING ADJUSTMENTS..............................................19

         Section 6.1       Closing Adjustments.........................................19

ARTICLE VII           TAX PROTESTS.....................................................19

         Section 7.1       Tax Protests................................................19

ARTICLE VIII          CERTAIN COVENANTS................................................20

         Section 8.1       Seller Covenants............................................20

         Section 8.2       Purchaser's Inspection of the Property......................21

         Section 8.3       Post Closing Covenant.......................................22

ARTICLE IX            [RESERVED].......................................................23

ARTICLE X             REPRESENTATIONS AND WARRANTIES...................................23

         Section 10.1      Representations and Warranties By Seller....................23

         Section 10.2      Representations and Warranties By Purchaser.................24

         Section 10.3      Acknowledgments of Purchaser................................25

         Section 10.4      No Financing Contingency....................................26

         Section 10.5      Damages for Breach of Representations.......................26

ARTICLE XI            NOTICES..........................................................27

         Section 11.1      Notices.....................................................27

ARTICLE XII           CONFIDENTIALITY AND PRESS RELEASES...............................28

         Section 12.1      Confidentiality.............................................28

         Section 12.2      Press Releases..............................................29

         Section 12.3      Survival....................................................29

ARTICLE XIII          DAMAGE AND DESTRUCTION...........................................29

         Section 13.1      Effect of Damage............................................29

         Section 13.2      Estimates...................................................30

         Section 13.3      Disputes....................................................30

ARTICLE XIV           CONDEMNATION.....................................................30

         Section 14.1      Effect of Condemnation......................................30

         Section 14.2      Estimates...................................................31

         Section 14.3      Disputes....................................................31

ARTICLE XV            DEFAULT BY PURCHASER OR SELLER...................................32

         Section 15.1      Purchaser Default...........................................32

         Section 15.2      Seller Default..............................................32

         Section 15.3      Survival....................................................32



                                       ii



                                TABLE OF CONTENTS
                                   (Continued)



                                                                                    Page
                                                                                    ----
                                                                              
ARTICLE XVI           MISCELLANEOUS PROVISIONS.........................................33

         Section 16.1      Severability................................................33

         Section 16.2      Rights Cumulative; Waivers..................................33

         Section 16.3      Headings....................................................33

         Section 16.4      Construction................................................33

         Section 16.5      Assignment..................................................33

         Section 16.6      Counterparts................................................34

         Section 16.7      Governing Law...............................................34

         Section 16.8      Jurisdiction; Venue.........................................34

         Section 16.9      No Third-Party Beneficiaries................................34

         Section 16.10     Waiver of Trial by Jury.....................................34

         Section 16.11     Brokers and Advisors........................................34

         Section 16.12     Integration.................................................35

         Section 16.13     ERISA.......................................................35

         Section 16.14     Amendments..................................................35

         Section 16.15     Further Assurances; Cooperation.............................35

         Section 16.16     Like Kind Exchange..........................................35

         Section 16.17     Intentionally Deleted.......................................37

         Section 16.18     Citi Lease..................................................37

         Section 16.19     Continuing Seller Obligations; Indemnification..............37

         Section 16.20     No Recording................................................38




Exhibit A        Land
Exhibit B        Form of Citi Lease
Exhibit C        Form of Deed
Exhibit D        Form of Bill of Sale
Exhibit E        Form of FIRPTA Affidavit
Exhibit F        Form of Declaration of Restrictive Covenant
Exhibit G-1      Form of Petition Form for Assignment of a Revocable Consent
                 (Lamppost Agreement)
Exhibit G-2      Form of Assignment and Assumption of Lamppost Agreement
Exhibit H-1      Form of Petition Form for Assignment of a Revocable Consent
                 (Revocable Consent Agreement)
Exhibit H-2      Form of Assignment and Assumption of Revocable Consent
                 Agreement
Exhibit I        Form of Assignment and Assumption of Subway Agreement
Exhibit J        Form of Press Release
Exhibit K        Form of Letter of Credit


                                      iii



                                TABLE OF CONTENTS
                                   (Continued)

Schedule 3.1(b)   Permitted Encumbrances
Schedule 4.1      Title Companies
Schedule 10.1(c)  Disclosed Litigation
Schedule 10.1(f)  Protest Proceedings
Schedule 10.1(g)  Leases
Schedule 10.2(c)  Organizational Chart of Purchaser


