1
 
                                                        EXHIBIT INDEX ON PAGE 72
 
                       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, 1997
 
                                       or
 
[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 
For the transition period from  ___________________ to  ___________________
 
Commission File Number:        1-11954
 
                              VORNADO REALTY TRUST
- --------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

                                                 
                     MARYLAND                                         22-1657560
- --------------------------------------------------  ----------------------------------------------
         (State or other jurisdiction of                           (I.R.S. Employer
          incorporation or organization)                        Identification Number)
 
 PARK 80 WEST, PLAZA II, SADDLE BROOK, NEW JERSEY                       07663
- --------------------------------------------------  ----------------------------------------------
     (Address of Principal Executive Offices)                         (Zip Code)

Registrant's telephone number including area code:      (201) 587-1000
 
          Securities registered pursuant to Section 12(b) OF THE ACT:

                                             
             Title of Each Class                  Name of Each Exchange on Which Registered
 
         Common Shares of beneficial                       New York Stock Exchange
      interest, $.04 par value per share
 
             Series A Convertible                          New York Stock Exchange
        Preferred Shares of beneficial
            interest, no par value

       Securities registered pursuant to Section 12(g) of the Act:  NONE
 
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  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 ]
 
The aggregate market value of the voting shares held by non-affiliates of the
registrant, i.e. by persons other than officers and trustees of Vornado Realty
Trust as reflected in the table in Item 12 of this Form 10-K, at March 6, 1998
was $2,575,057,000.
 
As of March 6, 1998, there were 72,185,535 shares of the registrant's shares of
beneficial interest outstanding.
 
                      Documents Incorporated by Reference
 
PART III: Proxy Statement for Annual Meeting of Shareholders to be held on May
27, 1998.
 
                                  Page 1 of 76
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                               TABLE OF CONTENTS

           ITEM                                                                  PAGE
           ----                                                                  ----

PART I.     1.    Business....................................................     3
 
            2.    Properties..................................................    10
 
            3.    Legal Proceedings...........................................    26
 
            4.    Submission of Matters to a Vote of Security Holders.........    27
 
                  Executive Officers of the Registrant........................    27
 
PART II.    5.    Market for the Registrant's Common Equity and Related
                  Stockholder Matters.........................................    28
 
            6.    Selected Consolidated Financial Data........................    29
 
            7.    Management's Discussion and Analysis of Financial Condition
                  and Results of Operations...................................    31
 
           7A.    Quantitative and Qualitative Disclosure about Market Risk...    38
 
            8.    Financial Statements and Supplementary Data.................    38
 
            9.    Changes In and Disagreements With Independent Auditors' on
                  Accounting and Financial Disclosure.........................    38
 
PART III.  10.    Directors and Executive Officers of the Registrant..........    64(1)
 
           11.    Executive Compensation......................................    64(1)
 
           12.    Security Ownership of Certain Beneficial Owners and
                  Management..................................................    64(1)
 
           13.    Certain Relationships and Related Transactions..............    64(1)
 
PART IV.   14.    Exhibits, Financial Statement Schedules, and Reports on Form
                  8-K.........................................................    64
 
SIGNATURES....................................................................    66

- ---------------
 
(1) These items are omitted because the Registrant will file a definitive Proxy
    Statement pursuant to Regulation 14A involving the election of directors
    with the Securities and Exchange Commission not later than 120 days after
    December 31, 1997, which is incorporated by reference herein. Information
    relating to Executive Officers of the Registrant appears on page 27 of this
    Annual Report on Form 10-K.
 
     Certain statements contained herein constitute forward-looking statements
as such term is defined in Section 27A of the Securities Act of 1933, as amended
(the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). Certain factors could cause actual results to
differ materially from those in the forward-looking statements. Factors that
might cause such a material difference include, but are not limited to, (a)
changes in the general economic climate, (b) local conditions such as an
oversupply of space or a reduction in demand for real estate in the area, (c)
conditions of tenants, (d) competition from other available space, (e) increased
operating costs and interest expense, (f) the timing of and costs associated
with property improvements, (g) changes in taxation or zoning laws, (h)
government regulations, (i) failure of Vornado to continue to qualify as a REIT,
(j) availability of financing on acceptable terms, (k) potential liability under
environmental or other laws or regulations and (l) general competitive factors.
                                        2
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                                     PART I
 
ITEM 1.  BUSINESS
 
THE COMPANY
 
     Vornado Realty Trust ("Vornado") is a fully-integrated real estate
investment trust ("REIT"). In April 1997, Vornado transferred substantially all
of its assets to Vornado Realty L.P., a Delaware limited partnership (the
"Operating Partnership"). As a result, Vornado now conducts its business through
and substantially all of its interests in properties are held by, the Operating
Partnership. Vornado is the sole general partner of the Operating Partnership
and owns a 92.7% limited partnership interest at December 31, 1997. All
references to the "Company" refer to Vornado and its consolidated subsidiaries,
including the Operating Partnership.
 
          The Company currently owns directly or indirectly:
 
          (i) 59 shopping center properties in seven states and Puerto Rico
     containing approximately 12.4 million square feet, including 1.4 million
     square feet built by tenants on land leased from the Company;
 
          (ii) all or portions of 14 office building properties in the New York
     City metropolitan area (primarily Manhattan) containing approximately 8.4
     million square feet;
 
          (iii) eight warehouse/industrial properties in New Jersey containing
     approximately 2.0 million square feet;
 
          (iv) approximately 29.3% of the outstanding common stock of
     Alexander's, Inc., which has nine properties in the New York City
     metropolitan area;
 
          (v) a 60% interest in two partnerships that own Americold Corporation
     ("Americold") and URS Logistics Inc. ("URS" and, together with Americold,
     the "Cold Storage Companies"), which collectively own and operate 80
     warehouse facilities nationwide with an aggregate of approximately 394
     million cubic feet of refrigerated, frozen and dry storage space;
 
          (vi) a 40% interest in the Hotel Pennsylvania, a New York City hotel
     which contains 800,000 square feet of space with 1,700 rooms and 400,000
     square feet of retail and office space;
 
          (vii) a 15% limited partnership interest in Charles E. Smith
     Commercial Realty L.P., a partnership, which owns interests in and manages
     approximately 7.2 million square feet of office properties in Crystal City,
     Arlington, Virginia, a suburb of Washington D.C., and manages an additional
     14 million square feet of office and other commercial properties in the
     Washington, D.C. area; and
 
          (viii) other real estate and investments in mortgages collateralized
     by various office, restaurant and other retail properties.
 
     In addition, in January 1998, the Company entered into an agreement to
acquire a substantial portion of the real estate portfolio of Joseph P. Kennedy
Enterprises for approximately $625 million.
 
OBJECTIVES AND STRATEGY
 
     The Company's business objective is to maximize shareholder value. The
Company intends to achieve its business objective by continuing to pursue its
investment philosophy, making opportunistic investments and executing its
operating strategies through:
 
          - Maintaining a superior team of operating and investment
            professionals and an opportunistic entrepreneurial spirit;
 
          - Continuing to invest in quality office properties in selected
            markets where the Company believes there is high likelihood of
            capital appreciation;
 
          - Continuing to invest in retail properties in selected understored
            locations such as the New York metropolitan area; and
 
          - Investing in fully integrated operating companies that have a
            significant real estate component.
 
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   4
 
     Presently, the Company executes its strategy through the following
functional groups:
 
          - The Company's office property group is based in New York City. It
            seeks to acquire and operate quality office properties in select
            geographic areas where there is significant potential for higher
            rents or increased cash flow through redevelopment.
 
          - The Company's retail property group is based in Saddle Brook, New
            Jersey. It seeks to maintain high tenant occupancy rates and strong
            rent levels by providing quality service and having retail
            properties in understored geographic areas, such as the New York
            metropolitan area. It also seeks to acquire additional properties in
            these areas.
 
          - The Company seeks to invest in integrated operating companies having
            a significant real estate based component and qualified, experienced
            operating management. The Company believes that by participating
            with operating management in strategic decision making and by
            providing access to efficient growth capital, it can enhance
            profitability.
 
     The Company expects to continue to utilize the capital markets to finance
its growth, acquisitions and investments.
 
ACQUISITIONS
 
     Since January 1, 1997, the Company completed approximately $2.6 billion of
real estate acquisitions or investments. In addition, approximately $900 million
of acquisitions are currently pending; however, there can be no assurance that
such acquisitions will ultimately be completed. The following table lists in
chronological order the acquisitions or investments:

                                                                                         TOTAL
                     COMPLETED:                                  LOCATION            CONSIDERATION
                     ----------                                  --------            -------------
                                                                                     (IN MILLIONS)
                                                                               
The Mendik Transaction...............................         New York City             $  656
Montehiedra Town Center..............................     San Juan, Puerto Rico             74
90 Park Avenue.......................................         New York City                185
Riese Transactions...................................         New York City                 67
Hotel Pennsylvania...................................         New York City                 64
20 Broad Street Mortgage.............................         New York City                 27
Charles E. Smith Commercial Realty Investments.......        Washington, D.C.               60
Cold Storage.........................................  Throughout the United States        600
Arbor Property Trust (Green Acres Mall)..............     Long Island, New York            225
640 Fifth Avenue.....................................         New York City                 64
One Penn Plaza.......................................         New York City                410
150 East 58th Street.................................         New York City                118
Other................................................                                       30
                                                                                        ------
          Total Completed Acquisitions...............                                    2,580
                                                                                        ------
PENDING:
- -------
Kennedy Properties...................................   Chicago & Washington, D.C.         625
YMCA Development.....................................         New York City                 64
Las Catalinas Mall...................................      Caguas, Puerto Rico              68
Hotel Pennsylvania -- additional investment..........         New York City                 70
Cold Storage -- Freezer Services, Inc................   Midwestern section of the           80
                                                              United States
                                                                                        ------
          Total Pending Acquisitions.................                                      907
                                                                                        ------
          Total Acquisitions.........................                                   $3,487
                                                                                        ======

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COMPLETED ACQUISITIONS
 
  Mendik Transaction
 
     In April 1997, Vornado consummated the acquisition of interests in all or a
portion of seven Manhattan office buildings and the management company held by
Bernard H. Mendik, David R. Greenbaum and certain entities controlled by them
(the "Mendik Group") and certain of their affiliates (the "Mendik Transaction").
The properties acquired include (i) four wholly owned properties: Two Penn
Plaza, Eleven Penn Plaza, 1740 Broadway and 866 U.N. Plaza and (ii) three
partially owned properties: Two Park Avenue (40% interest), 330 Madison Avenue
(24.8% interest) and 570 Lexington Avenue (5.6% interest). The consideration for
the Mendik Transaction was approximately $656,000,000, including $264,000,000 in
cash, $177,000,000 in limited partnership units of the Operating Partnership
("Minority Interests" in the accompanying financial statements) and $215,000,000
in indebtedness.
 
  Montehiedra Town Center
 
     In April 1997, the Company acquired The Montehiedra Town Center
("Montehiedra"), a shopping center, located in San Juan, Puerto Rico, from Kmart
Corporation ("Kmart") for approximately $74,000,000, of which $63,000,000 was
newly issued ten-year indebtedness. The center, which opened in 1994, contains
525,000 square feet, including a 135,000 square foot Kmart store.
 
  90 Park Avenue
 
     In May 1997, the Company acquired a mortgage loan from a consortium of
banks collateralized by an office building located at 90 Park Avenue, Manhattan,
New York. In August 1997, the Company entered into an agreement with the owners
of 90 Park Avenue pursuant to which the Company restructured the mortgage, took
title to the land and obtained a 43-year lease on the building under which the
Company manages the building and receives the building's cash flow. As part of
the restructuring, the amount of the debt was adjusted from the face value of
$193,000,000 to the May 1997 acquisition cost of $185,000,000, the maturity date
of the debt was extended to August 31, 2022 and the interest rate was set at
7.5%. The Company also purchased the land for $8,000,000, which was further
applied to reduce the debt to $177,000,000. This investment has been classified
as real estate.
 
  Riese Transactions
 
     In June 1997, the Company acquired four properties containing an aggregate
of approximately 80,000 square feet of retail and office space for approximately
$26,000,000. The properties were previously owned by affiliates of the Riese
Organization. These properties are located in midtown Manhattan. The Company
also made a $41,000,000 mortgage loan to Riese affiliates cross-collateralized
by ten other Manhattan properties containing an aggregate of approximately
172,000 square feet of retail and office space. The mortgage loan has a
five-year term and an initial interest rate of 9.75% increasing annually.
 
  Hotel Pennsylvania Investment
 
     In September 1997, the Company acquired a 40% interest in the Hotel
Pennsylvania, which is located on Seventh Avenue opposite Madison Square Garden
in Manhattan, New York. The property was acquired in a joint venture with Hotel
Properties Limited and Planet Hollywood International, Inc. from a group of
partnerships. The venture intends to refurbish the property creating a
sports-themed hotel and entertainment complex. Under the joint venture
agreement, Hotel Properties Limited and Planet Hollywood International, Inc.
have 40% and 20% interests, respectively. The joint venture acquired the hotel
for approximately $159,000,000, of which $120,000,000 was newly issued five-year
financing. The Company's share of the purchase price was approximately
$64,000,000. The Hotel Pennsylvania contains approximately 800,000 square feet
of hotel space with 1,700 rooms and 400,000 square feet of retail and office
space. The Company manages the site's retail and office space, and Hotel
Properties Limited manages the hotel. On March 24, 1998, the Company entered
into an agreement to increase its interest in the Hotel Pennsylvania from 40% to
80%. Under the agreement, the Company will purchase the 40% interest of Hotel
Properties Limited for approximately $70 million, including $48 million of
existing debt. The increase in the Company's interest is subject to reduction to
67%, should Planet Hollywood International exercise its pro rata option.
 
                                        5
   6
 
  20 Broad Street Mortgage
 
     In September 1997, the Company purchased from a bank, at a discount, a
mortgage on a 460,000 square foot office building at 20 Broad Street in
Manhattan, New York for $27,000,000. The mortgage, which is in default, yields
approximately 12%. The property is leased to a number of tenants. The largest
such tenant, the New York Stock Exchange, leases approximately 53% of the
property. As part of the Mendik Transaction previously described, the Company
obtained an option to acquire from the Mendik Group its portion of the leasehold
interest in this property.
 
  Charles E. Smith Commercial Realty Investment
 
     In October 1997, the Company acquired a 15% limited partnership interest in
Charles E. Smith Commercial Realty L.P. for $60,000,000 in a partnership
roll-up. The partnership owns interests in and manages approximately 7.2 million
square feet of office properties in Crystal City, Arlington, Virginia, a suburb
of Washington, D.C., and manages an additional 14 million square feet of office
and other commercial properties in the Washington, D.C. area.
 
  Cold Storage
 
     In October 1997, two partnerships in which preferred stock affiliates of
Vornado have 60% interests and affiliates of Crescent Real Estate Equities
Company have 40% interests acquired the Cold Storage Companies from affiliates
of Kelso & Company, Inc. and other owners. The consideration for these
transactions totaled approximately $1,000,000,000, including $628,000,000 of
indebtedness. The Company's share of the purchase price was approximately
$600,000,000.
 
     The Cold Storage Companies own and operate 80 refrigerated warehouses with
an aggregate of approximately 394 million cubic feet.
 
     On March 25, 1998, the Cold Storage Companies entered into an agreement to
acquire the assets of Freezer Services, Inc., consisting of nine cold storage
warehouses for approximately $134 million, including $22 million of
indebtedness.
 
  Arbor Property Trust
 
     In December 1997, the Company acquired Arbor Property Trust ("Arbor") for
approximately $225 million and merged it into the Company. The purchase price
was comprised of 2,936,000 common shares of beneficial interest of Vornado,
39,400 Series A Convertible Preferred Shares of Vornado and the assumption of
$125 million of property level debt. Arbor owned the Green Acres Mall, a 1.7
million square foot super-regional enclosed shopping mall complex situated in
Nassau County, Long Island, New York one-mile east of the borough of Queens, New
York. The Green Acres Mall is anchored by four major department stores: Sears,
Roebuck and Co., J.C. Penney Company, Inc., and Federated Department Stores,
Inc. doing business as Stern's and as Macy's. The complex also includes The
Plaza at Green Acres, a 179,000 square foot strip shopping center which is
anchored by Kmart and Waldbaums.
 
  640 Fifth Avenue
 
     In December 1997, the Company acquired 640 Fifth Avenue, an 18 story
Manhattan office building located at the corner of 51st Street, for
approximately $64 million from Met Life International Real Estate Partners
Limited Partnership. The building contains approximately 250,000 square feet.
 
  One Penn Plaza
 
     In February 1998, the Company acquired a long-term leasehold interest in
One Penn Plaza for approximately $410 million from Mid-City Associates. One Penn
Plaza is a 57 story Manhattan office building containing approximately 2,350,000
square feet and encompasses substantially the entire square block bounded by
33rd Street, 34th Street, Seventh Avenue and Eighth Avenue.
 
  150 East 58th Street
 
     In March 1998, the Company acquired 150 East 58th Street (the Architects
and Design Center), a 39 story Manhattan office building, for approximately $118
million from a limited partnership. The building contains approximately 550,000
square feet.
 
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PENDING ACQUISITIONS
 
  Kennedy Properties
 
     In January 1998, the Company entered into a definitive agreement to acquire
a real estate portfolio from Joseph P. Kennedy Enterprises for approximately
$625 million, consisting of $465 million in cash, $50 million in indebtedness
and an aggregate of $110 million in Operating Partnership Units and Convertible
Preferred Operating Partnership Units.
 
     The real estate assets to be acquired include a portfolio of properties
used for office, retail and trade showroom space. The properties aggregate
approximately 5.3 million square feet and consist of the Merchandise Mart in
Chicago, the Apparel Center in Chicago, the Washington Design Center and the
Washington Office Center in Washington, D.C. The transaction also includes the
acquisition of Merchandise Mart Properties, Inc., which manages the properties
and trade shows. The closing is expected to occur in the second quarter of 1998.
 
  YMCA Development
 
     In September 1997, the Company entered into an agreement with the YMCA to
acquire a portion of a property now occupied by the YMCA. The property overlooks
Central Park and is located between West 63rd and 64th Streets in Manhattan, New
York. Pursuant to the agreement, a preferred stock affiliate of the Company will
acquire and develop approximately 44,000 square feet for use by the YMCA and
approximately 150,000 square feet for sale as residential condominiums. The
agreement contemplates the negotiation and execution of additional related
agreements. The purchase price for the property is approximately $8,400,000, and
the Company estimates that development costs (including the YMCA facilities)
will be approximately $55,000,000. To date, the Company has expended
approximately $2,750,000 in connection with this transaction and provided the
YMCA with a $5,500,000 letter of credit. The transaction is expected to close in
the second quarter of 1998.
 
  Las Catalinas Mall
 
     The Company has an option to acquire K Mart's recently constructed anchor
store and its 50% interest in the Las Catalinas Mall located in Caguas, Puerto
Rico. The total purchase price is approximately $68,000,000 (substantially all
of which would be financed with newly issued debt). The acquisition is expected
to close in the second quarter of 1998.
 
  Hotel Pennsylvania -- additional investment (see Completed Acquisitions).
 
  Cold Storage -- acquisition of Freezer Services, Inc. (see Completed
Acquisitions).
 
     There can be no assurance that any of the pending acquisitions will
ultimately be completed.
 
PROPOSED SPIN-OFF OF OPERATING COMPANY
 
     In order to maintain its status as a REIT for federal income tax purposes,
the Company is required to focus principally on investment in certain real
estate assets. Accordingly, the Company cannot directly own certain assets and
conduct certain activities that would be inconsistent with its status as a REIT.
 
     The Company has formed Vornado Operating, Inc. ("Vornado Operating") to own
assets that Vornado could not itself own and conduct activities that Vorndado
could not itself conduct. Vornado Operating will be able to do so because it
will be taxable as a regular corporation rather than a REIT for taxable years
after 1998. Vornado Operating has filed a registration statement with the
Securities and Exchange Commission with respect to its proposed spin off from
the Company. If the spin off takes place, the Operating Partnership will
distribute pro rata to its partners, including Vornado, the shares of Vornado
Operating, and Vornado will distribute pro rata to holders of its Common Shares
the shares it receives. No holder of Common Shares will be required to make any
payment, exchange any Common Shares or take any other action in order to receive
Vornado Operating's common stock in the spin off. A record date has not yet been
set for the spin off. No assurance can be given concerning the timing of the
spin off, or whether the spin off will occur.
 
     If the spin off takes place, the Company and Vornado Operating intend to
enter into an Intercompany Agreement pursuant to which, among other things, (a)
the Company will agree under certain circumstances
 
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to offer Vornado Operating an opportunity to become the lessee of certain real
property owned now or in the future by the Company (under mutually satisfactory
lease terms) and (b) Vornado Operating will agree not to make any real estate
investment or other REIT-qualified investments unless it first offers the
Company the opportunity to make such investment and the Company has rejected
that opportunity. The Company expects to capitalize Vornado Operating with an
equity contribution of $25 million of cash, and intends to extend to Vornado
Operating a $75 million unsecured five-year revolving line of credit. The
Intercompany Agreement and the Credit Agreement were not subject to arms-length
negotiation because Vornado Operating is currently a subsidiary of the Company.
Accordingly, there can be no assurance that the terms of these Agreements are
comparable to those the Company could have negotiated with an unaffiliated third
party.
 
FINANCING ACTIVITIES
 
     In April 1997, Vornado sold 5,750,000 Series A Convertible Preferred Shares
of Beneficial Interest, liquidation preference $50.00 per share. The preferred
shares bear a coupon of 6 1/2% and are convertible into common shares at $36 3/8
per share. The offering, net of expenses, generated approximately $276,000,000,
which was used to fund the cash portion of the Mendik Transaction.
 
     In addition, in April 1997, the Company borrowed $400,000,000 from Union
Bank of Switzerland pursuant to an unsecured bridge loan. In July 1997, the
Company obtained a $600,000,000 unsecured three-year revolving credit facility.
Simultaneously with the closing, the Company borrowed $250,000,000 under the
facility and used the proceeds together with working capital to repay the
$400,000,000 it borrowed in April. In February 1998, the facility was increased
to $1,000,000,000 and certain covenants were amended. The co-managers of the
facility are Union Bank of Switzerland, Chase Manhattan Bank, Citibank and
NationsBank. Union Bank of Switzerland is also the arranger and administrative
agent. The facility contains loan covenants including, among others, maximum
loan to value ratio, minimum debt service coverage and minimum market
capitalization requirements. Interest is at LIBOR plus .70% to 1.00% depending
on the Company's senior debt rating. The credit facility has a competitive bid
option program, which allows the Company to hold auctions among banks
participating in the facility for short term borrowings of up to 50% of the
credit facility. At December 31, 1997, the Company had $370,000,000 outstanding
under the facility at a blended rate of 6.79% (LIBOR plus .83%) which was used
to fund a portion of the purchase price of certain acquisitions previously
described.
 
     In October 1997, Vornado sold 14,000,000 common shares and an additional
2,100,000 common shares in November 1997 when the underwriters exercised in full
their over-allotment option. The shares were sold at a price of $45.00 per share
which, net of expenses, yielded approximately $688,672,000. The net proceeds
were used to repay $310,000,000 outstanding under the Company's line of credit
and to fund a portion of the purchase price of certain acquisitions previously
described.
 
     In February 1998, the Company completed a $160,000,000 refinancing of the
Green Acres Mall and prepaid the then existing $118,000,000 debt on the
property. The new 10-year debt matures in March 2008 and bears interest at
6.75%.
 
     Also, in February 1998, the Company obtained a $93,192,000 four month
bridge mortgage loan from Union Bank of Switzerland in connection with its
acquisition of One Penn Plaza. The loan bears interest at LIBOR plus .80%
(currently 6.49%).
 
     The Company has historically maintained a relatively low level of debt to
market capitalization. At December 31, 1997, the ratio of debt to market
capitalization was 24% based on debt of $956,654,000 and market equity of
$4,036,769,000. In the future, in connection with its strategy for growth, this
percentage may increase. This policy may be reviewed and modified from time to
time by the Company without the vote of shareholders.
 
     The Company may seek to obtain funds through equity offerings or debt
financing, although there is no express policy with respect thereto. The Company
may offer its shares or Operating Partnership's units in exchange for property
and repurchase or otherwise reacquire its shares or any other securities in the
future.
 
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EBITDA BY PROPERTY TYPE
 
     The following table sets forth the percentage of the Company's earnings
before interest expense, taxes, depreciation and amortization ("EBITDA"),
represented by property type on a historical and a pro forma basis for the year
ended December 31, 1997. The pro forma column gives effect to the Completed and
Pending Acquisitions previously described as if they had occurred on January 1,
1997.

                                                               PERCENTAGE OF EBITDA
                                                              -----------------------
PROPERTY TYPE                                                 HISTORICAL    PRO FORMA
- -------------                                                 ----------    ---------
                                                                      
Shopping centers............................................      46%           25%
Office buildings............................................      30%           35%
Cold storage................................................       6%           15%
Kennedy Properties..........................................      --            16%
Industrial..................................................       3%            1%
Investment in Alexander's, Inc. ("Alexander's").............       6%            3%
Other.......................................................       9%            5%
                                                                 ---           ---
                                                                 100%          100%
                                                                 ===           ===

     The percentage of the Company's EBITDA generated by properties located in
the Greater Metropolitan New York area was approximately 65% on a historical
basis and approximately 56% on a pro forma basis for the year ended December 31,
1997. See Item 2. Properties for a description of each property type.
 
RELATIONSHIP WITH ALEXANDER'S
 
     The Company owns 29.3% of the outstanding shares of common stock of
Alexander's. (See "Interstate Properties" below for a description of
Interstate's ownership of the Company and Alexander's.)
 
     Alexander's has nine properties (where its department stores were formerly
located) (see Item 2. Properties -- Alexander's).
 
     In March 1995, the Company lent Alexander's $45 million. The loan, which
was scheduled to mature in March 1998, has been extended to March 1999 and the
interest rate was reset from 15.60% per annum to 13.87% per annum reflecting a
reduction in both the spread and the underlying treasury rate. Management
believes there are no indications of impairment as discussed in Statement of
Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan".
 
     The Company manages, develops and leases the Alexander's properties under a
management and development agreement (the "Management Agreement") and a leasing
agreement (the "Leasing Agreement") pursuant to which the Company receives
annual fees from Alexander's. These Agreements have a one-year term expiring in
March of each year and are automatically renewable.
 
     The agreement with the Company and Interstate Properties (see below) not to
own in excess of two-thirds of Alexander's common stock expired in March 1998.
 
     Alexander's common stock is listed on the New York Stock Exchange under the
symbol "ALX".
 
INTERSTATE PROPERTIES
 
     As of December 31, 1997, Interstate Properties owned approximately 17.9% of
the common shares of beneficial interest of the Company and 27.1% of Alexander's
common stock. Interstate Properties is a general partnership in which Steven
Roth, David Mandelbaum and Russell B. Wight, Jr. are partners. Mr. Roth is the
Chairman of the Board and Chief Executive Officer of the Company, the Managing
General Partner of Interstate Properties, and the Chief Executive Officer and a
director of Alexander's. Messrs. Mandelbaum and Wight are trustees of the
Company and are also directors of Alexander's.
 
COMPETITION
 
     The real estate industry is highly competitive. The Company's success
depends upon, among other factors, the trends of the national and local
economies, the financial condition and operating results of current and
prospective tenants, the availability and cost of capital, interest rates,
construction and renovation costs,
 
                                        9
   10
 
income tax laws, governmental regulations and legislation, population trends,
the market for real estate properties in the New York metropolitan area, zoning
laws and the ability of the Company to lease, sublease or sell its properties at
profitable levels. The Company competes with a large number of real estate
property owners. Principal means of competition are rent charged, attractiveness
of location and the quality of service. The Company's properties are principally
located in the New York metropolitan area, a highly competitive market. The
economic condition of this market may be significantly influenced by supply and
demand for space and the financial performance and productivity of the
financial, insurance and real estate industries. An economic downturn may
adversely affect the Company's performance.
 
ENVIRONMENTAL REGULATIONS
 
     Under various Federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be required to
investigate and clean up certain hazardous or toxic substances released at a
property, and may be held liable to a governmental entity or to third parties
for property damage or personal injuries and for investigation and clean-up
costs incurred by the parties in connection with the contamination. Such laws
often impose liability without regard to whether the owner or operator knew of,
or was responsible for, the release of such substances. The presence of
contamination or the failure to remediate contamination may adversely affect the
owner's ability to sell or lease real estate or to borrow using the real estate
as collateral. Other Federal, state and local laws, ordinances and regulations
require abatement or removal of certain asbestos-containing materials in the
event of demolition or certain renovations or remodeling and also govern
emissions of and exposure to asbestos fibers in the air. The operation and
subsequent removal of certain underground storage tanks are also regulated by
Federal and state laws. In connection with the ownership, operation and
management of its properties, the Company could be held liable for the costs of
remedial action with respect to such regulated substances or tanks or related
claims.
 
     Each of the Company's properties has been subjected to varying degrees of
environmental assessment at various times. The environmental assessments did not
reveal any material environmental condition. However, there can be no assurance
that the identification of new areas of contamination, change in the extent or
known scope of contamination, the discovery of additional sites, or changes in
cleanup requirements would not result in significant costs to the Company.
 
CERTAIN ACTIVITIES
 
     Acquisitions and investments are not necessarily required to be based on
specific allocation by type of property. The Company has historically held its
properties for long-term investment; however, it is possible that properties in
the portfolio may be sold in whole or in part, as circumstances warrant, from
time to time. Further, the Company has not adopted a policy that limits the
amount or percentage of assets which would be invested in a specific property.
While the Company may seek the vote of its shareholders in connection with any
particular material transaction, generally the Company's activities are reviewed
and may be modified from time to time by its Board of Trustees without the vote
of shareholders.
 
EMPLOYEES
 
     The Company has 190 employees excluding employees of partially-owned
entities.
 
SEGMENT DATA
 
     The Company operates in two reportable segments: commercial office
properties and retail properties. The Company engages in no foreign operations.
 
     The Company's principal executive offices are located at Park 80 West,
Plaza II, Saddle Brook, New Jersey 07663; telephone (201) 587-1000. The Mendik
Division is located at 330 Madison Avenue, New York City, New York 10017;
telephone (212) 557-1100.
 
ITEM 2.  PROPERTIES
 
     The Company currently owns, directly or indirectly, office buildings,
shopping centers, and warehouse and industrial buildings. The Company also has
investments in the Cold Storage Companies, Alexander's, Charles E. Smith
Commercial Realty L.P. and the Hotel Pennsylvania. The following tables and
narrative set forth certain information for each property type.
 
                                       10
   11
 
OFFICE PROPERTIES, SHOPPING CENTERS AND OTHER PROPERTIES
 
     The following table sets forth certain information for the properties owned
by the Company as of December 31, 1997 or as of the date of acquisition for
properties thereafter acquired. The Principal Tenants as described below, which
are primarily tenants which occupy 30,000 square feet or more, accounted for
approximately 70% of total square footage.

