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

Form 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .

Commission File Number 0-15465

Banyan Strategic Realty Trust
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)

Massachusetts 36-3375345
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

150 South Wacker Drive, Chicago, IL 60606
(Address of principal executive offices) (Zip Code)

Registrant's telephone number including area code (312) 553-9800

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

Title of each class Name of each exchange on which registered

None None

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

Shares of Beneficial Interest
(Title of Class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]

Shares of beneficial interest outstanding as of February 18, 1999:
13,390,688. The aggregate market value of the Registrant's shares of
beneficial interest held by non-affiliates on such date was $57,940,128.

The information required by Part III is incorporated by reference from the
Trust's definitive proxy statement to be filed with the Securities and
Exchange Commission.

DOCUMENTS INCORPORATED BY REFERENCE
Exhibit index located on page 70 of sequentially numbered pages.

TABLE OF CONTENTS

PART I

ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . 1

ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . 5

ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . 12

ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS. . . . . . . . . . . . . . . . . 12

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S SHARES AND
RELATED SHAREHOLDER MATTERS. . . . . . . . . . . . . 12

ITEM 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . 14

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . 19

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK. . . . . . . . . . . . . . . . . . 33

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . 34

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . 68

PART III

ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE
REGISTRANT . . . . . . . . . . . . . . . . . . . . . 68

ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . 68

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT . . . . . . . . . . . . . . . . . . . 68

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS . . . . . . . . . . . . . . . . . . . . 68

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . 68

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 69

PART I

ITEM 1. BUSINESS

Certain statements in this Annual Report that are not historical in
fact constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are
based on our current expectations, estimates and projections. These
statements are not a guaranty of future performance. Without limiting the
foregoing, words such as "believes," "intends," "anticipates," "expects,"
and similar expressions are intended to identify forward-looking statements
which are subject to a number of risks and uncertainties, including, among
other things:

. general real estate investment risks;
. lack of operating history associated with recent acquisitions;
. potential inability to raise capital by either equity or debt;
. potential inability to repay or refinance indebtedness at
maturity;
. increases in interest rates;
. competition for property acquisitions;
. adverse consequences of failure to qualify as a REIT; and
. possible environmental liabilities.

Actual results could differ materially from those projected in these
forward-looking statements. See "Managements's Discussion and Analysis of
Financial Condition and Results of Operations - Risk Factors" for a more
complete discussion.

GENERAL

We are a self-administered infinite life real estate investment trust
("REIT"), organized as a Massachusetts business trust, that acquires, owns
and operates primarily office and flex industrial properties. We operate
principally through BSRT UPREIT Limited Partnership, referred to as the
Operating Partnership, and its subsidiaries, and BSRT UPREIT Corp., the
General Partner of the Operating Partnership. As of December 31, 1998, we
were the sole owner of both BSRT UPREIT Limited Partnership and BSRT UPREIT
Corp. As of December 31, 1998, we own individually, or, in some cases
through joint venture, thirty-two properties comprised of:

. fourteen office properties totalling 1.5 million rentable
square feet;

. thirteen flex/industrial properties totalling 1.8 million
rentable square feet;

. four residential properties totalling 864 apartment units; and

. one retail property totalling 300,000 rentable square feet.

(See the property section below for a detailed information regarding all
properties in the portfolio.)

We have historically centered our acquisition activities on certain
major metropolitan areas such as Atlanta, Georgia and Chicago, Illinois as
well as smaller markets such as Huntsville, Alabama; Louisville, Kentucky;
Memphis, Tennessee; and Orlando, Florida. Because we consider ourselves an
"opportunistic" investor, we may expand our target areas to include other
cities or regions in the continental United States that exhibit
characteristics similar to our existing market areas. We believe that each
of the market areas where we currently own or would consider owning is
characterized by stable or increasing population and employment. We
believe economic growth in these markets will lead to an increase in the
demand for office and industrial space.

BUSINESS

Our goal is to maximize the value of our shareholders' investment
through growth in Funds from Operations and Funds Available for
Distribution (as defined below). We seek to accomplish this goal through a
combination of internal growth achieved by carefully and aggressively
managing our assets, external growth achieved by making attractive
acquisitions, selectively disposing of properties and strategically
managing our debt structure.

Internal Growth
- ---------------

We seek to carefully and aggressively manage our assets to maximize
the cash flow generated by, and the long term value of, our properties. To
achieve this we develop an annual operating plan for each property, which
focuses on optimizing property revenue through:

. increased occupancy and/or higher rents;

. negotiating leases containing base rental increases;

. emphasizing tenant satisfaction;

. controlling operating expenses; and

. expanding existing properties.

External Growth
- ---------------

We generally seek to acquire well-located, underperforming properties,
primarily office and flex industrial properties. We generally seek
properties that are leased at below market rates or have low occupancy
levels. In acquiring properties, we also assess:

. the ability to increase the cash flow generated by a property,
including the potential for increases in rental rates or occupancy levels;

. the composition and credit quality of the tenant base,
including the amount of space leased to any one tenant;

. the flexibility of a property's configuration in accommodating
small or large tenants or multiple users;

. the physical condition of the property; and

. the extent to which the property helps us achieve our portfolio
objectives.

We compete for acquisitions primarily with local or private non-
institutional investors (generally less than $100 million in assets). We
carefully review each acquisition opportunity through an extensive due
diligence process. We carefully evaluate the demographic trends in the
local market such as population and income growth as well as the demand for
and supply of the property type. Both our acquisition and asset management
staffs perform financial analysis and due diligence on each proposed
acquisition. We believe that by involving our asset managers, we ensure a
balanced evaluation that considers operating issues that may otherwise not
be accorded proper weight in the acquisition analysis. This process
results in a business plan for the acquired property that our operating
staff has endorsed. Our senior management staff reviews each potential
transaction, and all significant transactions are approved by our board.

Disposition Strategy
- --------------------

We regularly review whether we can produce higher returns by
redeploying our capital. Generally, we will consider selling a property
when one or more of the following conditions apply:

. proceeds from the sale of the property could be more
efficiently reinvested in properties generating a higher return;

. market prices are at or near replacement costs;

. occupancy and/or rents are high and there is limited potential
to increase cash flow and property value within a reasonable period; or

. ownership of the property is no longer consistent with our
growth strategies.

Although we did not dispose of any properties during the year ended
December 31, 1998, during the year ended December 31, 1997, we sold our
interests in the Hallmark Village Apartments and the Colonial Courts
Apartments for a total gain of approximately $942,000. We sold these
properties in order to redeploy our capital into properties that we
believed would provide a higher long-term return.

Financing Strategy
- ------------------

Our goal is a balanced and flexible capital structure. As of
December 31, 1998, we had borrowed a total of $151.6 million, $17.7 million
of which bears interest at variable rates. Based on the closing price of
our common shares on December 31, 1998, our borrowings represented
approximately 67% of our total market capitalization.

We recently increased our acquisition flexibility by forming BSRT
UPREIT Limited Partnership. In addition to using our common shares to
acquire properties, we may now also issue units in this partnership, known
as the Operating Partnership. We believe this structure provides us with
greater flexibility since a seller who receives units in connection with
the sale of a property may generally defer recognizing the gain and
associated tax liability triggered by the sale. Thus, we believe a seller
may be more willing to complete a sale with us than if we were unable to
offer this tax deferral option.

Competition
- -----------

We compete with numerous other entities in attracting tenants to lease
our space. Some of the competing properties may be newer, better located
or owned by parties better capitalized. In seeking to acquire additional
property, we compete with many other entities, some of these competitors
have greater financial and managerial resources. We believe that our
properties are located in high-growth areas and will continue to attract
tenants competitively. We further believe that our operating strategy with
respect to our existing properties and our investing and financing
strategies with respect to our prospective acquisitions allow us to remain
competitive with other entities in our geographical markets.

OTHER INFORMATION

Our business and real estate property operations are not seasonal and
they compete on the basis of rental rates and property operations with
similar types of properties in the vicinities in which our properties are
located.

We have no real property investments located outside of the United
States. We do not segregate revenue or assets by geographic region, since,
in management's view, such a presentation would not be significant to an
understanding of our business or financial results taken as a whole.

We have twenty-one employees, four of whom serve as executive
officers. The fifth executive officer is not our employee, but he provides
services to us as an independent contractor.

We review and monitor compliance with federal, state and local
provisions which have been enacted or adopted regulating the discharge of
material into the environment, or otherwise relating to the protection of
the environment. For the year ended December 31, 1998, we did not incur
any material capital expenditures for environmental control facilities nor
do we anticipate making any such expenditures for the year ending
December 31, 1999.

ITEM 2. PROPERTIES

As of December 31, 1998, we owned interests, directly or indirectly through our wholly owned subsidiaries, in
the properties set forth in the table below:

BANYAN STRATEGIC REALTY TRUST
PORTFOLIO SUMMARY
December 31, 1998

FLEX/INDUSTRIAL
- ---------------
Milwaukee A 1% General and 84%
Industrial Limited Partner
Properties interest in a joint
Milwaukee, WI 4/30/93 235,800 81% 14% 15% 9% 43% venture (b) (c)

Elmhurst Metro A 1% General and 84%
Court Limited Partner
Elmhurst, IL 11/30/93 140,800 69% 40% 3% 25% 1% interest in a joint
venture (b) (c)

Willowbrook A 1% General and 84%
Industrial Court Limited Partner
Willowbrook, IL 6/16/95 84,300 100% 57% 11% 13% 19% interest in a joint
venture (b) (c)

Quantum Business Fee ownership of
Centre land and improve-
Louisville, KY 9/26/95 182,300 74% 16% 21% 19% 18% ments

Lexington Fee ownership of
Business Center land and improve-
Lexington, KY 12/05/95 308,800 44% 20% 15% 9% 0% ments

Newtown Business Fee ownership of
Center land and improve-
Lexington, KY 12/05/95 87,100 95% 33% 4% 37% 21% ments

6901 Riverport Leasehold interest
Drive pursuant to bond
Louisville, KY 11/19/96 322,100 100% 0% 45% 0% 55% financing and owner-
ship of improvements

Avalon Ridge Fee ownership of
Business Park land and improve-
Norcross, GA 4/24/98 57,400 100% 0% 0% 0% 100% ments

A 1% General and
Tower Lane 84% Limited Partner
Business Park interest in a joint
Bensenville, IL 4/27/98 95,900 90% 34% 26% 22% 8% venture (b) (f)

Fee ownership of
Metric Plaza land and improve-
Winter Park, FL 4/30/98 32,000 100% 0% 0% 0% 100% ments

Fee ownership of
Park Center land and improve-
Orlando, FL 4/30/98 47,400 75% 6% 7% 42% 20% ments

University Fee ownership of
Corporate Center land and improve-
Winter Park, FL 4/30/98 127,800 100% 28% 46% 11% 15% ments

Johns Creek
Office and
Industrial Park Fee ownership of
Duluth and land and improve-
Suwanne, GA 8/14/98 119,300 100% 0% 0% 50% 50% ments

--------- ---- ---- ---- ---- ----
Sub-total 1,841,000 82% 18% 20% 15% 29%
--------- ---- ---- ---- ---- ----

Scheduled Lease
Expirations
Occu- ----------------------------------
Date Square pancy After
Acquired Footage % 1999 2000 2001 2001 Description (a)
-------- ------- ----- ----- ---- ---- ----- ---------------------
OFFICE
- ------
Colonial Penn Fee ownership of
Building land and improve-
Tampa, FL 3/22/94 79,200 100% 0% 100% 0% 0% ments

Florida Power Fee ownership of
& Light Building land and improve-
Sarasota, FL 3/22/94 81,100 100% 0% 0% 11% 89% ments

A 1% General and 84%
Woodcrest Office Limited Partner
Park interest in a joint
Tallahassee, FL 12/19/95 264,900 91% 14% 21% 12% 44% venture (b) (e)

Midwest Office A 1% General and 84%
Center Limited Partner
Oakbrook interest in a joint
Terrace, IL 4/18/96 77,000 94% 23% 33% 14% 24% venture (b) (c)

Phoenix Business Fee ownership of
Park land and improve-
Atlanta, GA 1/15/97 110,600 94% 34% 26% 13% 21% ments

A 1% General and
Butterfield 84% Limited Partner
Office Plaza interest in a joint
Oak Brook, IL 4/30/97 200,800 93% 16% 27% 16% 34% venture (b) (f)

Southlake Fee ownership of
Corporate Center land and improve-
Morrow, GA 7/30/97 56,200 93% 0% 13% 42% 38% ments

University Square Fee ownership of
Business Center land and improve-
Huntsville, AL 8/26/97 184,700 94% 39% 12% 24% 19% ments

Leasehold interest
pursuant to a ground
Technology Center lease and ownership of
Huntsville, AL 8/26/97 48,500 100% 0% 100% 0% 0% improvements

Scheduled Lease
Expirations
Occu- ----------------------------------
Date Square pancy After
Acquired Footage % 1999 2000 2001 2001 Description (a)
-------- ------- ----- ----- ---- ---- ----- ---------------------
Airways Plaza Fee ownership of
Office Center land and improve-
Memphis, TN 12/10/97 87,800 97% 93% 0% 4% 0% ments

Peachtree Pointe Fee ownership of
Office Park land and improve-
Norcross, GA 1/20/98 71,700 96% 33% 18% 13% 32% ments

Avalon Center Fee ownership of
Office Park land and improve-
Norcross, GA 3/20/98 53,300 100% 0% 0% 0% 100% ments

Sand Lake Fee ownership of
Tech Center land and improve-
Orlando, FL 4/30/98 84,100 97% 23% 0% 0% 74% ments

Technology Fee ownership of
Park land and improve-
Norcross, GA 8/14/98 145,700 100% 21% 9% 26% 44% ments
--------- ---- ---- ---- ---- ----
Sub-total 1,545,600 95% 23% 22% 14% 36%
--------- ---- ---- ---- ---- ----

RETAIL
- ------
Leasehold interest
pursuant to a ground
lease and ownership of
Northlake improvements (through
Tower Shopping a 1% General and 80.9%
Center Limited Partner
Atlanta, GA 7/28/95 321,600 99% 4% 18% 3% 74% interest) in a joint
--------- ---- ---- ---- ---- ---- venture (b) (d)
Total 3,708,200 89% 19% 21% 14% 35%
========= ==== ==== ==== ==== ====

Resi- Occu-
Date dential pancy
Acquired Units % Description (a)
-------- -------- ------- -----------------

RESIDENTIAL
- -----------
Country Creek Apartments Fee ownership of land
Oklahoma City, OK 5/22/97 320 90% and improvements

Willowpark Apartments Fee ownership of land
Lawton, OK 5/22/97 160 94% and improvements

Winchester Run Apartments Fee ownership of land
Oklahoma City, OK 5/22/97 192 95% and improvements

Woodrun Village Apartments Fee ownership of land
Yukon, OK 5/22/97 192 98% and improvements
--- ---
Total 864 94%
=== ===

PORTFOLIO TOTAL (g) 90%
===

<FN>

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

(a) Reference is made to Schedule III "Consolidated Real Estate and Accumulated Depreciation" filed with this
annual report for additional description of these real property investments.

(b) In all of our partnerships, we are the managing general partner and retain sole authority over all
significant decisions.

(c) The stated percentages represent the economics of the venture; however, through our general and limited
partnership interest we hold a 90% voting interest in the venture. According to the partnership agreement, prior
to distributing cash flow from operations, our 84% and 1% partnership interests receive an annual 12% preferred
return on their respective net capital contributed to the partnership. Our joint venture partner then receives an
11% preferred return on the net capital which it has contributed. Then, 85% of the remaining cash will be
distributed to us and 15% will be distributed to the joint venture partner. Cash flow from either a sale or
refinancing of the partnership properties is distributed as follows: (i) our 84% and 1% partnership interests
receive an annual 12% preferred return on our net capital contributed to the partnership; (ii) the joint venture
partner receives an 11% preferred return on the net capital contributed to the partnership; (iii) we receive an
amount equal to our net capital contributions; (iv) our joint venture partner receives an amount equal to its net
capital contributions; (v) we receive an amount equal to 20.41% of our capital contribution; (vi) our joint
venture partner receives an amount equal to 52.63% of its capital contribution; (vii) then, 65% of the remaining
cash will be distributed to us and 35% will be distributed to our joint venture partner.

(d) The stated percentages represent our voting rights, not necessarily the economics of the venture. According
to the partnership agreement, prior to distributing cash flow from operations, our 80.9% and 1% partnership
interests receive an annual 12% preferred return on their respective net capital contributed to the partnership.
Then, our joint venture partner receives a 12% preferred return on the net capital which it has contributed.
Then, cash flow from operations is distributed pro-rata based on each partner's respective ownership interest.
Cash proceeds from either the sale or refinancing of the partnership property will be used: (i) to pay any of our
unpaid preferred returns; (ii) to return net capital contributed by all partners; (iii) to pay any of the venture
partner's unpaid preferred returns and (iv) to distribute the remaining cash based on ownership interests until we
have received an overall return of 15% on our invested capital. Then, we will receive 71.9% of the excess cash
and the balance will be paid to the joint venture partner.