                                       iv

EX-31.1

                         RECKSON ASSOCIATES REALTY CORP.
                                  EXHIBIT 31.1
   CERTIFICATION OF SCOTT H. RECHLER, CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
              OFFICER AND PRESIDENT OF THE REGISTRANT, PURSUANT TO
                         RULE 13a - 14(a)/15(d) - 14(a)


I, Scott H. Rechler, certify that:

     1.   I have reviewed this quarterly report on Form 10-Q of Reckson
          Associates Realty Corp.;

     2.   Based on my knowledge, this report does not contain any untrue
          statement of a material fact or omit to state a material fact
          necessary to make the statements made, in light of the circumstances
          under which such statements were made, not misleading with respect to
          the period covered by this report;

     3.   Based on my knowledge, the financial statements, and other financial
          information included in this report, fairly present in all material
          respects the financial condition, results of operations and cash flows
          of the Registrant as of, and for, the periods presented in this
          report;

     4.   The Registrant's other certifying officer and I are responsible for
          establishing and maintaining disclosure controls and procedures (as
          defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
          control over financial reporting (as defined in Exchange Act Rules
          13a-(f) and 15d-15(f)) for the Registrant and have:

          a)   designed such disclosure controls and procedures, or caused such
               disclosure controls and procedures to be designed under our
               supervision, to ensure that material information relating to the
               Registrant, including its consolidated subsidiaries, is made
               known to us by others within those entities, particularly during
               the period in which this report is being prepared;

          b)   designed such internal control over financial reporting, or
               caused such internal control over financial reporting to be
               designed under our supervision, to provide reasonable assurance
               regarding the reliability of financial reporting and the
               preparation of financial statements for external purposes in
               accordance with generally accepted accounting principles;

          c)   evaluated the effectiveness of the Registrant's disclosure
               controls and procedures and presented in this report our
               conclusions about the effectiveness of the disclosure controls
               and procedures, as of the end of the period covered by this
               report based on such evaluation; and

          d)   disclosed in this report any change in the Registrant's internal
               control over financial reporting that occurred during the
               Registrant's most recent fiscal quarter (the Registrant's fourth
               fiscal quarter in the case of an annual report) that has
               materially affected, or is reasonably likely to materially
               affect, the Registrant's internal control over financial
               reporting; and

     5.   The Registrant's other certifying officer and I have disclosed, based
          on our most recent evaluation of internal control over financial
          reporting, to the Registrant's auditors and the audit committee of the
          Registrant's board of directors (or persons performing the equivalent
          functions):

          a)   all significant deficiencies and material weaknesses in the
               design or operation of internal control over financial reporting
               which are reasonably likely to adversely affect the Registrant's
               ability to record, process, summarize and report financial
               information; and

          b)   any fraud, whether or not material, that involves management or
               other employees who have a significant role in the Registrant's
               internal control over financial reporting.


Date: May 5, 2005
                                  /s/ Scott H. Rechler
                                  ---------------------------------------------
                                  Scott H. Rechler
                                  Chairman of the Board, Chief Executive Officer
                                  and President

EX-31.2

                         RECKSON ASSOCIATES REALTY CORP.
                                  EXHIBIT 31.2
    CERTIFICATION OF MICHAEL MATURO, EXECUTIVE VICE PRESIDENT, TREASURER AND
                   CHIEF FINANCIAL OFFICER OF THE REGISTRANT,
                   PURSUANT TO RULE 13a - 14(a)/15(d) - 14(a)

I, Michael Maturo, certify that:

     1.   I have reviewed this quarterly report on Form 10-Q of Reckson
          Associates Realty Corp.;

     2.   Based on my knowledge, this report does not contain any untrue
          statement of a material fact or omit to state a material fact
          necessary to make the statements made, in light of the circumstances
          under which such statements were made, not misleading with respect to
          the period covered by this report;

     3.   Based on my knowledge, the financial statements, and other financial
          information included in this report, fairly present in all material
          respects the financial condition, results of operations and cash flows
          of the Registrant as of, and for, the periods presented in this
          report;