                                                                   APPROXIMATE
                                                                LEASABLE BUILDING
                                                                 SQUARE FOOTAGE
                                                            -------------------------
                                        YEAR                               OWNED BY
                                     ORIGINALLY    LAND       OWNED/      TENANT ON      NUMBER    ANNUALIZED
                                      DEVELOPED    AREA     LEASED BY    LAND LEASED       OF       RENT PER     PERCENT
         TYPE AND LOCATION           OR ACQUIRED  (ACRES)    COMPANY     FROM COMPANY   TENANTS    SQ. FT.(1)   LEASED(1)
         -----------------           -----------  -------   ----------   ------------   --------   ----------   ---------
                                                                                           
OFFICE BUILDINGS (MENDIK DIVISION)
NEW YORK
  One Penn Plaza, Manhattan(4)
    (acquired in February 1998)....     1972         2.9     2,372,000                     209       $25.16         94%
  Two Penn Plaza, Manhattan........     1968         2.7     1,508,000                      61        27.19         98%
  Eleven Penn Plaza, Manhattan.....     1923         1.3       956,000                      71        25.22         97%
  1740 Broadway, Manhattan.........     1950         0.7       551,000                      19        32.77        100%
  866 United Nations Plaza,
    Manhattan......................     1966         2.1       386,000                      84        28.37         81%
  90 Park Avenue, Manhattan........     1964         0.9       877,000                      31        31.35        100%
  640 Fifth Avenue, Manhattan......     1950         0.5       249,000                      12        22.59         94%
  150 East 58th Street, Manhattan
    (acquired in March 1998).......     1969         0.5       548,000                     135        29.34         97%
  Two Park Avenue, Manhattan (40%
    Ownership).....................     1930         1.0       946,000                      44        23.20         97%
  330 Madison Avenue, Manhattan
    (24.75% Ownership).............     1963         0.8       771,000                      43        33.62         97%
  570 Lexington Avenue, Manhattan
    (5.6% Ownership)...............     1930         0.3       433,000                      32        31.53         63%
  825 Seventh Avenue, Manhattan
    (50% Ownership)................     1968         0.5       149,000                       1         7.65        100%
NEW JERSEY
  Paramus(4).......................     1987         3.4       118,000                      25        17.38         53%
CONNECTICUT
  Westport (acquired in January
    1998)..........................     1979        20.1       121,000                       5        21.62        100%
                                                  -------   ----------                   -----       ------        ---
        Total Office Buildings.....                 37.7     9,985,000                     772        27.09         94%
                                                  -------   ----------                   -----       ------        ---
        Vornado's Ownership
          Interest.................                 35.9     8,353,000                                              95%
                                                  -------   ----------                                             ---

 
                                                                   LEASE
                                                                EXPIRATION/
                                                                  OPTION      ENCUMBRANCES
         TYPE AND LOCATION              PRINCIPAL TENANTS       EXPIRATION   (THOUSANDS)(8)
         -----------------           ------------------------   -----------  --------------
                                                                    
OFFICE BUILDINGS (MENDIK DIVISION)
NEW YORK
  One Penn Plaza, Manhattan(4)
    (acquired in February 1998)....  Kmart Corporation           2016/2036            --(10)
                                     Parsons Brinkerhoff         2008/2013
                                     Miller Freeman Inc.         2011/2016
  Two Penn Plaza, Manhattan........  McGraw Hill Co. Inc.        2020/2030      $ 80,000
                                     Information Builders,       2013/2023
                                     Inc.
  Eleven Penn Plaza, Manhattan.....  Times Mirror Company          2001           54,612
                                     General Mills                 2002
  1740 Broadway, Manhattan.........  Mutual of New York          2016/2026            --
                                     William Douglas McAdams       2007
                                     Inc.
  866 United Nations Plaza,
    Manhattan......................  Mission of Japan to UN      2006/2011        33,000
  90 Park Avenue, Manhattan........  Sterling Winthrop Inc       2015/2035            --
  640 Fifth Avenue, Manhattan......  Citibank                      2018               --
                                     Bozell Jacobs Kenyon        2008/2013
                                     Right Management              2001
                                     Consultants
  150 East 58th Street, Manhattan
    (acquired in March 1998).......
  Two Park Avenue, Manhattan (40%
    Ownership).....................  Times Mirror Company        2010/2025        65,000
                                     Smith Barney Inc.             1998
  330 Madison Avenue, Manhattan
    (24.75% Ownership).............  BDO Seidman                 2010/2015       103,800
  570 Lexington Avenue, Manhattan
    (5.6% Ownership)...............  Quebecor Printing Corp      2007/2012        18,339
                                     Rochdale Securities Inc.    2008/2013
                                     Brean Murray & Co, Inc.       2011
  825 Seventh Avenue, Manhattan
    (50% Ownership)................  American Broadcasting         1999               --
                                     Companies
NEW JERSEY
  Paramus(4).......................                                                  602
CONNECTICUT
  Westport (acquired in January
    1998)..........................  Metropolitan Life             2001               --(10)
                                     Insurance
                                                                                --------
        Total Office Buildings.....                                              355,353
                                                                                --------
        Vornado's Ownership
          Interest.................                                              221,570
                                                                                --------

                                       11
   12

                                                                   APPROXIMATE
                                                                LEASABLE BUILDING
                                                                 SQUARE FOOTAGE
                                                            -------------------------
                                        YEAR                               OWNED BY
                                     ORIGINALLY    LAND       OWNED/      TENANT ON      NUMBER    ANNUALIZED
                                      DEVELOPED    AREA     LEASED BY    LAND LEASED       OF       RENT PER     PERCENT
         TYPE AND LOCATION           OR ACQUIRED  (ACRES)    COMPANY     FROM COMPANY   TENANTS    SQ. FT.(1)   LEASED(1)
         -----------------           -----------  -------   ----------   ------------   --------   ----------   ---------
                                                                                           
SHOPPING CENTERS
NEW JERSEY
  Atlantic City....................     1965        17.7       136,000           --         --           --         --
  Bordentown.......................     1958        31.2       179,000           --          4         6.54        100%
  Bricktown........................     1968        23.9       260,000        3,000         19        10.41         99%
  Cherry Hill......................     1964        37.6       231,000       64,000         13       $ 9.01         94%
  Delran...........................     1972        17.5       168,000        4,000          5         5.32         94%
  Dover............................     1964        19.6       173,000           --         13         6.07         99%
  East Brunswick...................     1957        19.2       219,000       10,000          6        11.31         89%
  East Hanover.....................     1962        24.6       271,000           --         17        10.34         98%
  Hackensack.......................     1963        21.3       208,000       59,000         21        15.25         98%
  Jersey City......................     1965        16.7       223,000        3,000         11        12.41         97%
  Kearny...........................     1959        35.3        42,000       62,000          4         6.64         89%
  Lawnside.........................     1969        16.4       145,000           --          3        10.50        100%
  Lodi.............................     1975         8.7       130,000           --          1         8.56        100%
  Manalapan........................     1971        26.3       194,000        2,000          7         9.09        100%
  Marlton..........................     1973        27.8       173,000        7,000         10         8.52        100%
  Middletown.......................     1963        22.7       180,000       52,000         23        13.73         99%
  Morris Plains....................     1985        27.0       172,000        1,000         19        11.31        100%
  North Bergen.....................     1959         4.6         7,000       55,000          3        26.21        100%
  North Plainfield(4)..............     1989        28.7       217,000           --         16         8.69         98%
  Totowa...........................     1957        40.5       201,000       94,000          6        16.08         92%
  Turnersville.....................     1974        23.3        89,000        7,000          3         5.98        100%
  Union............................     1962        24.1       257,000           --         12        17.75        100%
  Vineland.........................     1966        28.0       143,000           --          4         6.87         51%

 
                                                                   LEASE
                                                                EXPIRATION/
                                                                  OPTION      ENCUMBRANCES
         TYPE AND LOCATION              PRINCIPAL TENANTS       EXPIRATION   (THOUSANDS)(8)
         -----------------           ------------------------   -----------  --------------
                                                                    
SHOPPING CENTERS
NEW JERSEY
  Atlantic City....................                                             $  2,135(9)
  Bordentown.......................  Bradlees(2)(3)              2001/2021         3,276(9)
                                     Shop-Rite                   2011/2016
  Bricktown........................  Caldor                      2008/2028         9,919(9)
                                     Shop-Rite                   2002/2017
  Cherry Hill......................  Bradlees(2)(3)              2006/2026         9,706(9)
                                     Drug Emporium                 2002
                                     Shop & Bag                  2007/2017
                                     Toys "R" Us                 2012/2042
  Delran...........................  Sam's Wholesale             2011/2021         2,848(9)
  Dover............................  Ames                        2017/2037         3,635(9)
                                     Shop-Rite                   2012/2022
  East Brunswick...................  Bradlees(3)                 2003/2023         8,205(9)
                                     Shoppers World              2007/2012
                                     T.J. Maxx                   2004/2009
  East Hanover.....................  Home Depot                  2009/2019        11,066(9)
                                     Marshalls                   2004/2009
                                     Pathmark                    2001/2024
                                     Today's Man                 2009/2014
  Hackensack.......................  Bradlees(3)                 2012/2017            --
                                     Pathmark                    2014/2024
                                     Rickel Home Center          2003/2013
  Jersey City......................  Bradlees(3)                 2002/2022        10,381(9)
                                     Shop-Rite                   2008/2028
  Kearny...........................  Pathmark                    2013/2033            --
                                     Rickel Home Center            2008
  Lawnside.........................  Home Depot                  2012/2027         5,708(9)
                                     Drug Emporium                 2007
  Lodi.............................  National Wholesale          2013/2023         2,420(9)
                                     Liquidators
  Manalapan........................  Bradlees(3)                 2002/2022         6,397(9)
                                     Grand Union                 2012/2022
  Marlton..........................  Kohl's(2)(3)                2011/2031         5,398(9)
                                     Shop-Rite                   2004/2009
  Middletown.......................  Bradlees(3)                 2002/2022         7,761(9)
                                     Grand Union                 2009/2029
  Morris Plains....................  Caldor                      2002/2023         6,600(9)
                                     Shop-Rite                     2002
  North Bergen.....................  A & P                       2012/2032            --
  North Plainfield(4)..............  Kmart                       2006/2016         3,379
                                     Pathmark                    2001/2011
  Totowa...........................  Bradlees(3)                 2013/2028        15,646(9)
                                     Home Depot                  2015/2025
                                     Marshalls                   2007/2012
  Turnersville.....................  Bradlees(2)(3)              2011/2031         2,116(9)
  Union............................  Bradlees(3)                 2002/2022        15,975(9)
                                     Toys "R" Us                   2015
                                     Cost Cutter Drug              2000
  Vineland.........................  Rickel Home Center          2005/2010         2,358(9)

                                       12
   13

                                                                   APPROXIMATE
                                                                LEASABLE BUILDING
                                                                 SQUARE FOOTAGE
                                                            -------------------------
                                        YEAR                               OWNED BY
                                     ORIGINALLY    LAND       OWNED/      TENANT ON      NUMBER    ANNUALIZED
                                      DEVELOPED    AREA     LEASED BY    LAND LEASED       OF       RENT PER     PERCENT
         TYPE AND LOCATION           OR ACQUIRED  (ACRES)    COMPANY     FROM COMPANY   TENANTS    SQ. FT.(1)   LEASED(1)
         -----------------           -----------  -------   ----------   ------------   --------   ----------   ---------
                                                                                           
  Watchung.........................     1959        53.8        50,000      116,000          6        17.60         97%
  Woodbridge.......................     1959        19.7       233,000        3,000         11        13.47         99%
NEW YORK
  14th Street and Union Square,
    Manhattan......................     1993         0.8       232,000           --          1         9.92        100%
  Albany (Menands).................     1965        18.6       141,000           --          2       $ 6.35        100%
  Buffalo (Amherst)(4).............     1968        22.7       185,000      112,000         10         6.98         96%
  Coram(4).........................     1976         2.4       103,000           --          1         2.22        100%
  Freeport.........................     1981        12.5       167,000           --          3        11.50        100%
  New Hyde Park(4).................     1976        12.5       101,000           --          1        13.55        100%
  North Syracuse(4)................     1976        29.4        98,000           --          1         2.74        100%
  Rochester (Henrietta)(4).........     1971        15.0       148,000           --          1         5.86         47%
  Rochester........................     1966        18.4       176,000           --          1         6.05         41%
  Valley Stream (Green Acres)(4)...     1958       100.0     1,667,000      170,000        158           (6)        87%
PENNSYLVANIA
  Allentown........................     1957        86.8       263,000      354,000         20         9.97        100%
  Bensalem.........................     1972        23.2       208,000        7,000         12         7.62         70%
  Bethlehem........................     1966        23.0       157,000        3,000         13         5.27         81%
  Broomall.........................     1966        21.0       146,000       22,000          5         9.08        100%
  Glenolden........................     1975        10.0       101,000           --          3        10.74        100%
  Lancaster........................     1966        28.0       180,000           --          6         4.39         45%
  Levittown........................     1964        12.8       104,000           --          1         5.98        100%
  10th and Market Streets,
    Philadelphia...................     1994         1.8       271,000           --          3         8.59         69%
  Upper Moreland...................     1974        18.6       122,000           --          1         7.50        100%
  York.............................     1970        12.0       113,000           --          3         4.64        100%
MARYLAND
  Baltimore (Belair Rd.)...........     1962        16.0       206,000           --          2         5.95         65%
  Baltimore (Towson)...............     1968        14.6       146,000        7,000          7         9.63        100%

 
                                                                   LEASE
                                                                EXPIRATION/
                                                                  OPTION      ENCUMBRANCES
         TYPE AND LOCATION              PRINCIPAL TENANTS       EXPIRATION   (THOUSANDS)(8)
         -----------------           ------------------------   -----------  --------------
                                                                    
  Watchung.........................  B.J.'s Wholesale              2024               --
  Woodbridge.......................  Bradlees(3)                 2002/2022      $  8,792(9)
                                     Foodtown                    2007/2014
                                     Syms                        2000/2005
NEW YORK
  14th Street and Union Square,
    Manhattan......................  Bradlees                    2019/2029            --
  Albany (Menands).................  Fleet Bank                  2004/2014            --
                                     Albany Public Mkts.(5)        2000
  Buffalo (Amherst)(4).............  Circuit City                  2017            4,863(9)
                                     Media Play                  2002/2017
                                     MJ Design                   2006/2017
                                     Toys "R" Us                   2013
                                     T.J. Maxx                     2004
  Coram(4).........................  May Department Stores(5)      2011               --
  Freeport.........................  Home Depot                  2011/2021         8,021(9)
                                     Cablevision                   2004
  New Hyde Park(4).................  Mayfair Supermarkets        2019/2029         2,043(9)
  North Syracuse(4)................  Reisman Properties            2014               --
  Rochester (Henrietta)(4).........  Hechinger(5)                2005/2025         2,203(9)
  Rochester........................  Hechinger(5)                2005/2025         2,832(9)
  Valley Stream (Green Acres)(4)...  Macy's                      2006/2036       124,985(11)
                                     Sterns                      2007/2017
                                     JC Penney                     2012
                                     Sears                       2023/2073
                                     Kmart                       2010/2038
                                     Dime Savings Bank             2000
                                     Greenpoint Bank               2009
PENNSYLVANIA
  Allentown........................  Hechinger                   2011/2031         7,696(9)
                                     Shop-Rite                   2011/2019
                                     Burlington Coat               2017
                                     Factory
                                     Wal*Mart                    2024/2094
                                     Sam's Wholesale             2024/2094
                                     T.J. Maxx                   1998/2008
  Bensalem.........................  (2)(3)                      2011/2031         3,967(9)
  Bethlehem........................  Pathmark                    2008/2033            --
                                     Super Petz                  2005/2015
  Broomall.........................  Bradlees(2)(3)              2006/2026         3,260(9)
  Glenolden........................  Bradlees(2)(3)              2012/2022         4,245(9)
  Lancaster........................  Weis Markets                2008/2018         2,312(9)
  Levittown........................  (2)(3)                      2006/2026         2,283(9)
  10th and Market Streets,
    Philadelphia...................  Kmart                       2010/2035            --
  Upper Moreland...................  Sam's Wholesale(2)          2010/2015         3,517(9)
  York.............................  Builders Square             2009/2018         1,463(9)
MARYLAND
  Baltimore (Belair Rd.)...........  Food Depot                  1999/2004            --
  Baltimore (Towson)...............  Staples                       2004            5,779(9)
                                     Cost Saver Supermarket      2000/2020
                                     Drug Emporium               1999/2004

                                       13
   14

                                                                   APPROXIMATE
                                                                LEASABLE BUILDING
                                                                 SQUARE FOOTAGE
                                                            -------------------------
                                        YEAR                               OWNED BY
                                     ORIGINALLY    LAND       OWNED/      TENANT ON      NUMBER    ANNUALIZED
                                      DEVELOPED    AREA     LEASED BY    LAND LEASED       OF       RENT PER     PERCENT
         TYPE AND LOCATION           OR ACQUIRED  (ACRES)    COMPANY     FROM COMPANY   TENANTS    SQ. FT.(1)   LEASED(1)
         -----------------           -----------  -------   ----------   ------------   --------   ----------   ---------
                                                                                           
  Baltimore (Dundalk)..............     1966        16.1       183,000           --         17         6.47         98%
  Glen Burnie......................     1958        21.2       117,000        3,000          4         6.03        100%
  Hagerstown.......................     1966        13.9       133,000       15,000          6       $ 3.12        100%
CONNECTICUT
  Newington........................     1965        19.2       134,000       45,000          4         6.46        100%
  Waterbury........................     1969        19.2       140,000        3,000         10         7.81        100%
MASSACHUSETTS
  Chicopee.........................     1969        15.4       112,000        3,000          3         5.10         93%
  Milford(4).......................     1976        14.7        83,000           --          1         5.26        100%
  Springfield......................     1966        17.4         8,000      117,000          2        11.25        100%
TEXAS
  Lewisville.......................     1990        13.3        35,000        7,000         16        13.61         98%
  Mesquite.........................     1990         5.5        71,000           --         13        13.86         87%
  Dallas...........................     1990         9.9       100,000           --          9         9.47         81%
PUERTO RICO (SAN JUAN)
  Montehiedra......................     1997        57.1       525,000           --         96        15.53         99%
                                                  -------   ----------    ---------      -----       ------        ---
        Total Shopping Centers.....               1,339.2   10,977,000    1,410,000        673         9.78         92%
                                                  -------   ----------    ---------      -----       ------        ---
WAREHOUSE/INDUSTRIAL
NEW JERSEY
  E. Brunswick.....................     1972        16.1       326,000                       2         2.46         97%
  E. Hanover.......................   1963-1967     45.5       941,000                      12         3.85        100%
  Edison...........................     1982        18.7       272,000                       1         2.75        100%
  Garfield.........................     1959        31.6       487,000                       3         3.75         38%
                                                  -------   ----------                   -----       ------        ---
        Total
          Warehouse/Industrial.....                111.9     2,026,000                      18         3.41         84%
                                                  -------   ----------                   -----       ------        ---

 
                                                                   LEASE
                                                                EXPIRATION/
                                                                  OPTION      ENCUMBRANCES
         TYPE AND LOCATION              PRINCIPAL TENANTS       EXPIRATION   (THOUSANDS)(8)
         -----------------           ------------------------   -----------  --------------
                                                                    
  Baltimore (Dundalk)..............  A & P                       2002/2017      $  4,084(9)
                                     Ollie's                     2003/2008
                                     Manor Shops                   1998
  Glen Burnie......................  Pathmark Stores, Inc.(5)      2005            2,299(9)
  Hagerstown.......................  Big Lots                    2002/2012            --
                                     Pharmhouse                  2008/2012
                                     Weis Markets                1999/2009
CONNECTICUT
  Newington........................  (3)                         2002/2022         3,042(9)
                                     The Wiz                     2007/2027
  Waterbury........................  Toys "R" Us                   2010            3,889(9)
                                     Shaws Supermarkets          2003/2018
MASSACHUSETTS
  Chicopee.........................  Bradlees(3)                 2002/2022         1,999(9)
  Milford(4).......................  Bradlees(3)                 2004/2009            --
  Springfield......................  Wal*Mart                    2018/2092            --
TEXAS
  Lewisville.......................  Albertson's(7)                2055              764(9)
  Mesquite.........................                                                3,445(9)
  Dallas...........................  Albertson's(7)                2055            1,987(9)
PUERTO RICO (SAN JUAN)
  Montehiedra......................  Kmart                       2022/2072        62,698
                                     Builders Square             2022/2072
                                     Marshalls                   2010/2025
                                     Caribbean Theatres          2021/2026
                                                                                --------
        Total Shopping Centers.....                                              407,397
                                                                                --------
WAREHOUSE/INDUSTRIAL
NEW JERSEY
  E. Brunswick.....................  Popsicle Playwear           2000/2005            --
                                     IFB Apparel                 2001/2006
  E. Hanover.......................  Various Tenants                               8,210(9)
  Edison...........................  White Cons. Ind.            1998/2001         2,455(9)
  Garfield.........................  Popular Services &            2007              368
                                     Various Tenants
                                                                                --------
        Total
          Warehouse/Industrial.....                                               11,033
                                                                                --------

                                       14
   15

                                                                   APPROXIMATE
                                                                LEASABLE BUILDING
                                                                 SQUARE FOOTAGE
                                                            -------------------------
                                        YEAR                               OWNED BY
                                     ORIGINALLY    LAND       OWNED/      TENANT ON      NUMBER    ANNUALIZED
                                      DEVELOPED    AREA     LEASED BY    LAND LEASED       OF       RENT PER     PERCENT
         TYPE AND LOCATION           OR ACQUIRED  (ACRES)    COMPANY     FROM COMPANY   TENANTS    SQ. FT.(1)   LEASED(1)
         -----------------           -----------  -------   ----------   ------------   --------   ----------   ---------
                                                                                           
OTHER PROPERTIES
  1135 Third Avenue................     1997          --        25,000                       1       $82.44        100%
  Montclair........................     1972         1.6        17,000                       1        16.19        100%
  Rahway(4)........................     1972          --        32,000                       1         4.88        100%
  Riese Properties.................     1997          --        80,000                      20        58.42         99%
                                                  -------   ----------                   -----       ------        ---
        Total Other Properties.....                  1.6       154,000                      23       $46.34         99%
                                                  -------   ----------                   -----       ======        ---
        Grand Total................               1,490.4   23,142,000    1,410,000      1,486                      92%
                                                  =======   ==========    =========      =====                     ===
        Grand Total Vornado's
          Ownership Interest.......               1,488.6   21,510,000    1,410,000                                 92%
                                                  =======   ==========    =========                                ===

 
                                                                   LEASE
                                                                EXPIRATION/
                                                                  OPTION      ENCUMBRANCES
         TYPE AND LOCATION              PRINCIPAL TENANTS       EXPIRATION   (THOUSANDS)(8)
         -----------------           ------------------------   -----------  --------------
                                                                    
OTHER PROPERTIES
  1135 Third Avenue................                                             $     --
  Montclair........................                                                   --
  Rahway(4)........................                                                   --
  Riese Properties.................                                                   --
                                                                                --------
        Total Other Properties.....                                                   --
                                                                                --------
        Grand Total................                                             $773,783
                                                                                ========
        Grand Total Vornado's
          Ownership Interest.......                                             $640,000
                                                                                ========

   ------------------
    (1)  Represents annualized monthly base rent excluding ground leases,
         storage rent and rent for leases which had not commenced as of December
         31, 1997, which are included in percent leased.
 
    (2)  Montgomery Ward & Co., Inc. (a previous lessor) remains liable on such
         lease including the rent it was obligated to pay -- approximately 70%.
 
    (3)  These leases are either fully guaranteed by Stop & Shop, a wholly-owned
         subsidiary of Royal Ahold NV, or in the case of Totowa, guaranteed as
         to 70% of rent.
 
    (4)  100% Ground and/or building leasehold interest other than Green Acres,
         where approximately 10% of the ground is leased.
 
    (5)  The tenant has ceased operations at these locations but continues to
         pay rent.
 
    (6)  Annualized rent per square foot is $13.16 in total and $27.08 for the
         mall tenants only.
 
    (7)  Square footage excludes Albertson's which owns its land and building.
 
    (8)  At December 31, 1997, the Company's ownership interest in its
         properties is encumbered by $640,000,000 of mortgage debt. This amount
         is comprised of $586,654,000 of debt on wholly-owned properties, which
         is described in Note 5 in the Notes to Consolidated Financial
         Statements and $53,346,000 of debt on partially-owned properties, which
         is reflected in the Company's investments in partially-owned entities
         described in Note 4 in the Notes to Consolidated Financial Statements.
 
    (9)  These encumbrances are cross collateralized under a mortgage in the
         amount of $227,000,000 at December 31, 1997.
 
   (10)  Encumbrances do not include a bridge mortgage loan of $93,192,000 in
         connection with the acquisition of One Penn Plaza (described in
         "Financings" on page 8 of Item 1) and the $8,000,000 mortgage on the
         Westport property: both of these properties were acquired in 1998.
 
   (11)  At December 31, 1997, encumbrances were comprised of a $118,000,000
         mortgage on the property and a $6,985,000 capital lease obligation. In
         February 1998, the Company completed a $160,000,000 refinancing on the
         property and prepaid the then existing $118,000,000 mortgage.
 
                                       15
   16
 
OFFICE PROPERTIES
 
     The Company's office properties consist of all or a portion of 14 office
buildings in the New York City metropolitan area (primarily Manhattan)
containing approximately 8.4 million square feet. As a result of extensive
renovations and upgrades over the last ten years and the Company's on-going
program of preventative maintenance, the Company believes that its properties
are modern structures, attract high quality tenants and are well positioned to
compete with other Class A office properties in their respective submarkets.
 
     The office properties currently are leased to over 770 tenants, which are
engaged in a variety of businesses, including financial services, investment
banking, publishing, computer technology, health care services, accounting and
law. The average lease term of a tenant's lease is 12 years. Leases typically
provide for step-ups in rent periodically over the term of the lease and pass
through to tenants the tenant's share of increases in real estate taxes and
operating expenses for a building over a base year. Electricity is provided to
tenants on a submetered basis or included in rent based on surveys and adjusted
for subsequent utility rate increases. Leases also typically provide for tenant
improvement allowances for all or a portion of the tenant's initial construction
of its premises. At December 31, 1997, no single tenant accounted for more than
5.7% of the Company's total leasable office property square footage.
 
     The following table sets forth a schedule of lease expirations for leases
in place, as of December 31, 1997 for each of the next 10 years on an aggregate
basis, assuming that none of the tenants exercise their renewal options.

                                                                                                            ANNUAL RENT
                                                 APPROXIMATE                              APPROXIMATE       PER LEASED
                               NUMBER OF      SQUARE FOOTAGE OF   PERCENTAGE OF TOTAL   ANNUAL RENT OF    SQUARE FOOT OF
           YEAR             EXPIRING LEASES    EXPIRING LEASES      SQUARE FOOTAGE      EXPIRING LEASES   EXPIRING LEASES
           ----             ---------------   -----------------   -------------------   ---------------   ---------------
                                                                                           
1998......................        81               297,000               4.5%             $ 8,409,000         $28.28
1999......................        66               519,000               7.8%              14,796,000          28.51
2000......................        23               138,000               2.1%               4,508,000          32.60
2001......................        28               504,000               7.6%              15,346,000          30.43
2002......................        28               322,000               4.8%               9,199,000          28.56
2003......................        24               301,000               4.5%               8,113,000          26.91
2004......................        22               254,000               3.8%               7,266,000          28.63
2005......................        22               258,000               3.9%               7,974,000          30.87
2006......................        26               451,000               6.8%              12,964,000          28.75
2007......................        19               378,000               5.7%              11,332,000          29.96

     For the year ended December 31, 1997, office properties accounted for 41%
of total revenues (46% of pro forma total revenues which gives effect to the
completed and pending acquisitions previously described as if they had occurred
on January 1, 1997). The occupancy rate of the properties was 95% as of March 1,
1998. The annual rent per square foot as of December 31, 1997 was $27.09. Two
Penn Plaza accounted for 12% of total revenues for the year ended December 31,
1997. One Penn Plaza accounted for 10% of total pro forma revenues. No other
office property exceeded 10% of total historical or pro forma revenues or
assets. Below are descriptions of One Penn Plaza and Two Penn Plaza:
 
Two Penn Plaza
 
     Two Penn Plaza is a 32-story Manhattan office building that sits directly
atop Penn Station and occupies the entire block front on the west side of
Seventh Avenue between 31st and 33rd Streets (adjacent to Madison Square
Garden). Built in 1968, Two Penn Plaza has approximately 1,500,000 rentable
square feet (including 30,000 square feet of retail space and 28,000 square feet
of storage space). The Penn Plaza area has been improved in recent years through
the efforts of the 34th Street Business Improvement District Partnership
("BID"), which provides street cleaning services, security personnel and other
community services to businesses in the area.
 
     The Company currently is exploring the possibility of developing additional
retail space at Two Penn Plaza. The Company believes that the development of
additional retail space may provide a source of
 
                                       16
   17
 
additional cash flow and therefore enhance the value of Two Penn Plaza. There
can be no assurance, however, that any such additional retail space will be
developed.
 
     As of March 1, 1998, approximately 98% of the rentable square footage in
Two Penn Plaza was leased. The following table sets forth certain information
with respect to Two Penn Plaza at the end of each of the past five years.

                                                                          ANNUAL
                                                                           RENT
                                                                        PER LEASED
                     YEAR-END                        PERCENT LEASED    SQUARE FEET
                     --------                        --------------    ------------
                                                                 
1997...............................................      98.0%            $27.19
1996...............................................      69.0%             29.39
1995...............................................      94.0%             28.62
1994...............................................      94.5%             27.75
1993...............................................      96.3%             26.23

     The Equitable Life Assurance Society of the United States ("Equitable"),
leased approximately 430,000 square feet at Two Penn Plaza under a lease which
expired on October 31, 1996. Equitable relocated its operations to a building
closer to its Manhattan headquarters. At December 31, 1996, approximately
465,000 square feet (approximately 31%) of the property was vacant. During 1997,
the Company entered into separate leases with Information Builders Inc. ("IBI")
and The McGraw-Hill Companies Inc. ("McGraw-Hill") for space previously occupied
by Equitable. IBI, a privately held software company, leased approximately
180,000 square feet, which commenced on October 1, 1997 and expires on May 31,
2013. Subsequently, IBI exercised their option to lease an additional 40,000
square feet, which also expires on May 31, 2013. In November 1997, McGraw-Hill
signed a lease, which when fully implemented, encompasses approximately 407,000
square feet. McGraw-Hill will take possession of approximately 290,000 square
feet during the first quarter of 1998. McGraw-Hill will take possession of the
remainder of the space as current leases expire in subsequent periods.
McGraw-Hill's lease expires on March 31, 2020.
 
     The following table is a schedule of the annual lease expirations at Two
Penn Plaza as of March 1, 1998 (assuming that no tenants exercise renewal
options):

                                                                                               ANNUAL
                                                                                              RENT PER
                                                  APPROXIMATE                  APPROXIMATE     LEASED
                                                    SQUARE       PERCENTAGE      ANNUAL        SQUARE
                                     NUMBER OF      FOOTAGE       OF TOTAL       RENT OF      FOOT OF
                                     EXPIRING     OF EXPIRING      SQUARE       EXPIRING      EXPIRING
     YEAR OF LEASE EXPIRATION         LEASES        LEASES        FOOTAGE        LEASES        LEASES
     ------------------------        ---------    -----------    ----------    -----------    --------
                                                                               
1998...............................     11           13,000         0.9%       $  179,000      $13.53
1999...............................      9           66,000         4.4%        1,725,000       26.14
2000...............................      9           30,000         2.0%          775,000       25.92
2001...............................      6           83,000         5.5%        2,051,000       24.70
2002...............................      2           31,000         2.1%          887,000       28.64
2003...............................      8          129,000         8.5%        3,268,000       25.41
2004...............................      2           35,000         2.3%          923,000       26.63
2005...............................      2           18,000         1.2%          623,000       35.11
2006...............................      1           57,000         3.8%        1,397,000       24.41
2007...............................      1          113,000         7.5%        3,299,000       29.30

     The aggregate undepreciated tax basis of depreciable real property at Two
Penn Plaza for Federal income tax purposes was approximately $111,000,000 as of
December 31, 1997, and depreciation for such property is computed for Federal
income tax purposes on the declining balance or straight-line methods over lives
which range from 15 to 39 years.
 
                                       17
   18
 
     The current assessed value of Two Penn Plaza for real estate tax purposes
is $74,250,000. The tax rate in New York City for commercial real estate is
10.164 for $100 of assessed value which results in real estate taxes for the
1997/1998 tax year of $7,897,380 (including the 34th Street BID tax of
$350,610).
 
One Penn Plaza
 
     One Penn Plaza is a 57-story Manhattan office building which encompasses
substantially the entire square block bounded by 33rd Street, 34th Street,
Seventh Avenue and Eight Avenue. Built in 1972, One Penn Plaza contains
approximately 2,350,000 square feet (including 239,000 square feet of retail
space, 154,000 square feet of garage space and 22,000 square feet of storage
space).
 
     One Penn Plaza is one of the largest office buildings in Midtown Manhattan.
It is strategically located between Macy's and Madison Square Garden with direct
access to Pennsylvania Station. A recently completed $28.5 million capital
improvement program has enhanced the building's competitiveness. The Program
included upgrading the lobby, public corridors on all multi-tenant floors,
elevators, mechanical and HVAC systems. The Penn Plaza area has been enhanced in
recent years through the efforts of the 34th Street BID.
 
     As of March 1, 1998, approximately 94% of the square footage in One Penn
Plaza was leased. The following table sets forth certain information with
respect to One Penn Plaza at the end of each of the past five years.

                                                                         ANNUAL
                                                                          RENT
                                                                       PER LEASED
                     YEAR END                        PERCENT LEASED    SQUARE FOOT
                     --------                        --------------    -----------
                                                                 
 1997..............................................      94.0%           $25.81
 1996..............................................      85.6%            25.23
 1995..............................................      85.9%            23.54
 1994..............................................      80.1%            24.46
 1993..............................................      80.6%            22.58

     The following table is a schedule of the annual lease expirations at One
Penn Plaza as of March 1, 1998 (assuming that no tenants exercise renewal
options):

                                                                               APPROXIMATE
                                                    APPROXIMATE        %       ANNUALIZED        ANNUAL
                                       NUMBER OF   SQUARE FOOTAGE   OF TOTAL     RENT OF     RENT PER LEASED
                                       EXPIRING     OF EXPIRING      SQUARE     EXPIRING     SQUARE FOOT OF
      YEAR OF LEASE EXPIRATION          LEASES         LEASES       FOOTAGE      LEASES      EXPIRING LEASES
      ------------------------         ---------   --------------   --------   -----------   ---------------
                                                                              
1998.................................     28          127,000          5.4%    $3,218,000        $25.34
1999.................................     35          145,000          6.1%     4,100,000         28.29
2000.................................     34           95,000          4.0%     2,577,000         27.27
2001.................................     14           78,000          3.3%     2,220,000         28.60
2002.................................     25          154,000          6.5%     4,233,000         27.47
2003.................................     11           88,000          3.7%     2,962,000         33.78
2004.................................     13          273,000         11.5%     6,445,000         23.64
2005.................................      7          140,000          5.9%     3,346,000         23.81
2006.................................     10          157,000          6.6%     4,643,000         29.64
2007.................................      6           58,000          2.5%     1,661,000         28.45

     The aggregate undepreciated tax basis of depreciable real property at One
Penn Plaza for Federal income tax purposes was approximately $410,000,000 as of
December 31, 1997, and depreciation for such property will be computed for
Federal income tax purposes on the straight-line method over 39 years. The
Company acquired this property on February 9, 1998.
 
                                       18
   19
 
     The current assessed value of One Penn Plaza for real estate tax purposes
is $116,860,000. The tax rate in New York City for commercial real estate is
10.164 for $100 of assessed value which produces real estate taxes for the
1997/1998 tax year of $12,409,287 (including the 34th Street BID tax of
$536,637).
 
Washington, D.C.
 
     The Company has a 15% limited partnership interest in Charles E. Smith
Commercial Realty L.P. which owns interests in and manages approximately 7.2
million square feet of office properties in Crystal City, Arlington, Virginia, a
suburb of Washington, D.C., and manages an additional 14.0 million square feet
of office and other commercial properties in the Washington, D.C. area.
 
SHOPPING CENTERS
 
     The Company owns 59 shopping center properties of which 57 are strip
shopping centers primarily located in the Northeast and Midatlantic states, one
is a regional center located in San Juan, Puerto Rico and one is a
super-regional center located in Nassau County, Long Island, New York. The
Company's shopping centers are generally located on major regional highways in
mature densely populated areas. The Company believes its shopping centers
attract consumers from a regional, rather than a neighborhood marketplace
because of their location on regional highways. Shopping centers accounted for
54% of the Company's total revenue (29% of pro forma total revenue) for the year
ended December 31, 1997. The occupancy rate of the shopping center properties
was 92% and 90% as of March 1, 1998 and 1997, respectively, and has been over
90% in each of the past five years.
 
     The Company's shopping center lease terms range from five years or less in
some instances, for smaller tenant spaces to as long as thirty years for major
tenants. Leases generally provide for additional rents based on a percentage of
tenant's sales and pass through to tenant's the tenant's share of all common
area charges (including roof and structure in strip shopping centers, unless it
is the tenant's direct responsibility), real estate taxes and insurance costs
and certain capital expenditures. Percentage rent accounted for less than 1% of
total revenues in 1997. As of December 31, 1997, the average annual base rent
per square foot for the Company's shopping centers was $9.78 (excluding the
Green Acres Mall). The average annual base rent per square foot for the Green
Acres Mall was $13.16 in total and $27.08 for mall tenants only.
 