(e) The stated percentages represent our voting rights, not necessarily the economics of the venture. According
to the partnership agreement, prior to distributing cash flow from operations, our 84% and 1% partnership interest
receive an annual 12% preferred return on their average unreturned Initial Capital Contribution to the
partnership. Then, our joint venture partner receives a 12% preferred return on its average unreturned Initial
Capital Contribution. Then, cash flow from operations is distributed pro-rata based on each partner's respective
ownership interest. Cash proceeds from either the sale or refinancing of the partnership properties will be used:

(i) to pay any of our unpaid preferred returns; (ii) to return our net capital contributed; (iii) to pay any
amounts necessary for us to receive a 15% cumulative return on our net total average unreturned capital
contributed; (iv) to pay the joint venture partner's unpaid preferred returns; (v) to return the joint venture
partner's net capital contributed; and (vi) the remaining cash will be distributed pro-rata based on each
partner's ownership interest.

(f) The stated percentages represent the economics of the venture; however, through our general and limited
partnership interest we hold a 90% voting interest in the venture. According to the partnership agreement, cash
flow from operations is distributed as follows: (i) our 84% and 1% partnership interests receive an annual 12%
preferred return on their respective net capital contributed to the partnership; (ii) the joint venture partner
receives an 11% preferred return on the net capital contributed to the partnership; (iii) then, 85% of the
remaining cash will be distributed to us and 15% will be distributed to the joint venture partner. Cash flow from
either a sale or refinancing of the partnership properties is distributed as follows: (i) our 84% and 1%
partnership interests receive an annual 12% preferred return on our net capital contributed to the partnership;
(ii) the joint venture partner receives an 11% preferred return on the net capital contributed to the partnership;
(iii) we receive an amount equal to our net capital contributions; (iv) our joint venture partner receives an
amount equal to its net capital contributions; (v) we receive an amount equal to 20.41% of our capital
contribution; (vi) our joint venture partner receives an amount equal to 52.63% of its capital contribution; (vii)
then, 65% of the remaining cash will be distributed to us and 35% will be distributed to our joint venture
partner.

(g) For purposes of calculating the weighted average occupancy for the portfolio, we convert the number of
residential apartments to an equivalent square footage amount for each residential property.

BANYAN STRATEGIC REALTY TRUST
COMPARISON OF AVERAGE RENTS

Average
Average Market
"In Place" Net Rents
Property Type Square Footage Net Rents (1) (2)
- ------------- -------------- -------------- ----------

Flex/Industrial 1,841,000 $5.05 $5.30

Office 1,545,600 9.10 10.04

Retail 321,600 10.79 11.73
---------- ----- -----
Total 3,708,200 $7.23 $7.83
========== ===== =====

Average Monthly Monthly
"In Place" Rents Market Rents
--------------------- -------------------
Units Per Unit Sq. Ft. Per Unit Sq. Ft.
----- --------- ------- -------- -------

Residential 864 $403 $0.67 $453 $0.63
=== ==== ===== ==== =====

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

(1) Average "In Place" Net Rents represent Net Operating Income per
square foot.

(2) Average Market Net Rents represent our good faith estimate of
current market rents, assuming standard tenant improvements.

We also lease approximately 7,000 square feet under an operating lease
which expires on June 30, 2001 for our corporate headquarters.

ITEM 3. LEGAL PROCEEDINGS

We are not aware of any material pending legal proceedings as of
February 9, 1999, nor were any material proceedings terminated during the
quarter ended December 31, 1998.

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

We did not submit any matter to a vote of our shareholders during the
fourth quarter of 1998.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S SHARES AND RELATED SHAREHOLDER MATTERS

Our shares are included for quotation on the NASDAQ National Market
(symbol - BSRTS). The table below shows the quarterly high and low bid
prices reported by NASDAQ and the amount of cash distributions we paid per
share for the years ended December 31, 1998 and 1997.

1998
----
Quarter Share Per Share Declaration
Ended Price Distributions Date
- ------- ----- ------------- -----------

3/31 High $6.25 $0.12 3/16/98
Low $5.13

6/30 High $7.75 $0.12 7/6/98
Low $5.94

9/30 High $7.19 $0.12 10/6/98
Low $5.50

12/31 High $6.31 $0.12 1/6/99
Low $4.63

1997
----
Quarter Share Per Share Declaration
Ended Price Distributions Date
- ------- ----- ------------- -----------

3/31 High $5.00 $0.10 4/8/97
Low $3.75

6/30 High $4.62 $0.10 7/3/97
Low $3.62

9/30 High $5.50 $0.10 10/7/97
Low $4.00

12/31 High $6.87 $0.10 1/7/98
Low $5.06

On January 6, 1999, we declared a cash distribution for the quarter
ended December 31, 1998 of $0.12 per share payable February 22, 1999 to
shareholders of record on January 22, 1999.

During 1998 and 1997, we paid distributions equal to $0.46 and $0.40
per share, respectively. A total of $0.01 (1998) and $0.38 (1997)
represented a return of capital.

Our ability to make future distributions to our shareholders is
dependent upon, among other things:

. sustaining the operating performance of our existing real
estate investments through scheduled increases in base rents under existing
leases and through general improvement in the real estate markets where our
properties are located;

. the operating performance of future acquisitions; and

. our level of operating expenses.

See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Risk Factors" for a more complete discussion.

As of February 9, 1999, there were 3,595 record holders of shares of
beneficial interest.

ITEM 6. SELECTED FINANCIAL DATA (1)

For the years ended December 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(amounts in thousands, except per share data)

Operating Data:
Revenues. . . . . . . . . . . . $ 39,416 $ 28,785 $ 21,404 $ 12,902 $ 8,834

Expenses:
Interest. . . . . . . . . . . . 9,778 6,447 4,011 1,536 343
Depreciation and amortization . 5,484 4,213 2,965 1,569 925
Property operating. . . . . . . 13,449 10,689 9,294 5,620 3,488
General and administrative. . . 4,614 4,315 3,126 2,036 2,178
Recovery of losses on loans,
notes and interest receivable -- (161) (17) (165) (192)
-------- -------- -------- -------- --------
Total expenses. . . . . . 33,325 25,503 19,379 10,596 6,742
-------- -------- -------- -------- --------
Income before minority interest,
income (loss) from operations of
real estate venture, net gains
and extraordinary item (2). . . 6,091 3,282 2,025 2,306 2,092
Minority interest . . . . . . . . (572) (590) (481) (178) (56)
Income (loss) from operations of
real estate venture . . . . . . -- 37 (3,301) 63 (2,994)
Net gains and extraordinary item. (141) 817 -- 409 46
-------- -------- -------- -------- --------
Net income (loss) . . . . . . . . $ 5,378 $ 3,546 $ (1,757) $ 2,600 $ (912)
======== ======== ======== ======== ========
Earnings per share of beneficial
interest - Basic:
Income (loss) before net gains
and extraordinary item . . . . $ 0.41 $ 0.24 $ (0.17) $ 0.21 $ (0.09)
======== ======== ======== ======== ========
Net income (loss) . . . . . . . $ 0.40 $ 0.32 $ (0.17) $ 0.25 $ (0.09)
======== ======== ======== ======== ========
Earnings per share of beneficial
interest - Diluted:
Income (loss) before net gains
and extraordinary item . . . . $ 0.40 $ 0.24 $ (0.17) $ 0.21 $ (0.09)
======== ======== ======== ======== ========
Net income (loss) . . . . . . . $ 0.39 $ 0.32 $ (0.17) $ 0.25 $ (0.09)
======== ======== ======== ======== ========

Investment in real estate, net. . $209,489 149,386 102,490 87,863 40,161
Total assets. . . . . . . . . . . 222,590 159,634 116,534 110,765 74,084
Loans and bonds payable . . . . . 151,648 92,118 59,081 49,022 13,401
Shareholders' equity. . . . . . . 62,434 62,315 50,934 56,875 58,441

Other Data:
Calculation of Funds
from Operations (3):
Net income (loss) . . . . . . . . 5,378 3,546 (1,757) 2,600 (912)
Plus: Depreciation and
amortization expense. . . . . . 5,176 3,500 2,484 1,385 945
Less: Minority interest share
of depreciation and amortiza-
tion expense. . . . . . . . . . (315) (275) (241) (115) (45)
Less: Recovery of losses on
loans, notes and interest
receivable. . . . . . . . . . . -- (161) (17) (165) (57)
Valuation allowance included in
operations of real estate venture -- -- 3,180 -- 2,915
Net gains . . . . . . . . . . . . -- (881) -- (409) (46)
Extraordinary item, net of
minority interest . . . . . . . 141 64 -- --
-------- -------- -------- -------- --------
Funds from operations . . . . . . $ 10,380 $ 5,793 $ 3,649 $ 3,296 $ 2,800
======== ======== ======== ======== ========
Calculations of Funds Available
for Distributions (4):
Funds from operations . . . . . . $ 10,380 $ 5,793 $ 3,649 $ 3,296 $ 2,800
Straight line rents . . . . . . . (544) (386) (289) (97) --
Lease commissions . . . . . . . . (739) (630) (382) (122) (52)
Capital reserve . . . . . . . . . (493) (381) (350) (256) (229)
-------- -------- -------- -------- --------
Funds available for distributions $ 8,604 $ 4,396 $ 2,628 $ 2,821 $ 2,519
======== ======== ======== ======== ========

Cash flows from:
Operating activities. . . . . . $ 11,220 $ 8,644 $ 5,730 $ 2,847 $ 3,374
Investing activities. . . . . . (61,790) (27,575) (6,598) (31,691) (6,548)
Financing activities. . . . . . 49,872 19,555 (827) 19,574 4,438

Number of property interest owned 32 22 15 13 8
Weighted average
number of shares. . . . . . . . 13,308 11,150 10,478 10,474 10,471
Cash distributions per share of
beneficial interest (5) . . . . $ 0.46 $ 0.40 $ 0.40 $ 0.40 $ 0.40
======== ======== ======== ======== ========
<FN>
- ------------

(1) You should read the above selected financial data in conjunction with the consolidated financial statements
and the related notes appearing elsewhere in this annual report.

(2) Net gains include gain on disposition of investment in real estate, loss on disposition of investment in
real estate venture and gain on disposition of partnership interest.

(3) Due to certain unique operating characteristics of real estate companies, The National Association of Real
Estate Investment Trusts ("NAREIT"), an industry trade group, has promulgated a standard known as "Funds from
Operations", or "FFO" for short, which it believes more accurately reflects the operating performance of a REIT
such as our company. As defined by NAREIT, FFO means Net Income computed in accordance with generally accepted
accounting principles ("GAAP"), less extraordinary, unusual and nonrecurring items, excluding gains (or losses)
from debt restructuring and sales of property plus depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures in which the REIT holds an interest. We have adopted the NAREIT
definition for computing FFO because we believe that, subject to the following limitations, FFO provides a basis
for comparing the performance and operations of the Trust to those of other REIT's. The calculation of FFO may
vary from entity to entity since capitalization and expense policies may vary from entity to entity. Items which
are capitalized do not decrease FFO whereas items that are expensed decrease FFO. As such, our presentation of
FFO may not be comparable to other similarly titled measures presented by other REIT's. FFO is not intended to be
an alternative to Net Income as an indication of our performance nor an alternative to Cash Flows from Operating
Activities (as calculated in accordance with GAAP) as a measure of our capacity to pay distributions.

(4) Funds Available for Distributions, or "FAD" for short, is calculated by adjusting FFO for straight-line rent
adjustments, lease commissions paid and a normalized reserve for capital improvements. The capital reserve is
$0.075 per sq. ft. for flex/industrial properties, $0.10 per sq. ft. for office properties, $0.15 per sq. ft. for
retail property and $200 per residential unit.

(5) Based on 13,308 weighted average shares outstanding for 1998; 11,150 weighted average shares outstanding for
1997; 10,478 weighted average shares outstanding for 1996; 10,474 weighted average shares outstanding for 1995;
and 10,471 weighted average shares outstanding for 1994.

QUARTERLY RESULTS OF OPERATIONS

The following is a summary of the quarterly results of operations for the years ended December 31, 1998 and
1997.

1998
For the three months ended:
-----------------------------------------------------------------
March 31 June 30 September 30 December 31
----------- ------------ ------------ ------------
(Amounts in thousands, except per share data)

Total Revenue $ 8,564 $ 9,657 $ 10,552 $ 10,643

Operating Expenses (7,091) (8,057) (9,044) (9,133)
-------- -------- -------- --------
Operating Income 1,473 1,600 1,508 1,510

Minority Interest in Consolidated
Partnerships (116) (182) (151) (123)
-------- -------- -------- --------
Income before Extraordinary Item 1,357 1,418 1,357 1,387

Extraordinary Item, Net of
Minority Interest -- (141) -- --
-------- -------- -------- --------
Net Income $ 1,357 $ 1,277 $ 1,357 $ 1,387
======== ======== ======== ========

Earnings Per Share of
Beneficial Interest - Basic:
Income before Extraordinary Item $ 0.10 $ 0.11 $ 0.10 $ 0.10
========= ========= ========= =========

Net Income $ 0.10 $ 0.10 $ 0.10 $ 0.10
========= ========= ========= =========

Earnings Per Share of
Beneficial Interest - Diluted:
Income before Extraordinary Item $ 0.10 $ 0.10 $ 0.10 $ 0.10
========= ========= ========= =========

Net Income $ 0.10 $ 0.09 $ 0.10 $ 0.10
========= ========= ========= =========

1997
For the three months ended:
-----------------------------------------------------------------
March 31 June 30 September 30 December 31
----------- ------------ ------------ ------------
(Amounts in thousands, except per share data)

Total Revenue $ 5,894 $ 6,747 $ 7,875 $ 8,269

Recovery of Losses on Loans,
Notes and Interest Receivable -- -- -- 161

Operating Expenses (5,352) (6,183) (7,051) (7,078)
-------- -------- -------- --------
Operating Income 542 564 824 1,352

Minority Interest in Consolidated
Partnerships (167) (145) (152) (126)

Income (Loss) of Real Estate Ventures 30 20 (13) --
-------- -------- -------- --------
Income before Net Gains and
Extraordinary Item 405 439 659 1,226

Net Gain (Loss) on Disposition of
Investments in Real Estate 4 -- 1,072 (195)

Extraordinary Item, Net of
Minority Interest -- -- -- (64)
-------- -------- -------- --------
Net Income $ 409 $ 439 $ 1,731 $ 967
======== ======== ======== ========

Earnings Per Share of
Beneficial Interest -
Basic and Diluted:
Income before Net Gains
and Extraordinary Item $ 0.04 $ 0.04 $ 0.06 $ 0.09
======== ======== ======== ========

Net Income $ 0.04 $ 0.04 $ 0.16 $ 0.08
======== ======== ======== ========

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

GENERAL

We have acquired a large number of properties during each of the
periods discussed below. Thus, period to period results are not entirely
comparable. At December 31, 1998, we owned individually or, in some cases,
through joint ventures:

. thirteen flex industrial properties totalling 1,841,000
rentable square feet;

. fourteen office properties totalling 1,545,600 rentable square
feet;

. four apartment complexes containing 864 units;

. one retail center which contains 321,600 rentable square feet.

During the year ended December 31, 1998, we acquired four office
properties totalling 354,800 rentable square feet and six flex industrial
properties totalling 479,800 rentable square feet.

COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997

During the year ended December 31, 1998 and 1997 our net income
totalled approximately $5.4 million ($0.40 per basic common share) and
approximately $3.5 million ($0.32 per basic common share), respectively.
The approximately $1.9 million increase resulted primarily from revenue
growth of approximately $10.6 million reduced by expense growth of
approximately $7.8 million. In particular, our total revenues increased by
approximately $10.6 million or 36.8% to approximately $39.4 million from
approximately $28.8 million, due primarily to an increase in the number of
properties that we own. We attribute approximately $9.9 million or 93.4%,
of this increase to properties acquired in 1998 and the net full-year
effect of properties we either acquired or sold during 1997. On a "same-
store" basis (comparing the results of operations of the properties owned
during the entire year ended December 31, 1998 with the results of the same
properties owned during the year ended December 31, 1997), total revenues
increased by approximately $0.7 million or 3.5% to approximately $20.7
million from approximately $20.0 million, due to increased rental rates at
these properties and recognition of lease termination fees at certain
properties. Our portfolio occupancy as of December 31, 1998 was lower than
it historically has been as a result of the termination of leases during
the quarter. Therefore, our ability to maintain same store growth in
revenue will in the future be dependent on the time it takes to re-lease
this and future vacant space and the rental rates at which we sign new
leases. In addition, property acquisitions during 1997 and 1998 have
significantly contributed to our growth in those years. Our ability to
make acquisitions in the future will depend upon our ability to raise
additional equity through realizing gains on the sale of properties,
selling additional shares of beneficial interest and/or issuing operating
partnership units in the Operating Partnership. See Risk Factors for
additional discussion.