     4.   The Registrant's other certifying officer and I are responsible for
          establishing and maintaining disclosure controls and procedures (as
          defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
          control over financial reporting (as defined in Exchange Act Rules
          13a-(f) and 15d-15(f)) for the Registrant and have:

          a)   designed such disclosure controls and procedures, or caused such
               disclosure controls and procedures to be designed under our
               supervision, to ensure that material information relating to the
               Registrant, including its consolidated subsidiaries, is made
               known to us by others within those entities, particularly during
               the period in which this report is being prepared;

          b)   designed such internal control over financial reporting, or
               caused such internal control over financial reporting to be
               designed under our supervision, to provide reasonable assurance
               regarding the reliability of financial reporting and the
               preparation of financial statements for external purposes in
               accordance with generally accepted accounting principles;

          c)   evaluated the effectiveness of the Registrant's disclosure
               controls and procedures and presented in this report our
               conclusions about the effectiveness of the disclosure controls
               and procedures, as of the end of the period covered by this
               report based on such evaluation; and

          d)   disclosed in this report any change in the Registrant's internal
               control over financial reporting that occurred during the
               Registrant's most recent fiscal quarter (the Registrant's fourth
               fiscal quarter in the case of an annual report) that has
               materially affected, or is reasonably likely to materially
               affect, the Registrant's internal control over financial
               reporting; and

     5.   The Registrant's other certifying officer and I have disclosed, based
          on our most recent evaluation of internal control over financial
          reporting, to the Registrant's auditors and the audit committee of the
          Registrant's board of directors (or persons performing the equivalent
          functions):

          a)   all significant deficiencies and material weaknesses in the
               design or operation of internal control over financial reporting
               which are reasonably likely to adversely affect the Registrant's
               ability to record, process, summarize and report financial
               information; and

          b)   any fraud, whether or not material, that involves management or
               other employees who have a significant role in the Registrant's
               internal control over financial reporting.

Date: May 5, 2005
                                     /s/ Michael Maturo
                                     -----------------------------------------
                                     Michael Maturo
                                     Executive Vice President, Treasurer
                                     and Chief Financial Officer

EX-32.1

                         RECKSON ASSOCIATES REALTY CORP.
                                  EXHIBIT 32.1
    CERTIFICATION OF SCOTT H. RECHLER, CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
      OFFICER, PRESIDENT AND DIRECTOR OF RECKSON ASSOCIATES REALTY CORP.,
  PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE


I, Scott H. Rechler, Chairman of the Board, Chief Executive Officer, President
and Director of Reckson Associates Realty Corp. (the "Company"), certify
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350, that:

     1)   The Quarterly Report on Form 10-Q of the Company for the quarterly
          period ended March 31, 2005 (the "Report") fully complies with the
          requirements of Section 13(a) or 15(d) of the Securities Exchange Act
          of 1934 (15 U.S.C. 78m or 78o(d)); and

     2)   The information contained in the Report fairly presents, in all
          material respects, the financial condition and results of operations
          of the Company.


Dated: May 5, 2005
                                       By /s/ Scott H. Rechler
                                       -----------------------------------------
                                       Scott H. Rechler,
                                       Chairman of the Board, Chief
                                       Executive Officer, President and Director


A signed original of this written statement required by Section 906 has been
provided to Reckson Associates Realty Corp. and will be furnished to the
Securities and Exchange Commission or its staff upon request.

EX-32.2

                         RECKSON ASSOCIATES REALTY CORP.
                                  EXHIBIT 32.2
    CERTIFICATION OF MICHAEL MATURO, EXECUTIVE VICE PRESIDENT, TREASURER AND
          CHIEF FINANCIAL OFFICER OF RECKSON ASSOCIATES REALTY CORP.,
  PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE

I, Michael Maturo, Executive Vice President, Treasurer and Chief Financial
Officer of Reckson Associates Realty Corp. (the "Company"), certify pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

     1)   The Quarterly Report on Form 10-Q of the Company for the quarterly
          period ended March 31, 2005 (the "Report") fully complies with the
          requirements of Section 13(a) or 15(d) of the Securities Exchange Act
          of 1934 (15 U.S.C. 78m or 78o(d)); and

     2)   The information contained in the Report fairly presents, in all
          material respects, the financial condition and results of operations
          of the Company.


Dated: May 5, 2005
                                         By /s/ Michael Maturo
                                         --------------------------------------
                                         Michael Maturo,
                                         Executive Vice President,
                                         Treasurer and Chief Financial Officer

A signed original of this written statement required by Section 906 has been
provided to Reckson Associates Realty Corp. and will be furnished to the
Securities and Exchange Commission or its staff upon request.