     The following table sets forth a schedule of lease expirations for leases
in place, as of December 31, 1997 for each of the next 10 years on an aggregate
basis, assuming that none of the tenants exercise their renewal options.

                                                                                                            ANNUAL RENT
                                                 APPROXIMATE                              APPROXIMATE       PER LEASED
                               NUMBER OF      SQUARE FOOTAGE OF   PERCENTAGE OF TOTAL   ANNUAL RENT OF    SQUARE FOOT OF
           YEAR             EXPIRING LEASES    EXPIRING LEASES      SQUARE FOOTAGE      EXPIRING LEASES   EXPIRING LEASES
           ----             ---------------   -----------------   -------------------   ---------------   ---------------
                                                                                           
1998......................        44                209,000               1.9%            $2,788,000          $13.36
1999......................        66                570,000               5.2%             6,367,000           11.18
2000......................        65                454,000               4.1%             5,646,000           12.44
2001......................        68                425,000               3.9%             5,320,000           12.51
2002......................        62              1,162,000              10.6%            12,732,000           10.95
2003......................        38                398,000               3.6%             4,710,000           11.82
2004......................        61                758,000               6.9%             7,969,000           10.51
2005......................        84                623,000               5.7%             8,537,000           13.71
2006......................        45                579,000               5.3%             5,605,000            9.68
2007......................        39                580,000               5.3%             5,692,000            9.82

     The Company's Montehiedra shopping center, in San Juan, Puerto Rico,
accounted for 4.0% of total revenues for the year ended December 31, 1997 and 2%
on a pro forma basis. No other shopping center accounted for more than 2.7% of
total revenues. The Green Acres Mall, acquired in December 1997, is the
Company's largest shopping center property. It contains 1.8 million square feet
or 14.7% of total shopping center square footage and represents 7.0% of 1997 pro
forma revenues. No other shopping center accounted for more than 5% of total
shopping center square footage.
 
                                       19
   20
 
     The Company's strip shopping centers are substantially leased to large
stores (over 20,000 square feet). Tenants include destination retailers such as
discount department stores, supermarkets, home improvements stores, discount
apparel stores, membership warehouse clubs and "category killers." Category
killers are large stores which offer a complete selection of a category of items
(e.g., toys, office supplies, etc.) at low prices, often in a warehouse format.
Tenants typically offer basic consumer necessities such as food, health and
beauty aids, moderately priced clothing, building materials and home improvement
supplies, and compete primarily on the basis of price.
 
     The Green Acres Mall is a 1.8 million square foot super-regional enclosed
shopping mall complex situated in Nassau County, Long Island, New York one-mile
east of the borough of Queens, New York. The Green Acres Mall is anchored by
four major department stores: Sears, Roebuck and Co., J.C. Penney Company, Inc.,
and Federated Department Stores, Inc. doing business as Stern's and as Macy's.
The complex also includes The Plaza at Green Acres, a 179,000 square foot strip
shopping center which is anchored by Kmart and Waldbaums.
 
     Only one of the Company's tenants, Bradlees, represented more than 10% of
total property rentals for the year ended December 31, 1997. Bradlees accounted
for 10.5% of total property rentals (4.2% of total pro forma property rentals).
In June 1995, Bradlees filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. The Company currently leases 16 locations to Bradlees. Of these
locations, the leases for 14 are fully guaranteed by Stop & Shop Companies, Inc.
("Stop & Shop"), a wholly-owned subsidiary of Royal Ahold NV, a leading
international food retailer, and one is guaranteed as to 70% of the rent.
 
COLD STORAGE
 
     The Cold Storage Companies, doing business under the trade name of
Americold Logistics, Inc., own and operate 80 refrigerated warehouses with an
aggregate of approximately 394 million cubic feet. The Cold Storage Companies
are headquartered in Atlanta, Georgia and have approximately 4,300 employees.
 
  Services
 
     The Cold Storage Companies provide the frozen food industry with
refrigerated warehousing and transportation management services. Refrigerated
warehouses are comprised of production and distribution facilities. Production
facilities typically serve one or a small number of customers, generally food
processors, located nearby. These customers store large quantities of processed
or partially processed products in the facility until they are shipped to the
next stage of production or distribution. Distribution facilities primarily
warehouse a wide variety of customers' finished products until future shipment
to end-users. Each distribution facility primarily services the surrounding
regional market.
 
     The Cold Storage Companies transportation management services offered
include freight routing, dispatching, freight rate negotiation, backhaul
coordination, freight bill auditing, network flow management, order
consolidation and distribution channel assessment. The Cold Storage Companies'
temperature-controlled logistics expertise and access to both frozen food
warehouses and distribution channels enable its customers to respond quickly and
efficiently to time-sensitive orders from distributors and retailers.
 
  Customers
 
     Customers consist primarily of national, regional and local frozen food
manufacturers, distributors, retailers and food service organizations including
Con-Agra, Inc., H.J. Heinz & Co., Kraft Foods and Tyson Foods.
 
                                       20
   21
 
  Competition
 
     Competition is national, regional and local in nature. The Cold Storage
Companies operate in an environment in which breadth of service, warehouse
locations, customer mix, warehouse size, service performance and price are the
principal competitive factors.
 
  Capital Expenditures
 
     The Cold Storage Companies have budgeted approximately $47,000,000 for
capital expenditures over the next year of which (i) $23,000,000 is for
warehouse expansions, (ii) $15,000,000 is for recurring replacements of
equipment and (iii) $9,000,000 is for non-recurring items including $3,000,000
resulting from the consolidation of the computer systems and offices of the two
companies acquired, $3,000,000 for reracking of an existing warehouse and
$3,000,000 of structural warehouse delayed maintenance.
 
     On March 25, 1998, the Cold Storage Companies entered into an agreement to
acquire the assets of Freezer Services, Inc., consisting of nine cold storage
warehouses for approximately $134 million, including $22 million of
indebtedness. The Cold Storage Companies anticipate that cash from operations
will be adequate to fund capital expenditures, other than acquisitions which
will require funding from borrowings or equity infusions.
 
                                       21
   22
 
  Facilities
 
     The following table shows the location, size and type of facility for each
of the Cold Storage Properties as of December 31, 1997:

                           TYPE:                         TOTAL
                       PRODUCTION(P)/                    CUBIC
                      DISTRIBUTION(D)/    OWNED/        FOOTAGE
        PROPERTY         MANAGED(M)       LEASED     (IN MILLIONS)
        --------      ----------------   ---------   -------------
                                         
    Gateway               D                  Owned        11.1
    Xavier Drive, SW
    Atlanta, GA
    Lakewood              D                  Owned         2.9
    Lakewood Avenue, SW
    Atlanta, GA
    Central               P                  Owned         1.0
    West 9th Street
    Charlotte, NC
    North                 P                  Owned         4.1
    Exchange Street
    Charlotte, NC
    Columbia              P                  Owned         1.6
    Shop Road
    Columbia, SC
    Augusta               P                  Owned         1.1
    Laney-Walker Road
    Augusta, GA
    Norfolk               P                  Owned         1.9
    East Princess
      Anne Road
    Norfolk, VA
    Montgomery            P                  Owned         0.5
    Prince Street
    Montgomery, AL
    Witchita              P                  Owned         2.8
    North Mead
    Wichita, KS
    Marshall              P                  Owned         4.8
    West Highway 20
    Marshall, MO
    Oklahoma City         P                  Owned         0.7
    South Hudson
    Oklahoma City, OK
    Oklahoma City         P                  Owned         1.4
    Exchange Street
    Oklahoma City, OK
    Fort Smith            P                  Owned         1.4
    Midland Boulevard
    Fort Smith, AR
    Birmingham            P                  Owned         2.0
    West 25th Avenue
    Birmingham, AL
    Memphis               P                  Owned         5.6
    East Parkway South
    Memphis, TN
    Memphis               P                  Owned         0.5
    Spottswood Avenue
    Memphis, TN
    Syracuse              D                  Owned        11.8
    Farrell Road
    Syracuse, NY
    West Memphis          D                  Owned         6.0
    South Airport Road
    West Memphis, AR

                           TYPE:                         TOTAL
                       PRODUCTION(P)/                    CUBIC
                      DISTRIBUTION(D)/    OWNED/        FOOTAGE
        PROPERTY         MANAGED(M)       LEASED     (IN MILLIONS)
        --------      ----------------   ---------   -------------
                                         
    Indianapolis          D                  Owned         9.1
    Arlington Avenue
    Indianapolis, IN
    Ontario               D               Owned 24%        8.1
    Malaga Place                         Leased 76%
    Ontario, CA
    Tarboro               P                 Leased         3.4
    Sara Lee Road
    Tarboro, NC
    Montgomery            P                 Leased         1.2
    Newcomb Avenue
    Montgomery, AL
    Kraft Refrig.         M                Managed         3.2
    Wanamaker Avenue
    Ontario, CA
    Westgate              D                  Owned        11.4
    Westgate Parkway
    Atlanta, GA
    Gadsden               P                 Leased         4.0
    East Air Depot Road
    Gadsden, AL
    Texarkana             P                  Owned         2.3
    Genoa Road
    Texarkana, AR
    Leesport              D                  Owned         5.8
    RD2, Orchard Lane
    Leesport, PA
    Albertville           P                  Owned         2.2
    Railroad Avenue
    Albertville, AL
    Kraft Dry             M                Managed        13.5
    Airport Drive
    Ontario, CA
    Southgate             D                  Owned         3.5
    Westgate Parkway
    Atlanta, GA
    Ft. Worth             M                Managed        17.7
    Railhead Drive
    Ft. Worth, TX
    Transload             P                 Leased        0.01
    4th Street, West
    Birmingham, AL
    Montezuma             P                  Owned         4.4
    South Airport
      Drive
    Montezuma, GA
    Bettendorf           P/D                 Owned         8.9
    State Street
    Bettendorf, IA
    Boston               P/D                 Owned         3.1
    Widett Circle
    Boston, MA
    Brooks                P                  Owned         4.8
    Brooklake Road
    Brooks, OR

                                       22
   23

                           TYPE:                         TOTAL
                       PRODUCTION(P)/                    CUBIC
                      DISTRIBUTION(D)/    OWNED/        FOOTAGE
        PROPERTY         MANAGED(M)       LEASED     (IN MILLIONS)
        --------      ----------------   ---------   -------------
                                         
    Burbank              P/D                 Owned         0.8
    West Magnolia
      Boulevard
    Burbank, CA
    Burlington           P/D                 Owned         4.7
    South Walnut
    Burlington, WA
    Clearfield           P/D                 Owned         8.6
    South Street
    Clearfield, UT
    Connell               P                  Owned         5.7
    West Juniper Street
    Connell, WA
    Fort Dodge            D                  Owned         3.7
    Maple Drive
    Fort Dodge, IA
    Gloucester           P/D                 Owned         1.9
    East Main Street
    Gloucester, MA
    Gloucester           P/D                 Owned         0.3
    Railroad Avenue
    Gloucester, MA
    Gloucester           P/D                 Owned         2.8
    Rogers Street
    Gloucester, MA
    Gloucester           P/D                 Owned         2.4
    Rowe Square
    Gloucester, MA
    Hermiston             P                  Owned         4.0
    Westland Avenue
    Hermiston, OR
    Kansas City          P/D                 Owned        35.2
    Inland Drive
    Kansas City, KS
    Los Angeles          P/D                 Owned         2.7
    Jesse Street
    Los Angeles, CA
    Milwaukie             D                  Owned         4.7
    S.E. McLoughlin Blvd.
    Milwaukie, OR
    Moses Lake           P/D                 Owned         7.3
    Wheeler Road
    Moses Lake, WA
    Murfreesboro         P/D                 Owned         2.9
    Stephenson Drive
    Murfreesboro, TN
    Nampa                 P                  Owned         8.0
    4th Street North
    Nampa, ID
    Park Rapids           P                 Leased         3.8
    U.S. Highway 71 South
    Park Rapids, MN
    Plant City           P/D                 Owned         0.8
    South Alexander Street
    Plant City, FL
    Plover               P/D                 Owned         9.4
    110th Street
    Plover, WI

                           TYPE:                         TOTAL
                       PRODUCTION(P)/                    CUBIC
                      DISTRIBUTION(D)/    OWNED/        FOOTAGE
        PROPERTY         MANAGED(M)       LEASED     (IN MILLIONS)
        --------      ----------------   ---------   -------------
                                         
    Portland             P/D                 Owned         1.8
    Read Street
    Portland, ME
    Rochelle              D                  Owned         6.0
    Americold Drive
    Rochelle, IL
    Salem                P/D                 Owned        12.5
    Portland Road N.E.
    Salem, OR
    Tampa                 D                  Owned         0.4
    South Lois Avenue
    Tampa, FL
    Tomah                 P                  Owned         4.6
    Route 2
    Tomah, WI
    Turlock              P/D                 Owned         2.5
    5th Street
    Turlock, CA
    Turlock              P/D                 Owned         3.0
    South Kilroy Road
    Turlock, CA
    Walla Walla           P                  Owned         3.1
    14th Avenue South
    Walla Walla, WA
    Walulla              P/D                 Owned         1.2
    Dodd Road
    Walulla, WA
    Watertown            P/D                 Owned         4.7
    Pleasant Street
    Watertown, MA
    Woodburn             P/D                 Owned         6.3
    Silverton Road
    Woodburn, OR
    Bartow               P/D                 Owned         1.2
    U.S. Highway 17
    Bartow, FL
    Burley               P/D                 Owned        10.7
    U.S. Highway 30
    Burley, ID
    Denver               P/D              Owned 52%        2.8
    East 50th Street                     Leased 48%
    Denver, CO
    Denver               P/D                Leased         0.5
    North Washington Street
    Denver, CO
    Fogelsville           D               Owned 85%       21.6
    Mill Road                            Leased 15%
    Fogelsville, PA
    Fullerton            P/D                Leased         4.0
    South Raymond Avenue
    Fullerton, CA
    Grand Island         P/D                Leased         2.2
    East Roberts Street
    Grand Island, NB
    Ontario               P                 Leased         8.1
    N.E. First
      Street
    Ontario, OR
    Pajaro               P/D                Leased         0.7
    Salinas Road
    Pajaro, CA

                                       23
   24

                           TYPE:                         TOTAL
                       PRODUCTION(P)/                    CUBIC
                      DISTRIBUTION(D)/    OWNED/        FOOTAGE
        PROPERTY         MANAGED(M)       LEASED     (IN MILLIONS)
        --------      ----------------   ---------   -------------
                                         
    Pasco                 P                 Leased         6.7
    Industrial Way
    Pasco, WA
    Tampa                P/D              Owned 80%        4.1
    North 50th Street                    Leased 20%
    Tampa, FL
    Tampa                 D                  Owned         1.3
    Shoreline Drive
    Tampa, FL

                           TYPE:                         TOTAL
                       PRODUCTION(P)/                    CUBIC
                      DISTRIBUTION(D)/    OWNED/        FOOTAGE
        PROPERTY         MANAGED(M)       LEASED     (IN MILLIONS)
        --------      ----------------   ---------   -------------
                                         
    Watsonville          P/D                 Owned         5.4
    West Riverside Drive
    Watsonville, CA
    Watsonville          P/D                Leased         1.4
    Second Street
    Watsonville, CA

     The above table is summarized as follows:

                                                                  TOTAL
                                                                  CUBIC        PERCENT
                                                                 FOOTAGE         TO
                      TYPE OF PROPERTY                        (IN MILLIONS)     TOTAL
                      ----------------                        -------------    -------
                                                                         
Owned facilities............................................      312.5           79%
Leased facilities...........................................       47.4           12%
Managed facilities..........................................       34.4            9%
                                                                  -----          ---
                                                                  394.3          100%
                                                                  =====          ===

                                       24
   25
 
ALEXANDER'S PROPERTIES
 
     The following table shows the location, approximate size and leasing status
as of December 31, 1997 of each of Alexander's properties.

                                                       APPROXIMATE      APPROXIMATE
                                                       LAND SQUARE    BUILDING SQUARE         AVERAGE
                                                         FOOTAGE         FOOTAGE/           ANNUALIZED
                                                         ("SF")           NUMBER             BASE RENT      PERCENT
                LOCATION                   OWNERSHIP   OR ACREAGE        OF FLOORS         PER SQ. FOOT     LEASED
                --------                   ---------  -------------   ---------------     ---------------   -------
                                                                                             
OPERATING PROPERTIES
 NEW YORK:
 Rego Park -- Queens.....................  Owned      4.8 acres           351,000/3(1)        $29.61          100%
 Kings Plaza Shopping Center & Marina
   (Kings Plaza Mall) Brooklyn...........  50%        24.3 acres          427,000/2(1)(2)      32.60           84%
                                           Owned
 Kings Plaza Store -- Brooklyn...........  Owned      Included in         339,000/4            10.00           85%
                                                      Shopping
                                                      Center above
 Fordham Road -- Bronx...................  Owned      92,211 SF           303,000/5               --           --
 Flushing -- Queens......................  Leased     44,975 SF           177,000/4(1)         16.35          100%
 Third Avenue -- Bronx...................  Owned      60,451 SF           173,000/4             4.33          100%
                                                                        -----------
                                                                          1,770,000
                                                                        ===========
REDEVELOPMENT PROPERTIES
 NEW YORK:
 Lexington Avenue -- Manhattan...........  92%        84,420 SF           591,000/6(1)(3)
                                           Owned
 Rego Park II -- Queens..................  Owned      6.6 acres                  --
 NEW JERSEY:
 Paramus, New Jersey.....................  Owned      30.0 acres               --/3(4)

 
                                                               LEASE
                                                            EXPIRATION/
                                                              OPTION
                LOCATION                       TENANTS      EXPIRATION
                --------                   ---------------  -----------
                                                      
OPERATING PROPERTIES
 NEW YORK:
 Rego Park -- Queens.....................  Bed Bath &          2013
                                            Beyond
                                           Circuit City        2021
                                           Marshalls        2008/2021
                                           Old Navy         2007/2021
                                           Sears               2021
 Kings Plaza Shopping Center & Marina
   (Kings Plaza Mall) Brooklyn...........  120 Tenants       Various
 Kings Plaza Store -- Brooklyn...........  Sears            2023/2033
 Fordham Road -- Bronx...................
 Flushing -- Queens......................  Caldor              2027
 Third Avenue -- Bronx...................  An affiliate of     2023
                                           Conway
REDEVELOPMENT PROPERTIES
 NEW YORK:
 Lexington Avenue -- Manhattan...........
 Rego Park II -- Queens..................
 NEW JERSEY:
 Paramus, New Jersey.....................

- ---------------
(1) Excludes parking garages operated for the benefit of Alexander's.
 
(2) Excludes approximately 150,000 square feet of enclosed, common area space.
 
(3) Alexander's is evaluating redevelopment plans for this site which may
    involve razing the existing buildings and developing a large multi-use
    building.
 
(4) Alexander's has received approvals to develop a shopping center at this site
    containing up to 650,000 square feet.
 
     Alexander's estimates that its capital expenditures for redevelopment
projects at the above properties will include: (i) approximately $90,000,000 to
$100,000,000 for the redevelopment of its Paramus property, (ii) approximately
$15,000,000 for improvements to its Kings Plaza Shopping Center and (iii)
$300,000,000 to develop its Lexington Avenue site. While Alexander's anticipates
that financing will be available after tenants have been obtained for these
redevelopment projects, there can be no assurance that such financing will be
obtained, or if obtained, that such financings will be on terms that are
acceptable to the Company. In addition, it is uncertain as to when these
projects will commence.
 
HOTEL PENNSYLVANIA
 
     In September 1997, the Company acquired a 40% interest in the Hotel
Pennsylvania, which is located on Seventh Avenue opposite Madison Square Garden
in Manhattan, New York. The property was acquired in a joint venture with Hotel
Properties Limited and Planet Hollywood International, Inc. The venture intends
to refurbish the property creating a sports-themed hotel and entertainment
complex. Under the joint venture, Hotel Properties Limited and Planet Hollywood
International, Inc. have 40% and 20% interests, respectively. The Hotel
Pennsylvania contains approximately 800,000 square feet of hotel space with
1,700 rooms and 400,000 square feet of retail and office space. The Company
manages the site's retail and office space, and Hotel Properties Limited manages
the hotel.
 
                                       25
   26
 
     On March 24, 1998, the Company entered into an agreement to increase its
interest in the Hotel Pennsylvania from 40% to 80%. Under the agreement, the
Company will purchase the 40% interest of Hotel Properties Limited for
approximately $70 million, including $48 million of existing debt. The increase
in the Company's interest is subject to reduction to 67%, should Planet
Hollywood International exercise its pro rata option.
 
     For the year ended December 31, 1997 the average occupancy rate for the
hotel space was 78% and the average daily rate for a hotel room was $93.
 
     The retail and office space was 79% occupied at March 1, 1998 and was
leased to 37 tenants including Sports Authority and Bally's Sports Club. The
annual rent per square foot was $26.17.
 
     In March 1998, the Company entered into an agreement to increase its
interest in the Hotel Pennsylvania from 40% to as much as 80%.
 
INSURANCE
 
     The Company carries comprehensive liability, fire, flood, extended coverage
and rental loss insurance with respect to its properties with policy
specifications and insured limits customarily carried for similar properties.
Management of the Company believes that the Company's insurance coverage
conforms to industry norms.
 
ITEM 3.  LEGAL PROCEEDINGS
 
     In January 1997, two individual investors in Mendik Real Estate Limited
Partnership ("RELP"), the publicly held limited partnership that indirectly owns
a 60% interest in the Two Park Avenue Property, filed a purported class action
against NY Real Estate Services 1, Inc. ("NY Real Estate"), Mendik RELP Corp.,
B&B Park Avenue, L.P. (an indirect subsidiary of the Company which acquired the
remaining 40% interest in Two Park Avenue) and Bernard H. Mendik in the Supreme
Court of the State of New York, County of New York, on behalf of all persons
holding limited partnership interests in RELP. The complaint alleges that, for
reasons which include purported conflicts of interest, the defendants breached
their fiduciary duty to the limited partners, that the then proposed transfer of
the 40% interest in Two Park Avenue would result in a burden on the operation
and management of Two Park Avenue and that the transfer of the 40% interest
violates RELP's right of first refusal to purchase the interest being
transferred and fails to provide limited partners in RELP with a comparable
transfer opportunity. Shortly after the filing of the complaint, another limited
partner represented by the same attorneys filed an essentially identical
complaint in the same court. Both complaints seek unspecified damages, an
accounting and a judgment requiring either the liquidation of RELP and the
appointment of a receiver or an auction of Two Park Avenue. Discussions to
settle the actions have been ongoing, but no settlement has been reached. In
August 1997, a fourth limited partner, represented by separate counsel,
commenced another purported class action in the same court by serving a
complaint essentially identical to the complaints in the two previously
commenced actions. Management believes that the ultimate outcome of these
matters will not have a material adverse effect on the Company.
 
                                       26
   27
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1997.
 
EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The following is a list of the names, ages, principal occupations and
positions with Vornado of the executive officers of Vornado and the positions
held by such officers during the past five years. All executive officers of
Vornado have terms of office which run until the next succeeding meeting of the
Board of Trustees of Vornado following the Annual Meeting of Shareholders unless
they are removed sooner by the Board.

                                        PRINCIPAL OCCUPATION, POSITION AND OFFICE (CURRENT AND
            NAME              AGE    DURING PAST FIVE YEARS WITH VORNADO UNLESS OTHERWISE STATED)
            ----              ---    ------------------------------------------------------------
                               
Steven Roth.................   56    Chairman of the Board, Chief Executive Officer and Chairman
                                     of the Executive Committee of the Board; the Managing
                                     General Partner of Interstate Properties, an owner of
                                     shopping centers and an investor in securities and
                                     partnerships; Chief Executive Officer of Alexander's, Inc.
                                     since March 2, 1995 and a Director since 1989.
Michael D. Fascitelli.......   41    President and a Trustee since December 2, 1996; Director of
                                     Alexander's, Inc. since December 2, 1996; Partner at
                                     Goldman, Sachs & Co. in charge of its real estate practice
                                     from December 1992 to December 1996; and Vice President at
                                     Goldman, Sachs & Co., prior to December 1992.
Bernard Mendik..............   68    Co-Chairman of the Board since April 28, 1997 and Chief
                                     Executive Officer of the Mendik Division since April 15,
                                     1997; Chairman of the Board of Directors of Mendik Realty
                                     from 1990 until April 15, 1997.
David R. Greenbaum..........   46    President of the Mendik Division since April 15, 1997;
                                     President of Mendik Realty from 1990 until April 15, 1997.
Joseph Macnow...............   52    Executive Vice President -- Finance and Administration since
                                     January 1998; Vice President -- Chief Financial Officer from
                                     1985 to January 1998; Vice President -- Chief Financial
                                     Officer of Alexander's, Inc. since August 1995
Richard T. Rowan............   51    Vice President -- Real Estate
Irwin Goldberg..............   53    Vice President -- Chief Financial Officer since January
                                     1998; Partner at Deloitte & Touche LLP from September 1978
                                     to January 1998.

                                       27
   28
 
                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     Vornado's common shares are traded on the New York Stock Exchange.
 
     Quarterly price ranges of the common shares and dividends per share paid
for the years ended December 31, 1997 and 1996 were as follows:

                                        YEAR ENDED                         YEAR ENDED
                                     DECEMBER 31, 1997                  DECEMBER 31, 1996
                                ---------------------------        ---------------------------
           QUARTER               HIGH     LOW     DIVIDENDS         HIGH     LOW     DIVIDENDS
           -------              ------   ------   ---------        ------   ------   ---------
                                                                   
1st...........................  $35.50   $25.38    $  .32          $19.19   $17.82    $ .305
2nd...........................   37.00    30.44       .32           20.75    18.57      .305
3rd...........................   44.25    32.13       .32           21.07    20.25      .305
4th...........................   47.38    40.63       .40           26.44    20.25      .305

     All share and per share information has been adjusted for a 2-for-1 share
split in October 1997.
 
     The approximate number of record holders of common shares of Vornado at
December 31, 1997, was 2,000.
 
                                       28
   29
 
ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

                                                             YEAR ENDED DECEMBER 31,
                                          --------------------------------------------------------------
                                             1997         1996         1995         1994         1993
                                          ----------   ----------   ----------   ----------   ----------
                                                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                                                               
OPERATING DATA
  Revenues:
     Property rentals...................  $  168,321   $   87,424   $   80,429   $   70,755   $   67,213
     Expense reimbursements.............      36,652       26,644       24,091       21,784       19,839
     Other income.......................       4,158        2,819        4,198        1,459        1,738
                                          ----------   ----------   ----------   ----------   ----------
  Total Revenues........................     209,131      116,887      108,718       93,998       88,790
                                          ----------   ----------   ----------   ----------   ----------
  Expenses:
     Operating..........................      74,745       36,412       32,282       30,223       27,994
     Depreciation and amortization......      22,983       11,589       10,790        9,963        9,392
     General and administrative.........      13,580        5,167        6,687        6,495        5,890
     Amortization of officer's deferred
       compensation expense.............      22,917        2,083           --           --           --
     Costs incurred in connection with
       the merger of Vornado, Inc. into
       Vornado Realty Trust.............          --           --           --           --          856
                                          ----------   ----------   ----------   ----------   ----------
  Total Expenses........................     134,225       55,251       49,759       46,681       44,132
                                          ----------   ----------   ----------   ----------   ----------
  Operating Income......................      74,906       61,636       58,959       47,317       44,658
  Income applicable to Alexander's......       7,873        7,956        3,954           --           --
  Income from partially-owned
     entities...........................       4,658        1,855          788           --           --
  Interest and other investment
     income.............................      23,767        6,643        5,733        8,132       11,883
  Interest and debt expense.............     (42,888)     (16,726)     (16,426)     (14,209)     (31,155)
  Benefit for income taxes..............          --           --           --           --        6,369
  Minority interest of unitholders in
     the Operating Partnership..........      (7,293)          --           --           --           --
                                          ----------   ----------   ----------   ----------   ----------
  Net Income............................      61,023       61,364       53,008       41,240       31,755
  Preferred stock dividends.............     (15,549)          --           --           --           --
                                          ----------   ----------   ----------   ----------   ----------
  Net income applicable to common
     shares.............................  $   45,474   $   61,364   $   53,008   $   41,240   $   31,755
                                          ==========   ==========   ==========   ==========   ==========
     Net income per share -- basic(1)...       $ .83        $1.26        $1.13        $ .95         $.80
     Net income per
       share -- diluted(1)..............       $ .79        $1.25        $1.12        $ .94         $.71
     Cash dividends declared for common
       shares...........................        1.36         1.22         1.12         1.00          .75*

- ---------------
* Does not include special dividend of $1.68 per share of accumulated earnings
  and profits paid in June 1993.

                                                              YEAR ENDED DECEMBER 31,
                                             ---------------------------------------------------------
                                                1997         1996        1995        1994       1993
                                             -----------   ---------   ---------   --------   --------
                                                                  (IN THOUSANDS)
                                                                               
BALANCE SHEET DATA
  Total assets.............................  $ 2,524,089   $ 565,204   $ 491,496   $393,538   $385,830
  Real estate, at cost.....................    1,564,093     397,298     382,476    365,832    340,415
  Accumulated depreciation.................      173,434     151,049     139,495    128,705    118,742
  Debt.....................................      956,654     232,387     233,353    234,160    235,037
  Shareholders' equity.....................    1,313,762     276,257     194,274    116,688    115,737

                                       29
   30

                                                              YEAR ENDED DECEMBER 31,
                                             ---------------------------------------------------------
                                                1997         1996        1995        1994       1993
                                             -----------   ---------   ---------   --------   --------
                                                                  (IN THOUSANDS)
                                                                               
OTHER DATA
  Funds from operations(2):
     Net income applicable to common
       shares..............................  $    45,474   $  61,364   $  53,008   $ 41,240   $ 31,755
     Benefit for income taxes..............           --          --          --         --     (6,369)
     Depreciation and amortization of real
       property............................       22,413      11,154      10,019      9,192      8,842
     Straight-lining of property rentals
       for rent escalations................       (3,359)     (2,676)     (2,569)    (2,181)    (2,200)
     Leasing fees received in excess of
       income recognized...................        1,733       1,805       1,052         --         --
     Losses/(gains) on sale of
       securities..........................           --          --         360        (51)      (263)
     Proportionate share of adjustments to
       equity in net income of
       partially-owned entities to arrive
       at funds from operations:
       Cold Storage Companies..............        4,183          --          --         --         --
       Alexander's.........................       (2,471)     (2,331)        539         --         --
       Mendik partially-owned office
          buildings........................        2,891          --          --         --         --
       Hotel Pennsylvania..................          457          --          --         --         --
       Charles E. Smith Commercial Realty
          L.P. ............................        1,298          --          --         --         --
     Costs incurred in connection with the
       merger of Vornado, Inc. into Vornado
       Realty Trust........................           --          --          --         --        856
                                             -----------   ---------   ---------   --------   --------
  Funds from operations....................  $    72,619   $  69,316   $  62,409   $ 48,200   $ 32,621
                                             ===========   =========   =========   ========   ========
  Cash flow provided by (used in):
     Operating activities..................  $   110,754   $  70,703   $  62,882   $ 46,948   $ 27,725
     Investing activities..................   (1,064,484)     14,912    (103,891)   (15,434)     1,350
     Financing activities..................    1,219,988     (15,046)     36,577    (32,074)   (56,433)

- ---------------
(1) The earnings per share amounts prior to 1997 have been restated to comply
    with Statement of Financial Accounting Standards No. 128, "Earnings Per
    Share" (SFAS 128). For further discussion of earnings per share and the
    impact of SFAS 128, see the notes to the consolidated financial statements.
    All share and per share information has also been adjusted for a 2-for-1
    share split in October 1997.
 
(2) Funds from operations does not represent cash generated from operating
    activities in accordance with generally accepted accounting principles and
    is not necessarily indicative of cash available to fund cash needs which is
    disclosed in the Consolidated Statements of Cash Flows for the applicable
    periods. There are no material legal or functional restrictions on the use
    of funds from operations. Funds from operations should not be considered as
    an alternative to net income as an indicator of the Company's operating
    performance or as an alternative to cash flows as a measure of liquidity.
    Management considers funds from operations a supplemental measure of
    operating performance and along with cash flow from operating activities,
    financing activities and investing activities, it provides investors with an
    indication of the ability of the Company to incur and service debt, to make
    capital expenditures and to fund other cash needs. Funds from operations may
    not be comparable to similarly titled measures employed by other REITs since
    a number of REITs, including the Company, calculate funds from operations in
    a manner different from that used by the National Association of Real Estate
    Investment Trusts ("NAREIT"). Funds from operations, as defined by NAREIT,
    represents net income applicable to common shares before depreciation and
    amortization, extraordinary items and gains or losses on sales of real
    estate. Funds from operations as disclosed above has been modified to adjust
    for the effect of straight-lining of property rentals for rent escalations
    and leasing fee income.
 
                                       30
   31
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
RESULTS OF OPERATIONS
 
  Years Ended December 31, 1997 and December 31, 1996
 
     The Company's revenues, which consist of property rentals, tenant expense
reimbursements and other income, were $209,131,000 in the year ended December
31, 1997, compared to $116,887,000 in the prior year, an increase of
$92,244,000. This increase was primarily comprised of $90,520,000 of revenues
from properties acquired in 1997.
 
     Property rentals were $168,321,000 in the year ended December 31, 1997,
compared to $87,424,000 in the prior year, an increase of $80,897,000. This
increase resulted from:

                                                       
1997 Acquisitions:
  Mendik................................................  $56,958,000
  90 Park Avenue........................................    9,874,000
  Montehiedra shopping center...........................    6,386,000
  Riese.................................................    2,485,000
  Green Acres Mall......................................      937,000
                                                          -----------
                                                           76,640,000
Full year effect of a 1996 Acquisition..................      472,000
Shopping center leasing activity........................    1,907,000
Step-ups in shopping center leases......................    1,878,000
                                                          -----------
                                                          $80,897,000
                                                          ===========

     Tenant expense reimbursements were $36,652,000 in the year ended December
31, 1997, compared to $26,644,000 in the prior year, an increase of $10,008,000.
This increase was primarily comprised of $11,320,000 of reimbursements from
tenants at properties acquired in 1997, partially offset by a reduction in
reimbursements at the Company's other properties due to lower expenses passed
through to tenants.
 
     Operating expenses were $74,745,000 in the year ended December 31, 1997, as
compared to $36,412,000 in the prior year, an increase of $38,333,000. This
increase was primarily comprised of $39,645,000 of expenses from properties
acquired in 1997, partially offset by lower snow removal costs and repairs and
maintenance at the Company's other properties.
 