In 1998, our total operating expenses, which include property
operating, repair and maintenance, real estate taxes, and ground lease,
increased by approximately $2.7 million to approximately $13.4 million from
approximately $10.7 million in 1997, primarily due to an increase in the
number of properties that we own, which accounted for approximately $2.3
million or 85.2% of this increase. On a "same-store" basis, total
operating expenses increased by approximately $0.4 million or 6.3% to
approximately $6.7 million from approximately $6.3 million. Interest
expense increased by approximately $3.4 million from approximately $6.4
million to approximately $9.8 million, primarily due to an increase in the
amount we have borrowed in connection with the acquisitions we completed in
1998. Depreciation and amortization expense also increased approximately

$1.7 million. We attribute most of the increase to the fact that we own
more properties. Total general and administrative expenses increased by
approximately $0.3 million due to costs incurred in connection with due
diligence for transactions that were not completed in 1998 and due to an
increase in administrative staff hired to oversee our properties and the
legal fees associated with acquiring properties during 1998.

COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996

During the year ended December 31, 1997, our net income totalled
approximately $3.5 million ($0.32 per common share) compared to a net loss
of approximately $1.8 million (($0.17) per common share) for the year ended
December 31, 1996. We explain the $5.3 million increase by noting that
revenues grew by $7.4 million in 1997 while expenses grew by $2.1 million.
In particular, our total revenues increased 34.6% to approximately $28.8
million from approximately $21.4 million due primarily to an increase in
the number of properties that we own. We attribute approximately $6.5
million or 87.8%, of this increase to properties we either acquired or sold
in 1997 and the full-year effect of properties acquired during 1996. On a
"same-store" basis (comparing the results of operations of the properties
we owned during the entire year ended December 31, 1997 with the results of
the same properties owned during the year ended December 31, 1996), our
total revenues increased by approximately $1.2 million, or 7.2%, to
approximately $17.9 million from approximately $16.7 million due in part to
increased occupancy. In addition, our operating cost recoveries increased
by approximately $0.2 million. The remainder of the increase in revenue
generated by same store properties was due to increased rental rates. The
increase in total revenues was partially offset by a decrease in interest
income earned on mortgage loans of approximately $0.4 million, which were
sold during 1996.

Our total operating expenses increased by approximately $1.4 million
in 1997 to approximately $10.7 million from approximately $9.3 million in
1996. This increase is almost exclusively due to an increase in the number
of properties that we own. Our interest expense increased to approximately
$6.4 million from approximately $4.0 million primarily due to the fact that
the we increased the amount of money borrowed from approximately $59.1
million at December 31, 1996 to approximately $92.1 million at December 31,
1997. We used the additional loans to pay for our new acquisitions. Our
depreciation and amortization expense also increased by approximately $1.2
million. We attribute most of the increase to the fact that we own more
properties. Our total general and administrative expenses increased by
approximately $1.2 million. We attribute this increase to a larger
administrative staff hired to oversee our properties, the legal fees
associated with acquiring our properties during 1997 and amounts we paid as
incentive compensation.

During the year ended December 31, 1997, we realized net income from
our interest in the H Street Venture of $37,126 compared to a net loss of
($3,301,212) for the same period in 1996. The net loss in 1996 was due to
our decision to reduce the carrying value of our interest in the H Street
Venture. In March 1997, the venture sold a property which it owned and we
received a distribution of approximately $1.0 million from the venture. On
July 29, 1997, the venture sold its remaining assets. We received a
distribution of approximately $4.5 million and recognized a loss of
approximately $0.1 million. We have no further interest in the H Street
Venture.

LIQUIDITY AND CAPITAL RESOURCES

We expect to fund our short-term liquidity needs, including recurring
capital expenditures, from our working capital (including the restricted
cash which is available for capital expenditures, real estate taxes and
insurance), and from income derived primarily from our property operations.

We anticipate using these monies to fund periodic tenant-related capital

expenditures and other capital improvements. We believe that our Funds
Available for Distribution (as defined below) will be sufficient for the
twelve months after the date of this report to pay quarterly distributions
of $0.12 per common share.

We expect to fund our long-term liquidity needs, including monies
required to acquire and develop property and funds necessary for other non-
recurring capital improvements, from long-term secured and unsecured debt
and through issuing debt or equity securities, including issuing units in
the Operating Partnership in exchange for properties. We expect that we
will fund a portion of the cost of buying and improving properties in the
future by borrowing under our credit facilities or by mortgaging properties
we acquire.

At December 31, 1998, our assets totalled approximately $222.6
million, an increase of approximately $63.0 million from total assets at
December 31, 1997 of approximately $159.6 million. Our liabilities
totalled approximately $158.0 million at December 31, 1998 an increase of
approximately $61.9 million from a total of approximately $96.1 million at
December 31, 1997. Our shareholders equity increased by approximately $0.1
million to approximately $62.4 million at December 31, 1998 from
approximately $62.3 million at December 31, 1997.

Cash and cash equivalents consist of cash and short-term investments.
Our cash and cash equivalents balance was approximately $3.7 million at
December 31, 1998 and approximately $4.4 million at December 31, 1997. The
decrease in total cash and cash equivalents from year-end 1997 to year-end
1998 results from using approximately $61.8 million on investing activities
while receiving approximately $49.9 million in financing and approximately
$11.2 million from operations.

Cash Flows From Operating Activities: Net cash provided by operating
activities increased in 1998 by approximately $2.6 million to approximately
$11.2 million from approximately $8.6 million in 1997. This increase is
primarily due to an increase in the net operating income generated by the
properties acquired in 1998 and 1997. See Results of Operations above for
further discussion of the operations of our real estate assets.

Due to certain unique operating characteristics of real estate
companies, the National Association of Real Estate Investment Trusts
("NAREIT"), an industry trade group, has promulgated a standard known as
"Funds from Operations", or "FFO" for short, which it believes more
accurately reflects the operating property performance of a REIT such as
our company. As defined by NAREIT, FFO means net income computed in
accordance with generally accepted accounting principles ("GAAP"), less
extraordinary, unusual and nonrecurring items, excluding gains (or losses)
from debt restructuring and sales of property plus depreciation and
amortization and after adjustments for unconsolidated partnerships and
joint ventures in which the REIT holds an interest. We have adopted the
NAREIT definition for computing FFO because we believe that, subject to the
following limitations, FFO provides a basis for comparing the performance
and operations of a REIT such as our company. The calculation of FFO may
vary from entity to entity in that capitalization and expense policies may
vary from entity to entity. Items which are capitalized do not decrease
FFO whereas items that are expensed decrease FFO. As such, our
presentation of FFO may not be comparable to other similarly titled
measures presented by other REIT's. We do not intend for FFO to be an
alternative to Net Income as an indication of our performance nor an
alternative to Cash Flows from Operating Activities (as calculated in
accordance with GAAP) as a measure of our capacity to pay distributions.

For the years ended December 31, 1998, 1997 and 1996, our properties
generated FFO of approximately $10.4 million, $5.8 million and $3.6
million, respectively. FFO increased on a year to year basis due primarily
to an increase in the number of properties owned from period to period.

FFO for the years ended December 31, 1998, 1997, and 1996 is
calculated as follows:

1998 1997 1996
--------- -------- --------
(Dollars in thousands)
Net Income (Loss) $ 5,378 $ 3,546 $ (1,757)

Plus:
Depreciation expense 4,770 3,277 2,355
Depreciation included
in Operations of
Real Estate Ventures -- 15 31
Lease Commission
Amortization 406 208 98
Less:
Minority Interest
Share of Depreci-
ation Expense (284) (254) (228)
Minority Interest
Share of Lease
Commission
Amortization (31) (21) (13)
Recovery of Losses
on Loans, Notes
and Interest
Receivable -- (161) (17)

Valuation Allowance
Included in Operations
of Real Estate Venture -- -- 3,180

Net Gain on Disposition
of Investments in
Real Estate -- (881) --

Extraordinary Item, Net
of Minority Interest 141 64 --
-------- -------- --------
Funds From Operations $ 10,380 $ 5,793 $ 3,649
======== ======== ========
Cash Flows Provided By
(Used For):
Operating Activities $ 11,220 $ 8,644 $ 5,730
Investing Activities $(61,790) $(27,575) $ (6,598)
Financing Activities $ 49,872 $19,555 $ (827)

Our ability to pay any distribution is influenced by the amount of
monies that we have available to distribute known as Funds Available for
Distribution or "FAD" for short. FAD is calculated by increasing or
decreasing FFO to give effect to items such as the impact of straight-
lining rents, lease commissions paid and normalized reserves for capital
improvements. The capital reserve is $0.075 per square foot for
flex/industrial properties, $0.10 per square foot for office properties,
$0.15 per square foot for retail property and $200 per residential unit.

Our ability to make future distributions to our shareholders is
dependent upon, among other things:

. the operating performance of future acquisitions; and

. our level of operating expenses.

See Risk Factors for additional discussion.

FAD for the years ended December 31, 1998, 1997 and 1996 is calculated
as follows:

1998 1997 1996
------- ------- -------
(Dollars in thousands)
Funds From Operations . . . . . . $10,380 $ 5,793 $ 3,649
Straight-line Rents . . . . . . . (544) (386) (289)
Lease Commissions . . . . . . . . (739) (630) (382)
Capital Reserve . . . . . . . . . (493) (381) (350)
------- ------- -------
Funds Available for Distribution. $ 8,604 $ 4,396 $ 2,628
======= ======= =======

Cash Flows From Investing Activities: During the year ended
December 31, 1998, we used approximately $61.8 million primarily to acquire
properties compared to approximately $27.6 million in the same period in
1997. During the year ended December 31, 1998 we purchased four office and
six flex/industrial properties for approximately $55.9 million. Cash flow
was also used to make capital improvements at our various properties in the
amount of approximately $5.3 million. In comparison, during the same
period in 1997, we generated a total of approximately $12.5 million from
sale of our interests in (i) the Hallmark Village property; (ii) the H
Street Assemblage Parcel and the Victor building; and (iii) the Colonial
Courts Apartments; acquired six office and four apartment properties for a
total of approximately $37.5 million and made capital improvements in the
amount of approximately $2.5 million.

PROPERTY ACQUISITIONS AND OTHER INFORMATION

ACQUISITION ACTIVITIES:

During the year ended December 31, 1998, we acquired interests in
several properties. The table below presents a summary of 1998
acquisitions.

Purchase
Name and Date of Price
Location Acquisi- (in
of Property Sq. Ft. tion millions) Description
- --------------- -------- --------- --------- ----------------

Peachtree Pointe 71,700 01/20/98 $4.6 Five one-story
Office Park office buildings;
Norcross, Georgia Twenty-three
tenants at the
time of acqui-
sition

Avalon Center 53,300 03/20/98 4.4 Two one-story
Office Park office buildings;
Norcross, Georgia Three tenants at
the time of
acquisition

Avalon Ridge 57,400 04/24/98 3.9 Two one-story
Business Park flex/industrial
Norcross, Georgia buildings;
Two tenants at
the time of
acquisition

Tower Lane 95,900 04/27/98 5.2 Two one-story
Business Park (1) flex/industrial
Bensenville, buildings;
Illinois Seventeen tenants
at the time
of acquisition

Purchase
Name and Date of Price
Location Acquisi- (in
of Property Sq. Ft. tion millions) Description
- --------------- -------- --------- --------- ----------------

University 127,800 04/30/98 10.2 Seven one-story
Corporate Center flex/industrial
Winter Park, buildings;
Florida Twenty-six tenants
at the time
of acquisition

Metric Plaza 32,000 04/30/98 2.6 Two one-story
Winter Park, flex/industrial
Florida buildings;
Two tenants at
the time of
acquisition

Park Center 47,400 04/30/98 3.7 Two one-story
Orlando, Florida flex/industrial
buildings;
Sixteen tenants at
the time of
acquisition

Sand Lake 84,100 04/30/98 6.8 Five one-story
Tech Center office buildings;
Orlando, Florida Three tenants at
the time of
acquisition

Johns Creek 119,300 08/14/98 5.8 Two flex/indus-
Office and trial buildings;
Industrial Park Two tenants
Duluth and Suwanne, at the time
Georgia of acquisition

Technology 145,700 08/14/98 12.4 Three office
Park buildings;
Norcross, Twelve tenants
Georgia at the time
-------- ----- of acquisition
Total 834,600 $59.6
======== =====

(1) In April 1998, we formed a new joint venture, Butterfield O'Hare
L.P., in which we have an 89.1% limited partnership interest and .9%
general partnership interest. The portfolio owned by the venture consists
of two properties, Butterfield Office Plaza, a property we formerly owned
solely, and Tower Lane Business Park ("Tower Lane"), which the venture
purchased on April 27, 1998. Upon forming the venture and acquiring Tower
Lane, the venture assumed a permanent mortgage loan encumbering the Tower
Lane property in the amount of approximately $3.7 million. The loan
matures in November, 2001, bears an interest rate of 8.35% and is payable
in monthly installments of interest and principal, with principal amortized
over a 264-month period. The financing secured by the Butterfield property
in the amount of approximately $9.9 million was also assumed by the
venture.

Cash Flows From Financing Activities: During the years ended
December 31, 1998 and 1997, financing activities generated $49.9 million
and $19.6 million, respectively. During the year ended December 31, 1998
these cash flows resulted primarily from approximately $55.9 million of net
proceeds from bonds and mortgage loans reduced by distributions paid to
shareholders of approximately $6.1 million. The cash flows provided by
financing activities for the year ended December 31, 1997 resulted
primarily from approximately $16.9 million of net proceeds from bonds and
mortgage loans and approximately $10.0 million of net proceeds from
issuance of shares reduced by distributions paid to shareholders of
approximately $4.5 million.

FINANCINGS:

On April 30, 1998, we entered into a $25 million line of credit
agreement (the "CCA Line") with Nomura Asset Capital Corporation
("Nomura"). Nomura subsequently assigned its interest to its subsidiary -
The Capital Company of America LLC ("CCA"). The CCA Line has an initial
term of twenty-four months. Draws on the line bear interest at a rate
equal to LIBOR plus 2.00%. We have an option to extend the line for one
additional year for a fee of $125,000. The agreement with CCA requires
that we satisfy certain financial covenants, including maintaining a
consolidated tangible net worth of at least $52.5 million and a leverage
ratio of debt to consolidated net worth of 3:1 or less. As of December 31,
1998, we had borrowed about $12.9 million on the CCA Line leaving
approximately $12.1 million available for future borrowing. We are
presently in the process of evaluating the adequacy of the amount of this
available credit and are exploring options to expand the debt capital
available to us on an interim and long-term basis for purposes of providing
financing for future acquisitions. At December 31, 1998, our debt to total
market capitalization ratio was 66.8% based upon the closing share price on
that date of $5.625.

On June 22, 1998 and May 22, 1998, we entered into three permanent
loan agreements with Nomura, which also were assigned to CCA. The first
loan, known as the "Pool A Loan", was in the amount of $38.3 million and
was funded on June 5, 1998. The second loan, known as the "Pool B Loan",
in the amount of $7.7 million, was funded June 5, 1998. The third loan,
known as the "Pool C Loan", was in the amount of $7.65 million and was
funded on June 30, 1998.

The Pool A Loan matures on June 11, 2028 and the Pool C Loan matures
on July 11, 2028. We may prepay either of these loans during the 90 days
preceding July 11, 2008. The interest rate is effectively 6.95% for the
first ten years of each loan. With respect to either loan, if we have not
repaid the loan by July 11, 2008, the interest rate will be increased by
2%.

The Pool B Loan matures on June 11, 2029, and we may prepay the loan
during the 90 days preceding June 11, 2009. The interest rate on the
Pool B Loan is 7.07% for the first eleven years of the loan. If we have
not repaid the loan by June 11, 2009, the interest rate will be reset and
will be equal to the sum of 5% per year plus the greater of: (i) 8.38%; or
(ii) a rate based on the rate of U.S. Treasury obligation with a maturity
date closest to that of the loan, plus 1.35% per year.

In addition to the prepayment options in 2008 and 2009 for these
loans, we may prepay all or part of the Pool A or Pool C Loans, on the
applicable release dates, by depositing with an escrow agent sufficient
funds to purchase U.S. Treasury obligations to repay the principal and
interest on the loans as if the loans had been held to maturity. The
"Release Dates" occur in September 2000 for the Pool A and Pool C Loans,
and in June 2002 for the Pool B Loan or, if earlier, two years after the
date the lender includes the applicable facility in a mortgage-backed
securitization program. In addition, if the ratio of net operating income
to principal and interest on the Pool B loan is less than 1.65:1.00 on
June 11, 1999 based on the net operating income of the property securing
the Pool B Loan, CCA can require that we repay a portion of the Pool B Loan
or add additional collateral to the pool.