     Depreciation and amortization expense increased in 1997 as compared to
1996, primarily as a result of acquisitions.
 
     General and administrative expenses were $13,580,000 in the year ended
December 31, 1997 compared to $5,167,000 in the prior year, an increase of
$8,413,000. This increase resulted primarily from (i) Mendik Division payroll
and corporate office expenses of $2,760,000, (ii) cash compensation attributable
to the employment of the Company's President of $2,350,000 and (iii)
professional fees of $1,641,000.
 
     The Company recognized expense of $22,917,000 in the year ended December
31, 1997 and $2,083,000 in the prior year representing the amortization of the
$25,000,000 deferred payment due to the Company's President.
 
     Income applicable to Alexander's (loan interest income, equity in income
and depreciation) was $7,873,000 in the year ended December 31, 1997, compared
to $7,956,000 in the prior year, a decrease of $83,000. This decrease resulted
primarily from a $327,000 reduction in loan interest income due to the reset of
the interest rate on the loan; partially offset by an increase in equity in
non-recurring income.
 
     Income from partially-owned entities was $4,658,000 in the year ended
December 31, 1997, compared to $1,855,000 in the prior year, an increase of
$2,803,000. This increase consists of: (i) $1,720,000 from the Cold Storage
Companies, (ii) $424,000 from partially owned properties acquired as part of the
Mendik Transaction, (iii) $1,055,000 from the Company's 40% interest in Hotel
Pennsylvania and (iv) $85,000 from the
 
                                       31
   32
 
Company's 15% interest in Charles E. Smith Commercial Realty L.P., partially
offset by (v) lower management fee income.
 
     Interest and other investment income (interest income on mortgage loans
receivable, other interest income, dividend income and net gains on marketable
securities) was $23,767,000 for the year ended December 31, 1997, compared to
$6,643,000 in the prior year, an increase of $17,124,000. Of this increase,
$9,047,000 resulted primarily from income earned on higher average investments
(resulting from proceeds from stock offerings and temporary borrowings) and
$7,901,000 resulted from investments in mortgage loans receivable.
 
     Interest and debt expense was $42,888,000 for the year ended December 31,
1997, compared to $16,726,000 in the prior year, an increase of $26,162,000. Of
this increase, (i) $13,369,000 resulted from borrowings under the Company's
revolving credit facility and a term loan, (ii) $9,009,000 resulted from debt on
the properties acquired in the Mendik Transaction and (iii) $3,784,000 resulted
from borrowings related to the acquisition of the Montehiedra Town Center in
April 1997.
 
     The minority interest unit holders in the Operating Partnership are
entitled to preferential distributions which aggregated $7,293,000 for the year
ended December 31, 1997.
 
     The preferred stock dividends of $15,549,000 apply to the 6.5% preferred
shares issued in April 1997 and include accretion of expenses of issuing them of
$1,918,000.
 
     The Company operates in a manner intended to enable it to continue to
qualify as a REIT under Sections 856-860 of the Internal Revenue Code of 1986 as
amended. Under those sections, a REIT which distributes at least 95% of its REIT
taxable income as a dividend to its shareholders each year and which meets
certain other conditions will not be taxed on that portion of its taxable income
which is distributed to its shareholders. The Company has distributed to its
shareholders an amount greater than its taxable income. Therefore, no provision
for Federal income taxes is required.
 
  Years Ended December 31, 1996 and December 31, 1995
 
     The Company's revenues, which consist of property rentals, tenant expense
reimbursements and other income, were $116,887,000 in 1996, compared to
$108,718,000 in 1995, an increase of $8,169,000 or 7.5%.
 
     Property rentals from shopping centers were $80,001,000 in 1996, compared
to $74,255,000 in 1995, an increase of $5,746,000 or 7.7%. Of this increase, (i)
$3,800,000 resulted from rental step-ups in existing tenant leases which are not
subject to the straight-line method of revenue recognition and (ii) $2,000,000
resulted from expansions and an acquisition. Property rentals received from new
tenants were approximately the same as property rentals lost from vacating
tenants. Percentage rent included in property rentals was $936,000 in 1996,
compared to $959,000 in 1995.
 
     Property rentals from the remainder of the portfolio were $7,423,000 in
1996, compared to $6,174,000 in 1995, an increase of $1,249,000 or 20.2%. Of
this increase, $650,000 resulted from the purchase of an office building in June
1996.
 
     Tenant expense reimbursements, which consist of the tenants' pro-rata share
of common area maintenance expenses (such as snow removal costs, landscaping and
parking lot repairs), real estate taxes and insurance, were $26,644,000 in 1996,
compared to $24,091,000 in 1995, an increase of $2,553,000. This increase
reflects a corresponding increase in operating expenses passed through to
tenants.
 
     Other income was $2,819,000 in 1996, compared to $4,198,000 in 1995, a
decrease of $1,379,000. This decrease resulted primarily from (i) including
management and development fee income from Alexander's in "Income from
Partially-Owned Entities" rather than in "Other income" for a full year in 1996,
compared to six months in 1995 and (ii) the recognition of leasing fee income in
the first quarter of 1995 from Alexander's of $915,000 applicable to 1993 and
1994 (no leasing fee income was recognized prior to 1995 because required
conditions had not been met), partially offset by (iii) the increase in
management, development and leasing fees from Interstate Properties.
 
                                       32
   33
 
     Operating expenses were $36,412,000 in 1996, compared to $32,282,000 in
1995, an increase of $4,130,000. Of this increase, (i) $3,100,000 were passed
through to tenants and consisted of higher snow removal costs of $1,500,000,
increased real estate taxes of $1,000,000 and other common area maintenance
expense increases of $600,000 and (ii) $500,000 resulted from increases in rent
expense and other property expenses. In addition, in 1995 operating expenses
were partially offset by real estate tax refunds and other miscellaneous income
of approximately $500,000.
 
     Depreciation and amortization expense increased by $799,000 in 1996,
compared to 1995, as a result of expansions and an acquisition.
 
     General and administrative expenses were $5,167,000 in 1996, compared to
$6,687,000 in 1995, a decrease of $1,520,000. This decrease resulted primarily
from a reduction in corporate office expenses caused by the third quarter 1995
assignment of the Company's Management and Development Agreement with
Alexander's to Vornado Management Corp. ("VMC").
 
     In December 1996, the Company recognized an expense of $2,083,000,
representing one month's amortization of the $25,000,000 deferred payment due to
the Company's President. The balance of the deferred payment will be amortized
in 1997.
 
     Income applicable to Alexander's (loan interest income, equity in income
and depreciation) was $7,956,000 for the year ended December 31, 1996, compared
to $3,954,000 in the prior year, an increase of $4,002,000. This increase
resulted from (i) lower operating losses at Alexander's caused by the
commencement of rent at the Rego Park I property in March 1996, (ii) the
recognition of $2,053,000 of non-recurring income as a result of the reversal of
a liability which is no longer required and (iii) interest income on the loan to
Alexander's for a full year in 1996, compared to a ten month period in 1995.
 
     In July 1995, the Company assigned its Management Agreement with
Alexander's to VMC. In exchange, the Company received 100% of the non-voting
preferred stock of VMC which entitles it to 95% of the economic benefits of VMC
through distributions. In addition, the Company lent $5,000,000 to VMC for
working capital purposes under a three-year term loan bearing interest at the
prime rate plus 2%. VMC is responsible for its pro-rata share of compensation
and fringe benefits of employees and 30% of other expenses which are common to
both Vornado and VMC. Income from investment in and advances to VMC (now
included in "Income from partially-owned entities") was $1,855,000 for the year
ended December 31, 1996, compared to $788,000 for the period from July 6th to
December 31, in 1995. Income from investment in and advances to VMC for the year
ended December 31, 1996 reflects additional fee income earned by VMC in the
first quarter of 1996 relating to the substantial completion of the
redevelopment of Alexander's Rego Park I property.
 
     Interest and other investment income was $6,643,000 for 1996, compared to
$5,733,000 in 1995, an increase of $910,000 or 15.9%. This increase resulted
from higher net gains on marketable securities and the yield earned on the
mortgage note receivable exceeding the yield earned on the investment of such
funds in 1995.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  Cash Flows for the Years Ended December 31, 1997, 1996 and 1995
 
     Year Ended December 31, 1997
 
     Cash flows provided by operating activities of $110,754,000 was comprised
of (i) net income of $61,023,000, (ii) adjustments for non-cash items of
$39,723,000 and (iii) the net change in operating assets and liabilities of
$10,008,000. The adjustments for non-cash items are primarily comprised of (i)
amortization of deferred officer's compensation expense of $22,917,000 and (ii)
depreciation and amortization of $24,460,000.
 
     Net cash used in investing activities of $1,064,484,000 was primarily
comprised of (i) acquisitions of real estate of $887,423,000 (see detail below),
(ii) investments in mortgage loans receivable of $71,663,000 (see detail below),
(iii) capital expenditures of $23,789,000, (iv) restricted cash for tenant
improvements of
 
                                       33
   34
 
$27,079,000 and (v) real estate deposits of $46,152,000. Acquisitions of real
estate and investments in mortgage loans receivable are comprised of:

                                                                        VALUE OF
                                                                         SHARES
                                                                           OR
                                                              DEBT       UNITS          TOTAL
                                                  CASH      ASSUMED     ISSUED*     CONSIDERATION
                                                --------    --------    --------    -------------
                                                             (AMOUNTS IN THOUSANDS)
                                                                        
Real Estate:
  Mendik Transaction..........................  $263,790    $215,279    $177,000     $  656,069
  60% interest in Cold Storage Companies......   243,846     376,800          --        620,646
  Green Acres Mall............................        --     125,000     102,015        227,015
  90 Park Avenue office building..............   185,000          --          --        185,000
  Montehiedra shopping center.................    11,000      63,000          --         74,000
  40% interest in Hotel Pennsylvania..........    17,487      48,000          --         65,487
  640 Fifth Ave. office building..............    64,000          --          --         64,000
  15% interest in Charles E. Smith Commercial
     Realty L.P...............................    60,000          --          --         60,000
  Riese properties............................    26,000          --          --         26,000
  1135 Third Avenue and other.................    16,300          --          --         16,300
                                                --------    --------    --------     ----------
                                                 887,423     828,079     279,015      1,994,517
                                                --------    --------    --------     ----------
Mortgage loans receivable:
  Riese properties............................    41,649                                 41,649
  20 Broad Street.............................    27,000                                 27,000
  909 Third Ave. and other, net ..............     3,014                                  3,014
                                                --------                             ----------
                                                  71,663                                 71,663
                                                --------                             ----------
Total Acquisitions............................  $959,086    $828,079    $279,015     $2,066,180
                                                ========    ========    ========     ==========

- ---------------
* Valued at time of acquisition.
 
     Net cash provided by financing activities of $1,219,988,000 was primarily
comprised of proceeds from (i) borrowings of $770,000,000, (ii) issuance of
common shares of $688,672,000, and (iii) issuance of preferred shares of
$276,000,000, partially offset by (iv) repayment of borrowings of $409,633,000,
(v) dividends paid on common shares of $77,461,000, (vi) dividends paid on
preferred shares of $15,549,000 and (vii) the repayment of borrowings on U.S.
Treasury obligations of $9,636,000.
 
     Year Ended December 31, 1996
 
     Cash flows provided by operating activities of $70,703,000 was comprised of
(i) net income of $61,364,000 and (ii) adjustments for non-cash items of
$9,972,000, less (iii) the net change in operating assets and liabilities of
$633,000. The adjustments for non-cash items are primarily comprised of
depreciation and amortization of $12,586,000 and amortization of deferred
officers compensation expense of $2,083,000, partially offset by the effect of
straight-lining of rental income of $2,676,000 and equity in income from
Alexander's of $1,108,000. The net change in "Leasing fees receivable" and
"Deferred leasing fee income" included in item (iii) above reflects a decrease
of $1,717,000 resulting from the rejection of a lease by an Alexander's tenant
in March 1996 and an increase of $1,738,000 resulting from the releasing of a
portion of this space. "Leasing fees receivable" of $2,500,000 were collected
during this period.
 
     Net cash provided by investing activities of $14,912,000 was comprised of
(i) proceeds from sale or maturity of securities available for sale of
$46,734,000, partially offset by (ii) the Company's investment in a mortgage
note receivable of $17,000,000 and (iii) capital expenditures of $14,822,000
(including $8,923,000 for the purchase of an office building).
 
                                       34
   35
 
     Net cash used in financing activities of $15,046,000 was primarily
comprised of (i) dividends paid of $59,558,000, (ii) the net repayment of
borrowings on U.S. Treasury obligations of $34,239,000, (iii) the net repayment
on mortgages of $966,000, partially offset by (iv) net proceeds from the
issuance of common shares of $73,060,000 and (v) the proceeds from the exercise
of stock options of $6,657,000.
 
     Cash increased during the period from December 31, 1995 to December 31,
1996 from $19,127,000 to $89,696,000 primarily as the result of the issuance of
common shares in the fourth quarter of 1996 as noted above.
 
     Year Ended December 31, 1995
 
     Cash flows provided by operating activities of $62,882,000 was comprised
of: (i) net income of $53,008,000 and (ii) adjustments for non-cash items of
$11,305,000 less (iii) the net change in operating assets and liabilities of
$1,431,000. The adjustments for non-cash items are primarily comprised of
depreciation and amortization of $11,779,000, plus equity in loss of Alexander's
of $2,389,000, partially offset by the effect of straight-lining of rental
income of $2,569,000. Further, during this period in connection with the
Alexander's transaction, "Leasing fees and other receivables" increased by
$7,656,000 and "Deferred leasing fee income" correspondingly increased by
$8,888,000. These amounts have been included in "Changes in assets and
liabilities: other" in the Consolidated Statements of Cash Flows and are part of
the net change in operating assets and liabilities shown in item (iii) above.
 
     Net cash used in investing activities of $103,891,000 was comprised of (i)
the Company's investment in and advances to Alexander's of $100,482,000, (ii)
capital expenditures of $16,644,000, (iii) a loan to VMC of $5,074,000 and (iv)
purchases of securities available for sale of $4,027,000, partially offset by
(v) the net proceeds from the sale of securities available for sale of
$22,336,000.
 
     Net cash provided by financing activities of $36,577,000 was primarily
comprised of (i) net proceeds from issuance of common shares of $79,831,000, and
(ii) net borrowings on U.S. Treasury obligations of $9,600,000, partially offset
by (iii) dividends paid of $52,875,000.
 
  Funds from Operations for the Years Ended December 31, 1997 and 1996
 
     Funds from operations were $72,619,000 in the year ended December 31, 1997,
compared to $69,316,000 in the prior year, an increase of $3,303,000 or 4.8%.
Funds from operations for this year reflect amortization of the deferred payment
due to the Company's President and related compensation of $25,397,000, compared
to $2,157,000 in the prior year. The following table reconciles funds from
operations and net income:

                                                                     YEAR ENDED
                                                            ----------------------------
                                                            DECEMBER 31,    DECEMBER 31,
                                                                1997            1996
                                                            ------------    ------------
                                                                      
Net income applicable to common shares....................  $45,474,000     $61,364,000
Depreciation and amortization of real property............   22,413,000      11,154,000
Straight-lining of property rentals for rent
  escalations.............................................   (3,359,000)     (2,676,000)
Leasing fees received in excess of income recognized......    1,733,000       1,805,000
Proportionate share of adjustments to equity in net income
  of partially-owned entities to arrive at funds from
  operations..............................................    6,358,000      (2,331,000)
                                                            -----------     -----------
Funds from operations.....................................  $72,619,000     $69,316,000
                                                            ===========     ===========

     Funds from operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and is
not necessarily indicative of cash available to fund cash needs, which is
disclosed in the Consolidated Statements of Cash Flows for the applicable
periods. There are no material legal or functional restrictions on the use of
funds from operations. Funds from operations should not be considered as an
alternative to net income as an indicator of the Company's operating performance
or as an alternative to cash flows as a measure of liquidity. Management
considers funds from operations a supplemental measure of operating performance
and along with cash flow from operating activities, financing activities and
investing activities, it provides investors with an indication of the ability of
the Company to incur
 
                                       35
   36
 
and service debt, to make capital expenditures and to fund other cash needs.
Funds from operations may not be comparable to similarly titled measures
reported by other REITs since a number of REITs', including the Company,
calculate funds from operations in a manner different from that used by the
National Association of Real Estate Investment Trusts ("NAREIT"). Funds from
operations, as defined by NAREIT, represents net income applicable to common
shares before depreciation and amortization, extraordinary items and gains or
losses on sales of real estate. Funds from operations as disclosed above has
been modified to adjust for the effect of straight-lining of property rentals
for rent escalations and leasing fee income. Below are the cash flows provided
by (used in) operating, investing and financing activities:

                                                     FOR THE YEAR ENDED
                                               -------------------------------
                                                DECEMBER 31,      DECEMBER 31,
                                                    1997              1996
                                               ---------------    ------------
                                                            
Operating activities.........................  $   110,754,000    $ 70,703,000
                                               ===============    ============
Investing activities.........................  $(1,064,484,000)   $ 14,912,000
                                               ===============    ============
Financing activities.........................  $ 1,219,988,000    $(15,046,000)
                                               ===============    ============

  Certain Cash Requirements
 
     The Company has budgeted approximately $51,000,000 for capital expenditures
(excluding acquisitions) over the next year of which (i) $38,500,000 is for
tenant improvements and leasing costs at its office properties, (ii) $5,500,000
is for rebuilding the Lodi shopping center, net of expected insurance proceeds,
(iii) $1,500,000 is for tenant improvements and renovations at its shopping
center properties and (iv) $4,300,000 is for recurring maintenance.
 
     In addition to the Company's budgeted capital expenditures, below is a
summary of certain other transactions affecting the Company's liquidity at
December 31, 1997:

                                                                 CAPITAL REQUIRED
                                                              ----------------------
                                                           
Acquisitions completed subsequent to December 31, 1997:
  One Penn Plaza (purchase price of $410,000,000 less a
     deposit of $41,000,000 made in December 1997 and
     indebtedness of $93,000,000)...........................       $276,000,000
  150 East 58th Street......................................        118,000,000
Pending acquisitions:
  Kennedy Properties (purchase price of $625,000,000 less
     value of Operating Partnership Units to be issued of
     $110,000,000 and debt to be assumed of $50,000,000)....        465,000,000
  YMCA Development..........................................         55,000,000
  Capital expenditures for the Hotel Pennsylvania (the
     Company's 40% share)...................................         25,000,000
                                                                   ------------
                                                                   $939,000,000
                                                                   ============

     The capital expenditures shown above would increase as a result of the
Company's proposed increased ownership of the Hotel Pennsylvania (See Item
2. -- Properties).
 
     The Company expects that the Cold Storage Companies and Alexander's, in
which the Company owns partial interests, will separately fund their capital
expenditures (See Item 2. -- Properties).
 
     The $20,000,000 convertible obligation, payable at Vornado's option in
919,540 of its Common Shares or the cash equivalent of their appreciated value,
to Michael D. Fascitelli, the Company's President, vested as of December 2,
1997.
 
     In July 1997, the Company obtained a $600,000,000 unsecured three-year
revolving credit facility. In February 1998, the facility was increased to
$1,000,000,000. At December 31, 1997, the Company had $370,000,000 outstanding
under the facility.
 
     In February 1998, the Company completed a $160,000,000 refinancing of the
Green Acres Mall and prepaid the then existing $118,000,000 debt on the
property. The new 10-year debt matures in March 2008 and bears interest at
6.75%.
 
                                       36
   37
 
     The Company has an effective shelf registration under which it can offer an
aggregate of $2.0 billion of equity securities and an aggregate of $1.0 billion
of debt securities.
 
     The Company anticipates that cash from continuing operations will be
adequate to fund business operations and the payment of dividends and
distributions on an ongoing basis for more than the next twelve months; however,
capital outlays for significant acquisitions will require funding from
borrowings or equity offerings.
 
ACQUISITION ACTIVITY
 
     As a result of acquisitions, the book value of the Company's assets have
grown from $565,204,000 at December 31, 1996 to $2,524,089,000 at December 31,
1997. In addition, another $528,000,000 in acquisitions were completed through
March 6, 1998 and $907,000,000 in acquisitions were pending at that date.
 
     The Company's success is affected by its ability to integrate the assets
and businesses it acquires and to effectively manage those assets and
businesses. The Company currently expects to continue to grow at a relatively
fast pace. However, its ability to do so will be dependent on a number of
factors, including, among others, (a) the availability of reasonably priced
assets that meet the Company's acquisition criteria and (b) the price of the
Company's common stock, the rates at which the Company is able to borrow money
and, more generally, the availability of financing on terms that, in the
Company's view, make such acquisitions financially attractive.
 
RECENTLY ISSUED ACCOUNTING STANDARDS
 
     The Financial Accounting Standards Board has recently issued several new
accounting pronouncements. Statement No. 128, "Earnings per Share," establishes
standards for computing and presenting earnings per share, and is effective for
financial statements for both interim and annual periods ending after December
15, 1997. Statement No. 129, "Disclosure of Information about Capital
Structure," establishes standards for disclosing information about an entity's
capital structure, and is effective for financial statements for periods ending
after December 15, 1997. Statement No. 130, "Reporting Comprehensive Income,"
establishes standards for reporting and display of comprehensive income and its
components, and is effective for fiscal years beginning after December 15, 1997.
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers, and is effective for financial statements
for periods beginning after December 15, 1997.
 
     Management has incorporated the required disclosures under Statements Nos.
128 and 129 in its financial statements, and does not believe that the other new
standards will have a material effect on reported operating results, per share
amounts, financial position or cash flow.
 
YEAR 2000 ISSUES
 
     Many of the world's computer systems currently record years in a two-digit
format. Such computer systems may be unable to properly interpret dates beyond
the year 1999, which could lead to business disruptions in the United States and
internationally (the "Year 2000" issue). The potential costs and uncertainties
associated with the Year 2000 issue will depend on a number of factors,
including software, hardware and the nature of the industry in which a company
operates. Additionally, companies must coordinate with other entities with which
they electronically interact, such as customers, creditors and borrowers. Year
2000 compliance programs and information systems modifications are being
initiated in an attempt to ensure that these systems and key processes will
remain functional. This objective is expected to be achieved either by modifying
present systems using existing internal and external programming resources or by
installing new systems, and by monitoring supplier and other third-party
interfaces. While there can be no assurance that all such modifications will be
successful, management does not expect that either costs of
 
                                       37
   38
 
modifications or consequences of any unsuccessful modifications should have a
material adverse effect on the financial position, results of operations or
liquidity of the Company.
 
ECONOMIC CONDITIONS
 
     Substantially all of the Company's leases contain step-ups in rent. Such
rental increases are not designed to, and in many instances do not, approximate
the cost of inflation, but do have the effect of mitigating the adverse impact
of inflation. In addition, substantially all of the Company's leases contain
provisions that require the tenant to reimburse the Company for the tenant's
share of common area charges (including roof and structure in strip shopping
centers, unless it is the tenant's direct responsibility) and real estate taxes
or for increases of such expenses over a base amount, thus offsetting, in part,
the effects of inflation on such expenses.
 
     Inflation did not have a material effect on the Company's results for the
periods presented.
 
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     Not applicable.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                         INDEX TO FINANCIAL STATEMENTS

                                                               PAGE
                                                               ----
                                                          
Independent Auditors' Report................................    39
Consolidated Balance Sheets at December 31, 1997 and 1996...    40
Consolidated Statements of Income for the years ended
  December 31, 1997, 1996 and 1995..........................    41
Consolidated Statements of Shareholders' Equity for the
  years ended December 31, 1997, 1996 and 1995..............    42
Consolidated Statements of Cash Flows for the years ended
  December 31, 1997, 1996 and 1995..........................    43
Notes to Consolidated Financial Statements..................    44

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS' ON ACCOUNTING
AND FINANCIAL DISCLOSURE
 
     Not applicable.
 
                                       38
   39
 
                          INDEPENDENT AUDITORS' REPORT
 
Shareholders and Board of Trustees
Vornado Realty Trust
Saddle Brook, New Jersey
 
     We have audited the accompanying consolidated balance sheets of Vornado
Realty Trust as of December 31, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. Our audits also included the
financial statement schedules listed in the Index at Item 14. These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedules 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Vornado Realty Trust at
December 31, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
 
DELOITTE & TOUCHE LLP
 
Parsippany, New Jersey
March 25, 1998
 
                                       39
   40
 
                              VORNADO REALTY TRUST
 
                          CONSOLIDATED BALANCE SHEETS

                                                              DECEMBER 31,    DECEMBER 31,
                                                                  1997            1996
                                                              ------------    ------------
                                                              (AMOUNTS IN THOUSANDS EXCEPT
                                                                     SHARE AMOUNTS)
                                                                        
ASSETS
Real estate, at cost:
  Land......................................................   $  436,274       $ 61,278
  Buildings and improvements................................    1,118,334        327,485
  Leasehold improvements and equipment......................        9,485          8,535
                                                               ----------       --------
          Total.............................................    1,564,093        397,298
  Less accumulated depreciation and amortization............      173,434        151,049
                                                               ----------       --------
          Real estate, net..................................    1,390,659        246,249
Cash and cash equivalents, including U.S. government
  obligations under repurchase agreements of $8,775 and
  $17,036...................................................      355,954         89,696
Restricted cash.............................................       27,079             --
Marketable securities.......................................       34,469         27,549
Investments in partially-owned entities, including
  investment in and advances to Alexander's of $108,752 and
  $107,628..................................................      482,787        112,821
Due from officer............................................        8,625          8,418
Accounts receivable, net of allowance for doubtful accounts
  of $658 and $575..........................................       16,663          9,786
Mortgage loans receivable...................................       88,663         17,000
Receivable arising from the straight-lining of rents........       24,127         17,052
Other assets................................................       95,063         13,716
Officer's deferred compensation expense.....................           --         22,917
                                                               ----------       --------
                                                               $2,524,089       $565,204
                                                               ==========       ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes and mortgages payable.................................   $  956,654       $232,387
Due for U.S. Treasury obligations...........................           --          9,636
Accounts payable and accrued expenses.......................       36,538          9,905
Officer's compensation payable..............................       25,000         25,000
Deferred leasing fee income.................................        9,927          8,373
Other liabilities...........................................        3,641          3,646
                                                               ----------       --------
          Total liabilities.................................    1,031,760        288,947
                                                               ----------       --------
Minority interest of unitholders in the Operating
  Partnership...............................................      178,567             --
                                                               ----------       --------
Commitments and contingencies
Shareholders' equity:
  Preferred shares of beneficial interest: no par value per
     share; authorized, 20,000,000 shares; liquidation
     preference $50.00 per share ($289,466); issued and
     outstanding, 5,789,315 shares, stated at...............      279,884             --
  Common shares of beneficial interest: $.04 par value per
     share; authorized, 100,000,000 shares; issued and
     outstanding, 72,164,654 and 53,095,360 shares..........        2,887          1,044
  Additional capital........................................    1,146,385        358,874
  Deficit...................................................     (109,561)       (77,574)
                                                               ----------       --------
                                                                1,319,595        282,344
  Unrealized loss on securities available for sale..........         (840)          (998)
  Due from officers for purchase of common shares of
     beneficial interest....................................       (4,993)        (5,089)
                                                               ----------       --------
          Total shareholders' equity........................    1,313,762        276,257
                                                               ----------       --------
                                                               $2,524,089       $565,204
                                                               ==========       ========

                See notes to consolidated financial statements.
 
                                       40
   41
 
                              VORNADO REALTY TRUST
 
                       CONSOLIDATED STATEMENTS OF INCOME

                                                                          YEAR ENDED
                                                        -----------------------------------------------
                                                        DECEMBER 31,     DECEMBER 31,     DECEMBER 31,
                                                            1997             1996             1995
                                                        -------------    -------------    -------------
                                                        (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
                                                                                 
Revenues:
  Property rentals....................................    $168,321         $ 87,424         $ 80,429
  Expense reimbursements..............................      36,652           26,644           24,091
  Other income (including fee income from related
     parties of $1,752, $2,569 and $4,123)............       4,158            2,819            4,198
                                                          --------         --------         --------
Total revenues........................................     209,131          116,887          108,718
                                                          --------         --------         --------
Expenses:
  Operating...........................................      74,745           36,412           32,282
  Depreciation and amortization.......................      22,983           11,589           10,790
  General and administrative..........................      13,580            5,167            6,687
  Amortization of officer's deferred compensation
     expense..........................................      22,917            2,083               --
                                                          --------         --------         --------
Total expenses........................................     134,225           55,251           49,759
                                                          --------         --------         --------
Operating income......................................      74,906           61,636           58,959
Income applicable to Alexander's......................       7,873            7,956            3,954
Income from partially-owned entities..................       4,658            1,855              788
Interest and other investment income..................      23,767            6,643            5,733
Interest and debt expense.............................     (42,888)         (16,726)         (16,426)
Minority interest of unitholders in the
  Operating Partnership...............................      (7,293)              --               --
                                                          --------         --------         --------
Net income............................................      61,023           61,364           53,008
Preferred stock dividends.............................     (15,549)              --               --
                                                          --------         --------         --------
  NET INCOME applicable to common shares..............    $ 45,474         $ 61,364         $ 53,008
                                                          ========         ========         ========
NET INCOME PER COMMON SHARE -- BASIC..................    $    .83         $   1.26         $   1.13
                                                          ========         ========         ========
NET INCOME PER COMMON SHARE -- DILUTED................    $    .79         $   1.25         $   1.12
                                                          ========         ========         ========

                See notes to consolidated financial statements.
 
                                       41
   42
 
                              VORNADO REALTY TRUST
 
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                                                                UNREALIZED
                                                                                GAIN(LOSS)
                                                                               ON SECURITIES     DUE          TOTAL
                                 PREFERRED   COMMON   ADDITIONAL                 AVAILABLE       FROM     SHAREHOLDERS'
                                  SHARES     SHARES    CAPITAL      DEFICIT      FOR SALE      OFFICERS      EQUITY
                                 ---------   ------   ----------   ---------   -------------   --------   -------------
                                                      (AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)
                                                                                     
BALANCE, JANUARY 1, 1995.......              $ 866    $  198,184   $ (79,513)     $ 2,336      $(5,185)    $  116,688
Net income.....................                 --            --      53,008           --           --         53,008
Net proceeds from issuance of
  common shares................                100        79,731          --           --           --         79,831
Dividends paid ($1.12 per
  share).......................                 --            --     (52,875)          --           --        (52,875)
Common shares issued under
  employees' share plans.......                  4         1,316          --           --           --          1,320
Change in unrealized gains
  (losses) on securities
  available for sale...........                 --            --          --       (3,698)*         --         (3,698)
                                             ------   ----------   ---------      -------      -------     ----------
BALANCE, DECEMBER 31, 1995.....                970       279,231     (79,380)      (1,362)      (5,185)       194,274
Net income.....................                 --            --      61,364           --           --         61,364
Net proceeds from issuance of
  common shares................                 60        73,000          --           --           --         73,060
Dividends paid ($1.22 per
  share).......................                 --            --     (59,558)          --           --        (59,558)
Common shares issued under
  employees' share plans.......                 14         6,643          --           --           --          6,657
Change in unrealized gains
  (losses) on securities
  available for sale...........                 --            --          --          364           --            364
Forgiveness of amount due from
  officers.....................                 --            --          --           --           96             96
                                             ------   ----------   ---------      -------      -------     ----------
BALANCE, DECEMBER 31, 1996.....              1,044       358,874     (77,574)        (998)      (5,089)       276,257
Net income.....................                 --            --      61,023           --           --         61,023
Dividends paid on preferred
  shares ($2.37 per share).....                 --            --     (15,549)          --           --        (15,549)
Net proceeds from issuance of
  preferred shares (including
  accretion of $1,918).........  $277,918       --            --          --           --           --        277,918
Two-for-one common share
  split........................              1,044        (1,044)         --           --           --             --
Net proceeds from issuance of
  common shares................        --      644       688,028          --           --           --        688,672
Shares issued in connection
  with Arbor acquisition.......     1,966      117        99,932          --           --           --        102,015
Dividends paid on common shares
  ($1.36 per share)............        --       --            --     (77,461)          --           --        (77,461)
Common shares issued in
  connection with an employment
  agreement and employees'
  share plans..................        --       38           595          --           --           --            633
Change in unrealized gains
  (losses) on securities
  available for sale...........        --       --            --          --          158           --            158
Forgiveness of amount due from
  officers.....................        --       --            --          --           --           96             96
                                 --------    ------   ----------   ---------      -------      -------     ----------
BALANCE, DECEMBER 31, 1997.....  $279,884    $2,887   $1,146,385   $(109,561)     $  (840)     $(4,993)    $1,313,762
                                 ========    ======   ==========   =========      =======      =======     ==========

- ---------------
* Includes $3,435 in unrealized gains attributable to the Company's investment
  in the common stock of Alexander's, Inc.
 
                See notes to consolidated financial statements.
 
                                       42
   43
 
                              VORNADO REALTY TRUST
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                       YEAR ENDED
                                                      --------------------------------------------
                                                      DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                          1997            1996            1995
                                                      ------------    ------------    ------------
                                                                 (AMOUNTS IN THOUSANDS)
                                                                             
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income........................................  $    61,023      $  61,364        $ 53,008
  Adjustments to reconcile net income to net cash
    provided by operations:
    Depreciation and amortization (including debt
      issuance costs)...............................       24,460         12,586          11,779
    Amortization of officer's deferred compensation
      expense.......................................       22,917          2,083              --
    Straight-lining of rental income................       (7,075)        (2,676)         (2,569)
    Minority interest of unitholders in the
      Operating Partnership.........................        7,293             --              --
    Equity in (income) loss of Alexander's..........       (2,188)        (1,108)          2,389
    Equity in income of other investees.............       (4,658)            --              --
    Net gain on marketable securities...............       (1,026)          (913)           (294)
    Changes in operating assets and liabilities:....       10,008           (633)         (1,431)
                                                      -----------      ---------        --------
Net cash provided by operating activities...........      110,754         70,703          62,882
                                                      -----------      ---------        --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisitions of real estate.......................     (887,423)            --              --
  Investments in mortgage loans receivable..........      (71,663)       (17,000)             --
  Cash restricted for tenant improvements...........      (27,079)            --              --
  Additions to real estate..........................      (23,789)       (14,822)        (16,644)
  Investment in and advances to Alexander's.........                          --        (100,482)
  Real estate deposits and other....................      (46,152)            --          (5,074)
  Purchases of securities available for sale........       (8,378)            --          (4,027)
  Proceeds from sale or maturity of securities
    available for sale..............................           --         46,734          22,336
                                                      -----------      ---------        --------
Net cash (used in) provided by investing
  activities........................................   (1,064,484)        14,912        (103,891)
                                                      -----------      ---------        --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of common shares...........      688,672         73,060          79,831
  Proceeds from issuance of preferred shares........      276,000             --              --
  Proceeds from borrowings on U.S. Treasury
    obligations.....................................           --         10,000          40,000
  Repayment of borrowings on U.S. Treasury
    obligations.....................................       (9,636)       (44,239)        (30,400)
  Proceeds from borrowings..........................      770,000         10,000          60,000
  Repayments on borrowings..........................     (409,633)       (10,966)        (60,807)
  Costs of refinancing debt.........................       (3,038)            --            (492)
  Dividends paid on common shares...................      (77,461)       (59,558)        (52,875)
  Dividends paid on preferred shares................      (15,549)            --              --
  Exercise of share options.........................          633          6,657           1,320
                                                      -----------      ---------        --------
Net cash provided by (used in) financing
  activities........................................    1,219,988        (15,046)         36,577
                                                      -----------      ---------        --------
Net increase (decrease) in cash and cash
  equivalents.......................................      266,258         70,569          (4,432)
Cash and cash equivalents at beginning of year......       89,696         19,127          23,559
                                                      -----------      ---------        --------
Cash and cash equivalents at end of year............  $   355,954      $  89,696        $ 19,127
                                                      ===========      =========        ========
Supplemental Disclosure of Cash Flow Information:
  Cash payments for interest........................  $    38,968      $  15,695        $ 15,881
NON-CASH TRANSACTIONS:
  Financing assumed in acquisitions.................  $   403,279      $      --        $     --
  Shares issued in connection with acquisitions.....      102,015             --              --
  Minority interest in connection with
    acquisitions....................................      177,000             --              --
  Deferred officer's compensation expense and
    related liability...............................           --         25,000              --
  Unrealized (loss)gain on securities available for
    sale............................................          158            364          (3,698)

                See notes to consolidated financial statements.
 
                                       43
   44
 
                              VORNADO REALTY TRUST
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  ORGANIZATION AND BUSINESS
 
     Vornado Realty Trust ("Vornado") is a fully-integrated real estate
investment trust ("REIT"). In April 1997, Vornado transferred substantially all
of its assets to Vornado Realty L.P., a Delaware limited partnership (the
"Operating Partnership"). As a result, Vornado now conducts its business
through, and substantially all of its interests in properties are held by, the
Operating Partnership. Vornado is the sole general partner of the Operating
Partnership and owns a 92.7% limited partnership interest at December 31, 1997.
All references to "Vornado" in these financial statements refer to Vornado
Realty Trust; all references to the "Operating Partnership" refer to Vornado
Realty L.P. and all references to the "Company" refer to Vornado and its
consolidated subsidiaries, including the Operating Partnership.
 
     The Company currently owns directly or indirectly:
 
            (i) 59 shopping center properties in seven states and Puerto Rico;
 
           (ii) all or portions of 14 office building properties in the New York
     City metropolitan area (primarily Manhattan);
 
           (iii) eight warehouse/industrial properties in New Jersey;
 
           (iv) approximately 29.3% of the outstanding common stock of
     Alexander's, Inc., which has nine properties in the New York City
     metropolitan area;
 
            (v) a 60% interest in two partnerships that own Americold
     Corporation and URS Logistics, Inc., (collectively the "Cold Storage
     Companies") which own and operate 80 refrigerated, frozen and dry storage
     space warehouse facilities;
 
           (vi) a 40% interest in the Hotel Pennsylvania, a New York City hotel
     which contains retail and office space;
 
          (vii) a 15% limited partnership interest in Charles E. Smith
     Commercial Realty, which owns interests in and manages office properties in
     Crystal City, Arlington, Virginia, a suburb of Washington D.C., and manages
     additional office and other commercial properties in the Washington, D.C.
     area;
 
           (viii) other real estate and investments in mortgages collateralized
     by various office, restaurant and other retail properties;
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     BASIS OF PRESENTATION: The accompanying consolidated financial statements
include the accounts of Vornado Realty Trust and its majority-owned subsidiary,
Vornado Realty L.P. All significant intercompany amounts have been eliminated.
Equity interests in partially-owned entities include partnerships, joint
ventures and preferred stock affiliates (corporations in which the Company owns
all of the preferred stock and none of the common equity) and are accounted for
under the equity method of accounting as the Company exercises significant
influence. These investments are recorded initially at cost and subsequently
adjusted for net equity in income (loss) and cash contributions and
distributions. Ownership of the preferred stock entitles the Company to
substantially all of the economic benefits in the preferred stock affiliates.
The common stock of the preferred stock affiliates is owned by Officers and
Trustees of Vornado.
 
     Management has made estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
 
     REAL ESTATE: Real estate is carried at cost, net of accumulated
depreciation and amortization. Betterments, major renewals and certain costs
directly related to the acquisition, improvement and leasing of real estate are
capitalized. Maintenance and repairs are charged to operations as incurred.
Depreciation is provided
                                       44
   45
                              VORNADO REALTY TRUST
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
on a straight-line basis over the assets estimated useful lives which range from
7 to 40 years. Tenant allowances are amortized on a straight-line basis over the
lives of the related leases.
 
     The Company's properties are reviewed for impairment if events or changes
in circumstances indicate that the carrying amount of the property may not be
recoverable. In such an event, a comparison is made of the current and projected
operating cash flows of each such property into the foreseeable future on an
undiscounted basis, to the carrying amount of such property. Such carrying
amount would be adjusted, if necessary, to reflect an impairment in the value of
the asset.
 
     CASH AND CASH EQUIVALENTS: Cash and cash equivalents consist of highly
liquid investments purchased with original maturities of three months or less.
Cash and cash equivalents does not include cash restricted for tenant
improvements at the Company's Two Penn Plaza office building.
 
     MARKETABLE SECURITIES: Marketable securities are carried at fair market
value. The Company has classified debt and equity securities which it intends to
hold for an indefinite period of time as securities available for sale and
equity securities it intends to buy and sell on a short term basis as trading
securities. Unrealized gains and losses are included in earnings for trading
securities and as a component of shareholder's equity for securities available
for sale. Realized gains or losses on the sale of securities are recorded based
on average cost.
 
     At December 31, 1997 and 1996, marketable securities had an aggregate cost
of $34,950,000 and $28,299,000 (of which $7,230,000 and $7,260,000 represents
trading securities) and an aggregate market value of $34,469,000 and $27,549,000
(of which $7,583,000 and $7,508,000 represents trading securities). Gross
unrealized gains and losses were $1,583,000 and $2,064,000 at December 31, 1997
and $606,000 and $1,356,000 at December 31, 1996.
 
     MORTGAGE LOANS RECEIVABLE: The Company evaluates the collectibility of both
interest and principal of each of its loans, if circumstances warrant, to
determine whether it is impaired. A loan is considered to be impaired, when
based on current information and events, it is probable that the Company will be
unable to collect all amounts due according to the existing contractual terms.
When a loan is considered to be impaired, the amount of the loss accrual is
calculated by comparing the recorded investment to the value determined by
discounting the expected future cash flows at the loan's effective interest
rate. Interest on impaired loans is recognized on a cash basis.
 
     FAIR VALUE OF FINANCIAL INSTRUMENTS: All financial instruments of the
Company are reflected in the accompanying consolidated balance sheets at amounts
which, in management's estimation, based upon an interpretation of available
market information and valuation methodologies (including discounted cash flow
analyses with regard to fixed rate debt) are considered appropriate, and
reasonably approximate their fair values. Such fair value estimates are not
necessarily indicative of the amounts that would be realized upon disposition of
the Company's financial instruments.
 
     DEFERRED CHARGES: Direct financing costs are deferred and amortized over
the terms of the related agreements as a component of interest expense. Direct
costs related to leasing activities are capitalized and amortized on a
straight-line basis over the lives of the related leases. All other deferred
charges are amortized on a straight-line basis in accordance with the terms of
the agreements to which they relate.
 
     REVENUE RECOGNITION: Base rents, additional rents based on tenants' sales
volume and reimbursement of the tenants' share of certain operating expenses are
generally recognized when due from tenants. The straight-line basis is used to
recognize base rents under leases entered into after November 14, 1985, which
provide for varying rents over the lease terms.
 
     INCOME TAXES: The Company operates in a manner intended to enable it to
continue to qualify as a REIT under Sections 856-860 of the Internal Revenue
Code of 1986 as amended. Under those sections, a REIT which distributes at least
95% of its REIT taxable income as a dividend to its shareholders each year and
 
                                       45
   46
                              VORNADO REALTY TRUST
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
which meets certain other conditions will not be taxed on that portion of its
taxable income which is distributed to its shareholders. The Company has
distributed to shareholders an amount greater than its taxable income.
Therefore, no provision for Federal income taxes is required. All dividend
distributions for the three years ended December 31, 1997, are characterized for
Federal income tax purposes as ordinary income.
 
     The net basis of the Company's assets and liabilities for tax purposes is
approximately $480,000,000 lower than the amount reported for financial
statement purposes.
 
     AMOUNTS PER SHARE: In 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share (SFAS 128). SFAS 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform to the requirements of SFAS 128. All share and
per share information has also been adjusted for a 2-for-1 stock split in
October 1997.
 
     STOCK OPTIONS: The Company accounts for stock-based compensation using the
intrinsic value method. Under the intrinsic value method compensation cost is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of grant over the exercise price of the option granted.
Compensation cost for stock options, if any, is recognized ratably over the
vesting period. The Company's policy is to grant options with an exercise price
equal to the quoted market price of the Company's stock on the grant date.
Accordingly, no compensation cost has been recognized for the Company's stock
option plans.
 
3.  ACQUISITIONS
 
     The Company completed approximately $2.6 billion of real estate
acquisitions or investments from January 1, 1997 through March 6, 1998 and an
additional $900 million of acquisitions are pending; however, there can be no
assurance that such acquisitions will ultimately be completed. These
acquisitions were consummated through subsidiaries or preferred stock affiliates
of the Company and were recorded under the purchase method of accounting.
Related net assets and results of operations have been included in these
financial statements since their respective dates of acquisition. The respective
purchase costs were allocated to acquired assets and assumed liabilities using
their relative fair values as of the closing dates, based on valuations and
other studies which are not yet complete. Accordingly, the initial valuations
are subject to change as such information is finalized. The Company believes
that any such change will not be significant since the allocations were
principally to real estate. The following are the details of the acquisitions or
investments:
 
COMPLETED IN 1997
 
  Mendik Transaction
 
     In April 1997, Vornado consummated the acquisition of interests in all or a
portion of seven Manhattan office buildings and the management company held by
Bernard H. Mendik, David R. Greenbaum and certain entities controlled by them
(the "Mendik Group") and certain of their affiliates (the "Mendik Transaction"),
which is operated as the Mendik Division. The properties acquired include (i)
four wholly owned properties: Two Penn Plaza, Eleven Penn Plaza, 1740 Broadway
and 866 U.N. Plaza and (ii) three partially owned properties: Two Park Avenue
(40% interest), 330 Madison Avenue (24.8% interest) and 570 Lexington Avenue
(5.6% interest). The consideration for the transaction was approximately
$656,000,000, including $264,000,000 in cash, $177,000,000 in the limited
partnership units of the Operating Partnership issued to persons other than
Vornado ("Minority Interests") and $215,000,000 in indebtedness.
 
                                       46
   47
                              VORNADO REALTY TRUST
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Montehiedra Town Center
 
     In April 1997, the Company acquired The Montehiedra Town Center
("Montehiedra"), a shopping center, located in San Juan, Puerto Rico, for
approximately $74,000,000, of which $63,000,000 was newly issued ten-year
indebtedness.
 
  90 Park Avenue
 
     In May 1997, the Company acquired a mortgage loan from a consortium of
banks collateralized by an office building located at 90 Park Avenue, Manhattan,
New York. On August 21, 1997, the Company entered into an agreement with the
owners of 90 Park Avenue pursuant to which the Company restructured the
mortgage, took title to the land and obtained a 43-year lease on the building
under which the Company manages the building and receives the building's cash
flow. As part of the restructuring, the amount of the debt was adjusted from the
face value of $193,000,000 to the May 1997 acquisition cost of $185,000,000, the
maturity date of the debt was extended to August 31, 2022 and the interest rate
was set at 7.5%. The Company purchased the land from the borrower for
$8,000,000, which was further applied to reduce the debt to $177,000,000. This
investment has been classified as real estate.
 
  Riese Transactions
 
     In June 1997, the Company acquired four properties for approximately
$26,000,000. The properties were previously owned by affiliates of the Riese
Organization. These properties are located in midtown Manhattan. The Company
also made a $41,000,000 mortgage loan to Riese affiliates cross-collateralized
by ten other Manhattan properties. The mortgage loan has a five-year term and an
initial interest rate of 9.75% increasing annually.
 
  Hotel Pennsylvania Investment
 
     In September 1997, the Company acquired a 40% interest in the Hotel
Pennsylvania, which is located on Seventh Avenue opposite Madison Square Garden
in Manhattan, New York. The property was acquired in a joint venture with Hotel
Properties Limited and Planet Hollywood International, Inc. from a group of
partnerships. Under the joint venture agreement, Hotel Properties Limited and
Planet Hollywood International, Inc. have 40% and 20% interests, respectively.
The joint venture acquired the hotel for approximately $159,000,000, of which
$120,000,000 was newly issued five-year financing. The Company's share of the
purchase price was approximately $64,000,000. The Company manages the site's
retail and office space, and Hotel Properties Limited manages the hotel. See
"Subsequent Events".
 
  20 Broad Street Mortgage
 
     In September 1997, the Company purchased from a bank, at a discount, a
mortgage on an office building at 20 Broad Street in Manhattan, New York for
$27,000,000. The mortgage, which is in default, yields approximately 12%. The
property is leased to a number of tenants. The largest such tenant, the New York
Stock Exchange, leases approximately 53% of the property. As part of the Mendik
Transaction previously described, the Company obtained an option to acquire from
the Mendik Group its portion of the leasehold interest in this property.
 
  Charles E. Smith Commercial Realty Investment
 
     In October 1997, the Company acquired a 15% limited partnership interest in
Charles E. Smith Commercial Realty L.P. for $60,000,000 in a partnership
roll-up. The partnership owns interests in and manages office properties in
Crystal City, Arlington, Virginia, a suburb of Washington, D.C., and manages
additional office and other commercial properties in the Washington, D.C. area.
 
  Cold Storage
 
     In October 1997, two partnerships in which preferred stock affiliates of
the Company have 60% interests and affiliates of Cresent Real Estate Equities
Company have 40% interests acquired Americold Corporation
 
                                       47
   48
                              VORNADO REALTY TRUST
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
("Americold") and URS Logistics, Inc. ("URS") from affiliates of Kelso &
Company, Inc. and other owners. Americold and URS are cold storage and logistics
warehouse companies. The consideration for these transactions totaled
approximately $1,000,000,000, including $628,000,000 of indebtedness. The
Company's share of the purchase price was approximately $600,000,000. See
"Subsequent Events".
 
  Arbor Property Trust
 
     In December 1997, the Company acquired Arbor Property Trust ("Arbor") for
approximately 2,936,000 common shares of beneficial interest of Vornado and
39,400 Series A Convertible Preferred Shares of Vornado. The approximate value
of the transaction was $225 million, subject to property level debt of $125
million. Arbor was a single property real estate investment trust which owned
the Green Acres Mall, a super-regional enclosed shopping mall complex situated
in Nassau County, Long Island, New York one-mile east of the borough of Queens,
New York.
 
  640 Fifth Avenue
 
     In December 1997, the Company acquired 640 Fifth Avenue, a Manhattan office
building located at the corner of 51st Street, for approximately $64 million
from Met Life International Real Estate Partners Limited Partnership.
 
COMPLETED IN 1998 (SEE "SUBSEQUENT EVENTS")
 
  One Penn Plaza
 
     In February 1998, the Company acquired a long-term leasehold interest in
One Penn Plaza, a Manhattan office building for approximately $410 million from
Mid-City Associates.
 
  150 East 58th Street
 
     In March 1998, the Company acquired 150 East 58th Street (the "Architects
and Design Center"), a Manhattan office building, for approximately $118 million
from a limited partnership.
 
PENDING
 
  Kennedy Properties (See "Subsequent Events")
 
     In January 1998, the Company entered into a definitive agreement to acquire
a real estate portfolio from Joseph P. Kennedy Enterprises for approximately
$625 million, consisting of $465 million in cash, $50 million in indebtedness
and an aggregate of $110 million in Operating Partnership Units and Convertible
Preferred Operating Partnership Units.
 
  YMCA Development
 
     In September 1997, the Company entered into an agreement with the YMCA to
acquire a portion of a property now occupied by the YMCA. The property overlooks
Central Park and is located between West 63rd and 64th Streets in Manhattan, New
York. Pursuant to the agreement, a preferred stock affiliate of the Company will
acquire and develop approximately 44,000 square feet for use by the YMCA and
approximately 150,000 square feet for sale as residential condominiums. The
agreement contemplates the negotiation and execution of additional related
agreements. The purchase price for the property is approximately $8,400,000, and
the Company estimates that development costs (including the YMCA facilities)
will be approximately $55,000,000. To date the Company has expended
approximately $2,750,000 in connection with this transaction and provided the
YMCA with a $5,500,000 letter of credit. The transaction is expected to close in
the second quarter of 1998.
 
                                       48
   49
                              VORNADO REALTY TRUST
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Las Catalinas Mall
 
     The Company has an option to acquire K Mart's recently constructed anchor
store and its 50% interest in the Las Catalinas Mall located in Caguas, Puerto
Rico. The total purchase price is approximately $68,000,000 (substantially all
of which would be financed with newly issued debt). The acquisition is expected
to close in the second quarter of 1998.
 
Hotel Pennsylvania -- additional investment (see "Subsequent Events").
 
Cold Storage -- acquisition of Freezer Services, Inc. (see "Subsequent Events").
 
  Pro Forma Information
 
     The unaudited pro forma information set forth below presents (i) the
condensed consolidated statements of income for the Company for the years ended
December 31, 1997 and 1996 as if (a) the acquisitions described above (excluding
the pending acquisitions in Cold Storage and Hotel Pennsylvania) and the
financings attributable thereto had occurred on January 1, 1996 and (ii) the
condensed consolidated pro forma balance sheet of the Company as of December 31,
1997, as if such acquisitions and financings had occurred on December 31, 1997.
 
  Condensed Pro Forma Consolidated Income Statement

                                                        PRO FORMA (UNAUDITED) YEAR ENDED
                                                ------------------------------------------------
                                                  DECEMBER 31, 1997          DECEMBER 31, 1996
                                                ---------------------      ---------------------
                                                (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
                                                                     
Revenues......................................         $500,200                   $488,900
                                                       ========                   ========
Net income....................................         $106,100                   $107,600
Preferred stock dividends.....................          (20,700)                   (19,800)
                                                       --------                   --------
Net income applicable to common shares........         $ 85,400                   $ 87,800
                                                       ========                   ========
Net income per common share -- basic..........            $1.55                      $1.79
                                                          =====                      =====
Net income per common share -- diluted........            $1.49                      $1.78
                                                          =====                      =====

     Pro Forma revenues and net income applicable to common shares after giving
effect only to the acquisitions and financings completed prior to December 31,
1997 were $314,900,000 and $87,500,000 for the year ended December 31, 1997 and
$315,600,000 and $95,550,000 for the year ended December 31, 1996. The pro forma
results for the year ended December 31, 1997, include non-recurring lease
cancellation income of $14,350,000, partially offset by related expenses of
$2,775,000.
 
  Condensed Pro Forma Consolidated Balance Sheet (Unaudited) at December 31,
1997 (amounts in thousands):

                                                           
Total assets................................................  $3,553,600
                                                              ==========
Total liabilities...........................................  $1,951,300
Minority interest...........................................     288,550
Total shareholders' equity..................................   1,313,750
                                                              ----------
Total liabilities and shareholders' equity..................  $3,553,600
                                                              ==========

                                       49
   50
                              VORNADO REALTY TRUST
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
4.  INVESTMENTS IN PARTIALLY-OWNED ENTITIES
 
     The Company's investments in partially-owned entities and income recognized
from such investments is disclosed below. Summarized financial data is provided
for (i) investments in entities which exceed 10% of the Company's total assets
and (ii) investments in which the Company's share of partially-owned entities
pre-tax income exceeds 10% of the Company's net income.
 
BALANCE SHEET DATA:

                        COMPANY'S INVESTMENT        TOTAL ASSETS            TOTAL DEBT          TOTAL EQUITY
                        ---------------------   ---------------------   -------------------   -----------------
                          1997        1996         1997        1996       1997       1996       1997      1996
                        ---------   ---------   ----------   --------   --------   --------   --------   ------
                                                        (AMOUNTS IN THOUSANDS)
                                                                                 
INVESTMENTS:
Cold Storage
  Companies..........   $243,846    $     --    $1,481,405   $     --   $638,047   $     --   $404,227   $   --
                                                ==========   ========   ========   ========   ========   ======
Alexander's..........    108,752     107,628    $  235,074   $211,585   $208,087   $192,347   $ 13,029   $5,564
                                                ==========   ========   ========   ========   ========   ======
Charles E. Smith
  Commercial Realty
  L.P. ..............     60,437          --
Hotel Pennsylvania...     20,152          --
Mendik Partially-
  Owned Office
  Buildings..........     37,209          --
Vornado Management
  Corp. and Mendik
  Management
  Company............     12,391       5,193
                        --------    --------
                        $482,787    $112,821
                        ========    ========

                                       50
   51
                              VORNADO REALTY TRUST
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
INCOME STATEMENT DATA:

                                   COMPANY'S INCOME
                                 FROM PARTIALLY-OWNED
                                       ENTITIES                 TOTAL REVENUES              NET INCOME (LOSS)
                               ------------------------   ---------------------------   --------------------------
                                1997     1996     1995     1997      1996      1995      1997     1996      1995
                               ------   ------   ------   -------   -------   -------   ------   -------   -------
                                                             (AMOUNTS IN THOUSANDS)
                                                                                
INCOME APPLICABLE TO
  ALEXANDER'S................  $7,873   $7,956   $3,954   $25,369   $21,833   $11,734   $7,466*  $24,699*  $(6,731)
                               ======   ======   ======   =======   =======   =======   ======   =======   =======
INCOME FROM OTHER PARTIALLY-
  OWNED INVESTMENTS:
Cold Storage Companies.......  $1,720   $   --   $   --   $78,699   $    --   $    --   $   90   $    --   $    --
                                                          =======   =======   =======   ======   =======   =======
Hotel Pennsylvania...........   1,055       --       --
Charles E. Smith Commercial
  Realty L.P. ...............      85       --       --
Mendik Partially-Owned Office
  Buildings..................     424       --       --
Vornado Management Corp. and
  Mendik Management
  Company....................   1,374    1,855      788
                               ------   ------   ------
                               $4,658   $1,855   $  788
                               ======   ======   ======

- ---------------
* 1997 net income includes $8,914 of income from the condemnation of a portion
  of a property. 1996 income includes income from discontinued operations of
  $11,602 and a non-recurring gain of $14,372.
 
  Alexander's
 
     The Company owns 29.3% of the outstanding shares of common stock of
Alexander's. In March 1995, the Company lent Alexander's $45,000,000. The loan,
which was scheduled to mature in March 1998, has been extended to March 1999 and
the interest rate was reset from 15.60% per annum to 13.87% per annum reflecting
a reduction in both the spread and the underlying treasury rate. In addition,
Alexander's has approximately $163,087,000 of other indebtedness at December 31,
1997 of which: (i) $30,000,000 has been extended with the Company's loan to
March 1999, (ii) $75,000,000 bearing interest at 6.82%, is due on September 15,
1998, (iii) $22,684,000 bearing interest at 10.22%, is due in February 2000 (iv)
$21,812,000, bearing interest at 9.50%, is due on August 21, 1998 and (v)
$13,596,000, bearing interest at 8.19%, is due on December 31, 1998. All of
these loans are collateralized by Alexander's real estate.
 
     The investment in Alexander's is comprised of:

                                                                   DECEMBER 31,
                                                              ----------------------
                                                                1997         1996
                                                              ---------    ---------
                                                              (AMOUNTS IN THOUSANDS)
                                                                     
Common stock, net of $1,596,000 and $989,000 of accumulated
  depreciation of buildings.................................  $ 54,931     $ 56,952
Loan receivable.............................................    45,000       45,000
Deferred loan origination income............................       (83)        (583)
Leasing fees and other receivables..........................     6,576        5,901
Equity in income (loss).....................................     1,894         (293)
Deferred expenses...........................................       434          651
                                                              --------     --------
                                                              $108,752     $107,628
                                                              ========     ========

     Alexander's is managed by and its properties are leased by the Company,
pursuant to agreements with a one-year term expiring in March of each year which
are automatically renewable. The annual management fee
 
                                       51
   52
                              VORNADO REALTY TRUST
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
payable to the Company by Alexander's is $3,000,000, plus 6% of development
costs with minimum guaranteed fees of $750,000 per annum.
 
     The leasing agreement provides for the Company to generally receive a fee
of (i) 3% of sales proceeds and (ii) 3% of lease rent for the first ten years of
a lease term, 2% of lease rent for the eleventh through the twentieth years of a
lease term and 1% of lease rent for the twenty-first through thirtieth year of a
lease term. Subject to the payment of rents by Alexander's tenants, the Company
is due $6,244,000 at December 31, 1997. Such amount is receivable annually in an
amount not to exceed $2,500,000 until the present value of such installments
(calculated at a discount rate of 9% per annum) equals the amount that would
have been paid had it been paid on September 21, 1993, or at the time the
transactions which gave rise to the commissions occurred, if later. The Company
recognized leasing fee income of $767,000, $695,000 and $1,448,000 in 1997, 1996
and 1995, respectively.
 
     As of December 31, 1997, Interstate Properties owned approximately 17.9% of
the common shares of beneficial interest of the Company and 27.1% of Alexander's
common stock. Interstate Properties is a general partnership in which Steven
Roth, David Mandelbaum and Russell B. Wight, Jr. are partners. Mr. Roth is the
Chairman of the Board and Chief Executive Officer of the Company, the Managing
General Partner of Interstate Properties, and the Chief Executive Officer and a
director of Alexander's, Messrs. Mandelbaum and Wight are trustees of the
Company and are also directors of Alexander's.
 
     The agreement with the Company and Interstate Properties not to own in
excess of two-thirds of Alexander's common stock expired in March 1998.
 
  Cold Storage Companies
 
     Investment represents a 60% interest in two partnerships held by preferred
stock affiliates and advances to the partnerships of $713,000. Income recognized
is from the date of acquisition (November 1, 1997) and is comprised of a
management fee of approximately $1,800,000, which represents 1% per annum of the
Total Combined Assets (as defined) of the Cold Storage Companies and the
Company's 60% share of equity in net income, net of the management fee.
 
     At December 31, 1997, the Cold Storage Companies have an aggregate of
$638,047,000 of debt which is comprised of (i) a $586,778,000 bridge loan
maturing on October 31, 1998 and bearing interest at LIBOR plus 1.25% (7.23% at
December 31, 1997) (ii) $37,041,000 of capital lease obligations and (iii)
$14,228,000 of other notes and mortgages. The Cold Storage Companies are in the
process of refinancing the bridge loan.
 
  Hotel Pennsylvania
 
     This investment represents a 40% interest in partnerships held by (i) a
subsidiary of the Company for the property's commercial operations and (ii) a
preferred stock affiliate for the property's hotel operations. Income is
recognized from the date of acquisition (September 24, 1997) and is comprised of
a fee for managing the commercial operations and equity in net income.
 
  Charles E. Smith Commercial Realty L.P.
 
     This investment represents a 15% interest in partnership. Income is
comprised of equity in net income of the partnership for the two months ended
December 31, 1997 (the period since the investment was made).
 
  Mendik Partially-Owned Office Buildings
 
     This investment represents the Company's interests in the partially-owned
properties included in the Mendik Transaction: Two Park Avenue (40% interest)
330 Madison Avenue (24.8% interest) and 570 Lexington Avenue (5.6% interest).
 
                                       52
   53
                              VORNADO REALTY TRUST
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Vornado Management Corp. and Mendik Management Company
 
     These investments represent non-voting interest in preferred stock
affiliates. Income is comprised of equity in the net income of preferred stock
affiliates.
 
5.  DEBT
 
     Following is a summary of the Company's debt:

                                                                    DECEMBER 31,
                                                              ------------------------
                                                                 1997          1996
                                                                 ----          ----
                                                               (AMOUNTS IN THOUSANDS)
                                                                      
Notes and Mortgage Payable:
  Fixed Interest:
     Mortgage payable cross collateralized by an aggregate
      of 44 shopping centers and warehouse/industrial
      properties, due in 2000 with interest at 6.36%
      (prepayable with yield maintenance)...................  $  227,000    $  227,000
     Eleven Penn Plaza mortgage payable, due in 2007,
      requires amortization based on a 25 year term with
      interest at 8.39% (prepayable after 2003 with yield
      maintenance)..........................................      54,612            --
     866 UN Plaza mortgage payable, due in 2004, with
      interest at 7.79% (prepayable without penalty)........      33,000            --
     Monteheidra Town Center mortgage pass-through
      certificates, due in 2007 (52,447) and 2009 (10,251),
      requires amortization based on 30 year term with
      interest at 8.23% (prepayable after August 1999 with
      yield maintenance)....................................      62,698            --
     Other mortgages payable................................      11,344         5,387
                                                              ----------    ----------
                                                                 388,654       232,387
                                                              ----------    ----------
  Variable Interest:
     Two Penn Plaza mortgage payable, due in 2005, interest
      at LIBOR plus .63% (6.44% at December 31, 1997)
      (prepayable without penalty)..........................      80,000            --
     Green Acres Mall and Plaza, collateralized notes, due
      on August 19, 1998, interest at LIBOR plus .78% (6.40%
      at December 31, 1997) (see below).....................     118,000            --
                                                              ----------    ----------
                                                                 198,000            --
                                                              ----------    ----------
          Total notes and mortgages payable.................     586,654       232,387
Unsecured revolving credit facility, interest at LIBOR plus
  .83% (6.79% at December 31, 1997(see below))..............     370,000            --
                                                              ----------    ----------
          Total Debt........................................  $  956,654    $  232,387
                                                              ==========    ==========

     The net carrying value of properties collateralizing the notes and
mortgages amounted to $888,558 at December 31, 1997. As at December 31, 1997,
the maturities for the next five years are as follows (amounts in thousands):

   YEAR ENDING DECEMBER 31:   AMOUNT
   ------------------------   ------
                                
   1998..................    $120,218 ($118,000 of which has been refinanced -- see below)
   1999..................       1,869
   2000..................     228,731
   2001..................       1,886
   2002..................       2,038

                                       53
   54
                              VORNADO REALTY TRUST
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     In July 1997, the Company obtained a $600,000,000 unsecured three-year
revolving credit facility. In February 1998, the facility was increased to
$1,000,000,000. The facility contains customary loan covenants including, among
others, limits on total outstanding indebtedness; maximum loan to value ratio;
minimum debt service coverage and minimum market capitalization requirements.
Interest is at LIBOR plus .70% to 1.00% depending on the Company's senior debt
rating. The credit facility has a competitive bid option program, which allows
the Company to hold auctions among banks participating in the facility for short
term borrowings of up to $500,000,000. The Company paid an origination fee in
July 1997 of .30%, origination and amendment fees in February 1998 of .39% and
pays a commitment fee quarterly over the remaining term of the facility ranging
from .15% to .20% on the facility amount.
 
     In February 1998, the Company completed a $160,000,000 refinancing of the
Green Acres Mall and prepaid the then existing $118,000,000 debt on the
property. The new 10-year debt matures in March 2008, requires amortization
based on a 30-year term, bears interest at 6.75% and may be defeased after 2001.
 
6.  SHAREHOLDERS' EQUITY
 
     In April 1997, Vornado completed its public offering of 5,750,000 Series A
Convertible Preferred Shares of Beneficial Interest, liquidation preference
$50.00 per share. The preferred shares bear a coupon of 6 1/2% and are
convertible into common shares at $36 3/8 per share. The offering, net of
expenses, generated approximately $276,000,000 which was used to fund the cash
portion of the Mendik Transaction. Dividends on the preferred shares in 1997
were approximately $15,549,000 (including accretion of expenses in connection
with the offering of $1,918,000).
 
     On October 20, 1997, the Company paid a 100% common share dividend to
shareholders. All share and per share information has been adjusted to reflect
this two-for-one share split.
 
     In October 1997, Vornado sold 14,000,000 common shares and an additional
2,100,000 common shares in November 1997 when the underwriters exercised in full
their over-allotment option. The shares were sold at a price of $45.00 per share
which, net of expenses, yielded approximately $688,672,000. The net proceeds
were used to repay $310,000,000 outstanding under the Company's line of credit
and to fund a portion of the purchase price of certain acquisitions previously
described.
 
     In connection with the acquisition of Arbor in December 1997, the Company
issued approximately 2,936,000 common shares of beneficial interest and 39,400
Series A Convertible Preferred Shares of Beneficial Interest. The approximate
value of the shares issued at the time of the acquisition was $102,000,000.
 
7.  EMPLOYEES' SHARE OPTION PLAN
 
     Under the Omnibus Share Plan (the "Plan"), various officers and key
employees have been granted incentive share options and non-qualified options to
purchase common shares. Options granted are at prices equal to 100% of the
market price of the Company's shares at the date of grant, 1,119,917 shares vest
on a graduated basis, becoming fully vested 27 months after grant, 3,500,000
shares (granted in connection with Mr. Fascitelli's employment agreement) vest
on a graduated basis becoming fully vested 60 months after grant and 910,000
shares (granted in connection with the Mendik Transaction) vest on a graduated
basis, becoming fully vested 36 months after grant. All options expire ten years
after grant.
 
     The Plan also provides for the award of Stock Appreciation Rights,
Performance Shares and Restricted Stock, as defined, none of which have been
awarded as of December 31, 1997.
 