Restrictions in the loan documents effectively prevent us from selling
any of the properties securing the loans until the release dates occur in
2000 and 2002. After the release date, we may make certain payments which
will cause the lender to release the mortgage on a particular property. In
addition, after the release date but before the optional prepayment dates
of July 11, 2008 (the Pool A and Pool C Loans) or June 11, 2009 (the Pool B
Loan), we may substitute different properties as collateral under each loan
as long as the loan amount collateralized by all properties replaced does
not exceed fifty percent of the total loan amount and certain other
conditions are satisfied.

The Pool A Loan is secured by cross-collateralized first mortgages on:

The Colonial Penn Building, Phoenix Business Park, Newtown Business Center,
Southlake Corporate Center, Technology Center, Airways Plaza Office Center,
Peachtree Pointe Office Park, Avalon Center Office Park, Sand Lake Tech
Center, Metric Plaza, Park Center, and University Corporate Center. The
Pool B Loan is secured by a first mortgage on the Lexington Business
Center. The Pool C Loan is secured by cross-collateralized first mortgages
on the Milwaukee Industrial Portfolio and Elmhurst Metro Court.

We used the proceeds from these loans to repay the amounts outstanding
under the CCA Line ($23.25 million) and the line of credit provided by
American National Bank ($20.65 million). We also repaid mortgage loans
secured by the Milwaukee Industrial Portfolio ($3.5 million) and the
Elmhurst Metro Court ($3.8 million). We used the balance of the CCA loan
proceeds to pay transaction related costs and for general operating
reserves.

During the third quarter of 1998, we borrowed $7.4 million under a
convertible term loan agreement entered into with a group of lenders in
October 1997. We used the proceeds to acquire the Johns Creek Office and
Industrial Park and Technology Park. The loan matures on September 30,
2002 and bears interest at 12% per year, payable quarterly. In addition,
on October 14 of each year, we are required to pay an annual fee equal to
2% of the amount outstanding as of that date. The amounts outstanding on
the loan are convertible, at the lenders' option, into Series A convertible
preferred shares at a conversion price of $100 per share or into common
shares at a conversion price of $5.15 per share. These lenders also had a
right exercisable until November 13, 1998 to purchase up to $12.6 million
in preferred or common shares. This right was not, however, exercised and
has expired.

IMPACT OF THE YEAR 2000

The Year 2000 issue, or Y2K for short, is the result of computer
programs utilizing two digits rather than four digits to define the
applicable year. Any of our computer programs or hardware that have date-
sensitive software or embedded chips may therefore recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a
system failure or in miscalculations causing disruptions of real estate
operations, such as the functioning of property mechanical systems, and
other activities, such as a temporary inability to process transactions,
generate invoices or reports, manage our portfolio, comply with regulatory
requirements or engage in similar normal business activities.

We have formed a Y2K Compliance Committee consisting of at least one
representative from each of our departments: legal, accounting, asset
management, investor relations and acquisitions. Our Y2K Compliance
Committee, in accordance with the Year 2000 Information and Readiness
Disclosure Act, has formulated the following Year 2000 Readiness
Disclosure:

We believe that the members of our committee, drawing upon their
various disciplines and resources available to them through professional
organizations and contacts, will collectively be able to formulate the
necessary initial questionnaires and inquiries described below and to
develop a comprehensive plan for testing and evaluating responses to our
inquiries.

Our committee will, as circumstances dictate, retain third party
consultants and professionals to assist it in evaluating technical issues
or making strategic recommendations for remedial action, if necessary.

We have established a plan for assessing and mitigating our exposure
to Y2K matters. The plan consists of several elements including a complete
upgrade of our computer hardware and software programs; assessing Y2K
compliance programs at each property and each property's reliance on
computer programs in operations; and inquiry and dialogue with our
significant suppliers, vendors and tenants as to their Y2K compliance
initiatives.

We have upgraded our networking, financial analysis, general ledger
and accounts payable software programs in order to minimize the potential
impact of Y2K at our headquarters. In addition, we expect to complete
testing procedures that will ensure that all upgraded systems will operate
subsequent to December 31, 1999. These testing procedures will include
simulating operating all systems at a date after December 31, 1999. As of
December 31, 1998, we have expended $35,000 on Y2K compliance issues. The
vast majority of these funds have been expended on the network and computer
software upgrades.

We anticipate a total expenditure of less than $50,000 on Y2K
compliance at our corporate headquarters. Based solely upon preliminary
discussions with our ten property managers, we do not presently anticipate
significant expenses at the property level. However, if there are
significant expenditures at the property level, we will revise our
projection of Y2K related costs.

We are also assessing the operations at each of our properties in an
effort to diagnose the impact that Y2K may have on property operations,
particularly mechanical systems. We anticipate completing this assessment
in the second quarter of 1999. At this time, we are gathering information
to evaluate what, if any, remedial action will be necessary and the
potential costs associated with the action.

We rely on various third parties to provide property level and other
administrative functions. We have sent a questionnaire to each of our
property managers inquiring about their ability to address the effect of
the Y2K issue on their own operations. To date, we have received responses
from nine of our ten property managers. Of the responding managers, five
have systems that, in their view, are Y2K compliant, three expect to become
compliant by the second quarter of 1999 and one expects to be compliant by
the third quarter of 1999. We are currently in the process of determining
whether or not the other property manager has addressed the Y2K issue and
anticipate that the process will be completed in the first quarter of 1999.

We intend to further verify and test each significant property
manager's compliance by the second quarter of 1999. The computerized
aspect of the relationship between us and our property managers is most
prevalent in the accounting and reporting functions from the property level
to our headquarters. We believe that the potential impact of a non-
compliant property manager is minimized because we have the right to cancel

our property management contracts generally on 30-day notice at no cost to
us. Therefore, any property managers who may not be Y2K compliant can be
replaced with a manager that has Y2K compliant systems. In spite of the
above steps to verify Y2K compliance, if any property manager is unable to
perform accounting functions after December 31, 1999, we expect to have the
internal capability to process all accounting transactions and to produce
financial statements needed to manage the properties and comply with our
reporting requirements.

We have also received Y2K reports from our payroll processing service
provider, our transfer agent and our principal bank. Our payroll service
provider has represented that it processes our payroll using Y2K compliant
software. Our principal bank represented that as of December 31, 1998, its
Y2K renovation and testing of its systems was substantially complete. The
remaining Y2K related system changes as well as external testing and
contingency planning is expected to be completed by June 30, 1999. Our
transfer agent has represented that all of its "mission critical" systems
and nearly all of its "non-mission critical" systems have been tested for
Y2K readiness. Furthermore, it continues to develop Business Resumption
Contingency Plans for each line of its business that will ensure operations
will continue with minimum disruption.

We are also in the process of contacting other service providers and
vendors to ascertain their ability to continue to provide goods and
services to us. We are developing a mechanism to continue the review and
assessment of service providers and vendors on a regular basis until
circumstances no longer warrant monitoring. Other than described in the
preceding paragraph, the future success of our operations is not closely
tied to any one third party vendor, supplier or service provider. As such,
if any of these third parties fails to conduct business due to Y2K related
problems, we expect to be able to contract with other third parties without
experiencing any material disruption of our operations or financial
condition. We cannot quantify the potential costs and uncertainties
associated with potential Y2K program flaws at this time as they may relate
to other organizations that we rely upon but we do not anticipate that the
effect of this potential computer program flaw upon our operations will be
significant.

As of December 31, 1998, we had over 500 tenants. Our ten (10)
largest tenants account for approximately twenty percent (20%) of our total
projected revenues for 1999 based on properties owned as of December 31,
1998. Because of our broad tenant base, our future operations,
particularly our ability to collect rent, is not closely tied to the
ability of any one particular tenant to pay rent or other charges. We
currently believe that there will not be a material adverse effect upon our
operations or financial condition if any one tenant or small group of
tenants ceases to conduct business (and pay rent) or is simply unable to
pay rent on a timely-basis due to Y2K problems. However, if a large number
of tenants, particularly several of the ten largest tenants, fail to pay
rent for an extended period of time, our cash flow may be adversely
effected. During the first quarter of 1999, we initiated contact with our
68 largest tenants to survey their plans to address Y2K related issues.
This sampling includes all tenants whose annual rental payments are greater
than $100,000.

We are currently formulating a contingency plan to address potential
failures:

- at our home office;
- at our properties;
- regarding our property managers;
- regarding our tenants;
- regarding our suppliers and vendors.

We expect to formulate our contingency plan by June 1999.

We are focusing our efforts on determining a contingency plan for what
we believe to be the most likely worst case scenario - an isolated failure
in one or two of the categories described above. For example, there is the
possibility that we may be unable to provide an adequate working
environment for some of our tenants due to the failure of building
mechanical, life safety or security systems. Furthermore, the worst case
scenario would include Y2K problems inhibiting our ability to collect rent
or preventing some of our tenants from paying rent caused by Y2K issues
unrelated to property operations. We could be subject to litigation for
failing to provide an adequate working environment for our tenants as a
result of Y2K computer system disruptions. More immediately, the tenants
may cease paying rent which could impact our liquidity. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.

We have not focused our contingency planning for a "doomsday" scenario
in which a near-universal malfunction of computers would have a sweeping
effect upon all businesses. It is unlikely that any planning we could
presently formulate would assist in the vast recovery process necessitated
by this unlikely event.

RISK FACTORS

REAL ESTATE RISKS

WE MAY NOT BE ABLE TO ACQUIRE ADDITIONAL PROPERTIES ON ACCEPTABLE
TERMS. The success of our business strategy depends in part on our ability
to acquire additional properties that satisfy our investment parameters.
We may not be able to identify properties that meet these standards or
acquire properties at a price that allows us to earn an attractive return
since we compete for acquisitions with other real estate investors, some of
whom have significantly greater resources at their disposal.

WE HAVE A LIMITED HISTORY WITH OUR EXISTING PROPERTIES AND HAVE
RECENTLY ACQUIRED MANY NEW PROPERTIES. We have acquired all of our
properties within the last six years and have acquired twenty of these
properties since January 1, 1997. Our most recently acquired properties,
and properties that we acquire in the future, may have characteristics or
deficiencies unknown to us that may impact their value or revenue
potential. We are currently experiencing a period of rapid growth. Our
ability to manage our growth effectively requires us to assimilate new
acquisitions into our portfolio with minimal operating disruptions and
unanticipated costs. We may not be able to successfully integrate these
properties into our portfolio or these properties may not perform as
expected.

WE COMPETE FOR TENANTS. All of our office and flex industrial
properties are located in highly-developed areas that include other office
and flex industrial properties. Some of these properties are newer or
better located than our properties. Further, our competitors may have
greater resources than we do, which could allow them to reduce rents to a
level that is not profitable for us. We may also have to spend money
upgrading or renovating our properties to make them attractive to both
existing and potential tenants thus increasing our expenses and reducing
our cash resources. The number of properties or other companies that
compete in our market areas could have a material effect on:

. our ability to lease space at our properties;
. the amount of rent that we can charge on new leases or
renewals;
. the dollar amount of tenant improvements or leasing commissions
required to lease a property; and
. the number of acquisition opportunities.

WE OWN PROPERTIES IN A LIMITED NUMBER OF MARKETS. Our properties are
located in the Midwestern and Southeastern United States, primarily
suburban Chicago, where we own properties that account for 19% of our gross
rental revenue, and suburban Atlanta, where we own properties that account
for 24% of our gross rental revenue. Our ability to maintain or increase
our revenues or to generate revenues that exceed our operating expenses is
affected by economic conditions in the Midwestern and Southeastern United
States. Like other real estate markets, these markets have experienced
economic downturns in the past and will likely experience downturns in the
future. Layoffs or downsizing, industry slowdowns, changing demographics,
increases in the supply of property or reduced demand for office or flex
industrial space may decrease our revenues or increase our operating
expenses or both.

LEASES ON APPROXIMATELY 19% OF OUR RENTABLE SQUARE FEET EXPIRE IN THE
NEXT TWELVE MONTHS. As leases expire, we may not be able to renew or re-
lease space at rates comparable to or better than the rates contained in
the expiring leases. Leases on a total of approximately 19% of our
rentable square feet will expire prior to December 31, 1999. If we fail to
renew or re-lease space at rates that are at least comparable to the rates
on expiring leases, the revenues generated by our properties will decline.
Further, we may have to spend significant sums of money to renew or re-
lease space covered by expiring leases, potentially reducing the amount of
money that we have available to distribute to you or to use for other
purposes.

OUR TENANTS MAY NOT PAY THEIR RENT OR MAY DECLARE BANKRUPTCY. We
derive substantially all of our revenue from leasing space at our
properties. Consequently, our ability to make distributions to you may be
negatively affected if tenants leasing a significant percentage of our
rentable square feet fail to pay their rent or if we are unable to
profitably lease space. We may experience substantial delays and incur
significant expenses enforcing our rights against tenants who do not pay
their rent. A tenant may also seek the protection of the bankruptcy laws
and delay making rental payments to us or actually reject or terminate its
lease under those laws. Even if a tenant did not seek the protection of
the bankruptcy laws, the tenant may from time to time experience a downturn
in its business which may weaken its financial condition and its ability to
make rental payments to us when due.

WE MAY NOT BE ABLE TO QUICKLY VARY OUR PORTFOLIO. Investments in real
estate are relatively illiquid. In addition, in order to continue
qualifying as a REIT, we are subject to rules and regulations which limit
our ability to sell properties within a short period of time. Further,
under the loan agreement with CCA, we may not sell any of the properties
that are mortgaged to secure payment prior to 2000. We have mortgaged
fifteen of our properties representing approximately 42% of our rentable
square footage to secure payment on the CCA loans. Thus, we may be unable
to sell a property even if market conditions or our financial condition
warrant such a sale.

WE ARE REQUIRED TO COMPLY WITH VARIOUS LAWS AND REGULATIONS. As an
owner of property, we are required to comply with a variety of federal,
state and local laws. Complying with these laws and regulations may
increase our operating expenses and reduce our profits. For example, we
are required to comply with laws and regulations that impose liability on a
property owner for the costs of removing or remediating certain hazardous
materials released on a property. We are subject to these laws even if we
are not aware of, or responsible for, releasing these materials. These
laws or regulations may also restrict the way that we can use a property or
the type of business which may be operated on the property. Further, if we
fail to comply with these laws or regulations by, for example, failing to
properly remediate a release of hazardous material, we may not be able to
sell the affected property or borrow money using the property as collateral

for a loan. We may also be required to pay money to individuals who are
injured due to the presence of hazardous materials on our property.
Although we are not aware of any hazardous materials at our properties,
these materials may exist and the cost of removing or remediating them may
be material and could adversely affect the value of the property affected.
We may also be required to pay the cost of removing or remediating
hazardous materials from a disposal or treatment facility to which we may
have shipped hazardous or toxic substances even if we never owned or
operated the disposal or treatment facility. Our properties must also
comply with the Americans with Disabilities Act. This act establishes
certain standards related to access and use of properties by disabled
persons. We may be required, for example, to remove any barriers to
access. If we fail to comply, the U.S. government may fine us or we may be
required to pay damages to a disabled person. Complying with these
requirements may increase our expenses and changes in these requirements
may result in unexpected expenses.

OUR OBJECTIVES MAY CONFLICT WITH THOSE OF OUR JOINT VENTURE PARTNERS.
We own eight of our properties, or approximately 30% of our rentable square
footage through controlling interest in joint ventures with various third
parties. We may purchase additional properties through joint ventures with
third parties. Investments in joint ventures which own properties may
involve risks that are not otherwise present when we wholly own the
property directly or through one of our subsidiaries. For example, our co-
venturer may file for bankruptcy protection or may have economic or
business interests or goals which are inconsistent with our goals or
interests. Further, although we own a controlling interest in each of
these ventures, we may owe fiduciary duties to our partners.

WE MAY NOT HAVE ENOUGH INSURANCE. We have customary comprehensive
liability, fire, flood, earthquake, extended coverage and rental loss
policies that insure us against losses at our properties with policy
specifications and insurance limits that we believe are reasonable. There
are certain types of losses, for example environmental, that we may decide
not to insure against since the cost of insuring for the loss is not
economically practical. We use our discretion in determining the amount of
coverage, the limits on this coverage and the deductibles that apply to the
coverage in an attempt to balance the amount of insurance that we purchase
and the cost of that insurance. We may, however, suffer losses that exceed
our insurance coverage. Further, inflation, changes in building codes and
ordinances or other factors such as environmental laws may make it too
expensive to repair or replace a property that has been damaged or
destroyed, even if covered by insurance.

PROPERTY TAXES MAY INCREASE. We are required to pay taxes based on
the assessed value of our properties to various taxing authorities such as
state or local governments. These taxing authorities may increase the tax
rate imposed on a property or may reassess property value, either of which
could increase our operating expenses.