                                       54
   55
                              VORNADO REALTY TRUST
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     If compensation cost for Plan awards had been determined based on fair
value at the grant dates, net income and income per share would have been
reduced to the pro-forma amounts below, for the years ended December 31, 1997
and 1996 (amounts in thousands, except share amounts):

                                                             DECEMBER 31,    DECEMBER 31,
                                                                 1997            1996
                                                             ------------    ------------
                                                                       
Net income applicable to common shares:
  As reported..............................................    $45,474         $61,364
  Pro-forma................................................     41,248          60,613
Net income per share applicable to common shares:
  Basic:
     As reported...........................................    $   .83         $  1.26
     Pro-forma.............................................        .75            1.24
  Diluted:
     As reported...........................................        .79            1.25
     Pro forma.............................................        .72            1.23

     The fair value of each option grant is estimated on the date of grant using
the Binomial option-pricing model with the following weighted-average
assumptions used for grants in the periods ending December 31, 1997 and 1996.

                                                                   DECEMBER
                                                              ------------------
                                                               1997       1996
                                                              -------    -------
                                                                   
Expected volatility.........................................    25%        26%
Expected life...............................................  5 years    5 years
Risk-free interest rate.....................................   6.4%       5.6%
Expected dividend yield.....................................   3.4%       5.1%

     A summary of the Plan's status, and changes during the years then ended, is
presented below:

                                             DECEMBER 31, 1997                DECEMBER 31, 1996
                                       ------------------------------   ------------------------------
                                                     WEIGHTED-AVERAGE                 WEIGHTED-AVERAGE
                                         SHARES       EXERCISE PRICE      SHARES       EXERCISE PRICE
                                       ----------    ----------------   ----------    ----------------
                                                                          
Outstanding at January 1.............   4,139,386         $22.51         1,079,880         $12.27
Granted..............................   1,521,500          29.99         3,741,500          23.14
Exercised............................     (33,969)         18.69          (681,994)          9.75
Cancelled............................     (97,000)         31.25                --             --
                                       ----------                       ----------
Outstanding at December 31...........   5,529,917         $24.43         4,139,386         $22.51
                                       ==========                       ==========
Options exercisable at December 31...   1,327,418                          420,770
                                       ==========                       ==========
Weighted-average fair value of
  options granted during the year
  ended
  December 31 (per option)...........       $7.87                            $4.75

                                       55
   56
                              VORNADO REALTY TRUST
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The following table summarizes information about options outstanding under
the Plan at December 31, 1997:

                                    OPTIONS OUTSTANDING                             OPTIONS EXERCISABLE
                  -------------------------------------------------------   ------------------------------------
                       NUMBER         WEIGHTED-AVERAGE                           NUMBER
   RANGE OF        OUTSTANDING AT        REMAINING       WEIGHTED-AVERAGE    EXERCISABLE AT     WEIGHTED-AVERAGE
EXERCISE PRICES   DECEMBER 31, 1997   CONTRACTUAL LIFE    EXERCISE PRICE    DECEMBER 31, 1997    EXERCISE PRICE
- ---------------   -----------------   ----------------   ----------------   -----------------   ----------------
                                                                                 
$6 to $12...              52,868         5.0 Years             $11                 52,868             $11
17$to $19...            564,674          7.2 Years              18                502,425              18
$23.........           3,500,000         8.9 Years              23                700,000              23
$26.........             302,375         9.1 Years              26                 72,125              26
$30.........             910,000         9.2 Years              30                     --              --
32$to $42...            200,000          9.4 Years              34                     --              --
                      ---------                                                 ---------
$6 to $42...           5,529,917         8.9 Years             $24              1,327,418             $21
                      =========                                                 =========

     Shares available for future grant at December 31, 1997 were 7,945,464.
 
8.  RETIREMENT PLAN
 
     Prior to December 31, 1997, the Company's qualified retirement plan covered
all full-time employees. The Plan provided annual pension benefits that were
equal to 1% of the employee's annual compensation for each year of
participation. In December 1997, benefits for active employees were frozen. The
funding policy is in accordance with the minimum funding requirements of ERISA.
 
     Pension expense includes the following components (amounts in thousands):

                                                 YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                    1997            1996            1995
                                                ------------    ------------    ------------
                                                                       
Service cost -- benefits earned during the         $ 115           $ 108           $  70
  period......................................
Interest cost on projected benefit                   607             544             573
  obligation..................................
Actual return on assets.......................      (494)           (179)           (307)
Net amortization and deferral.................       347             (59)             66
                                                   -----           -----           -----
     Net pension expense......................     $ 575           $ 414           $ 402
                                                   =====           =====           =====
Assumptions used in determining the net
  pension expense were:
Discount rate.................................    7 1/4%          7 1/2%          7 1/4%
Rate of increase in compensation levels.......    5 1/2%          5 1/2%          6 1/2%
Expected rate of return on assets.............       7 %             8 %             8 %

                                       56
   57
                              VORNADO REALTY TRUST
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The following table sets forth the Plan's funded status and the amount
recognized in the Company's balance sheet (amounts in thousands):

                                                             DECEMBER 31,    DECEMBER 31,
                                                                 1997            1996
                                                             ------------    ------------
                                                                       
Actuarial present value of benefit obligations:
  Vested benefit obligation..............................      $ 8,245         $ 7,590
                                                               -------         -------
  Accumulated benefit obligation.........................      $ 8,337         $ 7,657
                                                               -------         -------
  Projected benefit obligation...........................      $ 8,337         $ 8,028
  Plan assets at fair value..............................        4,901           3,915
                                                               -------         -------
Projected benefit obligation in excess of plan assets....        3,436           4,113
Unrecognized net obligations.............................       (1,086)         (2,135)
Adjustment required to recognize minimum liability.......        1,086           1,764
                                                               -------         -------
Accrued pension costs....................................      $ 3,436         $ 3,742
                                                               =======         =======

     Plan assets are invested in U.S. government obligations and securities
backed by U.S. government guaranteed mortgages.
 
9.  LEASES
 
     As lessor:
 
     The Company leases space to tenants in shopping centers and office
buildings under operating leases. Most of the leases provide for the payment of
fixed base rentals payable monthly in advance. Shopping center leases provide
for the pass-through to tenants of real estate taxes, insurance and maintenance.
Office building leases generally require the tenants to reimburse the Company
for operating costs and real estate taxes above their base year costs. Shopping
center leases also provide for the payment by the lessee of additional rent
based on a percentage of the tenants' sales. As of December 31, 1997, future
base rental revenue under noncancellable operating leases, excluding rents for
leases with an original term of less than one year and rents resulting from the
exercise of renewal options, is as follows (amounts in thousands):

            YEAR ENDING DECEMBER 31:                 AMOUNT
            ------------------------               ----------
                                                
1998.............................................  $  215,744
1999.............................................     218,958
2000.............................................     207,757
2001.............................................     197,321
2002.............................................     185,814
Thereafter.......................................   1,522,822

     These amounts do not include rentals based on tenants' sales. These
percentage rents approximated $1,786,000, $936,000 and $959,000 for the years
ended December 31, 1997, 1996 and 1995.
 
     Only one of the Company's tenants, Bradlees, represented more than 10% of
total property rentals for the year ended December 31, 1997. Bradlees accounted
for 10.5% of total property rentals (4.2% of total pro forma property rentals).
In June 1995, Bradlees filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. The Company currently leases 16 locations to Bradlees. Of these
locations, the leases for 14 are fully guaranteed by Stop & Shop Companies, Inc.
("Stop & Shop"), a wholly-owned subsidiary of Royal Ahold NV, a leading
international food retailer, and one is guaranteed as to 70% of the rent.
 
                                       57
   58
                              VORNADO REALTY TRUST
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     As lessee:
 
     The Company is a tenant under operating leases for certain properties.
These leases will expire principally during the next twenty years. Future
minimum lease payments under operating leases at December 31, 1997, are as
follows (amounts in thousands):

             YEAR ENDING DECEMBER 31:                AMOUNT
             ------------------------                -------
                                                  
1998...............................................  $ 2,350
1999...............................................    2,274
2000...............................................    2,109
2001...............................................    2,098
2002...............................................    1,135
Thereafter.........................................   27,126

     Rent expense was $2,001,000, $1,465,000 and $1,395,000 for the years ended
December 31, 1997, 1996 and 1995.
 
10.  CONTINGENCIES
 
     Each of the Company's properties has been subjected to varying degrees of
environmental assessment at various times. The environmental assessments did not
reveal any material environmental contamination. However, there can be no
assurance that the identification of new areas of contamination, change in the
extent or known scope of contamination, the discovery of additional sites, or
changes in cleanup requirements would not result in significant costs to the
Company.
 
     In January 1997, two individual investors in Mendik Real Estate Limited
Partnership ("RELP"), the publicly held limited partnership that indirectly owns
a 60% interest in the Two Park Avenue Property, filed a purported class action
against NY Real Estate Services 1, Inc. ("NY Real Estate"), Mendik RELP Corp.,
B&B Park Avenue, L.P. (an indirect subsidiary of the Company which acquired the
remaining 40% interest in Two Park Avenue) and Bernard H. Mendik in the Supreme
Court of the State of New York, County of New York, on behalf of all persons
holding limited partnership interests in RELP. The complaint alleges that, for
reasons which include purported conflicts of interest, the defendants breached
their fiduciary duty to the limited partners, that the then proposed transfer of
the 40% interest in Two Park Avenue would result in a burden on the operation
and management of Two Park Avenue and that the transfer of the 40% interest
violates RELP's right of first refusal to purchase the interest being
transferred and fails to provide limited partners in RELP with a comparable
transfer opportunity. Shortly after the filing of the complaint, another limited
partner represented by the same attorneys filed an essentially identical
complaint in the same court. Both complaints seek unspecified damages, an
accounting and a judgment requiring either the liquidation of RELP and the
appointment of a receiver or an auction of Two Park Avenue. Discussions to
settle the actions have been ongoing, but no settlement has been reached. In
August 1997, a fourth limited partner, represented by separate counsel,
commenced another purported class action in the same court by serving a
complaint essentially identical to the complaints in the two previously
commenced actions. Management believes that the ultimate outcome of these
matters will not have a material adverse effect on the Company.
 
     From time-to-time, the Company has disposed of substantial amounts of real
estate to third parties for which, as to certain properties, it remains
contingently liable for rent payments or mortgage indebtedness.
 
     There are various legal actions against the Company in the ordinary course
of business. In the opinion of management, after consultation with legal
counsel, the outcome of such matters will not have a material effect on the
Company's financial condition, results of operations or cash flow.
 
     In April 1997, the Company's Lodi shopping center was destroyed by a fire.
The Company intends to rebuild the shopping center commencing in 1998, which
rebuilding is subject to the approval of local
 
                                       58
   59
                              VORNADO REALTY TRUST
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
authorities. The Company carries replacement value insurance. To date the
insurance carrier has paid the Company $5,500,000 as a deposit for the above
mentioned rebuilding. In the event the Company cannot rebuild the shopping
center, a large portion of the deposit would be returned to the carrier. If the
shopping center is rebuilt, the Company will recognize a gain measured by the
total proceeds from the insurance carrier, which could amount to approximately
$10,000,000, net of the book value of the property of $1,564,000.
 
11.  REPURCHASE AGREEMENTS
 
     The Company enters into agreements for the purchase and resale of U.S.
government obligations for periods of up to one week. The obligations purchased
under these agreements are held in safekeeping in the name of the Company by
various money center banks. The Company has the right to demand additional
collateral or return of these invested funds at any time the collateral value is
less than 102% of the invested funds plus any accrued earnings thereon.
 
12.  OTHER RELATED PARTY TRANSACTIONS
 
     On December 2, 1996, Michael D. Fascitelli became the President of the
Company and was elected to the Company's Board. Mr. Fascitelli signed a
five-year employment contract under which, in addition to his annual salary, he
received a deferred payment consisting of $5,000,000 in cash and a $20,000,000
convertible obligation payable at the Company's option in 919,540 of its Common
Shares or the cash equivalent of their appreciated value but not less than
$20,000,000. Accordingly, cash of $5,000,000 and 919,540 Common Shares are being
held in an irrevocable trust. The deferred payment obligation to Mr. Fascitelli
vested as of December 2, 1997. Further, Mr. Fascitelli was granted options for
3,500,000 Common Shares of the Company.
 
     At December 31, 1997, the loans due from Mr. Roth, Mr. Rowan and Mr. Macnow
in connection with their stock option exercises were $13,122,500 ($4,993,000 of
which is shown as a reduction in shareholders' equity), $202,000 and $182,000,
respectively. The loans bear interest at a rate equal to the broker call rate
(7.25% at December 31, 1997) but not less than the minimum applicable federal
rate provided under the Internal Revenue Code. Interest on the loan to Mr. Roth
is payable quarterly. Mr. Roth's loan, which was due in December 1997, was
extended for five years until December 2002. The Company has agreed on each
January 1st (commencing January 1, 1997) to forgive one-fifth of the amounts due
from Mr. Rowan and Mr. Macnow, provided that they remain employees of the
Company.
 
     The Company currently manages and leases the real estate assets of
Interstate Properties pursuant to a management agreement for which the Company
receives a quarterly fee equal to 4% of base rent and percentage rent and
certain other commissions. The management agreement has a term of one year and
is automatically renewable unless terminated by either of the parties on sixty
days' notice at the end of the term. Although the management agreement was not
negotiated at arms length, the Company believes based upon comparable fees
charged by other real estate companies, that its terms are fair to the Company.
For the years ended December 31, 1997, 1996 and 1995, $1,184,000, $2,074,000 and
$1,150,000 of management fees were earned by the Company pursuant to the
management agreement.
 
     The Mendik Group owns an entity which provides cleaning and related
services and security services to office properties. The Company has entered
into contracts with the Mendik Group (Bernard H. Mendik, David R. Greenbaum and
certain entities controlled by them) to provide such services in its Manhattan
office buildings. Although the terms and conditions of the contracts pursuant to
which these services are provided were not negotiated at arms length, the
Company believes based upon comparable fees charged to other real estate
companies, that the terms and conditions of such contracts are fair to the
Company. The Company was charged fees in connection with these contracts of
$9,965,241 for the period from April 15, 1997 (date of acquisition of the Mendik
portfolio) to December 31, 1997.
 
                                       59
   60
                              VORNADO REALTY TRUST
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The common stock of the preferred stock affiliates which own interests in
the Cold Storage Companies, Hotel Pennsylvania and related management companies
is owned by Officers and Trustees of Vornado.
 
13.  MINORITY INTEREST
 
     The minority interest represents limited partnership interests in the
Operating Partnership not owned by Vornado Realty Trust (Vornado owns all of the
Class A Units of the Operating Partnership). These limited partnership interests
are comprised of Class C, D and E Units primarily distributed in connection with
the Mendik Transaction. Holders of Class D and E Units are entitled to a
preferential annual distribution rate of $2.015. Holders of Class C Units are
entitled to a preferential annual distribution rate of $1.69. Class C Units will
automatically convert to Class A Units when the distributions paid to holders of
Class A Units equal $.4225 per quarter ($1.69 annually) for four consecutive
quarters. Class D and E Units will automatically convert to Class A Units when
the distributions paid to holders of Class A Units equal $.50375 per quarter
($2.015 annually) for four consecutive quarters. Generally, the value of each
Class A Unit, equates to one common share of beneficial interest of Vornado.
Preferential distributions aggregated $7,293,000 for the period from April 15,
1997 (date of acquisition of the Mendik portfolio) to December 31, 1997.
 
14.  EARNINGS PER SHARE
 
     The following table sets forth the computation of basic and diluted
earnings per share:

                                                          1997             1996             1995
                                                      -------------    -------------    -------------
                                                      (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
                                                                               
Numerator:
  Net income........................................   $    61,023      $    61,364      $    53,008
  Preferred stock dividends.........................       (15,549)              --               --
                                                       -----------      -----------      -----------
  Numerator for basic and diluted earnings per
     share -- income applicable to common shares....   $    45,474      $    61,364      $    53,008
                                                       ===========      ===========      ===========
 
Denominator:
  Denominator for basic earnings per
     share -- weighted average shares...............    55,097,656       48,854,832       46,765,618
  Effect of dilutive securities:
     Employee stock options.........................     2,119,553          352,052          393,720
                                                       -----------      -----------      -----------
  Denominator for diluted earnings per
     share -- adjusted weighted average shares and
     assumed conversions............................    57,217,209       49,206,884       47,159,338
                                                       ===========      ===========      ===========
Net income per common share -- basic................   $      0.83      $      1.26      $      1.13
Net income per common share -- diluted..............   $      0.79      $      1.25      $      1.12

                                       60
   61
                              VORNADO REALTY TRUST
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
15.  SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
 
     The following summary represents the results of operations for each quarter
in 1997 and 1996 (amounts in thousands, except share amounts):

                                                         NET INCOME        NET INCOME PER
                                                        APPLICABLE TO      COMMON SHARE(1)
                                                           COMMON         -----------------
                                            REVENUE        SHARES         BASIC     DILUTED
                                            -------     -------------     -----     -------
                                                                        
1997
  March 31................................  $29,297        $ 9,690        $.19       $.18
  June 30.................................   50,662          8,933         .17        .17
  September 30............................   61,868         10,385         .20        .19
  December 31.............................   67,304         16,466         .26        .25
1996
  March 31................................  $28,610        $15,922        $.33       $.33
  June 30.................................   29,245         15,120         .31        .31
  September 30............................   29,063         14,939         .31        .31
  December 31.............................   29,969         15,383         .31        .31

- ---------------
(1) The total for the year may differ from the sum of the quarters as a result
    of weighting.
 
16.  SEGMENT INFORMATION
 
     The Company has two reportable segments: office properties and retail
properties (including shopping centers). The Company operated as a single
segment until April, 1997, at which time the Mendik transaction was consummated
and the Company acquired interests in all or a portion of several Manhattan
office buildings and a management company. Accordingly, selected financial
information related to each segment is presented for 1997 only.

                                                             CORPORATE
                                       OFFICE     RETAIL     AND OTHER         TOTAL
                                       -------    -------    ----------      ----------
                                                    (AMOUNTS IN THOUSANDS)
                                                                 
Property rentals...................    $69,472    $90,304    $    8,545      $  168,321
Expense reimbursements.............      9,284     25,489         1,879          36,652
Other income.......................      2,070        231         1,857           4,158
Operating expenses.................     38,047     33,386         3,312          74,745
Depreciation and amortization......      9,546     11,592         1,845          22,983
Operating income...................     30,486     70,406       (25,986)(1)      74,906
Identifiable assets................    668,128    820,575     1,035,386(2)    2,524,089
Capital expenditures...............     12,992      8,445         2,352          23,789

- ---------------
(1) Includes amortization of officer's deferred compensation expense of $22,917
    and excludes income applicable to Alexander's of $7,873 and income from
    other partially-owned entities of $4,658.
 
(2) Includes investment in partially-owned entities of $482,800 and cash of
    $356,000.
 
     One retail tenant represents 19.6% of the total retail rentals for the year
ended December 31, 1997. Three office tenants represent 20.6%, 11.6% and 11.4%,
respectively of total office rentals for the year ended December 31, 1997. No
other tenant individually accounted for more than 10% of the respective segment
property rentals.
 
                                       61
   62
                              VORNADO REALTY TRUST
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
17.  SUBSEQUENT EVENTS
 
  Kennedy Properties
 
     In January 1998, the Company entered into a definitive agreement to acquire
a real estate portfolio from Joseph P. Kennedy Enterprises for approximately
$625 million, consisting of $465 million in cash, $50 million in indebtedness
and an aggregate of $110 million in Operating Partnership Units and Convertible
Preferred Operating Partnership Units.
 
     The real estate assets to be acquired include a portfolio of properties
used for office, retail and trade showroom space. The properties aggregate
approximately 5.3 million square feet and consist of the Merchandise Mart in
Chicago, the Apparel Center in Chicago, the Washington Design Center and the
Washington Office Center in Washington D.C. The transaction also includes the
acquisition of Merchandise Properties, Inc., which manages the properties and
trade shows. The closing is expected to occur in the second quarter of 1998.
 
  Hotel Pennsylvania
 
     On March 24, 1998, the Company entered into an agreement to increase its
interest in the Hotel Pennsylvania from 40% to 80%. Under the agreement, the
Company will purchase the 40% interest of Hotel Properties Limited (one of its
joint venture partners) for approximately $70 million including $48 million of
existing debt. The increase in the Company's interest is subject to reduction to
67%, should the third joint venture partner exercise its pro rata option.
 
  Cold Storage
 
     On March 25, 1998, the Cold Storage Companies entered into an agreement to
acquire the assets of Freezer Services, Inc., consisting of nine cold storage
warehouses for approximately $134 million, including $22 million of
indebtedness.
 
     There can be no assurance that these proposed transactions will ultimately
be completed.
 
  One Penn Plaza
 
     In February 1998, the Company acquired a long-term leasehold interest in
One Penn Plaza for approximately $410 million from Mid-City Associates. One Penn
Plaza is a 57 story Manhattan office building containing approximately 2,350,000
square feet and encompasses substantially the entire square block bounded by
33rd Street, 34th Street, Seventh Avenue and Eighth Avenue. In connection with
the acquisition the Company obtained a $93,192,000 four month bridge mortgage
loan bearing interest at LIBOR plus .80% (currently 6.49%).
 
  150 East 58th Street
 
     In March 1998, the Company acquired 150 East 58th Street (the Architects
and Design Center), a 39 story Manhattan office building, for approximately $118
million. The building contains approximately 550,000 square feet.
 
  Green Acres Mall
 
     In February 1998, the Company completed a $160,000,000 refinancing of the
Green Acres Mall and prepaid the then existing $118,000,000 debt on the
property. The new 10-year debt matures in March 2008 and bears interest at
6.75%.
 
                                       62
   63
                              VORNADO REALTY TRUST
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
PROPOSED SPIN-OFF OF OPERATING COMPANY
 
     In order to maintain its status as a REIT for federal income tax purposes,
the Company is required to focus principally on investment in certain real
estate assets. Accordingly, the Company cannot directly own certain assets and
conduct certain activities that would be inconsistent with its status as a REIT.
 
     The Company has formed Vornado Operating, Inc. ("Vornado Operating") to own
assets that Vornado could not itself own and conduct activities that Vornado
could not itself conduct. Vornado Operating will be able to do so because it
will be taxable as a regular corporation rather than a REIT for taxable years
after 1998. Vornado Operating has filed a registration statement with the
Securities and Exchange Commission with respect to its proposed spin off from
the Company. If the spin off takes place, the Operating Partnership will
distribute pro rata to its partners, including Vornado, the shares of Vornado
Operating, and Vornado will distribute pro rata to holders of its Common Shares
the shares it receives. No holder of Common Shares will be required to make any
payment, exchange any Common Shares or take any other action in order to receive
Vornado Operating's common stock in the spin off. A record date has not yet been
set for the spin off. No assurance can be given concerning the timing of the
spin off, or whether the spin off will occur.
 
     If the spin off takes place, the Company and Vornado Operating intend to
enter into an Intercompany Agreement pursuant to which, among other things, (a)
the Company will agree under certain circumstances to offer Vornado Operating an
opportunity to become the lessee of certain real property owned now or in the
future by the Company (under mutually satisfactory lease terms) and (b) Vornado
Operating will agree not to make any real estate investment or other
REIT-qualified investments unless it first offers the Company the opportunity to
make such investment and the Company has rejected that opportunity. The Company
expects to capitalize Vornado Operating with an equity contribution of $25
million of cash, and intends to extend to Vornado Operating a $75 million
unsecured five-year revolving line of credit. The Intercompany Agreement and the
Credit Agreement were not subject to arms-length negotiation because Vornado
Operating is currently a subsidiary of the Company. Accordingly, there can be no
assurance that the terms of these Agreements are comparable to those the Company
could have negotiated with an unaffiliated third party.
 
                                       63
   64
 
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     Information relating to trustees of the Registrant will be contained in a
definitive Proxy Statement involving the election of trustees which the
Registrant will file with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934 not later than 120 days
after December 31, 1997, and such information is incorporated herein by
reference. Information relating to Executive Officers of the Registrant appears
at page 27 of this Annual Report on Form 10-K.
 
ITEM 11.  EXECUTIVE COMPENSATION
 
     Information relating to executive compensation will be contained in the
Proxy Statement referred to above in Item 10, "Directors and Executive Officers
of the Registrant", and such information is incorporated herein by reference.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     Information relating to security ownership of certain beneficial owners and
management will be contained in the Proxy Statement referred to in Item 10,
"Directors and Executive Officers of the Registrant", and such information is
incorporated herein by reference.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     Information relating to certain relationships and related transactions will
be contained in the Proxy Statement referred to in Item 10, "Directors and
Executive Officers of the Registrant", and such information is incorporated
herein by reference.
 
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
     (a) The following documents are filed as part of this report:
 
          1. The consolidated financial statements are set forth in Item 8 of
     this Annual Report on Form 10-K.
 
          2. Financial Statement Schedules.
 
     The following financial statement schedules should be read in conjunction
with the financial statements included in Item 8 of this Annual Report on Form
10-K.

                                                               PAGES IN THIS
                                                               ANNUAL REPORT
                                                               ON FORM 10-K
                                                              ---------------
                                                           
Independent Auditors' Report
   II -- Valuation and Qualifying Accounts -- years ended
         December 31, 1997, 1996 and 1995...................        67
  III -- Real Estate and Accumulated Depreciation as of
         December 31, 1997..................................        68

     Schedules other than those listed above are omitted because they are not
applicable or the information required is included in the consolidated financial
statements or the notes thereto.
 
     The consolidated financial statements of Alexander's, Inc. for the year
ended December 31, 1996 are hereby incorporated by reference to Item 14(a)1 of
the 1996 Annual Report on Form 10-K of Alexander's, Inc. for the year ended
December 31, 1996.
 
          3. The following exhibits listed on the Exhibit Index are filed with
     this Annual Report on Form 10-K.
 
                                       64
   65

EXHIBIT NO.
- -----------
           
    12        Consolidated Ratios of Earnings to Fixed Charges and
              Combined Fixed Charges and Preferred Share Dividend
              Requirements
    21        Subsidiaries of the Registrant.
    23        Consent of Independent Auditors to Incorporation by
              Reference.
    27        Financial Data Schedule.

     (b) Reports on Form 8-K
 
     During the last quarter of the period covered by this Annual Report on Form
10-K described below.

PERIOD COVERED: (DATE OF                     ITEMS REPORTED                      DATE OF REPORT
EARLIEST EVENT REPORTED)                     --------------                      --------------
                                                                          
September 22, 1997......     Financial statements and pro forma financial       October 8, 1997
                             information in connection with the acquisition
                             of or investments in Charles E. Smith
                             Commercial Realty L.P., Hotel Pennsylvania, URS
                             Logistics, Inc. and Americold Corporation
October 14, 1997........     Underwriting agreements in connection with sale    October 24, 1997
                             of securities
November 18, 1997.......     Agreements to acquire One Penn Plaza and 150       December 1, 1997
                             East 58th St. office buildings
December 16, 1997.......     Acquisition of Arbor Property Trust and 640        December 22, 1997
                             Fifth Avenue, an office building

                                       65
   66
 
                                   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.
 
                                          VORNADO REALTY TRUST
 
                                          By:      /s/ IRWIN GOLDBERG
                                            ------------------------------------
                                              Irwin Goldberg, Vice President,
                                                  Chief Financial Officer
 
                                          Date:  March 25, 1998
                                                 --------------
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

                           SIGNATURE                                     TITLE                    DATE
                           ---------                                     -----                    ----

By:                     /s/ STEVEN ROTH                       Chairman of the Board of       March 25, 1998
     -----------------------------------------------------      Trustees (Principal
                         (Steven Roth)                          Executive Officer)
 
By:                /s/ MICHAEL D. FASCITELLI                  President and Trustee          March 25, 1998
     -----------------------------------------------------
                    (Michael D. Fascitelli)
 
By:                   /s/ IRWIN GOLDBERG                      Vice President -- Chief        March 25, 1998
     -----------------------------------------------------      Financial Officer
                       (Irwin Goldberg)
 
By:                  /s/ DAVID MANDELBAUM                     Trustee                        March 25, 1998
     -----------------------------------------------------
                      (David Mandelbaum)
 
By:                   /s/ BERNARD MENDIK                      Trustee                        March 25, 1998
     -----------------------------------------------------
                       (Bernard Mendik)
 
By:                    /s/ STANLEY SIMON                      Trustee                        March 25, 1998
     -----------------------------------------------------
                        (Stanley Simon)
 
By:                  /s/ RONALD G. TARGAN                     Trustee                        March 25, 1998
     -----------------------------------------------------
                      (Ronald G. Targan)
 
By:                /s/ RUSSELL B. WIGHT, JR.                  Trustee                        March 25, 1998
     -----------------------------------------------------
                    (Russell B. Wight, Jr.)
 
By:                   /s/ RICHARD R. WEST                     Trustee                        March 25, 1998
     -----------------------------------------------------
                       (Richard R. West)

                                       66
   67
 
                              VORNADO REALTY TRUST
                                AND SUBSIDIARIES
 
                                  SCHEDULE II
                       VALUATION AND QUALIFYING ACCOUNTS

             COLUMN A                 COLUMN B        COLUMN C                  COLUMN D               COLUMN E
- ----------------------------------  ------------   ---------------   -------------------------------   --------
                                      BALANCE         ADDITIONS                DEDUCTIONS              BALANCE
                                    AT BEGINNING   CHARGED AGAINST   -------------------------------    AT END
           DESCRIPTION                OF YEAR        OPERATIONS           DESCRIPTION         AMOUNT   OF YEAR
           -----------              ------------   ---------------   ----------------------   ------   --------
                                                              (AMOUNTS IN THOUSANDS)
                                                                                        
YEAR ENDED DECEMBER 31, 1997:
  Deducted from accounts
     receivable, allowance for                                       Uncollectible accounts
     doubtful accounts............      $575            $305           written-off             $222      $658
                                        ====            ====                                   ====      ====
 
YEAR ENDED DECEMBER 31, 1996:
  Deducted from accounts
     receivable allowance for                                        Uncollectible accounts
     doubtful accounts............      $578            $211         written-off               $214      $575
                                        ====            ====                                   ====      ====
 
YEAR ENDED DECEMBER 31, 1995:
  Deducted from accounts
     receivable, allowance for                                       Uncollectible accounts
     doubtful accounts............      $457            $613         written-off               $492      $578
                                        ====            ====                                   ====      ====

                                       67
   68
 
                              VORNADO REALTY TRUST
                                AND SUBSIDIARIES
 
                                  SCHEDULE III
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                               DECEMBER 31, 1997
                             (AMOUNTS IN THOUSANDS)

           COLUMN A               COLUMN B             COLUMN C              COLUMN D                    COLUMN E
- ------------------------------  ------------   ------------------------   --------------   -------------------------------------
                                                   INITIAL COST TO                                 GROSS AMOUNT AT WHICH
                                                      COMPANY(1)              COSTS             CARRIED AT CLOSE OF PERIOD
                                               ------------------------    CAPITALIZED     -------------------------------------
                                                          BUILDINGS AND     SUBSEQUENT                BUILDINGS AND
         DESCRIPTION            ENCUMBRANCES     LAND     IMPROVEMENTS    TO ACQUISITION     LAND     IMPROVEMENTS     TOTAL(2)
         -----------            ------------   --------   -------------   --------------   --------   -------------   ----------
                                                                                                 
OFFICE BUILDINGS
  NEW YORK
    Two Penn Plaza,
      Manhattan...............    $ 80,000     $ 53,615     $164,903         $  9,090      $ 53,615    $  173,993     $  227,608
    Eleven Penn Plaza,
      Manhattan...............      54,612       40,333       85,259              931        40,333        86,190        126,523
    1740 Broadway,
      Manhattan...............          --       26,971      102,890            2,191        26,971       105,081        132,052
    866 United Nations Plaza,
      Manhattan...............      33,000       32,196       37,534              174        32,196        37,708         69,904
    90 Park Avenue,
      Manhattan...............          --        8,000      175,890               45         8,000       175,935        183,935
    825 Seventh Avenue,
      Manhattan...............          --          853        8,017             (193)          853         7,824          8,677
    640 Fifth Avenue,
      Manhattan...............          --       38,224       25,992               --        38,224        25,992         64,216
                                  --------     --------     --------         --------      --------    ----------     ----------
        Total New York........     167,612      200,192      600,485           12,238       200,192       612,723        812,915
                                  --------     --------     --------         --------      --------    ----------     ----------
  NEW JERSEY
    Paramus...................         601           --        8,345            2,363            --        10,708         10,708
                                  --------     --------     --------         --------      --------    ----------     ----------
        Total New Jersey......         601           --        8,345            2,363            --        10,708         10,708
                                  --------     --------     --------         --------      --------    ----------     ----------
TOTAL OFFICE BUILDINGS........     168,213      200,192      608,830           14,601       200,192       623,431        823,623
                                  --------     --------     --------         --------      --------    ----------     ----------
SHOPPING CENTERS
  NEW JERSEY
    Atlantic City.............       2,135*         358        2,143              586           358         2,729          3,087
    Bordentown................       3,276*         498        3,176            1,226           713         4,187          4,900
    Bricktown.................       9,919*         929        2,175            9,180           929        11,355         12,284
    Cherry Hill...............       9,706*         915        3,926            3,308           915         7,234          8,149
    Delran....................       2,848*         756        3,184            2,024           756         5,208          5,964
    Dover.....................       3,635*         224        2,330            2,598           204         4,948          5,152
    East Brunswick............       8,205*         319        3,236            3,823           319         7,059          7,378
    East Hanover..............      11,066*         376        3,063            3,541           477         6,503          6,980
    Hackensack................          --          536        3,293            7,278           536        10,571         11,107
    Jersey City...............      10,381*         652        2,962            1,798           652         4,760          5,412
    Kearny(4).................          --          279        4,429           (1,301)          290         3,117          3,407
    Lawnside..................       5,708*         851        2,222            1,492           851         3,714          4,565
    Lodi(5)...................       2,420*         245        2,315           (1,464)          245         3,779          4,024
    Manalapan.................       6,397*         725        2,447            4,955           725         7,402          8,127
    Marlton...................       5,398*       1,514        4,671              684         1,611         5,258          6,869
    Middletown................       7,761*         283        1,508            3,956           283         5,464          5,747
    Morris Plains.............       6,600*       1,254        3,140            3,277         1,104         6,567          7,671
    North Bergen(4)...........          --          510        3,390             (956)        2,309           635          2,944
    North Plainfield..........       3,380          500       13,340              320           500        13,660         14,160
    Totowa....................      15,646*       1,097        5,359           11,964         1,097        17,323         18,420
    Turnersville..............       2,116*         900        2,132               66           900         2,198          3,098
    Union.....................      15,975*       1,014        4,527            1,894         1,014         6,421          7,435
    Vineland..................       2,358*         290        1,594            1,253           290         2,847          3,137