REAL ESTATE FINANCIAL RISKS

WE OFTEN NEED TO BORROW MONEY TO FINANCE OUR BUSINESS. Our ability to
internally fund our capital needs is limited since we must distribute at
least 95% of our net taxable income (excluding net capital gains) to our
shareholders to qualify as a REIT. Consequently, we often borrow money to
fund our operating or capital needs, and may borrow monies to satisfy the
95% distribution requirement. The documents which govern how we may
conduct our business do not limit the amount of money that we may borrow.
Borrowing money to fund operating or capital needs exposes us to various
risks. For example, our properties may not generate enough cash to pay the

principal and interest obligations on our loans or we may violate a loan
covenant that results in the lender accelerating the maturity date of a
loan. As of December 31, 1998, we owed a total of approximately $151.6
million, including approximately $144.2 million secured by mortgages on
certain of our properties. If we fail to make timely payments on our
loans, including those cases where a lender has accelerated the maturity
date due to a violation of a loan covenant, the lenders could foreclose on
the properties securing their loans and we could lose our entire investment
in those properties. Once a loan becomes due, we must either pay the
remaining balance or borrow new money to pay off the maturing loan. We may
not, however, be able to obtain a new loan, or the terms of the new loan,
such as the interest rate or payment schedule, may not be as favorable as
the terms of the maturing loan. Thus, we may be forced to sell a property
at an unfavorable price to pay off the maturing loan or agree to less
favorable loan terms. A total of $2.0 and $15.0 million of our
indebtedness matures on or before December 31, 1999 and 2000 respectively.

We occasionally enter into loans where the interest rate may be
increased from time to time. As of December 31, 1998, we owed
approximately $17.7 million that bore interest at variable rates. We may
borrow additional amounts that bear interest at variable rates. If
interest rates increase, the amount of interest that we are required to pay
on these borrowings will also increase. Any such increase would increase
our operating expenses and potentially impact in a negative manner our
ability to pay distributions to our shareholders.

WE MAY CHANGE OUR INVESTMENT POLICIES WITHOUT YOUR APPROVAL. Our
investment policies, including the type of properties that we purchase, the
manner in which these properties are managed and the amount of money that
we borrow are all determined by our board and may be changed without your
approval.

WE DEPEND ON A SMALL NUMBER OF KEY PERSONNEL. Our success depends, in
part, on the efforts of our principal executive officers, particularly
Messrs. Levine, Hansen, Schmidt and Teglia. Although we have entered into
employment contracts with each of these individuals, the loss of their
services could have an adverse effect on our operations.

THIRD PARTIES MAY BE DISCOURAGED FROM MAKING ACQUISITION OR OTHER
PROPOSALS THAT MAY BE IN YOUR BEST INTERESTS. Under our Declaration, no
single person or group of persons (an entity is considered a person) may
own more than 9.9% of our outstanding common shares. The employment
contracts we have with each of our senior executives also require us to
make certain payments to these individuals if a "change of control" occurs.
A "change of control" is defined in each of these agreements to mean that
the members of the board of trustees as of the date the agreement is signed
fail to constitute a majority of the board members provided that if the
chief executive officer consents to a new board member, that person is
treated for purposes of this test as if he or she was a member of the board
at the time that the agreement was signed. These provisions may prevent or
discourage a third party from making a tender offer or other business
combination proposal such as a merger, even if such a proposal would be in
the best interest of our shareholders.

WE MIGHT FAIL TO QUALIFY AS A REIT. If we fail to qualify as a REIT,
we would not be allowed to deduct amounts distributed to our shareholders
in computing our taxable income and would incur substantially greater
expenses for taxes and would have less money available to distribute to
you. We would also be subject to federal income tax at regular corporate
rates as well as potentially the alternative minimum tax. Unless we
satisfied some exceptions, we could not elect to be taxed as a REIT for the
four taxable years following the year during which we were disqualified.
We may fail to qualify as a REIT if, among other things:

. less than 75% of the value of our total assets consists of real
estate assets, cash and government securities at the close of each fiscal
quarter;

. more than 5% of the value of our assets consists of securities
of any one issuer or we hold more than 10% of the outstanding voting
securities of any one issuer at the close of each fiscal quarter;

. less than 75% of our gross income is generated from rents from
real property, interest on obligations secured by mortgages, gain from the
sale of property, and certain other property-related revenue sources; or

. we fail to distribute at least 95% of our taxable income to our
shareholders.

If we fail to distribute enough money to satisfy the REIT
requirements, we may also have to pay a non-deductible excise tax. This tax
is equal to 4% of the amount in any year that our distributions are less
than the sum of 85% of our ordinary income in the current year plus 95% of
our net income from capital gains in the current year plus 100% of the
taxable income that we did not distribute in prior years. We may also lose
our REIT status if the Internal Revenue Service were to successfully
challenge the tax status of the Operating Partnership as a partnership for
federal income tax purposes. In this case the Operating Partnership would
be taxable as a corporation and we would lose our status as a REIT if we
did not own 100% of the Operating Partnership. If the Operating Partnership
were to be required to pay taxes as a corporation, it would substantially
reduce the amount of money that the Operating Partnership would have to
distribute to us and ultimately to you.

WE MAY SPEND ADDITIONAL MONEY ON OUR COMPUTER PROGRAMS DUE TO THE YEAR
2000 ISSUE. See IMPACT OF YEAR 2000 above.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We do not engage in any hedge transaction or in the ownership of any
derivative financial instruments. To mitigate the impact of fluctuations
in interest rates, we generally maintained over 70% of our debt as fixed
rate in nature by borrowing on a long-term basis.

As of December 31, 1998, we had approximately $151.6 million of
outstanding long-term debt, of which $17.7 million bears interest at
variable rates. As of December 31, 1998, the weighted-average interest
rate on this variable rate debt was 6.84%. If interest rates on this
variable rate debt increased by one percentage point (1%), interest expense
would increase by $177,000 on an annual basis.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

BANYAN STRATEGIC REALTY TRUST
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----

Report of Independent Auditors 35

Consolidated Balance Sheets, December 31, 1998 and 1997 36

Consolidated Statements of Operations For the Years Ended
December 31, 1998, 1997 and 1996 38

Consolidated Statements of Shareholders' Equity For the
Years Ended December 31, 1998, 1997 and 1996 40

Consolidated Statements of Cash Flows For the Years Ended
December 31, 1998, 1997 and 1996 41

Notes to Consolidated Financial Statements 43

Schedule
--------
Consolidated Real Estate and
Accumulated Depreciation III

SCHEDULES NOT FILED:

All schedules other than those indicated in the above index are
omitted since the required information is not present or is not present in
amounts sufficient to require submission of the schedule or because the
information required is included in the consolidated financial statements
and notes thereto.

REPORT OF INDEPENDENT AUDITORS

TO THE SHAREHOLDERS OF BANYAN STRATEGIC REALTY TRUST

We have audited the accompanying consolidated balance sheets of Banyan
Strategic Realty Trust as of December 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1998. Our
audits also included the financial statement schedule listed in the index
at Item 8. These financial statements and schedule are the responsibility
of the Trust's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.

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

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Banyan Strategic Realty Trust at December 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

ERNST & YOUNG LLP

Chicago, Illinois
February 9, 1999

BANYAN STRATEGIC REALTY TRUST

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

December 31, December 31,
1998 1997
------------- ------------

ASSETS
- ------

Investment in Real Estate, at cost:
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38,600 $ 26,143
Building. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,554 125,459
Building Improvements . . . . . . . . . . . . . . . . . . . . . . . 9,762 4,418
-------- --------
220,916 156,020
Less: Accumulated Depreciation. . . . . . . . . . . . . . . . . . . (11,427) (6,634)
-------- --------
209,489 149,386
-------- --------

Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . 3,731 4,429
Restricted Cash - Capital Improvements. . . . . . . . . . . . . . . . 1,407 763
Restricted Cash - Other . . . . . . . . . . . . . . . . . . . . . . . 1,250 831
Interest and Accounts Receivable. . . . . . . . . . . . . . . . . . . 1,544 862
Deferred Financing Costs (Net of Accumulated Amortization
of $1,246 and $1,112, respectively) . . . . . . . . . . . . . . . . 1,893 1,269
Other Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,276 2,094
-------- --------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $222,590 $159,634
======== ========

BANYAN STRATEGIC REALTY TRUST

CONSOLIDATED BALANCE SHEETS - CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

December 31, December 31,
1998 1997
------------- ------------

LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities
Mortgage Loans Payable. . . . . . . . . . . . . . . . . . . . . . . . $123,108 $ 70,503
Bonds Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,140 21,615
Unsecured Loan Payable. . . . . . . . . . . . . . . . . . . . . . . . 7,400 --
Accounts Payable and Accrued Expenses . . . . . . . . . . . . . . . . 2,625 1,858
Accrued Real Estate Taxes Payable . . . . . . . . . . . . . . . . . . 967 796
Accrued Interest Payable. . . . . . . . . . . . . . . . . . . . . . . 636 296
Unearned Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . 758 276
Security Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 1,373 711
-------- --------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 158,007 96,055
-------- --------

Minority Interest in Consolidated Partnerships. . . . . . . . . . . . 2,149 1,264

Shareholders' Equity
Shares of Beneficial Interest, No Par Value,
Unlimited Authorization; 14,912,495 and 14,761,850 Shares
Issued, respectively. . . . . . . . . . . . . . . . . . . . . . . 119,872 119,013
Accumulated Deficit . . . . . . . . . . . . . . . . . . . . . . . . . (50,072) (49,332)
Treasury Shares at Cost, 1,522,649 Shares . . . . . . . . . . . . . . (7,366) (7,366)
-------- --------
Total Shareholders' Equity. . . . . . . . . . . . . . . . . . . . . . 62,434 62,315
-------- --------
Total Liabilities and Shareholders' Equity. . . . . . . . . . . . . . $222,590 $159,634
======== ========

<FN>
The accompanying notes are an integral part of the consolidated financial statements.

BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

FOR THE YEARS ENDED DECEMBER 31
---------------------------------------------
1998 1997 1996
---------- ---------- ----------

REVENUE
Rental Income . . . . . . . . . . . . . . . . . . . $ 34,470 $ 25,370 $ 18,607
Operating Cost Reimbursement. . . . . . . . . . . . 3,491 2,441 1,936
Miscellaneous Tenant Income . . . . . . . . . . . . 1,146 707 260
Interest and Amortized Discount on Mortgage Loans . -- -- 442
Income on Investments and Other Income. . . . . . . 309 267 159
-------- -------- --------
Total Revenue . . . . . . . . . . . . . . . . . . . . 39,416 28,785 21,404
-------- -------- --------
EXPENSES
Property Operating. . . . . . . . . . . . . . . . . 5,762 5,206 4,296
Repairs and Maintenance . . . . . . . . . . . . . . 4,041 2,595 2,378
Real Estate Taxes . . . . . . . . . . . . . . . . . 2,720 1,995 1,748
Interest. . . . . . . . . . . . . . . . . . . . . . 9,778 6,447 4,011
Ground Lease. . . . . . . . . . . . . . . . . . . . 926 893 872
Depreciation and Amortization . . . . . . . . . . . 5,212 3,490 2,453
General and Administrative. . . . . . . . . . . . . 4,614 4,315 3,126
Amortization of Deferred Financing Costs. . . . . . 272 723 512
Recovery of Losses on Loans, Notes and
Interest Receivable . . . . . . . . . . . . . . . -- (161) (17)
-------- -------- --------
Total Expenses. . . . . . . . . . . . . . . . . . . . 33,325 25,503 19,379
-------- -------- --------
Income Before Minority Interest, Income
(Loss) from Operations of Real Estate Ventures,
Net Gains and Extraordinary Item. . . . . . . . . . 6,091 3,282 2,025
Minority Interest in Consolidated Partnerships. . . . (572) (590) (481)
Income (Loss) from Operations of Real Estate Ventures -- 37 (3,301)
-------- -------- --------
Income (Loss) before Net Gains and
Extraordinary Item. . . . . . . . . . . . . . . . . 5,519 2,729 (1,757)
Net Gain on Disposition of Investments in Real Estate -- 881 --
-------- -------- --------
Income (Loss) Before Extraordinary Item . . . . . . . 5,519 3,610 (1,757)

Extraordinary Item, Net of Minority Interest. . . . . (141) (64) --
-------- -------- --------
Net Income (Loss) . . . . . . . . . . . . . . . . . . $ 5,378 $ 3,546 $ (1,757)
======== ======== ========

BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

FOR THE YEARS ENDED DECEMBER 31
-----------------------------------------------
1998 1997 1996
------------ ------------ ------------

Earnings Per Share of Beneficial Interest - Basic:
Income (Loss) before Net Gains
and Extraordinary Item. . . . . . . . . . . . . . $ 0.41 $ 0.24 $ (0.17)
======== ======== ========

Net Income (Loss) . . . . . . . . . . . . . . . . . $ 0.40 $ 0.32 $ (0.17)
======== ======== ========

Earnings Per Share of Beneficial Interest - Diluted:
Income (Loss) before Net Gains
and Extraordinary Item. . . . . . . . . . . . . . $ 0.40 $ 0.24 $ (0.17)
======== ======== ========

Net Income (Loss) . . . . . . . . . . . . . . . . . $ 0.39 $ 0.32 $ (0.17)
======== ======== ========

<FN>
The accompanying notes are an integral part of the consolidated financial statements.

BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)

Shares of
Beneficial Interest
------------------------- Accumulated Treasury
Shares Amount Deficit Shares Total
--------- ------------ ------------ ------------ --------

Shareholders' Equity,
January 1, 1996. . . . . . . 11,999,787 $106,687 $(42,446) $ (7,366) $ 56,875

Award Shares Issued . . . . . 1,833 8 -- -- 8

Net Loss. . . . . . . . . . . -- -- (1,757) -- (1,757)

Distributions Paid. . . . . . -- -- (4,191) -- (4,191)
---------- -------- -------- -------- --------
Shareholders' Equity,
December 31, 1996. . . . . . 12,001,620 106,695 (48,394) (7,366) 50,935

Issuance of Shares,
net of issuance costs. . . . 2,264,595 9,999 -- -- 9,999

Award Shares Issued . . . . . 495,635 2,319 -- -- 2,319

Net Income. . . . . . . . . . -- -- 3,546 -- 3,546

Distributions Paid. . . . . . -- -- (4,484) -- (4,484)
---------- -------- -------- -------- --------
Shareholders' Equity,
December 31, 1997. . . . . . 14,761,850 $119,013 $(49,332) $ (7,366) $ 62,315

Issuance of Shares,
net of issuance costs. . . . 150,645 859 -- -- 859

Net Income. . . . . . . . . . -- -- 5,378 -- 5,378

Distributions Paid. . . . . . -- -- (6,118) -- (6,118)
---------- -------- -------- -------- --------
Shareholders' Equity,
December 31, 1998. . . . . . 14,912,495 $119,872 $(50,072) $ (7,366) $ 62,434
=========== ======== ======== ======== ========

<FN>
The accompanying notes are an integral part of the consolidated financial statements.

BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
-------- -------- --------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) . . . . . . . . . . . . . . . . . . $ 5,378 $ 3,546 $ (1,757)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities:
Recovery of Losses on Loans, Notes and
Interest Receivable . . . . . . . . . . . . . . . -- (162) (17)
Extraordinary Item, Net of Minority Interest. . . . 141 64 --
Net Gain on Disposition of Investments in
Real Estate . . . . . . . . . . . . . . . . . . . -- (881) --
Depreciation and Amortization . . . . . . . . . . . 5,484 4,214 2,965
Amortization of Discount on Mortgage Loans
Receivable. . . . . . . . . . . . . . . . . . . . -- -- (35)
Net (Income) Loss From Operation of
Real Estate Ventures. . . . . . . . . . . . . . . -- (37) 3,301
Minority Interest in
Consolidated Partnerships . . . . . . . . . . . . 572 590 481
Incentive Compensation. . . . . . . . . . . . . . . -- 1,213 730
Net Change In:
Restricted Cash - Other . . . . . . . . . . . . . (419) 188 (121)
Interest and Accounts Receivable. . . . . . . . . (682) (15) (581)
Other Assets. . . . . . . . . . . . . . . . . . . (1,676) (753) (299)
Accounts Payable and Accrued Expenses . . . . . . 767 423 721
Accrued Interest Payable. . . . . . . . . . . . . 340 73 131
Accrued Real Estate Taxes Payable . . . . . . . . 171 4 54
Unearned Revenue. . . . . . . . . . . . . . . . . 482 44 158
Security Deposits . . . . . . . . . . . . . . . . 662 133 (1)
-------- -------- --------
Net Cash Provided By Operating Activities . . . . . . 11,220 8,644 5,730
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Real Estate Assets . . . . . . . . . (55,874) (37,537) (9,313)
Investment In Real Estate Ventures, Net . . . . . . -- 290 (119)

BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(DOLLARS IN THOUSANDS)

FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
-------- -------- --------
Proceeds from Sale of Mortgage Loans
Receivable. . . . . . . . . . . . . . . . . . . . $ -- $ -- $ 5,440
Proceeds From Sale of Investments in
Real Estate . . . . . . . . . . . . . . . . . . . -- 12,484 --
Additions to Investment in Real Estate. . . . . . . (5,347) (2,499) (1,969)
Earnest Money Deposits. . . . . . . . . . . . . . . 75 225 (300)
Restricted Cash - Capital Improvements. . . . . . . (644) (734) (29)
Other . . . . . . . . . . . . . . . . . . . . . . . -- 196 (308)
-------- -------- --------
Net Cash Used In Investing Activities . . . . . . . . (61,790) (27,575) (6,598)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Bonds and Loans Payable . . . . . . . 108,709 64,470 15,945
Investment From (Distributions To)
Minority Partners . . . . . . . . . . . . . . . . 338 (1,681) (358)
Deferred Financing Costs. . . . . . . . . . . . . . (926) (1,200) (637)
Principal Payments on Mortgage Loans and
Bonds Payable . . . . . . . . . . . . . . . . . . (52,854) (47,549) (11,586)
Distributions Paid to Shareholders. . . . . . . . . (6,118) (4,484) (4,191)
Prepayment Penalties on Early Extinguishment of Debt (136) -- --
Shares Issued, Net of Issuance Costs. . . . . . . . 859 9,999 --
-------- -------- --------
Net Cash Provided By (Used In) Financing Activities . 49,872 19,555 (827)
-------- -------- --------
Net Increase (Decrease) In Cash and Cash Equivalents. (698) 624 (1,695)
Cash and Cash Equivalents at Beginning of Year. . . . 4,429 3,805 5,500
-------- -------- --------
Cash and Cash Equivalents at End of Year. . . . . . . $ 3,731 $ 4,429 $ 3,805
======== ======== ========
Supplemental Information:
Interest Paid During the Year . . . . . . . . . . . $ 9,438 $ 6,374 $ 3,881
======== ======== ========
Non-cash financing activities:
Debt assumed upon acquisition
of real estate. . . . . . . . . . . . . . . . . . $ 3,675 $ 21,616 $ 5,700
======== ======== ========

<FN>
The accompanying notes are an integral part of the consolidated financial statements.

BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Banyan Strategic Realty Trust (the "Trust") was organized as a
business trust in 1986 under the laws of the Commonwealth of Massachusetts.

The business of the Trust is the ownership and operation of real estate
properties. At December 31, 1998, the Trust owned thirty-two properties
located principally in the Midwest and Southeast United States. See Note 8
for information with respect to the Trust's business segments.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying consolidated financial statements include the
accounts of the Trust, its wholly-owned subsidiaries and its controlled
Partnerships. In all of its partnerships, the Trust is the managing
general partner and retains sole authority over all significant decisions.
All intercompany balances and transactions have been eliminated in
consolidation. Investment in a Real Estate Venture disposed of in 1997 was
accounted for on the equity method (see Note 6).

INVESTMENT IN REAL ESTATE

Costs incurred with respect to third parties for the acquisition,
development, construction and improvement of properties are capitalized.
Certain costs of yet-to-be acquired properties, including deposits and
professional fees, are capitalized as other assets. These costs are
subsequently capitalized as property acquisition costs or charged to
expense when it becomes apparent that acquisition of a particular property
is not probable. Maintenance and repairs are charged to expense when
incurred.

Depreciation of buildings is computed using the straight-line method
over the estimated useful lives of the assets; generally 40 years.
Depreciation of tenant improvements is computed using the straight-line
method over the shorter of the lease term or useful life. For the years
ended December 31, 1998, 1997 and 1996, depreciation expenses amounted to
$4,793, $3,282 and $2,355, respectively.

The Trust recognizes impairment losses for its properties when
indicators of impairment are present and a property's expected undiscounted
cash flows are not sufficient to recover the property's carrying amount.

The Trust classifies its real estate properties as held for sale when
its Board of Trustees has authorized the sale and an active program to find
a buyer has been initiated. The Trust currently classifies none of its
properties as held for sale.

DEFERRED FINANCING COSTS

Deferred financing costs are amortized over the term of the related
loans.

REVENUE RECOGNITION

Minimum rentals are recognized on a straight-line basis over the term
of the related leases. Additional rents in the form of operating expense
reimbursements for common area maintenance expenses and real estate taxes
are recognized in the period in which the related expenses are incurred.

BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Trust believes the carrying amount of its financial instruments
approximates fair value at December 31, 1998 and 1997, because (i) the
fixed rates on mortgage loans payable are comparable to rates currently
offered in the market, (ii) the rates on the line of credit and bonds
payable are variable and the terms are comparable to those currently
offered in the market and (iii) the maturities of the Trust's cash
equivalents are relatively short.

INCOME TAXES

For the years ended December 31, 1998, 1997 and 1996, the Trust
elected to be treated as a real estate investment trust ("REIT") under
Internal Revenue Code Sections 856-860. In order to qualify, the Trust is
required to distribute at least 95% of its "REIT" taxable income to
shareholders, meet asset and income tests and comply with certain other
requirements.

As of December 31, 1998, Investment in Real Estate has a gross and net
basis, respectively, of $220,916 and $209,489, respectively, for income tax
purposes. Additionally, investment in a liquidating trust with a tax basis
of $675 has not been accorded any value for financial reporting purposes.

As of December 31, 1998, the Trust has a net operating loss carry-
forward of $18,952 which will expire in 2005 ($444), 2006 ($10,266), 2008
($789) and 2012 ($7,453).

CASH EQUIVALENTS

The Trust considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents.

RESTRICTED CASH

Restricted cash represents amounts held by lenders to provide for
future real estate tax expenditures and tenant improvements, utility
deposits and security deposits. Certain of these amounts may be reduced
upon the fulfillment of certain conditions.

STOCK OPTIONS

The Trust has elected to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25), in accounting
for its stock options. Under APB 25, no compensation expense is recognized
because the exercise price of the Trust's employee stock options equals or
exceeds the market price of the underlying stock at the date of grant.

USE OF ESTIMATES

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

BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

RECLASSIFICATIONS

Certain reclassifications have been made to the previously reported
1997 and 1996 consolidated financial statements in order to provide
comparability with the 1998 consolidated financial statements. These
reclassifications have not changed the 1997 or 1996 results.

3. EARNINGS PER SHARE

BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The following table sets forth the computation of basic and diluted earnings per share:

1998 1997 1996
---------- ----------- ----------

Numerator:
Income (Loss) before Net Gains and
Extraordinary Item. . . . . . . . . . . . . . . . . . $ 5,519 $ 2,729 $ (1,757)
Net Gains (a). . . . . . . . . . . . . . . . . . . . . -- 881 --
Extraordinary Item, Net of Minority Interest . . . . . (141) (64) --
---------- ---------- ----------
Net Income (Loss) . . . . . . . . . . . . . . . . . $ 5,378 $ 3,546 $ (1,757)
========== ========== ==========
Denominator:
Denominator for basic earnings per
weighted-average shares. . . . . . . . . . . . . . . 13,307,658 11,149,982 10,478,410

Effect of dilutive securities:
Employee stock options . . . . . . . . . . . . . . . 28,603 4,942 --
Convertible debt . . . . . . . . . . . . . . . . . . 463,401 90,318 --
---------- ----------- -----------
Dilutive potential common shares . . . . . . . . . . . 492,004 95,260 --

Denominator for diluted earnings per share-adjusted
weighted-average shares and assumed conversions . 13,799,662 11,245,242 10,478,410
========== =========== ===========

Basic Earnings Per Share:
Income (Loss) before Net Gains and
Extraordinary Item . . . . . . . . . . . . . . . . . $ 0.41 $ 0.24 $ (0.17)
Net Gains (a) . . . . . . . . . . . . . . . . . . . . -- 0.08 --
Extraordinary Item, Net of Minority Interest. . . . . (0.01) -- --
---------- ----------- -----------
Net Income (Loss) . . . . . . . . . . . . . . . . $ 0.40 $ 0.32 $ (0.17)
========== =========== ===========
Diluted Earnings Per Share:
Income (Loss) before Net Gains and
Extraordinary Item . . . . . . . . . . . . . . . . . $ 0.40 $ 0.24 $ (0.17)
Net Gains (a) . . . . . . . . . . . . . . . . . . . . -- 0.08 --
Extraordinary Item, Net of Minority Interest. . . . . (0.01) -- --
---------- ----------- -----------
Net Income (Loss) . . . . . . . . . . . . . . . . $ 0.39 $ 0.32 $ (0.17)
========== =========== ===========

BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

<FN>

(a) Net gains include gain on disposition of investment in real estate, loss on disposition of investment in real
estate venture and gain on disposition of partnership interest.

For purposes of the computation of diluted earnings per share, options to purchase 133,000 common shares at $6.375
per share that were outstanding during 1998 and 1997 were not included in the 1997 computation and for certain periods
of the 1998 computation because the options' exercise price was greater than the average market price of the common
shares and, therefore, the effect would be antidilutive.

The effect of conversion of $7,400 of convertible debt was not included in the calculations since the effect was
antidilutive.

For additional information relating to convertible debt and employee stock options, see notes 4 and 12.

BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

4. LONG-TERM DEBT

The Trust's long-term debt consists of the following at December 31,
1998 and 1997:

1998 1997
----------------------- -------------------------
Weighted Weighted
Average Average
Interest Interest
Balance Rate Balance Rate
--------- -------- ------------ --------
Mortgage
loans. . . . $123,108 7.44% $ 70,503 7.90%
Bonds . . . . 21,140 6.77% 21,615 6.85%
-------- -------- ---------- --------
Total
collaterized
debt . . . . $144,248 7.34% $ 92,118 7.65%
======== ======== ========== ========
Unsecured
loans. . . . $ 7,400 12.00% -- --
======== ======== ========== ========

The mortgage loans have fixed interest rates that ranged from 6.95% to
8.89% at December 31, 1998. Bonds payable at December 31, 1998 include
$4,800 of variable rate tax exempt revenue bonds which bear interest equal
to 5.0% per annum and $16,340 of fixed rate combined taxable and tax exempt
revenue bonds which bear interest at a blended rate equal to 7.3%.
Substantially all of the mortgage loans and bonds contain prepayment
penalties. During 1998 and 1997, the Trust recognized extraordinary losses
of $141 and $64, respectively, related to prepayments on refinanced debt
and the writeoff of unamortized financing costs. Substantially all of the
Trust's real estate is pledged as collateral for the mortgage loans and
bonds.

On April 30, 1998, the Trust entered into a $25 million line of credit
agreement (the "Revolving Line"). Borrowings under the Revolving Line bear
interest at an annual rate of LIBOR plus 2.00% payable monthly. The
Revolving Line has an initial term of twenty-four months. The Trust has an
option to extend the Revolving Line for one additional year for a fee of
$125. As of December 31, 1998, the Trust had borrowed approximately $12.9
million on the Revolving Line (included in Mortgage Loans), leaving
approximately $12.1 million available for future borrowing.

During 1998, the Trust borrowed $7.4 million pursuant to its $20
million 1997 Convertible Term Loan Agreement for an unsecured convertible
term loan (the "Unsecured Loan"). The Unsecured Loan bears interest at an
annual interest rate of 12% payable quarterly and matures on September 30,
2002. In addition, on October 14, of each year, the Trust is required to
pay an annual fee equal to 2% of the amount outstanding as of that date.
The amounts outstanding on the Unsecured Loan are convertible into Series A
convertible preferred shares at a conversion price of $100 per share or
into common shares at a conversion price of $5.15 per share. In addition,
the lenders had the option to purchase Series A convertible preferred
shares to the extent that any part of the $20 million loan commitment was
unused in an amount equal to the unfunded portion at a price equal to $100
per preferred share. These preferred shares would also be convertible into
common shares at a conversion price of $5.15 per share. No preferred
shares were issued prior to the termination of the purchase option on
November 13, 1998.

BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The principal balance of the Trust's long-term debt at December 31,
1998, is scheduled to be repaid as follows:

1999 . . . . . . . . . . . . $ 2,007
2000 . . . . . . . . . . . . 15,023
2001 . . . . . . . . . . . . 5,705
2002 . . . . . . . . . . . . 12,026
2003 . . . . . . . . . . . . 13,956
Thereafter . . . . . . . . . 102,931
--------
$151,648
========

5. SHARE PURCHASE AGREEMENT

Simultaneously with the execution of the Convertible Term Loan
Agreement, the Trust entered into a Share Purchase Agreement (the
"Agreement") with the same group of accredited investors to which the Trust
issued the Unsecured Loan (see Note 4). Under the Agreement, the Trust
sold, in October 1997, 2,192,501 shares of beneficial interest at $5.00 per
share, for an aggregate gross proceeds of approximately $11 million. The
Trust paid approximately $1.4 million of transaction costs in connection
with the share issuance.

6. INVESTMENT IN REAL ESTATE

ACQUISITION ACTIVITIES

The following properties were acquired in 1998 and 1997; the results
of their operations are included in the consolidated statements of
operations from their respective dates of acquisition.

1998
- ----
Purchase
Date of Price
Property's Name Acquisi- (in
and Location tion millions) Description
- --------------- --------- --------- ----------------

Peachtree Pointe 01/20/98 $4.6 Five one-story
Office Park office buildings
Norcross, GA

Avalon Center 03/20/98 4.4 Two one-story
Office Park office buildings
Norcross, GA

Avalon Ridge 04/24/98 3.9 Two one-story
Business Park flex/industrial
Norcross, GA

Tower Lane 04/27/98 5.2 Two one-story
Business Park (1) flex/industrial
Bensenville, IL buildings

University 04/30/98 10.2 Seven one-story
Corporate Center flex/industrial
Winter Park, FL buildings

BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Purchase
Date of Price
Property's Name Acquisi- (in
and Location tion millions) Description
- --------------- --------- --------- ----------------

Metric Plaza 04/30/98 $2.6 Two one-story
Winter Park, FL flex/industrial
buildings

Park Center 04/30/98 3.7 Two one-story
Orlando, FL flex/industrial
buildings

Sand Lake 04/30/98 6.8 Five one-story
Tech Center office buildings
Orlando, FL

Johns Creek 08/14/98 5.8 Two flex/indus-
Office and trial buildings
Industrial Park
Duluth and Suwanne, GA

Technology Park 08/14/98 12.4 Three office
Norcross, GA buildings
-----
Total $59.6
=====

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

(1) Upon the acquisition of Tower Lane, the Trust assumed a permanent
mortgage loan in the amount of approximately $3.7 million.

BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

1997
- ----
Purchase Acquisition
Date of Price Financing
Property's Name Acquisi- (in (in millions)
and Location tion millions) (1) Description
- --------------- -------- --------- ----------- ----------------
[S] [C] [C] [C] [C]
Phoenix Business 01/15/97 $ 5.5 Three-building
Park office/industrial
Atlanta, GA complex

Butterfield Office04/30/97 15.1 Three-story
Plaza office building
Oak Brook, IL

Woodrun Village 05/22/97 4.6 $3.6 Apartment complex
Apartments
Yukon, OK

Country Creek 05/22/97 7.5 5.9 Apartment complex
Apartments
Oklahoma City, OK

Willowpark 05/22/97 4.5 3.5 Apartment complex
Apartments
Lawton, OK

Winchester Run 05/22/97 4.5 3.6 Apartment complex
Apartments
Oklahoma City, OK

Southlake 07/30/97 4.5 Three-story
Corporate Center office building
Morrow, GA

University Square 08/26/97 7.3 5.0 Six one-story
Business Center office building
Huntsville, AL

Technology Center 08/26/97 2.5 Three-story
Huntsville, AL office building

Airways Plaza 12/10/97 3.2 Five one-story
Office Center office buildings
Memphis, TN
----- -----
Total $59.2 $21.6
===== =====
- ----------------

(1) Represents the amount of permanent mortgage financing assumed at the
time of acquisition. All other additional acquisition costs were paid by
either a draw upon the Trust's line of credit or from cash and cash
equivalents.

BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

DISPOSITION ACTIVITIES

H STREET ASSEMBLAGE

Prior to 1998, the Trust had a 53% interest in a venture that owned
17,000 square feet of undeveloped land in downtown Washington, D.C. plus an
approximately 55,900 square foot office building (the "H Street
Assemblage"). During 1996, based on sales agreements for the H Street
Assemblage, the Trust recorded a valuation allowance of $3,180 which was
included in loss from operations of real estate ventures in the 1996
consolidated statement of operations. The H Street Assemblage was sold in
1997 and the Trust recognized a loss of approximately $61. The Trust has
no further interest in the H Street Assemblage.