           COLUMN A                 COLUMN F          COLUMN G       COLUMN H          COLUMN I
- ------------------------------  ----------------   ---------------   --------   ----------------------
 
                                                                                    LIFE ON WHICH
                                  ACCUMULATED                                   DEPRECIATION IN LATEST
                                DEPRECIATION AND       DATE OF         DATE        INCOME STATEMENT
         DESCRIPTION              AMORTIZATION     CONSTRUCTION(3)   ACQUIRED        IS COMPUTED
         -----------            ----------------   ---------------   --------   ----------------------
                                                                    
OFFICE BUILDINGS
  NEW YORK
    Two Penn Plaza,
      Manhattan...............      $  3,072           1968           1997          39 Years
    Eleven Penn Plaza,
      Manhattan...............         1,568           1923           1997          39 Years
    1740 Broadway,
      Manhattan...............         1,941           1950           1997          39 Years
    866 United Nations Plaza,
      Manhattan...............           689           1966           1997          39 Years
    90 Park Avenue,
      Manhattan...............         1,691           1964           1997          39 Years
    825 Seventh Avenue,
      Manhattan...............           313           1968           1997          39 Years
    640 Fifth Avenue,
      Manhattan...............            28           1950           1997          39 Years
                                    --------
        Total New York........         9,302
                                    --------
  NEW JERSEY
    Paramus...................         2,632           1967           1987        29-40 Years
                                    --------
        Total New Jersey......         2,632
                                    --------
TOTAL OFFICE BUILDINGS........        11,934
                                    --------
SHOPPING CENTERS
  NEW JERSEY
    Atlantic City.............         1,899           1965           1965        14-40 Years
    Bordentown................         3,655           1958           1958         7-40 Years
    Bricktown.................         4,306           1968           1968        22-40 Years
    Cherry Hill...............         4,828           1964           1964        12-40 Years
    Delran....................         2,737           1972           1972        16-40 Years
    Dover.....................         2,689           1964           1964        16-40 Years
    East Brunswick............         4,893           1957           1957         9-33 Years
    East Hanover..............         4,147           1962           1962         9-40 Years
    Hackensack................         4,206           1963           1963        15-40 Years
    Jersey City...............         3,444           1965           1965        12-40 Years
    Kearny(4).................           997           1938           1959        24-40 Years
    Lawnside..................         2,009           1969           1969        17-40 Years
    Lodi(5)...................         2,215           1955           1975        10-27 Years
    Manalapan.................         3,463           1971           1971        14-40 Years
    Marlton...................         3,628           1973           1973        16-40 Years
    Middletown................         2,545           1963           1963        19-40 Years
    Morris Plains.............         4,106           1961           1985         7-19 Years
    North Bergen(4)...........            79           1993           1959          30 Years
    North Plainfield..........         3,924           1955           1989        25-30 Years
    Totowa....................         5,555           1957           1957        17-40 Years
    Turnersville..............         1,634           1974           1974        23-40 Years
    Union.....................         4,783           1962           1962         7-40 Years
    Vineland..................         1,694           1966           1966        18-40 Years

(Continued)
 
                                       68
   69
 
                              VORNADO REALTY TRUST
                                AND SUBSIDIARIES
 
                                  SCHEDULE III
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                               DECEMBER 31, 1997
                             (AMOUNTS IN THOUSANDS)

           COLUMN A               COLUMN B             COLUMN C              COLUMN D                    COLUMN E
- ------------------------------  ------------   ------------------------   --------------   -------------------------------------
                                                   INITIAL COST TO                                 GROSS AMOUNT AT WHICH
                                                      COMPANY(1)              COSTS             CARRIED AT CLOSE OF PERIOD
                                               ------------------------    CAPITALIZED     -------------------------------------
                                                          BUILDINGS AND     SUBSEQUENT                BUILDINGS AND
         DESCRIPTION            ENCUMBRANCES     LAND     IMPROVEMENTS    TO ACQUISITION     LAND     IMPROVEMENTS     TOTAL(2)
         -----------            ------------   --------   -------------   --------------   --------   -------------   ----------
                                                                                                 
    Watchung(4)...............          --          451        2,347            6,811         4,200         5,409          9,609
    Woodbridge................       8,792*         190        3,047              711           220         3,728          3,948
                                  --------     --------     --------         --------      --------    ----------     ----------
        Total New Jersey......     143,722       15,666       85,956           71,952        21,498       152,076        173,574
                                  --------     --------     --------         --------      --------    ----------     ----------
  NEW YORK
    14th Street and Union
      Square, Manhattan.......          --       12,566        4,044            3,525        12,581         7,554         20,135
    Albany (Menands)..........          --          460        1,677            2,812           460         4,489          4,949
    Buffalo (Amherst).........       4,863*         402        2,019            2,125           636         3,910          4,546
    Freeport..................       8,021*       1,231        3,273            2,848         1,231         6,121          7,352
    New Hyde Park.............       2,043*          --           --              126            --           126            126
    North Syracuse............          --           --           --               23            --            23             23
    Rochester (Henrietta).....       2,203*          --        2,124            1,168            --         3,292          3,292
    Rochester.................       2,832*         443        2,870              616           443         3,486          3,929
    Valley Stream.............     124,985      138,691       99,586               --       138,691        99,586        238,277
                                  --------     --------     --------         --------      --------    ----------     ----------
        Total New York........     144,947      153,793      115,593           13,243       154,042       128,587        282,629
                                  --------     --------     --------         --------      --------    ----------     ----------
  PENNSYLVANIA
    Allentown.................       7,696*          70        3,446           10,056           334        13,238         13,572
    Bensalem..................       3,967*       1,198        3,717            1,883         1,198         5,600          6,798
    Bethlehem.................          --          278        1,806            3,873           278         5,679          5,957
    Broomall..................       3,260*         734        1,675            1,644           850         3,203          4,053
    Glenolden.................       4,245*         850        1,295              756           850         2,051          2,901
    Lancaster.................       2,312*         606        2,312            2,646           606         4,958          5,564
    Levittown.................       2,283*         193        1,231              177           193         1,408          1,601
    10th and Market Streets,
      Philadelphia............          --          933        3,230            4,878           933         8,108          9,041
    Upper Moreland............       3,517*         683        2,497              265           683         2,762          3,445
    York......................       1,463*         421        1,700            1,279           421         2,979          3,400
                                  --------     --------     --------         --------      --------    ----------     ----------
        Total Pennsylvania....      28,743        5,966       22,909           27,457         6,346        49,986         56,332
                                  --------     --------     --------         --------      --------    ----------     ----------
  MARYLAND
    Baltimore (Belair Rd.)....          --          785        1,333            3,146           785         4,479          5,264
    Baltimore (Towson)........       5,779*         581        2,756              714           581         3,470          4,051
    Baltimore (Dundalk).......       4,084*         667        1,710            3,166           667         4,876          5,543
    Glen Burnie...............       2,299*         462        1,741              637           462         2,378          2,840
    Hagerstown................          --          168        1,453              909           168         2,362          2,530
                                  --------     --------     --------         --------      --------    ----------     ----------
        Total Maryland........      12,162        2,663        8,993            8,572         2,663        17,565         20,228
                                  --------     --------     --------         --------      --------    ----------     ----------
  CONNECTICUT
    Newington.................       3,042*         502        1,581              688           502         2,269          2,771
    Waterbury.................       3,889*          --        2,103            1,590           667         3,026          3,693
                                  --------     --------     --------         --------      --------    ----------     ----------
        Total Connecticut.....       6,931          502        3,684            2,278         1,169         5,295          6,464
                                  --------     --------     --------         --------      --------    ----------     ----------
  MASSACHUSETTS
    Chicopee..................       1,999*         510        2,031              358           510         2,389          2,899
    Springfield(4)............          --          505        1,657              836         2,586           412          2,998
                                  --------     --------     --------         --------      --------    ----------     ----------
        Total Massachusetts...       1,999        1,015        3,688            1,194         3,096         2,801          5,897
                                  --------     --------     --------         --------      --------    ----------     ----------

           COLUMN A                 COLUMN F          COLUMN G       COLUMN H          COLUMN I
- ------------------------------  ----------------   ---------------   --------   ----------------------
 
                                                                                    LIFE ON WHICH
                                  ACCUMULATED                                   DEPRECIATION IN LATEST
                                DEPRECIATION AND       DATE OF         DATE        INCOME STATEMENT
         DESCRIPTION              AMORTIZATION     CONSTRUCTION(3)   ACQUIRED        IS COMPUTED
         -----------            ----------------   ---------------   --------   ----------------------
                                                                    
    Watchung(4)...............           559           1994           1959        27-30 Years
    Woodbridge................         2,793           1959           1959        11-40 Years
                                    --------
        Total New Jersey......        76,788
                                    --------
  NEW YORK
    14th Street and Union
      Square, Manhattan.......           606           1965           1993        36-40 Years
    Albany (Menands)..........         1,859           1965           1965        22-40 Years
    Buffalo (Amherst).........         2,401           1968           1968         1-40 Years
    Freeport..................         2,595           1981          1981..       15-40 Years
    New Hyde Park.............           122           1970           1976         6-7 Years
    North Syracuse............            23           1967           1976        11-12 Years
    Rochester (Henrietta).....         1,976           1971           1971        15-40 Years
    Rochester.................         2,331           1966           1966        10-40 Years
    Valley Stream.............            98           1956           1997          40 Years
                                    --------
        Total New York........        12,011
                                    --------
  PENNSYLVANIA
    Allentown.................         4,508           1957           1957        20-42 Years
    Bensalem..................         3,399           1972           1972        17-40 Years
    Bethlehem.................         3,001           1966           1966         9-40 Years
    Broomall..................         1,887           1966           1966         9-40 Years
    Glenolden.................           999           1975           1975        18-40 Years
    Lancaster.................         2,824           1966           1966        12-40 Years
    Levittown.................         1,091           1964           1964         7-40 Years
    10th and Market Streets,
      Philadelphia............           561           1977           1994        28-30 Years
    Upper Moreland............         1,884           1974           1974        16-40 Years
    York......................         1,633           1970           1970        15-40 Years
                                    --------
        Total Pennsylvania....        21,787
                                    --------
  MARYLAND
    Baltimore (Belair Rd.)....         2,873           1962           1962        10-33 Years
    Baltimore (Towson)........         2,030           1968           1968        13-40 Years
    Baltimore (Dundalk).......         2,506           1966           1966        12-40 Years
    Glen Burnie...............         1,745           1958           1958        18-33 Years
    Hagerstown................         1,310           1966           1966         9-40 Years
                                    --------
        Total Maryland........        10,464
                                    --------
  CONNECTICUT
    Newington.................         1,493           1965           1965         9-40 Years
    Waterbury.................         1,741           1969           1969        21-40 Years
                                    --------
        Total Connecticut.....         3,234
                                    --------
  MASSACHUSETTS
    Chicopee..................         1,744           1969           1969        13-40 Years
    Springfield(4)............            61           1993          1966..       28-30 Years
                                    --------
        Total Massachusetts...         1,805
                                    --------

(Continued)
 
                                       69
   70
 
                              VORNADO REALTY TRUST
                                AND SUBSIDIARIES
 
                                  SCHEDULE III
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                               DECEMBER 31, 1997
                             (AMOUNTS IN THOUSANDS)

           COLUMN A               COLUMN B             COLUMN C              COLUMN D                    COLUMN E
- ------------------------------  ------------   ------------------------   --------------   -------------------------------------
                                                   INITIAL COST TO                                 GROSS AMOUNT AT WHICH
                                                      COMPANY(1)              COSTS             CARRIED AT CLOSE OF PERIOD
                                               ------------------------    CAPITALIZED     -------------------------------------
                                                          BUILDINGS AND     SUBSEQUENT                BUILDINGS AND
         DESCRIPTION            ENCUMBRANCES     LAND     IMPROVEMENTS    TO ACQUISITION     LAND     IMPROVEMENTS     TOTAL(2)
         -----------            ------------   --------   -------------   --------------   --------   -------------   ----------
                                                                                                 
  TEXAS
  Dallas
    Lewisville................         764*       2,433        2,271              676         2,469         2,911          5,380
    Mesquite..................       3,445*       3,414        4,704            1,133         3,414         5,837          9,251
    Skillman..................       1,987*       3,714        6,891            1,067         3,714         7,958         11,672
                                  --------     --------     --------         --------      --------    ----------     ----------
        Total Texas...........       6,196        9,561       13,866            2,876         9,597        16,706         26,303
                                  --------     --------     --------         --------      --------    ----------     ----------
  PUERTO RICO (SAN JUAN)
    Montehiedra...............      62,698        9,182       66,701               --         9,182        66,701         75,883
                                  --------     --------     --------         --------      --------    ----------     ----------
TOTAL SHOPPING CENTERS........     407,398      198,348      321,390          127,572       207,593       439,717        647,310
                                  --------     --------     --------         --------      --------    ----------     ----------
WAREHOUSE/INDUSTRIAL
  NEW JERSEY
    East Brunswick............          --           --        4,772            2,867            --         7,639          7,639
    East Hanover..............       8,210*         576        7,752            6,977           691        14,614         15,305
    Edison....................       2,455*         705        2,839            1,212           704         4,052          4,756
    Garfield..................         378           96        8,068            4,323            97        12,390         12,487
                                  --------     --------     --------         --------      --------    ----------     ----------
        Total Warehouse/
          Industrial..........      11,043        1,377       23,431           15,379         1,492        38,695         40,187
                                  --------     --------     --------         --------      --------    ----------     ----------
OTHER PROPERTIES
  NEW JERSEY
    Montclair.................          --           66          470              330            66           800            866
    Rahway....................          --           --           --               25            --            25             25
                                  --------     --------     --------         --------      --------    ----------     ----------
        Total New Jersey......          --           66          470              355            66           825            891
                                  --------     --------     --------         --------      --------    ----------     ----------
  NEW YORK
    1135 Third Avenue.........          --        7,796        7,796               --         7,796         7,796         15,592
    Riese.....................          --       19,135        7,294               --        19,135         7,294         26,429
                                  --------     --------     --------         --------      --------    ----------     ----------
        Total New York........          --       26,931       15,090               --        26,931        15,090         42,021
                                  --------     --------     --------         --------      --------    ----------     ----------
TOTAL OTHER PROPERTIES........          --       26,997       15,560              355        26,997        15,915         42,912
                                  --------     --------     --------         --------      --------    ----------     ----------
LEASEHOLD IMPROVEMENTS AND
  EQUIPMENT                                                                                                10,061         10,061
                                                                                                       ----------     ----------
TOTAL -
  DECEMBER 31, 1997...........    $586,654     $426,914     $969,211         $157,907      $436,274    $1,127,819     $1,564,093
                                  ========     ========     ========         ========      ========    ==========     ==========

           COLUMN A                 COLUMN F          COLUMN G       COLUMN H          COLUMN I
- ------------------------------  ----------------   ---------------   --------   ----------------------
 
                                                                                    LIFE ON WHICH
                                  ACCUMULATED                                   DEPRECIATION IN LATEST
                                DEPRECIATION AND       DATE OF         DATE        INCOME STATEMENT
         DESCRIPTION              AMORTIZATION     CONSTRUCTION(3)   ACQUIRED        IS COMPUTED
         -----------            ----------------   ---------------   --------   ----------------------
                                                                    
  TEXAS
  Dallas
    Lewisville................           727           1989           1990        25-30 Years
    Mesquite..................         1,451           1988           1990        24-30 Years
    Skillman..................         1,905           1988           1990        26-30 Years
                                    --------
        Total Texas...........         4,083
                                    --------
  PUERTO RICO (SAN JUAN)
    Montehiedra...............         1,140           1996           1997          40 Years
                                    --------
TOTAL SHOPPING CENTERS........       131,312
                                    --------
WAREHOUSE/INDUSTRIAL
  NEW JERSEY
    East Brunswick............         3,886           1972           1972         9-40 Years
    East Hanover..............         8,871        1963-1967         1963         9-40 Years
    Edison....................         1,987           1954           1982        16-25 Years
    Garfield..................         8,583           1942           1959        13-33 Years
                                    --------
        Total Warehouse/
          Industrial..........        23,327
                                    --------
OTHER PROPERTIES
  NEW JERSEY
    Montclair.................           505           1972           1972         4-15 Years
    Rahway....................            25           1972           1972          14 Years
                                    --------
        Total New Jersey......           530
                                    --------
  NEW YORK
    1135 Third Avenue.........            --
    Riese.....................            93        1911-1987         1997          39 Years
                                    --------
        Total New York........            93
                                    --------
TOTAL OTHER PROPERTIES........           623
                                    --------
LEASEHOLD IMPROVEMENTS AND
  EQUIPMENT                            6,238                                       3-20 Years
                                    --------
TOTAL -
  DECEMBER 31, 1997...........      $173,434
                                    ========

- ---------------
 
* These encumbrances are cross collateralized under a mortgage in the amount of
  $227,000,000 at December 31, 1997.
 
Notes:
1) Initial cost is cost as of January 30, 1982 (the date on which Vornado
   commenced real estate operations) unless acquired subsequent to that
   date -- see Column H.
 
2) The net basis of the company's assets and liabilities for tax purposes is
   approximately $480,000,000 lower than the amount reported for financial
   statement purposes.
 
3) Date of original construction -- many properties have had substantial
   renovation or additional construction -- see Column D.
 
4) Buildings on these properties were demolished in 1993. As a result, the cost
   of the buildings and improvements, net of accumulated depreciation, were
   transferred to land. In addition, the cost of the land in Kearny is net of a
   $1,615,000 insurance recovery.
 
5) Building destroyed by fire expected to be rebuilt.
 
                                       70
   71
 
                              VORNADO REALTY TRUST
                                AND SUBSIDIARIES
 
                                  SCHEDULE III
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                             (AMOUNTS IN THOUSANDS)
 
     The following is a reconciliation of real estate assets and accumulated
depreciation:

                                                   YEAR ENDED          YEAR ENDED          YEAR ENDED
                                                DECEMBER 31, 1997   DECEMBER 31, 1996   DECEMBER 31, 1995
                                                -----------------   -----------------   -----------------
                                                                               
REAL ESTATE
  Balance at beginning of period..............     $  397,298           $382,476            $365,832
  Additions during the period:
     Land.....................................        374,996                 --                 161
     Buildings & improvements.................        792,397             14,822              16,635
                                                   ----------           --------            --------
                                                    1,564,691            397,298             382,628
  Less: Cost of assets written-off............            598                 --                 152
                                                   ----------           --------            --------
  Balance at end of period....................     $1,564,093           $397,298            $382,476
                                                   ==========           ========            ========
ACCUMULATED DEPRECIATION
  Balance at beginning of period..............     $  151,049           $139,495            $128,705
  Additions charged to operating expenses.....         22,983             11,589              10,790
                                                   ----------           --------            --------
                                                      174,032            151,084             139,495
  Less: Accumulated depreciation on assets
     written-off..............................            598                 35                  --
                                                   ----------           --------            --------
  Balance at end of period....................     $  173,434           $151,049            $139,495
                                                   ==========           ========            ========

                                       71
   72
 
                                 EXHIBIT INDEX

  EXHIBIT
    NO.
  -------
           
 2.1       -- Master Consolidation Agreement (the "Master Consolidation
                Agreement"), dated March 12, 1997, among Vornado Realty
                Trust, Vornado/Saddle Brook L.L.C., The Mendik Company,
                L.P., and various parties defined therein -- Incorporated
                by reference to Exhibit 2.1 of Vornado's Current Report on
                Form 8-K (File No. 001-11954), filed on March 26, 1997....
 2.2       -- Agreement for Contribution of Interests in 1740 Broadway
                Investment Company, dated as of April 15, 1997, by and
                among The Mendik Company, L.P., Mendik 1740 Corp. and
                Certain Partners of 1740 Broadway Investment
                Company -- Incorporated by reference to Exhibit 2.1 of
                Vornado's Current Report on Form 8-K (File No. 001-11954),
                filed on April 30, 1997...................................
 2.3       -- Agreement for Contribution of Interests in Eleven Penn Plaza
                Company, dated as of April 15, 1997, by and among The
                Mendik Company, L.P., The Partners in M/F Associates, M/F
                Eleven Associates and M/S Associates and M/S Eleven
                Associates and Bernard H. Mendik -- Incorporated by
                reference to Exhibit 2.2 of Vornado's Current Report on
                Form 8-K (File No. 001-11954), filed on April 30, 1997....
 2.4       -- Agreement for Contribution of Interests in 866 UN Plaza
                Associates LLC, dated as of April 15, 1997, by and among
                The Mendik Company, L.P., The Members of 866 UN Plaza
                Associates LLC and Bernard H. Mendik -- Incorporated by
                reference to Exhibit 2.3 of Vornado's Current Report on
                Form 8-K (File No. 001-11954), filed on April 30, 1997....
 2.5       -- Agreement for Contribution of Interests in M330 Associates,
                dated as of April 15, 1997, by and among The Mendik
                Company, L.P., The Partners in M330 Associates and The
                Mendik Partnership, L.P. -- Incorporated by reference to
                Exhibit 2.4 of Vornado's Current Report on Form 8-K (File
                No. 001-11954), filed on April 30, 1997...................
 2.6       -- Agreement for Contribution of Interests in 570 Lexington
                Interests, dated as of April 15, 1997, by and among The
                Mendik Company, L.P., Mendik Realty Company and The
                Partners of 570 Lexington Investors -- Incorporated by
                reference to Exhibit 2.5 of Vornado's Current Report on
                Form 8-K (File No. 001-11954), filed on April 30, 1997....
 2.7       -- Agreement for Contribution of Interests in B&B Park Avenue
                L.P., dated as of April 15, 1997, by and among The Mendik
                Company, L.P., Mendik RELP Corporation and The Partners of
                B&B Park Avenue L.P. -- Incorporated by reference to
                Exhibit 2.6 of Vornado's Current Report on Form 8-K (File
                No. 001-11954), filed on April 30, 1997...................
 2.8       -- Agreement for Contribution of Interests in Two Penn Plaza
                Associates L.P., dated as of April 15, 1997, by and among
                The Mendik Company, L.P., The Partners of Two Penn Plaza
                Associates L.P. and Bernard H. Mendik -- Incorporated by
                reference to Exhibit 2.7 of Vornado's Current Report on
                Form 8-K (File No. 001-11954), filed on April 30, 1997....
 2.9       -- Contribution Agreement (Transfer of 99% of REIT Management
                Assets from Mendik/FW LLC to the Operating Partnership),
                dated as of April 15, 1997, between FW/Mendik REIT, L.L.C.
                and The Mendik Company, L.P. -- Incorporated by reference
                to Exhibit 2.8 of Vornado's Current Report on Form 8-K
                (File No. 001-11954), filed on April 30, 1997.............
2.10       -- Assignment and Assumption Agreement (Transfer of 1% Interest
                in REIT Management Assets and Third-Party Management
                Assets from Mendik/FW LLC to the Management Corpora-
                tion), dated as of April 15, 1997, between FW/Mendik REIT,
                L.L.C. and Mendik Management Company, Inc. -- Incorporated
                by reference to Exhibit 2.9 of Vornado's Current Report on
                Form 8-K (File No. 001-11954), filed on April 30, 1997....
2.11       -- Agreement and Plan of Merger, dated as of August 22, 1997,
                among Vornado Realty Trust, Trees Acquisition Subsidiary,
                Inc. and Arbor Property Trust -- Incorporated by reference
                to Exhibit 99.3 of Vornado's Current Report on Form 8-K
                (File No. 001-11954), dated August 21, 1997, as amended by
                Form 8-K/A, dated August 21, 1997 and filed on September
                11, 1997..................................................

                                       72
   73

  EXHIBIT
    NO.
  -------
           
2.12       -- Amendment to Agreement and Plan of Merger, dated as of
                October 15, 1997, among Vornado Realty Trust, Trees
                Acquisition Subsidiary, Inc. and Arbor Property
                Trust -- Incorporated by reference to Exhibit 2.2 of
                Vornado's Amendment No. 1 to Registration Statement on
                Form S-4 (File No. 333-36835), filed on October 27,
                1997......................................................
2.13       -- Agreement and Plan of Merger, dated as of September 26,
                1997, among Vornado Realty Trust, Atlanta Parent, Inc.,
                Atlanta Storage Acquisition Co. and URS Logistics,
                Inc. -- Incorporated by reference to Exhibit 99.4 of
                Vornado's Current Report on Form 8-K (File No. 001-11954),
                filed on October 8, 1997..................................
2.14       -- Agreement and Plan of Merger, dated as of September 26,
                1997, among Vornado Realty Trust, Portland Parent, Inc.,
                Portland Storage Acquisition Co. and Americold
                Corporation -- Incorporated by reference to Exhibit 99.5
                of Vornado's Current Report on Form 8-K (File No.
                001-11954), filed on October 8, 1997......................
3.1        -- Amended and Restated Declaration of Trust of Vornado,
                amended April 3, 1997 -- Incorporated by reference to
                Exhibit 3.1 of Vornado's Registration Statement on Form
                S-8 (File No. 333-29011), filed on June 12, 1997..........
3.2        -- By-laws of Vornado, as amended on April 28, 1997 to Exhibit
                3(b) of Vornado's Quarterly Report on Form 10-Q for the
                period ended March 31, 1997 (File No. 001-11954), filed on
                May 14, 1997..............................................
3.3        -- First Amended and Restated Agreement of Limited Partnership
                of the Operating Partnership, dated as of April 15,
                1997 -- Incorporated by reference to Exhibit 3.1 of the
                Operating Partnership's Registration Statement on Form 10
                (File No. 000-22685), filed on June 12, 1997..............
3.4        -- Second Amended and Restated Agreement of Limited Partnership
                of the Operating Partnership, dated as of October 20,
                1997......................................................
3.5        -- Amendment to Second Amended and Restated Agreement of
                Limited Partnership of Vornado Realty L.P., dated as of
                December 16, 1997.........................................
4.1        -- Indenture dated as of November 24, 1993 between Vornado
                Finance Corp. and Bankers Trust Company, as
                Trustee -- Incorporated by reference to Vornado's current
                Report on Form 8-K dated November 24, 1993 (File No.
                001-11954), filed December 1, 1993........................
4.2        -- Specimen certificate representing Vornado's Common Shares of
                Beneficial Interest, par value $0.04 per
                share -- Incorporated by reference to Exhibit 4.1 of
                Amendment No. 1 to Registration Statement on Form S-3
                (File No. 33-62395), filed on October 26, 1995............
 4.3       -- Specimen certificate representing Vornado's $3.25 Series A
                Preferred Shares of Beneficial Interest, liquidation
                preference $50.00 per share -- Incorporated by reference
                to Exhibit 4.2 of Vornado's Current Report on Form 8-K,
                dated April 3, 1997 (File No. 001-11954), filed on April
                8, 1997...................................................
 4.4       -- Articles Supplementary Classifying Vornado's $3.25 Series A
                Preferred Shares of Beneficial Interest, liquidation
                preference $50.00 per share -- Incorporated by reference
                to Exhibit 4.1 of Vornado's Current Report on Form 8-K,
                dated April 3, 1997 (File No. 001-11954), filed on April
                8, 1997...................................................
10.1       -- Second Amendment, dated as of June 12, 1997, to Vornado's
                1993 Omnibus Share Plan, as amended -- Incorporated by
                reference to Vornado's Registration Statement on Form S-8
                (File No. 333-29011) filed on June 12, 1997...............
10.2       -- Master Agreement and Guaranty, between Vornado, Inc. and
                Bradlees New Jersey, Inc. dated as of May 1,
                1992 -- Incorporated by reference to Vornado's Quarterly
                Report on Form 10-Q for quarter ended March 31, 1992 (File
                No. 001-11954), filed May 8, 1992.........................
10.2       -- Mortgage, Security Agreement, Assignment of Leases and Rents
                and Fixture Filing dated as of November 24, 1993 made by
                each of the entities listed therein, as mortgagors to
                Vornado Finance Corp., as mortgagee -- Incorporated by
                reference to Vornado's Current Report on Form 8-K dated
                November 24, 1993 (File No. 001-11954), filed December 1,
                1993......................................................

                                       73
   74

  EXHIBIT
    NO.
  -------
           
10.3**     -- 1985 Stock Option Plan as amended -- Incorporated by
                reference to Vornado's Quarterly Report on Form 10-Q for
                quarter ended May 2, 1987 (File No. 001-11954), filed June
                9, 1987...................................................
10.4**     -- Form of Stock Option Agreement for use in connection with
                incentive stock options issued pursuant to Vornado, Inc.
                1985 Stock Option Plan -- Incorporated by reference to
                Vornado's Quarterly Report on Form 10-Q for quarter ended
                October 26, 1985 (File No. 001-11954), filed December 9,
                1985......................................................
10.5**     -- Form of Stock Option Agreement for use in connection with
                incentive stock options issued pursuant to Vornado, Inc.
                1985 Stock Option Plan -- Incorporated by reference to
                Vornado's Quarterly Report on Form 10-Q for quarter ended
                May 2, 1987 (File No. 001-11954), filed June 9, 1987......
10.6**     -- Form of Stock Option Agreement for use in connection with
                incentive stock options issued pursuant to Vornado, Inc.
                1985 Stock Option Plan -- Incorporated by reference to
                Vornado's Quarterly Report on Form 10-Q for quarter ended
                October 26, 1985 (File No. 001-11954), filed December 9,
                1985......................................................
10.7**     -- Employment Agreement between Vornado, Inc. and Joseph Macnow
                dated January 1, 1992 -- Incorporated by reference to
                Vornado's Annual Report on Form 10-K for the year ended
                December 31, 1991 (File No. 001-11954), filed March 30,
                1992......................................................
10.8**     -- Employment Agreement between Vornado, Inc. and Richard Rowan
                dated January 1, 1992 -- Incorporated by reference to
                Vornado's Annual Report on Form 10-K for the year ended
                December 31, 1991 (File No. 001-11954), filed March 30,
                1992......................................................
10.9**     -- Employment Agreement between Vornado Realty Trust and Irwin
                Goldberg, dated December 11, 1997.........................
10.10**    -- Employment Agreement between Vornado Realty Trust and
                Michael D. Fascitelli dated December 2,
                1996 -- Incorporated by reference to Vornado's Annual
                Report on Form 10-K for the year ended December 31, 1996
                (File No. 001-11954), filed March 13, 1997................
10.11      -- Promissory Notes from Steven Roth to Vornado, Inc. dated
                December 29, 1992 and January 15, 1993 -- Incorporated by
                reference to Vornado's Annual Report on Form 10-K for the
                year ended December 31, 1992 (File No. 001-11954), filed
                February 16, 1993.........................................
10.12      -- Registration Rights Agreement between Vornado, Inc. and
                Steven Roth Dated December 29, 1992 -- Incorporated by
                reference to Vornado's Annual Report on Form 10-K for the
                year ended December 31, 1992 (File No. 001-11954), filed
                February 16, 1993.........................................
10.13      -- Stock Pledge Agreement between Vornado, Inc. and Steven Roth
                dated December 29, 1992 -- Incorporated by reference to
                Vornado's Annual Report on Form 10-K for the year ended
                December 31, 1992 (File No. 001-11954), filed February 16,
                1993......................................................
10.14      -- Promissory Note from Steven Roth to Vornado Realty Trust
                dated April 15, 1993 and June 17, 1993 -- Incorporated by
                reference to Vornado's Annual Report on Form 10-K for the
                year ended December 31, 1993 (File No. 001-11954), filed
                March 24, 1994............................................
10.15      -- Promissory Note from Richard Rowan to Vornado Realty
                Trust -- Incorporated by reference to Vornado's Annual
                Report on Form 10-K for the year ended December 31, 1993
                (File No. 001-11954), filed March 24, 1994................
10.16      -- Promissory Note from Joseph Macnow to Vornado Realty
                Trust -- Incorporated by reference to Vornado's Annual
                Report on Form 10-K for the year ended December 31, 1993
                (File No. 001-11954), filed March 24, 1994................
10.17      -- Management Agreement between Interstate Properties and
                Vornado, Inc. dated July 13, 1992 -- Incorporated by
                reference to Vornado's Annual Report on Form 10-K for the
                year ended December 31, 1992 (File No. 001-11954), filed
                February 16, 1993.........................................