OTHER

During 1997, the Trust sold its interests in Hallmark Village
Apartments and the Colonial Courts Apartments. The Trust received proceeds
of approximately $7.3 million and recognized a gain of approximately $942.

7. PRO FORMA INFORMATION (UNAUDITED)

The following unaudited pro forma summary presents information as if
the Trust's property acquisitions, property dispositions, and sales of
shares of beneficial interests through December 31, 1998 had occurred at
the beginning of each year. The pro forma information is provided for
information purposes only. It is based on historical information and does
not necessarily reflect the actual results that would have occurred nor is
it necessarily indicative of future results of operations of the Company.

Years Ended December 31,
-----------------------------
1998 1997
----------- -----------

Total revenue. . . . . . . . $ 42,260 $ 39,368
Net income . . . . . . . . . 5,187 3,756
Basic earnings per share . . 0.39 0.29
Diluted earnings per share . 0.38 0.28

8. BUSINESS SEGMENTS

The Trust acquires and operates real estate properties located
principally in the Midwest and Southeast United States. The Trust has four
operating segments corresponding to the four property types comprising its
real estate assets: flex/industrial, office, residential and retail. As
of December 31, 1998, the flex/industrial segment comprised of thirteen
complexes with long-term leases to approximately 210 tenants; the office
segment comprised of fourteen office sites with long-term leases to
approximately 280 tenants; the residential segment comprised of four
apartment complexes with 864 units leased principally for six months; and
the retail segment was comprised of one retail center with long-term leases
to approximately 50 tenants. The Trust's long-term tenants are in a
variety of business and no single tenant is significant to the Trust's
business.

BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Information by business segments is set forth below:

1998 1997 1996
-------- -------- --------
Revenue
Flex/Industrial . $ 10,838 $ 7,830 $ 6,275
Office. . . . . . 19,577 11,946 6,812
Residential . . . 4,170 4,138 3,398
Retail. . . . . . 4,646 4,604 4,318
Corporate/Other . 185 267 601
-------- -------- --------
$ 39,416 $ 28,785 $ 21,404
======== ======== ========

1998 1997 1996
-------- -------- --------
Income (loss) before
extraordinary item
Flex/Industrial . $ 3,787 $ 3,349 $ 2,365
Office. . . . . . 5,124 3,298 2,226
Residential . . . 682 952 (830)
Retail. . . . . . 550 976 877
Corporate/Other . (4,624) (4,965) (6,395)
-------- -------- --------
$ 5,519 $ 3,610 $ (1,757)
======== ======== ========

1998 1997
-------- --------
Total Assets
Flex/Industrial . $ 74,513 $ 41,323
Office. . . . . . 105,049 74,434
Residential . . . 21,038 21,369
Retail. . . . . . 18,359 18,858
Corporate/Other . 3,631 3,650
-------- --------
$222,590 $159,634
======== ========

1998 1997 1996
-------- -------- --------
Depreciation and
amortization
Flex/Industrial . $ 1,714 $ 1,156 $ 884
Office. . . . . . 2,404 1,259 695
Residential . . . 534 559 421
Retail. . . . . . 523 503 453
Corporate/Other . 37 13 --
-------- -------- --------
$ 5,212 $ 3,490 $ 2,453
======== ======== ========
Interest expense
Flex/Industrial . $ 2,669 $ 1,373 $ 1,114
Office. . . . . . 4,524 2,850 1,130
Residential . . . 1,199 1,235 887
Retail. . . . . . 1,338 939 880
Corporate/Other . 48 50 --
-------- -------- --------
$ 9,778 $ 6,447 $ 4,011
======== ======== ========

BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

1998 1997 1996
-------- -------- --------
Additions to Investment
in Real Estate
Flex/Industrial . $ 32,942 $ 376 $ 10,660
Office. . . . . . 31,533 39,089 5,505
Residential . . . 324 21,626 440
Retail. . . . . . 69 481 377
Corporate/Other . 28 80 --
-------- -------- --------
$ 64,896 $ 61,652 $ 16,982
======== ======== ========

9. TRANSACTIONS WITH AFFILIATES

Effective January 1, 1997, the Trust began paying employees directly
in contrast to the prior practice of reimbursing Banyan Management Corp.
("BMC") on an hourly basis for the services of BMC's personnel. In prior
years, these payroll costs along with administrative costs were allocated
to the Trust and other entities to which BMC provided administrative
services based upon the actual number of hours spent by BMC personnel on
matters related to that particular entity in relation to the total number
of BMC personnel hours. From January 1, 1997 through September 30, 1997,
the Trust shared only certain administrative items such as office rent and
office expenses with other companies for which BMC provided services.
These costs were shared based upon the total hours worked by employees of
the Trust relative to total hours worked by employees of BMC and the Trust
combined. The Trust's allocable share of costs for the years ended
December 31, 1997 and 1996 amounted to $403 and $1,275, respectively.
Beginning October 1, 1997, the Trust paid all of its administrative costs
directly and no longer shared these costs with other companies.

As of December 15, 1997, all shareholders of BMC, other than the
Trust, had terminated their administrative services relationship with and
had surrendered their respective ownership interest in BMC, making the
Trust the sole remaining shareholder of BMC. On that date, BMC merged into
a wholly-owned subsidiary of the Trust, BSRT Management Corp. As a result
of the merger, the Trust assumed current liabilities of $102, cash of $83
and other assets of $64. BSRT Management Corp. paid a dividend to the
Trust in the amount of $150 representing a distribution of its accumulated
earnings and profits. This amount has been included in "Other Income" of
the Trust for the year ended December 31, 1997.

During the year ended December 31, 1998 and 1997, the Trust paid no
salary to, but purchased legal services from an executive officer of the
Trust. Fees for legal services totalled $391 and $338, respectively. The
executive pays no rent, as such, to the Trust for the use of office space
or equipment but grants the Trust a discount equal to approximately 20%
compared to rates charged to third parties for all time billed to the Trust
by the executive and his employees. The executive also reimburses the
Trust for the cost of two full time and certain part time employees. The
amount paid to the executive for the year ended December 31, 1996 was paid
as salary and is included in the costs allocated to the Trust from BMC.

10. DISTRIBUTIONS PAID AND PAYABLE

To qualify as a REIT, the Trust must distribute at least 95% of its
"REIT Taxable Income" to shareholders. A portion of the distributions paid
during the subsequent year may be allocable to taxable income earned in the
prior year.

BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The Trust has determined the shareholders' treatment for federal
income tax purposes to be as follows:

1998 1997 1996
------- ------- -------
Ordinary income. . . . $ 5,978 $ 283 $ 2,842
Return of capital. . . 140 4,201 1,349
------- ------- -------
$ 6,118 $ 4,484 $ 4,191
======= ======= =======

On January 6, 1999, the Trust declared a cash distribution for the
quarter ended December 31, 1998 of $0.12 per share payable February 22,
1999 to shareholders of record on January 22, 1999.

11. LEASES

MINIMUM RENTALS UNDER OPERATING LEASES

The Trust receives rental income from the rental of retail, office and
flex/industrial space under operating leases. The following is the minimum
future base rentals (excluding amounts representing executory costs such as
taxes, maintenance and insurance) on operating leases for the Trust's
industrial, office and retail projects held at December 31, 1998:

1999 . . . . . . $ 30,336
2000 . . . . . . 23,281
2001 . . . . . . 17,409
2002 . . . . . . 12,340
2003 . . . . . . 8,094
Thereafter . . . 13,773
--------
$105,233
========

No single tenant at the Trust's operating properties produced ten
percent or more of total income from property operating activities.

The Trust is subject to the usual business risks regarding the
collection of the above-mentioned rentals.

GROUND LEASE

The Trust owns a leasehold interest in a shopping center in Atlanta,
Georgia. The lease expires in 2067. The ground lease requires annual
lease payments of $600 through October 4, 2007 plus 7% of total annual
gross rental income commencing when gross rental income exceeds $2,000 from
the operations of the shopping center. The ground lease also requires that
the Trust pay property operating expenses, including real estate taxes.
The base rent is reset in 2007 based upon a market rent within a
contractually defined range.

12. OMNIBUS STOCK AND INCENTIVE PLAN

On May 14, 1997, the Board of Trustees (the "Board") adopted and on
July 8, 1997, the shareholders of the Trust approved, the 1997 Omnibus
Stock and Incentive Plan (the "Plan") which allows the Trust to make stock-
based awards as part of its employee and Trustee compensation program.
Under the Plan, the Trust is authorized to issue options to purchase up to
one million shares of beneficial interest in the form of incentive stock
options, non-statutory stock options, stock appreciation rights,
performance shares and units.

BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

FIXED STOCK OPTIONS

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

A summary of the Trust's fixed stock option activity, and related
information for the years ended December 31, 1997 and 1998 follows:

Weighted
Shares Average
Subject Exercise Price
to Options Per Share
---------- --------------
Outstanding at December 31, 1996. . . -- $ --
Options granted . . . . . . . . . . 380,000 5.637
Options canceled. . . . . . . . . . (5,000) 4.08
-------- --------
Outstanding at December 31, 1997. . . 375,000 $ 5.658
Options granted . . . . . . . . . . 116,000 5.375
Options exercised . . . . . . . . . (9,324) 4.08
Options canceled. . . . . . . . . . (2,000) 6.375
------- -------
Outstanding at December 31, 1998. . . 479,676 5.617
======= =======
Exercisable at 12/31/97 . . . . . . 100,000 $ 5.50
Exercisable at 12/31/98 . . . . . . 174,287 $ 5.68

At December 31, 1998, options to purchase 361,000 shares were
available for future grant and options outstanding that are not exercisable
vest in varying annual amounts through 2001.

The weighted average grant date fair value of options granted in 1998
and 1997 was $.54. The remaining weighted-average contractual life of
these options was 9.05 years. Exercise prices for options outstanding at
December 31, 1998 ranged from $4.08 to $6.375 per share.

TARGET STOCK PRICE PERFORMANCE OPTIONS

The exercise price of each target stock price performance option
granted is equal to the market price of the Trust's common shares on the
date of grant and vests as the Trust's common share price achieves certain
pre-established targets which were set on the date of grant. In
conjunction with the March 11, 1998 signing of an employment agreement
between the Trust and its President Leonard G. Levine, effective
retroactively to October 1, 1997, the Board granted Mr. Levine stock
options to purchase an aggregate of 150,000 shares of the Trust's common
shares of beneficial interest at an exercise price equal to $5.50 per
share. Options to purchase 50,000 shares will vest and become exercisable
if during any consecutive thirty trading days during the term of the
agreement the closing price of the common shares averages $8.50 per share.
Options to purchase an additional 100,000 shares will vest and become
exercisable on a proportionate basis if during any thirty consecutive
trading days during the term of the agreement the closing price of the
shares averages more than $8.50 per share with full vesting occurring with

BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

respect to 75,000 shares if the closing price averages $9.00 per share, and
$10.00 per share with respect to the other 25,000 shares. The number of
shares underlying the options and the exercise price of each option are
subject to adjustment from time to time under certain circumstances.

All of the options must be exercised by October 1, 2007, except that
if Mr. Levine dies or becomes permanently disabled during the term of the
agreement, then all options which have vested must be exercised within one
year of death or permanent disability. In addition, upon death or
permanent disability, all options not otherwise vested, but which would or
will vest within six months following the date of death or permanent
disability either by passage of time or satisfaction of the various
performance standards will be deemed vested and become exercisable within
the same one-year time period.

A summary of the Trust's target stock price performance option
activity, and related information for the years ended December 31, 1997 and
1998 follows:
Weighted
Shares Average
Subject Exercise Price
to Options Per Share
---------- --------------
Outstanding at December 31, 1996. . . -- $ --
Options granted . . . . . . . . . . 150,000 5.500
------- ------
Outstanding at December 31, 1997
and 1998. . . . . . . . . . . . . . 150,000 $5.500
======= ======

At December 31, 1998, none of the target stock price options were
exercisable. Exercise prices for options outstanding at December 31, 1998
were $5.50 per share. The remaining weighted-average contractual life of
these options was 8.8 years. The weighted average grant date fair value of
all options granted during 1997 is $0.96.

Pro forma information regarding net income and earnings per share is
required by SFAS No. 123 "Accounting for Stock Based Compensation", and has
been determined as if the Trust had accounted for all options granted under
the plan using the fair value method of that statement. The fair value for
the fixed stock options was estimated at the date of grant using the Black-
Scholes option pricing model with the following weighted-average
assumptions for 1998 and 1997: risk free interest rates of 5.31% and
5.58%; expected dividend yields of 7.47% and 7.19%; volatility factors of
the expected market price of the Trust's common stock of .201 and .225; and
a weighted-average expected lives of the options of 5 years and 10 years,
respectively. In addition, the fair value for the target stock price
performance options was estimated at the date of grant using a modified
Black-Scholes option pricing model which, in addition to the required
inputs above, takes into consideration the target stock price (or barrier)
which must be attained. The following weighted-average assumptions were
incorporated into the model for the target stock price performance options
granted in 1997: risk-free interest rate of 5.92%; expected dividend yield
of 7.27%; a volatility factor of the expected market price of the Trust's
common stock of .225; and expected lives of the options of 10 years.

BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

The effects on 1998 and 1997 pro forma net income and pro forma
earnings per common share of amortizing to expense the estimated fair value
of stock options are not necessarily representative of the effects on net
income to be reported in future years due to such things as the vesting
period of the stock options, and potential for issuance of additional stock
options in future years. For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over the
options' vesting period.

The Trust's pro forma information is as follows:

Years Ended
December 31,
-----------------------
1998 1997
------- -------
Pro forma net income. . . . . . . . . $ 5,279 $ 3,474
Pro forma basic earnings per share. . $ 0.40 $ 0.31
Pro forma diluted earnings per share. $ 0.38 $ 0.31

13. DISTRIBUTION REINVESTMENT AND SHARE PURCHASE PLAN

On April 23, 1997, the Trust filed a Registration Statement on Form S-
3 under the Securities Act of 1933 in order to register the shares issuable
under the Trust's Distribution Reinvestment and Share Purchase Plan (the
"DRIP Plan"). The DRIP Plan allows shareholders of the Trust to: (i)
automatically reinvest the cash distributions on all, or part, of shares
registered in their name; and (ii) make cash investments of not more than
$120 per calendar year. Shares purchased under the DRIP Plan will be
issued directly by the Trust at either: (i) 97% of the average closing
sales price of the shares as reported on the NASDAQ National Market on the
last five business days preceding the relevant investment date in the case
of reinvested cash distributions; or (ii) 100% of the aforementioned
average closing price in the case of cash investments. For the years ended
December 31, 1998 and 1997, the Trust issued 141,321 and 72,094 shares of
beneficial interest under the DRIP Plan and received total proceeds of $818
and $379, respectively.

14. AWARD SHARES AND WEIGHTED AVERAGE SHARES OUTSTANDING

Pursuant to the March 19, 1997 Amendment and the September 3, 1997
Second Amendment to the Second Amended and Restated Employment Agreement of
Leonard G. Levine, the Trust's president, and pursuant to the shareholder
approval which was obtained at the Trust's 1996 Annual Meeting held on
July 8, 1997, all incentive compensation earned by Mr. Levine for the
fiscal years ended December 31, 1996 and 1997 has been paid in shares of
the Trust's stock ("Award Shares").

BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED

On July 9, 1997, the Trust issued 95,635 Award Shares to Mr. Levine,
representing Mr. Levine's incentive compensation earned on the performance
of the Trust's assets acquired subsequent to January 1, 1993 ("Reinvestment
Activities") for the fiscal year ending December 31, 1996 (the "1996 Award
Shares"). On September 3, 1997, the Trust issued 400,000 Award Shares
representing the final payment and settlement of Mr. Levine's compensation
earned on Reinvestment Activities for the fiscal year ending December 31,
1997 and for cumulative incentive compensation for the period January 1,
1993 through August 31, 1997 (the "Final Award Shares"). Prior to the
September 3, 1997 Amendment, Mr. Levine would have been entitled to receive
shares in respect of additional compensation which would have been
determined as of December 31, 1997 and issued and paid no later than March
1998. The issuance of the Final Award Shares fixed the amount of
compensation that the Trust had been accruing through December 31, 1997.
The 95,635 Award Shares were valued at $4.125 per share, or $394. The
400,000 Final Award Shares were valued at $4.812 per share, or $1,925 of
which $650 was expensed in 1996, and the balance was ratably expensed
during 1997. The 1996 Award Share price of $4.125 was based upon the
average closing price of the Trust's shares for the five business days
ending December 31, 1996. The Final Award Shares price of $4.812 was based
on the average closing price of the Trust's shares for the five business
days ending August 31, 1997. The 1996 Award Shares and Final Award Shares
are included in the total shares outstanding of the Trust when calculating
Net Income Per Share of Beneficial Interest Based on Weighted Average
Number of Shares Outstanding.

All of the Award Shares issued prior to January 1, 1997 and 20% of
Award Shares issued for the fiscal year ended December 31, 1996 were held
in escrow by the Trust, through the vesting date, September 29, 1997.
Subsequent to that date, Mr. Levine became fully vested and the Award
Shares were immediately transferred and are otherwise freely transferable
subject to compliance with registration requirements of the federal and
state securities laws or exemptions therefrom.

15. LITIGATION

The Trust is involved in various litigation arising in the ordinary
course of business. Although the final outcome of these matters cannot be
determined, based on the facts presently known, it is management's opinion
that the final resolution of these matters will not have an adverse effect
on the Trust's financial position or results of operations.

SCHEDULE III
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)

Costs
Capitalized
Initial costs Subsequent Gross Amount at which Carried
to the Trust to Acquisition at December 31, 1998 (a)(b)(c)
---------------------- --------------- ---------------------------------
Building Building Building Accumu-
Property & Location/ & & & lated
Date of Construction/ Improve- Improve- Improve- Deprecia-
Date Acquired Land ments Land ments Land ments Total tion
- ------------------ ----------- ----------- ------ --------- ---------- ----------- ----------- ----------

Milwaukee
Industrial
Properties
Milwaukee, WI
1973-1980
4/30/93 $ 533 $ 5,242 $ -- $ 824 $ 533 $ 6,066 $ 6,599 $ 1,067

Elmhurst
Metro Court
Elmhurst, IL
1982
11/30/93 1,615 3,605 -- 457 1,615 4,062 5,677 588

Colonial Penn
Building
Tampa, FL
1984
3/22/94 1,190 7,366 -- -- 1,190 7,366 8,556 880

Florida Power
& Light
Building
Sarasota, FL
1991
3/22/94 1,700 8,367 -- 146 1,700 8,513 10,213 1,063

BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED

Costs
Capitalized
Initial costs Subsequent Gross Amount at which Carried
to the Trust to Acquisition at December 31, 1998 (a)(b)(c)
---------------------- --------------- ---------------------------------
Building Building Building Accumu-
Property & Location/ & & & lated
Date of Construction/ Improve- Improve- Improve- Deprecia-
Date Acquired/ Land ments Land ments Land ments Total tion
- ------------------ ----------- ----------- ------ --------- ---------- ----------- ----------- ----------

Willowbrook
Industrial Court
Willowbrook, IL
1979
6/16/95 $ 962 $ 2,961 $ -- $ 292 $ 962 $ 3,253 $ 4,215 $ 396

Northlake Tower
Shopping Center
Atlanta, GA
1983-1984
7/28/95 -- 17,144 -- 931 - 18,075 18,075 1,599

Quantum Busi-
ness Centre
Louisville, KY
1976-1980
9/26/95 900 4,165 -- 319 900 4,484 5,384 394

Lexington
Business Center
Lexington, KY
1985
12/05/95 1,330 5,753 -- 774 1,330 6,527 7,857 587

Newtown Business
Center
Lexington, KY
1981-1982
12/5/95 355 3,234 -- 140 355 3,374 3,729 269

BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED

Woodcrest
Office Park
Tallahassee, FL
1967-1989
12/19/95 $ 3,080 $ 7,968 $ -- $ 1,766 $ 3,080 $ 9,734 $ 12,814 $ 911

Midwest Office
Center
Oakbrook Terrace, IL
1979
4/18/96 2,396 2,591 -- 314 2,396 2,905 5,301 255

6901 Riverport
Drive
Louisville, KY
1985
11/19/96 1,750 8,242 -- 20 1,750 8,262 10,012 439

Phoenix
Business Park
Atlanta, GA
1979
1/15/97 1,717 3,777 -- 41 1,717 3,818 5,535 192

Butterfield
Office Plaza
Oak Brook, IL
1974
4/30/97 4,813 10,255 -- 707 4,813 10,962 15,775 501

BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED

Woodrun Village
Apartments
Yukon, OK
1985
5/22/97 $ 339 $ 4,244 $ -- $ 86 $ 339 $ 4,330 $ 4,669 $ 186

Country Creek
Apartments
Oklahoma City, OK
1985
5/22/97 506 6,982 -- 164 506 7,146 7,652 307

Winchester Run
Apartments
Oklahoma City, OK
1985
5/22/97 273 4,231 -- 99 273 4,330 4,603 187

Willowpark
Apartments
Lawton, OK
1985
5/22/97 137 4,331 -- 71 137 4,402 4,539 190

Southlake
Corporate Center
Morrow, GA
1989
7/30/97 750 3,746 -- 199 750 3,945 4,695 155

BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED

Costs
Capitalized
Initial costs Subsequent Gross Amount at which Carried
to the Trust to Acquisition at December 31, 1998 (a)(b)(c)
---------------------- --------------- ---------------------------------
Building Building Building Accumu-
Property & Location/ & & & lated
Date of Construction/ Improve- Improve- Improve- Deprecia-
Date Acquired Land ments Land ments Land ments Total tion
- ------------------ ------ ----------- ------ --------- ---------- ----------- ----------- ----------

Technology Center
Huntsville, AL
1990
8/26/97 $ 130 $ 2,417 $ -- $ 29 $ 130 $ 2,446 $ 2,576 $ 85

University Square
Business Center
Huntsville, AL
1984-1987
8/26/97 1,387 5,950 -- 564 1,387 6,514 7,901 273

Airways Plaza
Office Center
Memphis, TN
1982
12/10/97 409 2,756 -- 53 409 2,809 3,218 77

Peachtree Pointe
Office Park
Norcross, GA
1982
1/20/98 712 3,858 -- 273 712 4,131 4,843 101

Avalon Center
Office Park
Norcross, GA
1997
3/20/98 585 3,803 -- 439 585 4,242 4,827 101

Avalon Ridge
Business Park
Norcross, GA
1997
4/24/98 539 3,327 -- 350 539 3,677 4,216 64

BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED

Costs
Capitalized
Initial costs Subsequent Gross Amount at which Carried
to the Trust to Acquisition at December 31, 1998 (a)(b)(c)
---------------------- --------------- ---------------------------------
Building Building Building Accumu-
Property & Location/ & & & lated
Date of Construction/ Improve- Improve- Improve- Deprecia-
Date Acquired Land ments Land ments Land ments Total tion
- ------------------ ------ ----------- ------ --------- ---------- ----------- ----------- ----------

Tower Lane
Business Park
Bensenville, IL
1979-1980
4/27/98 $ 1,255 $ 3,933 $ -- $ 68 $ 1,255 $ 4,001 $ 5,256 $ 79

Sand Lake
Tech Center
Orlando, FL
1984-1986
4/30/98 1,984 4,804 -- -- 1,984 4,804 6,788 85

Park Center
Orlando, FL
1982
4/30/98 997 2,755 -- 97 997 2,852 3,849 53

Metric Plaza
Winter Park, FL
1985
4/30/98 629 1,940 -- 56 629 1,996 2,625 38

University
Corporate Center
Winter Park, FL
1981-1987
4/30/98 3,207 7,022 -- 14 3,207 7,036 10,243 126

BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED

Costs
Capitalized
Initial costs Subsequent Gross Amount at which Carried
to the Trust to Acquisition at December 31, 1998 (a)(b)(c)
---------------------- --------------- ---------------------------------
Building Building Building Accumu-
Property & Location/ & & & lated
Date of Construction/ Improve- Improve- Improve- Deprecia-
Date Acquired Land ments Land ments Land ments Total tion
- ------------------ ------ ----------- ------ --------- ---------- ----------- ----------- ----------

Johns Creek
Office and
Industrial Park
Duluth and
Suwanne, GA
1990-1992
8/14/98 $ 890 $ 4,874 $ -- $ -- $ 890 $ 4,874 $ 5,764 $ 46

Technology Park
Norcross, GA
1977-1984
8/14/98 1,530 10,905 -- 367 1,530 11,272 12,802 105

Other (d) -- -- -- 108 -- 108 108 28
------- -------- ------ -------- -------- -------- -------- --------
$38,600 $172,548 $ -- $ 9,768 $ 38,600 $182,316 $220,916 $ 11,427
======= ======== ====== ======== ======== ======== ======== ========
<FN>

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

(a) The aggregate cost of the above real estate at December 31, 1998 for Federal income tax purposes is
$220,916. For further details regarding encumbrances on the Trust's properties see Note 4, Long-Term Debt.

(b) Reconciliation of real estate owned:

BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED

1998 1997 1996
-------- -------- --------

Balance at Beginning of Year. . . . . . . . $156,020 $107,182 $ 90,200
Acquisitions During Year (1). . . . . . . . 59,549 59,153 15,013
Sale of Property (2). . . . . . . . . . . . -- (12,814) --
Additions During Year . . . . . . . . . . . 5,347 2,499 1,969
-------- -------- --------
Balance at End of Year. . . . . . . . . . . $220,916 $156,020 $107,182
======== ======== ========
<FN>
(1) In addition to these capitalized costs, the Trust assumed $598 of net operating liabilities
at acquisition in 1997.
(2) In connection with the sale of Colonial Courts and Hallmark Apartments, the Trust transferred
$107 of net operating liabilities in 1997.

(c) Depreciation expense is computed using the straight line method. Rates used in the determination of
depreciation are based upon the estimated useful life of the asset, primarily 40 years.

1998 1997 1996
-------- -------- --------

Reconciliation of Accumulated Depreciation:

Beginning of Year . . . . . . . . . . . . . $ 6,634 $ 4,692 $ 2,337
Depreciation Expense. . . . . . . . . . . . 4,793 3,282 2,355
Sale of Property. . . . . . . . . . . . . . -- (1,340) --
-------- -------- --------
Balance at End of Year. . . . . . . . . . . $ 11,427 $ 6,634 $ 4,692
======== ======== ========

(d) Other includes corporate furniture, fixtures and equipment.

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

There have been no changes in, or disagreements with, the accountants
on any matter of accounting principles, practices or financial statement
disclosure.

PART III

ITEM 10. OUR TRUSTEES AND EXECUTIVE OFFICERS

The information required by this item is incorporated herein by
reference to the materials appearing in the Trust's definitive proxy
statement to be filed with the Securities and Exchange Commission (the
"Proxy Statement") under the caption, "Election of Trustees" and
"Management".

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by
reference to the materials appearing in the Proxy Statement under the
caption "Management".

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated herein by
reference to the materials appearing in the Proxy Statement under the
caption "Security Ownership of Certain Beneficial Owners and Management".

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated herein by
reference to the materials appearing in the Proxy Statement under the
caption "Certain Relationships and Related Transactions".

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) (1) Financial Statements of the Company are set forth
in this report in Item 8.

(2) Financial Statement Schedule is set forth in this
report in Item 8.

(b) Report on Form 8-KA dated October 1, 1998 was filed to
provide the Financial Statements and related pro forma information required
by Item 7 of Form 8-K in connection with the Trust's acquisition of the
properties known as Technology Park and Johns Creek Office and Industrial
Park.

(d) None.

SIGNATURES

PURSUANT to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.

BANYAN STRATEGIC REALTY TRUST

By: /s/ Leonard G. Levine Date: March 11, 1999
Leonard G. Levine, President

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

By: /s/ Leonard G. Levine Date: March 11, 1999
Leonard G. Levine, President
and Trustee

By: /s/ Joel L. Teglia Date: March 11, 1999
Joel L. Teglia, Vice President and
Chief Financial Officer

By: /s/ Norman M. Gold Date: March 11, 1999
Norman M. Gold, Trustee

By: /s/ Walter E. Auch, Sr. Date: March 11, 1999
Walter E. Auch, Sr., Trustee

By: /s/ Marvin A. Sotoloff Date: March 11, 1999
Marvin A. Sotoloff, Trustee

EXHIBIT INDEX
-------------

3.1 Second Amended and Restated Declaration of Trust
dated as of August 8, 1986, as amended on March 8, 1991, May 1, 1993 and
August 12, 1998, including Certificate of designations, preferences and
rights of Series A convertible preferred shares. (1)

3.2 By-Laws dated March 13, 1996. (2)

3.3 BSRT UPREIT Limited Partnership Limited Partnership
Agreement *

4.1 Convertible Term Loan Agreement dated as of
October 10, 1997 among Banyan Strategic Realty Trust, as Borrower, and the
Entities listed therein, as Lenders. (3)

4.2 First Amendment to Convertible Term Loan Agreement
dated as of March 30, 1998 made by and among Banyan Strategic Realty Trust
and the Entities listed therein, as Lenders. (4)

4.3 Second Amendment to Convertible Term Loan Agreement
dated as of June 26, 1998 made by and among Banyan Strategic Realty Trust
and the Entities listed therein, as Lenders. (5)

4.4 Revolving Credit Agreement dated April 30, 1998
among Banyan Strategic Realty Trust, as Borrower and the Capital Company of
America, as Lender. (6)

4.5 Loan Agreement dated May 22, 1998 among
BSRT Fountain Square L.L.C.,
BSRT Phoenix Business Park L.L.C.,
BSRT Newtown Trust,
BSRT Southlake L.L.C.,
BSRT Technology Center L.L.C.,
BSRT Airways Plaza L.L.C.,
BSRT Peachtree Pointe L.L.C.,
BSRT Avalon Center L.L.C.,
BSRT Sand Lake Tech Center L.L.C.,
BSRT Park Center L.L.C.,
BSRT Metric Plaza L.L.C., and
BSRT University Corporate Center L.L.C., as
Borrower, and the Capital Company of America, as Lender. (5)

4.6 First Amendment to Loan Agreement dated
September 11, 1998 among BSRT Fountain Square L.L.C., BSRT Phoenix Business
Park L.L.C., BSRT Newtown Trust, BSRT Southlake L.L.C., BSRT Technology
Center L.L.C., BSRT Airways Plaza L.L.C., BSRT Peachtree Pointe L.L.C.,
BSRT Avalon Center L.L.C., BSRT Sand Lake Tech Center L.L.C., BSRT Park
Center L.L.C., BSRT Metric Plaza L.L.C., and BSRT University Corporate
Center L.L.C., as Borrower, and the Capital Company of America LLC, as
Lender. (1)

4.7 Loan Agreement dated May 22, 1998 between BSRT
Lexington B Corp. and BSRT Lexington Trust, as Borrower and the Capital
Company of America, as Lender. (5)

4.8 First Amendment to Loan Agreement dated
September 11, 1998 between BSRT Lexington B Corp., and BSRT Lexington
Trust, as Borrower and the Capital Company of America LLC, as Lender. (1)

EXHIBIT INDEX
-------------

4.9 Loan Agreement dated June 22, 1998 between
Banyan/Morgan Wisconsin L.L.C., and Banyan/Morgan Elmhurst L.L.C., as
Borrower and the Capital Company of America, as Lender. (5)

4.10 First Amendment to Loan Agreement dated
September 11, 1998 between Banyan/Morgan Wisconsin L.L.C., and
Banyan/Morgan Elmhurst L.L.C., as Borrower and the Capital Company of
America LLC, as Lender. (1)

10.1 Employment Agreement of Leonard G. Levine as of
October 1, 1997. (7)

10.2 Employment Agreement of Joel L. Teglia dated
December 31, 1998. *

10.3 Employment Agreement of Neil Hansen dated
December 31, 1998. *

10.4 Employment Agreement of Jay Schmidt dated
December 31, 1998. *

10.5 1997 Omnibus Stock and Incentive Plan dated July 9,
1997. (8)

10.6 Share Purchase Agreement by and among Banyan
Strategic Realty Trust and the Purchasers listed on the signature page
attached thereto dated as of October 10, 1997. (3)

10.7 Registration Rights Agreement dated as of
October 10, 1997 between Banyan Strategic Realty Trust and the Purchasers
listed on the Signature Pages attached thereto. (3)

10.8 Registration Rights Agreement dated as of
October 1, 1997 between Banyan Strategic Realty Trust and Leonard G.
Levine. *

21 Subsidiaries of Banyan Strategic Realty Trust *

23 Consent of Ernst & Young LLP *

27 Financial Data Schedule *

99.2 Press Release dated February 17, 1999 *

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

* Filed herewith.

(1) Incorporated by reference from the Trust's Form 8-
K/A-1 dated August 14, 1998.

(2) Incorporated by reference from the Trust's
Registration Statement on Form S-11 (file number 33-4169).

(3) Incorporated by reference from the Trust's Form 8-K
dated October 14, 1997.

(4) Incorporated by reference from the Trust's Form 10-
K/A for the year ended December 31, 1997.

(5) Incorporated by reference from the Trust's Form 8-K
dated May 22, 1998.

(6) Incorporated by reference from the Trust's Form 10-
Q dated March 31, 1998.

(7) Incorporated by reference from the Trust's Form 10-
K dated December 31, 1997.

(8) Incorporated by reference from the Trust's Form 10-
Q for the quarter ended June 30, 1997.