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

           
** Management contract or compensatory plan

                                       74
   75

  EXHIBIT
    NO.
  -------
           
10.18      -- Real Estate Retention Agreement between Vornado, Inc., Keen
                Realty Consultants, Inc. and Alexander's, Inc., dated as
                of July 20, 1992 -- Incorporated by reference to Vornado's
                Annual Report on Form 10-K for the year ended December 31,
                1992 (File No. 001-11954), filed February 16, 1993........
10.19      -- Amendment to Real Estate Retention Agreement dated February
                6, 1995 -- Incorporated by reference to Vornado's Annual
                Report on Form 10-K for the year ended December 31, 1994
                (File No. 001-11954), filed March 23, 1995................
10.20      -- Stipulation between Keen Realty Consultants Inc. and Vornado
                Realty Trust re: Alexander's Retention
                Agreement -- Incorporated by reference to Vornado's annual
                Report on Form 10-K for the year ended December 31, 1993
                (File No. 001-11954), filed March 24, 1994................
10.21      -- Stock Purchase Agreement, dated February 6, 1995, among
                Vornado Realty Trust and Citibank, N.A. -- Incorporated by
                reference to Vornado's Current Report on Form 8-K dated
                February 6, 1995 (File No. 001-11954), filed February 21,
                1995......................................................
10.22      -- Management and Development Agreement, dated as of February
                6, 1995 -- Incorporated by reference to Vornado's Current
                Report on Form 8-K dated February 6, 1995 (File No. 001-
                11954), filed February 21, 1995...........................
10.23      -- Standstill and Corporate Governance Agreement, dated as of
                February 6, 1995 -- Incorporated by reference to Vornado's
                Current Report on Form 8-K dated February 6, 1995 (File
                No. 001-11954), filed February 21, 1995...................
10.24      -- Credit Agreement, dated as of March 15, 1995, among
                Alexander's Inc., as borrower, and Vornado Lending Corp.,
                as lender -- Incorporated by reference from Annual Report
                on Form 10-K for the year ended December 31, 1994 (File
                No. 001-11954), filed March 23, 1995......................
10.25      -- Subordination and Intercreditor Agreement, dated as of March
                15, 1995 among Vornado Lending Corp., Vornado Realty Trust
                and First Fidelity Bank, National Association --
                Incorporated by reference to Vornado's Annual Report on
                Form 10-K for the year ended December 31, 1994 (File No.
                001-11954), filed March 23, 1995..........................
10.26      -- Revolving Credit Agreement dated as of February 27, 1995
                among Vornado Realty Trust, as borrower, and Union Bank of
                Switzerland, as Bank and Administrative Agent -- Incorpo-
                rated by reference to Exhibit 10(F)9 of Vornado's Annual
                Report on Form 10-K for the year ended December 31, 1994
                (File No. 001-11954), filed March 23, 1995................
10.27      -- Form of Intercompany Agreement between Vornado Realty L.P.
                and Vornado Operating, Inc. -- Incorporated by reference
                to Exhibit 10.1 of Amendment No. 1 to Vornado Operating,
                Inc.'s Registration Statement on Form S-11 (File No.
                333-40701), filed on January 23, 1998.....................
10.28      -- Form of Revolving Credit Agreement between Vornado Realty
                L.P. and Vornado Operating, Inc., together with related
                form of Note   incorporated by reference to Exhibit 10.2
                of Amendment No. 1 to Vornado Operating, Inc.'s
                Registration Statement on Form S-11 (File No.333-40701)...
10.29      -- Amended and Restated Revolving Credit Agreement, dated as of
                February 23, 1998, between Vornado Realty L.P., as
                Borrower, Vornado Realty Trust, as General Partner and
                Union Bank of Switzerland (New York Branch), as Bank, the
                other banks signatory hereto, each as a bank, Union Bank
                of Switzerland (New York Branch), as Administrative Agent
                and Citicorp Real Estate, Inc., The Chase Manhattan Bank
                and Nationsbank, as Syndication Agents....................
10.30      -- Registration Rights Agreement, dated as of April 15, 1997,
                between Vornado Realty Trust and the holders of Units
                listed on Schedule A thereto -- Incorporated by reference
                to Exhibit 10.2 of Vornado's Current Report on Form 8-K
                (File No. 001-11954), filed on April 30, 1997.............

                                       75
   76

  EXHIBIT
    NO.
  -------
           
10.31      -- Noncompetition Agreement, dated as of April 15, 1997, by and
                among Vornado Realty Trust, the Mendik Company, L.P., and
                Bernard H. Mendik -- Incorporated by reference to Exhibit
                10.3 of Vornado's Current Report on Form 8-K (File No.
                001-11954), filed on April 30, 1997.......................
10.32      -- Employment Agreement, dated as of April 15, 1997, by and
                among Vornado Realty Trust, The Mendik Company, L.P. and
                David R. Greenbaum -- Incorporated by reference to Ex-
                hibit 10.4 of Vornado's Current Report on Form 8-K (File
                No. 001-11954), filed on April 30, 1997...................
10.33      -- Agreement, dated September 28, 1997, between Atlanta Parent
                Incorporated, Portland Parent Incorporated and Crescent
                Real Estate Equities, Limited Partnership -- Incorporated
                by reference to Exhibit 99.6 of Vornado's Current Report
                on Form 8-K (File No. 001-11954), filed on October 8,
                1997......................................................
12         -- Consolidated Ratios of Earnings to Fixed Charges and
                Combined Fixed Charges and Preferred Share Dividend
                Requirements..............................................
13         -- Not applicable..............................................
16         -- Not applicable..............................................
18         -- Not applicable..............................................
19         -- Not applicable..............................................
21         -- Subsidiaries of the Registrant..............................
22         -- Not applicable..............................................
23         -- Consent of independent auditors to incorporation by
                reference.................................................
25         -- Not applicable..............................................
27.1       -- Financial Data Schedule.....................................
27.2       -- Financial Data Schedule.....................................
27.3       -- Financial Data Schedule.....................................
29         -- Not applicable..............................................

                                       76
   1
                                                                Exhibit 3.4
                           SECOND AMENDED AND RESTATED
                        AGREEMENT OF LIMITED PARTNERSHIP
                                       OF
                               VORNADO REALTY L.P.

        THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
Vornado Realty L.P., dated as of October 20, 1997, is entered into by and among
Vornado Realty Trust, a Maryland real estate investment trust (defined herein as
the "General Partner"), as the general partner of and a limited partner in the
Partnership, and the General Partner, on behalf of and as attorney in fact for
each of the persons and entities identified on Exhibit A hereto as a Limited
Partner in the Partnership, together with any other Persons who become Partners
in the Partnership as provided herein.

        WHEREAS, the Partnership was formed under the name "Mendik Real Estate
Group, L.P." on October 2, 1996, and, on October 2, 1996, the Partnership
adopted an Agreement of Limited Partnership;

        WHEREAS, on November 7, 1996, the general partner of the Partnership
changed the Partnership's name to "The Mendik Company, L.P." and, in connection
therewith, caused a Certificate of Amendment to the Certificate of Limited
Partnership of the Partnership to be filed in the office of the Delaware
Secretary of State on November 8, 1996;

        WHEREAS, as of April 15, 1997, the General Partner and certain of its
affiliates, FW/Mendik REIT, L.L.C., a Delaware limited liability company, and
The Mendik Company, Inc., a Maryland corporation, recapitalized the Partnership
and, in connection therewith, entered into a First Amended and Restated
Agreement of Limited Partnership, dated as of April 15, 1997 (the "Prior
Agreement"), and in connection therewith filed a Certificate of Amendment to the
Certificate of Limited Partnership of the Partnership in the office of the
Delaware Secretary of State, which filing was made on April 15, 1997;

        WHEREAS, Vornado Realty Trust, as the sole general partner of the
Partnership, has determined that it is in the best interest of the Partnership
and its partners to amend and, in connection therewith, to restate the Prior
Agreement to reflect the fact that as of October 20, 1997 the Partnership issued
and distributed to each Person who was a Limited Partner on October 15, 1997, an
additional Common Partnership Unit for each Common Partnership Unit (and in the
same Class) that was owned by such Person on October 15, 1997.

        WHEREAS, Section 14.1.B of the Prior Agreement grants the General
Partner power and authority to amend the Prior Agreement without the consent of
any of the Partnership's limited partners if the amendment does not adversely
affect or eliminate any right granted to a limited partner pursuant to any of
the provisions of the Prior Agreement specified in Section 14.1.C or Section
14.1.D of the Prior Agreement as requiring a particular minimum vote; and

        WHEREAS, the amendments affected hereby do not adversely affect or
eliminate any of the limited partner rights specified in Section 14.1.C or
Section 14.1.D of the Prior Agreement.

        NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, General Partner hereby amends and
restates the Prior Agreement in its entirety as follows:

                                       -1-
   2

                                    ARTICLE I
                                  DEFINED TERMS

               The following definitions shall be for all purposes, unless
otherwise clearly indicated to the contrary, applied to the terms used in this
Agreement.

               "Act" means the Delaware Revised Uniform Limited Partnership Act,
as it may be amended from time to time, and any successor to such statute.

               "Additional Limited Partner" means a Person admitted to the
Partnership as a Limited Partner pursuant to Section 12.2 hereof and who is
shown as such on the books and records of the Partnership.

               "Adjusted Capital Account" means the Capital Account maintained
for each Partner as of the end of each Partnership Year (i) increased by any
amounts which such Partner is obligated to restore pursuant to any provision of
this Agreement or is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5)
and (ii) decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.

               "Adjusted Capital Account Deficit" means, with respect to any
Partner, the deficit balance, if any, in such Partner's Adjusted Capital Account
as of the end of the relevant Partnership Year.

               "Adjusted Property" means any property the Carrying Value of
which has been adjusted pursuant to Exhibit B hereto.

               "Adjustment Date" has the meaning set forth in Section 4.2.B
hereof.

               "Affiliate" means, with respect to any Person, (i) any Person
directly or indirectly controlling, controlled by or under common control with
such Person, (ii) any Person owning or controlling ten percent (10%) or more of
the outstanding voting interests of such Person, (iii) any Person of which such
Person owns or controls ten percent (10%) or more of the voting interests or
(iv) any officer, director, general partner or trustee of such Person or any
Person referred to in clauses (i), (ii), and (iii) above. For purposes of this
definition, "control," when used with respect to any Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.

               "Affiliated Transferee" means, with respect to any Limited
Partner, a member of such Limited Partner's Immediate Family, a trust formed
solely for the benefit of such Limited Partner and/or members of such Limited
Partner's Immediate Family, or any partnership, limited liability company, joint
venture, corporation or other business entity all of the interests in which are,
and remain, directly or indirectly owned and controlled solely by such Limited
Partner and/or members of such Limited Partner's Immediate Family, and if the
Limited Partner is an entity and owned Partnership Units on April 15, 1997,
Persons who, as of that date, directly or indirectly owned interests in or were
beneficiaries of such Limited Partner and continue to own such interests (or be
beneficiaries) at the time of the proposed transfers or any Affiliated
Transferee of such Persons.

               "Agreed Value" means (i) in the case of any Contributed Property
contributed to the Partnership as part of or in connection with the
Consolidation, the amount set forth on Exhibit E attached hereto as the Agreed
Value of such Property; (ii) in the case of any other Contributed Property, the
704(c) Value of such property as of the time of its contribution to the
Partnership, reduced by any liabilities either assumed by the Partnership upon
such contribution or to which such property is subject when contributed; and
(iii) in the

                                       -2-
   3

case of any property distributed to a Partner by the Partnership, the
Partnership's Carrying Value of such property at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner upon
such distribution or to which such property is subject at the time of
distribution as determined under Section 752 of the Code and the regulations
thereunder.

               "Agreement" means this Second Amended and Restated Agreement of
Limited Partnership, as it may be amended, supplemented or restated from time to
time.

               "Assignee" means a Person to whom one or more Partnership Units
have been transferred in a manner permitted under this Agreement, but who has
not become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5 hereof.

               "Bankruptcy" with respect to any Person shall be deemed to have
occurred when (a) the Person commences a voluntary proceeding seeking
liquidation, reorganization or other relief under any bankruptcy, insolvency or
other similar law now or hereafter in effect, (b) the Person is adjudged as
bankrupt or insolvent, or a final and nonappealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect has been
entered against the Person, (c) the Person executes and delivers a general
assignment for the benefit of the Person's creditors, (d) the Person files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Person in any proceeding of the
nature described in clause (b) above, (e) the Person seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator for the
Person or for all or any substantial part of the Person's properties, (f) any
proceeding seeking liquidation, reorganization or other relief under any
bankruptcy, insolvency or other similar law now or hereafter in effect has not
been dismissed within one hundred twenty (120) days after the commencement
thereof, (g) the appointment without the Person's consent or acquiescence of a
trustee, receiver of liquidator has not been vacated or stayed within ninety
(90) days of such appointment or (h) an appointment referred to in clause (g) is
not vacated within ninety (90) days after the expiration of any such stay.

               "Book-Tax Disparities" means, with respect to any item of
Contributed Property or Adjusted Property, as of the date of any determination,
the difference between the Carrying Value of such Contributed Property or
Adjusted Property and the adjusted basis thereof for federal income tax purposes
as of such date. A Partner's share of the Partnership's Book-Tax Disparities in
all of its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Exhibit B hereto and the hypothetical balance of such Partner's Capital
Account computed as if it had been maintained, with respect to each such
Contributed Property or Adjusted Property, strictly in accordance with federal
income tax accounting principles.

               "Business Day" means any day except a Saturday, Sunday or other
day on which commercial banks in New York, New York are authorized or required
by law to close.

               "Capital Account" means the Capital Account maintained for a
Partner pursuant to Exhibit B hereto.

               "Capital Contribution" means, with respect to any Partner, any
cash, cash equivalents or the Agreed Value of Contributed Property which such
Partner contributes or is deemed to contribute to the Partnership pursuant to
Section 4.1 or 4.2 hereof.

               "Carrying Value" means (i) with respect to a Contributed Property
or Adjusted Property, the 704(c) Value of such property reduced (but not below
zero) by all Depreciation with respect to such Contributed Property or Adjusted
Property, as the case may be, charged to the Partners' Capital Accounts and (ii)
with respect to any other Partnership property, the adjusted basis of such
property for federal income tax purposes, all as of the time of determination.
The Carrying Value of any property shall be adjusted from time to time in
accordance with Exhibit B hereto, and to reflect changes, additions or other
adjustments to the

                                       -3-
   4

Carrying Value for dispositions and acquisitions of Partnership properties, as
deemed appropriate by the General Partner.

               "Cash Amount" means an amount of cash equal to the Value on the
Valuation Date of the Shares Amount, subject to Section 8.6.A(iv).

               "Certificate" means the Certificate of Limited Partnership of the
Partnership filed in the office of the Delaware Secretary of State on October 2,
1996, as amended by a Certificate of Amendment filed in Delaware on November 8,
1996, as further amended by a Certificate of Amendment filed in Delaware on
April 14, 1997, as further amended by a Certificate of Amendment filed in
Delaware on April 15, 1997, and as further amended from time to time in
accordance with the terms hereof and the Act.

               "Charter Documents" has the meaning set forth in Section 7.11.D
hereof.

               "Class A Unit" means any Partnership Unit that is not
specifically designated by the General Partner as being of another specified
class of Partnership Units.

               "Class B Unit" means a Partnership Unit that is specifically
designated by the General Partner as being a Class B Unit.

               "Class C Accumulated Amount" has the meaning set forth in Section
4.2.D(i).

               "Class C Minimum Amount" has the meaning set forth in Section
4.2.D(i).

               "Class C Preferential Distribution" has the meaning set forth in
Section 5.1.B.

               "Class C Unit" means any Partnership Unit that is specifically
designated by the General Partner as being a Class C Unit.

               "Class D/E Accumulated Amount" has the meaning set forth in
Section 4.2.D(ii).

               "Class D/E Minimum Amount" has the meaning set forth in Section
4.2.D(ii).

               "Class D/E Preferential Distribution" has the meaning set forth
in Section 5.1.B.

               "Class D Unit" means a Partnership Unit that is specifically
designated by the General Partner as being a Class D Unit.

               "Class E Unit" means any Partnership Unit that is specifically
designated by the General Partner as being a Class E Unit.

               "Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.

               "Common Partnership Unit" means any Class A, Class B, Class C,
Class D and Class E Unit and any other Partnership Unit that is not a Preference
Unit.

               "Consent" means the consent or approval of a proposed action by a
Partner given in accordance with Section 14.2 hereof.

                                       -4-
   5

               "Consent of Certain Limited Partners" means Consent of the
holders of 75% in the aggregate of the Two Penn Plaza Units, the Eleven Penn
Plaza Units, and the 866 U.N. Plaza Units, collectively considered as one group,
provided that:

               (A) if:

                             (i) there has been a prior transaction involving
                      the Two Penn Plaza Property, the Eleven Penn Plaza
                      Property, or the 866 U.N. Plaza Property, as the case may
                      be, that has been approved by the holders of the Two Penn
                      Plaza Units, the Eleven Penn Plaza Units, or the 866 U.N.
                      Plaza Units, as the case may be, pursuant to Section
                      7.11.C(1), 7.11.C(2) or 7.11.C(3), as applicable, and

                             (ii) no holder of Two Penn Plaza Units, Eleven Penn
                      Plaza Units, or 866 U.N. Plaza Units, as applicable with
                      respect to a transaction involving Two Penn Plaza, Eleven
                      Penn Plaza or 866 U.N. Plaza, respectively, would
                      recognize gain for federal income tax purposes with
                      respect to (but only with respect to) such Partnership
                      Units in excess of $1.00 as a result of the sale or other
                      disposition of all such Partnership Units for $1.00 (that
                      is, no Limited Partner has a "negative capital account"
                      with respect to such Partnership Units),

               then the "Certain Limited Partners" shall not be considered to
               include the holders of such Partnership Units; and

               (B) if any holder of Two Penn Plaza Units, Eleven Penn Plaza
               Units or 866 U.N. Plaza Units, as applicable, has received from
               the Partnership the payment described in Section 7.11.C(7) in
               respect of such Partnership Units, and the amount of such payment
               is, at the time that it is made, equal to the full amount that
               would be payable under Section 7.11.C(7) with respect to such
               Partnership Units if the Two Penn Plaza Property, the Eleven Penn
               Plaza Property, or the 866 U.N. Plaza Property, as applicable,
               were to have been sold on such date for its market value, then
               the "Certain Limited Partners" shall not include such holder.

               "Consent of the Outside Limited Partners" means the Consent of
Limited Partners (excluding for this purpose any Limited Partnership Interests
held by the General Partner, any Person of which the General Partner owns or
controls more than fifty percent (50%) of the voting interests and any Person
owning or controlling, directly or indirectly, more than fifty percent (50%) of
the outstanding voting interests of the General Partner) holding Percentage
Interests regardless of class that are greater than fifty percent (50%) of the
aggregate Percentage Interest of all Limited Partners of all classes taken
together who are not excluded for the purposes hereof.

               "Consolidation" means the transactions whereby the Partnership
acquired all or substantially all of the interests in the assets previously
owned by the General Partner, interests in certain office properties located in
midtown Manhattan, and certain property management businesses that provide
services to those office properties and to other properties in the New York
metropolitan area, in exchange for Partnership Units, all as described in a
Master Consolidation Agreement dated as of March 12, 1997 among the General
Partner, Vornado Sub, the Partnership and the other entities named therein.

               "Consolidation Transaction" has the meaning set forth in Section
7.11.C(6) hereof.

               "Contributed Property" means each property or other asset
contributed to the Partnership, in such form as may be permitted by the Act, but
excluding cash contributed or deemed contributed to the Partnership. Once the
Carrying Value of a Contributed Property is adjusted pursuant to Exhibit B
hereto, such

                                       -5-
   6

property shall no longer constitute a Contributed Property for purposes of
Exhibit B hereto, but shall be deemed an Adjusted Property for such purposes.

               "Conversion Factor" means, as of the date of this Agreement, 1.0;
provided that in the event that (x) the General Partner Entity (i) declares (and
the applicable record date has passed or will have passed before a redeeming
Partner would receive cash or Common Shares in respect of the Partnership Units
being redeemed) or pays a dividend on its outstanding Shares in Shares or makes
a distribution to all holders of its outstanding Shares in Shares, (ii)
subdivides its outstanding Shares or (iii) combines its outstanding Shares into
a smaller number of Shares, and (y) in connection with any such event described
in clauses (i), (ii) or (iii) above does not cause the Partnership to make a
comparable distribution of additional Units to all holders of the Partnership's
outstanding Class A Units, Class C Units, Class D Units and Class E Units (and
to all holders of Units of any other class issued by the Partnership after the
date hereof which are, by their terms, redeemable for cash or, at the General
Partner's election, Common Shares as set forth in Section 8.6), or a subdivision
or combination of the Partnership's outstanding Class A Units, Class C Units,
Class D Units and Class E Units (and of all Units of any other class issued by
the Partnership after the date hereof which are, by their terms, redeemable for
cash or, at the General Partner's election, Common Shares as set forth in
Section 8.6) in any such case so that the number of Class A Units held by the
General Partner after such distribution, subdivision or combination is equal to
the number of the General Partner's then-outstanding Shares, then upon
completion of such declaration, subdivision or combination the Conversion Factor
shall be adjusted by multiplying the Conversion Factor by a fraction, the
numerator of which shall be the number of Shares issued and outstanding on the
record date for such dividend, distribution, subdivision or combination
(assuming for such purposes that such dividend, distribution, subdivision or
combination has occurred as of such time) and the denominator of which shall be
the actual number of Shares (determined without the above assumption) issued and
outstanding on the record date for such dividend, distribution, subdivision or
combination; and provided further that in the event that an entity shall cease
to be the General Partner Entity (the "Predecessor Entity") and another entity
shall become the General Partner Entity (the "Successor Entity"), the Conversion
Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the
numerator of which is the Value of one Share of the Predecessor Entity,
determined as of the time immediately prior to when the Successor Entity becomes
the General Partner Entity, and the denominator of which is the Value of one
Share of the Successor Entity, determined as of that same date. (For purposes of
the second proviso in the preceding sentence, in the event that any shareholders
of the Predecessor Entity will receive consideration in connection with the
transaction in which the Successor Entity becomes the General Partner Entity,
the numerator in the fraction described above for determining the adjustment to
the Conversion Factor (that is, the Value of one Share of the Predecessor
Entity) shall be the sum of the greatest amount of cash and the fair market
value of any securities and other consideration that the holder of one Share in
the Predecessor Entity could have received in such transaction (determined
without regard to any provisions governing fractional shares).) Any adjustment
to the Conversion Factor shall become effective immediately after the effective
date of such event retroactive to the record date, if any, for the event giving
rise thereto; it being intended that (x) adjustments to the Conversion Factor
are to be made in order to avoid unintended dilution or anti-dilution as a
result of transactions in which Shares are issued, redeemed or exchanged without
a corresponding issuance, redemption or exchange of Partnership Units and (y) if
a Specified Redemption Date shall fall between the record date and the effective
date of any event of the type described above, that the Conversion Factor
applicable to such redemption shall be adjusted to take into account such event.

               "Convertible Funding Debt" has the meaning set forth in Section
7.5.F hereof.

               "Debt" means, as to any Person, as of any date of determination,
(i) all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, (ii) all amounts owed by such Person to
banks or other Persons in respect of reimbursement obligations under letters of
credit, surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person, (iii) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by any
lien on any property owned by such Person, to the extent attributable to such
Person's interest in such

                                       -6-
   7

property, even though such Person has not assumed or become liable for the
payment thereof, and (iv) obligations of such Person incurred in connection with
entering into a lease which, in accordance with generally accepted accounting
principles, should be capitalized.

               "Declaration of Trust" means the Declaration of Trust or other
similar organizational document governing the General Partner, as amended,
supplemented or restated from time to time.

               "Deemed Partnership Interest Value" means, as of any date with
respect to any class of Partnership Interests, the Deemed Value of the
Partnership Interest of such class multiplied by the applicable Partner's
Percentage Interest of such class.

               "Deemed Value of the Partnership Interest" means, as of any date
with respect to any class of Partnership Interests, (a) if the common shares of
beneficial interest (or other comparable equity interests) of the General
Partner are Publicly Traded (i) the total number of shares of beneficial
interest (or other comparable equity interest) of the General Partner
corresponding to such class of Partnership Interest (as provided for in Section
4.2.B hereof) issued and outstanding as of the close of business on such date
(excluding any treasury shares) multiplied by the Value of a share of such
beneficial interest (or other comparable equity interest) on such date divided
by (ii) the Percentage Interest of the General Partner in such class of
Partnership Interests on such date, and (b) otherwise, the aggregate Value of
such class of Partnership Interests determined as set forth in the fourth and
fifth sentences of the definition of Value.

               "Depreciation" means, for each fiscal year, an amount equal to
the federal income tax depreciation, amortization, or other cost recovery
deduction allowable with respect to an asset for such year, except that if the
Carrying Value of an asset differs from its adjusted basis for federal income
tax purposes at the beginning of such year or other period, Depreciation shall
be an amount which bears the same ratio to such beginning Carrying Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year bears to such beginning adjusted tax basis; provided, however,
that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method selected
by the General Partner.

               "866 U.N. Plaza Associates" means 866 United Nations Plaza
Associates LLC, a New York limited liability company.

               "866 U.N. Plaza Property" has the meaning set forth in Section
7.11.C hereof.

               "866 U.N. Plaza Units" has the meaning set forth in Section
7.11.C hereof.

               "Eleven Penn Partnerships" means M/F Associates, a New York
limited partnership, M/F Eleven Associates, a New York limited partnership, M/S
Associates, a New York limited partnership, and M/S Eleven Associates, a New
York limited partnership.

               "Eleven Penn Plaza Property" has the meaning set forth in Section
7.11.C hereof.

               "Eleven Penn Plaza Units" has the meaning set forth in Section
7.11.C hereof.

               "Equity Merger" has the meaning set forth in Section 7.11.D
hereof.

               "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.

               "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

                                       -7-
   8

               "Exchanged Property" has the meaning set forth in Section 7.11.C
hereof.

               "Funding Debt" means the incurrence of any Debt by or on behalf
of the General Partner for the purpose of providing funds to the Partnership.

               "Funds From Operations" shall mean, with respect to any period,
the General Partner's "funds from operations," calculated in a manner consistent
with the calculation of such measure as it is used in the General Partner's
consolidated financial statements appearing in its most recent public filing on
Form 10-K or Form 10-Q (whichever is more recent).

               "FW/Mendik LLC" means FW/Mendik REIT, L.L.C., a Delaware limited
liability company.

               "General Partner" means Vornado Realty Trust, a Maryland real
estate investment trust, or its successors as general partner of the
Partnership.

               "General Partner Entity" means the General Partner; provided,
however, that if (i) the common shares of beneficial interest (or other
comparable equity interests) of the General Partner are at any time not Publicly
Traded and (ii) the shares of common stock (or other comparable equity
interests) of an entity that owns, directly or indirectly, fifty percent (50%)
or more of the common shares of beneficial interest (or other comparable equity
interests) of the General Partner are Publicly Traded, the term "General Partner
Entity" shall refer to such entity whose shares of common stock (or other
comparable equity securities) are Publicly Traded. If both requirements set
forth in clauses (i) and (ii) above are not satisfied, then the term "General
Partner Entity" shall mean the General Partner.

               "General Partner Payment" has the meaning set forth in Section
15.14 hereof.

               "General Partnership Interest" means a Partnership Interest held
by the General Partner that is a general partnership interest. A General
Partnership Interest may be expressed as a number of Partnership Units.

               "Immediate Family" means, with respect to any natural Person,
such natural Person's spouse, parents, descendants, nephews, nieces, brothers
and sisters.

               "Incapacity" or "Incapacitated" means, (i) as to any individual
Partner, death, total physical disability or entry by a court of competent
jurisdiction adjudicating such Partner incompetent to manage his or her Person
or estate, (ii) as to any corporation which is a Partner, the filing of a
certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter, (iii) as to any partnership which is a Partner, the
dissolution and commencement of winding up of the partnership, (iv) as to any
estate which is a Partner, the distribution by the fiduciary of the estate's
entire interest in the Partnership, (v) as to any trustee of a trust which is a
Partner, the termination of the trust (but not the substitution of a new
trustee) or (vi) as to any Partner, the Bankruptcy of such Partner.

               "Indemnitee" means (i) any Person made a party to a proceeding or
threatened with being made a party to a proceeding by reason of its status as
(A) the General Partner, (B) a Limited Partner or (C) an officer of the
Partnership (or any Subsidiary or other entity in which the Partnership owns an
equity interest) or a trustee/director, officer or shareholder of the General
Partner or the General Partner Entity (or any Subsidiary or other entity in
which the General Partner owns an equity interest (so long as the General
Partner's ownership of an interest in such entity is not prohibited by Section
7.5.A) or for which the General Partner, acting on behalf of the Partnership,
requests the trustee/director, officer or shareholder to serve as a director,
officer, trustee or agent, including serving as a trustee of an employee benefit
plan) and (ii) such other Persons (including Affiliates of the General Partner,
a Limited Partner or the Partnership) as the General Partner may

                                       -8-
   9

designate from time to time (whether before or after the event giving rise to
potential liability), in its sole and absolute discretion.

               "IRS" means the Internal Revenue Service, which administers the
internal revenue laws of the United States.

               "Limited Partner" means any Person named as a Limited Partner in
Exhibit A attached hereto, as such Exhibit may be amended and restated from time
to time, or any Substituted Limited Partner or Additional Limited Partner, in
such Person's capacity as a Limited Partner in the Partnership.

               "Limited Partnership Interest" means a Partnership Interest of a
Limited Partner in the Partnership representing a fractional part of the
Partnership Interests of all Limited Partners and includes any and all benefits
to which the holder of such a Partnership Interest may be entitled as provided
in this Agreement, together with all obligations of such Person to comply with
the terms and provisions of this Agreement. A Limited Partnership Interest may
be expressed as a number of Partnership Units.

               "Liquidating Event" has the meaning set forth in Section 13.1
hereof.

               "Liquidating Transaction" has the meaning set forth in Section
7.11.C hereof.

               "Liquidator" has the meaning set forth in Section 13.2.A hereof.

               "Majority in Interest" means Partners (excluding the General
Partner) who hold more than fifty percent (50%) of the outstanding Percentage
Interests not held by the General Partner.

               "Mendik Owner" means, with respect to Bernard H. Mendik or David
R. Greenbaum, as applicable, any member of his Immediate Family and any trust
formed solely for the benefit of him and/or members of his Immediate Family, or
any partnership, limited liability company, joint venture, corporation or other
business entity all of the interests in which are, and remain, owned and
controlled solely by him and/or members of his Immediate Family.

               "Net Income" means, for any taxable period, the excess, if any,
of the Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
Exhibit B hereto. If an item of income, gain, loss or deduction that has been
included in the initial computation of Net Income is subjected to the special
allocation rules in Exhibit C hereto, Net Income or the resulting Net Loss,
whichever the case may be, shall be recomputed without regard to such item.

               "Net Loss" means, for any taxable period, the excess, if any, of
the Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
Exhibit B. If an item of income, gain, loss or deduction that has been included
in the initial computation of Net Loss is subjected to the special allocation
rules in Exhibit C hereto, Net Loss or the resulting Net Income, whichever the
case may be, shall be recomputed without regard to such item.

               "New Securities" means (i) any rights, options, warrants or
convertible or exchangeable securities having the right to subscribe for or
purchase shares of beneficial interest (or other comparable equity interest) of
the General Partner, excluding grants under any Stock Option Plan, or (ii) any
Debt issued by the General Partner that provides any of the rights described in
clause (i).

               "Non-Class D/E Units" has the meaning set forth in Section
5.1(B)(vii).

                                       -9-
   10

               "Nonrecourse Built-in Gain" means, with respect to any
Contributed Properties or Adjusted Properties that are subject to a mortgage or
negative pledge securing a Nonrecourse Liability, the amount of any taxable gain
that would be allocated to the Partners pursuant to Section 2.B of Exhibit C
hereto if such properties were disposed of in a taxable transaction in full
satisfaction of such liabilities and for no other consideration.

               "Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(c).

               "Nonrecourse Liability" has the meaning set forth in Regulations
Section 1.752-1(a)(2).

               "Notice of Redemption" means a Notice of Redemption substantially
in the form of Exhibit D attached hereto.

               "Partner" means the General Partner or a Limited Partner, and
"Partners" means the General Partner and the Limited Partners.

               "Partner Minimum Gain" means an amount, with respect to each
Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would
result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).

               "Partner Nonrecourse Debt" has the meaning set forth in
Regulations Section 1.704-2(b)(4).

               "Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).

               "Partnership" means the limited partnership formed under the Act
and continued upon the terms and conditions set forth in this Agreement, and any
successor thereto.

               "Partnership Interest" means a Limited Partnership Interest or
the General Partnership Interest, as the context requires, and includes any and
all benefits to which the holder of such a Partnership Interest may be entitled
as provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement. A Partnership Interest
may be expressed as a number of Partnership Units.

               "Partnership Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain,
as well as any net increase or decrease in Partnership Minimum Gain, for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(d).

               "Partnership Record Date" means the record date established by
the General Partner either (i) for the making of any distribution pursuant to
Section 5.1 hereof, which record date shall be the same as the record date
established by the General Partner Entity for a distribution to its shareholders
of some or all of its portion of such distribution received by the General
Partner if the shares of common stock (or comparable equity interests) of the
General Partner Entity are Publicly Traded, or (ii) if applicable, for
determining the Partners entitled to vote on or consent to any proposed action
for which the consent or approval of the Partners is sought pursuant to Section
14.2 hereof.

               "Partnership Unit" means a fractional, undivided share of the
Partnership Interests of all Partners issued pursuant to Sections 4.1 and 4.2
hereof, and includes Class A Units, Class B Units, Class C

                                      -10-
   11

Units, Class D Units, Class E Units and any other classes or series of
Partnership Units established after the date hereof. The number of Partnership
Units outstanding and the Percentage Interests in the Partnership represented by
such Partnership Units are set forth in Exhibit A hereto, as such Exhibit may be
amended and restated from time to time. The ownership of Partnership Units may
be evidenced by a certificate in a form approved by the General Partner.

               "Partnership Year" means the fiscal year of the Partnership.

               "Percentage Interest" means, as to a Partner holding a
Partnership Interest of any class issued hereunder, its interest in such class,
determined by dividing the Partnership Units of such class owned by such Partner
by the total number of Partnership Units of such class then outstanding as
specified in Exhibit A attached hereto, as such exhibit may be amended and
restated from time to time, multiplied by the aggregate Percentage Interest
allocable to such class of Partnership Interests. For such time or times as the
Partnership shall at any time have outstanding more than one class of
Partnership Interests, the Percentage Interest attributable to each class of
Partnership Interests shall be determined as set forth in Section 4.2.B hereof.

               "Person" means a natural person, partnership (whether general or
limited), trust, estate, association, corporation, limited liability company,
unincorporated organization, custodian, nominee or any other individual or
entity in its own or any representative capacity.

               "Predecessor Entity" has the meaning set forth in the definition
of "Conversion Factor" herein.

               "Preference Units" has the meaning set forth in Section 4.2.E.

               "Publicly Traded" means listed or admitted to trading on the New
York Stock Exchange, the American Stock Exchange or another national securities
exchange or designated for quotation on the NASDAQ National Market, or any
successor to any of the foregoing.

               "Qualified REIT Subsidiary" means any Subsidiary of the General
Partner that is a "qualified REIT subsidiary" within the meaning Section 856(i)
of the Code. Except as otherwise specifically provided herein, a Qualified REIT
Subsidiary of the General Partner that holds as its only assets direct and/or
indirect interests in the Partnership will not be treated as an entity separate
from the General Partner.

               "Recapture Income" means any gain recognized by the Partnership
(computed without regard to any adjustment required by Section 743 of the Code)
upon the disposition of any property or asset of the Partnership, which gain is
characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.

               "Redeeming Partner" has the meaning set forth in Section 8.6.A
hereof.

               "Redemption Amount" means either the Cash Amount or the Shares
Amount, as determined by the General Partner in its sole and absolute
discretion; provided that in the event that the Shares are not Publicly Traded
at the time a Redeeming Partner exercises its Redemption Right, the Redemption
Amount shall be paid only in the form of the Cash Amount unless the Redeeming
Partner, in its sole and absolute discretion, consents to payment of the
Redemption Amount in the form of the Shares Amount; provided further, the
foregoing is subject to Section 8.6.A(iv). A Redeeming Partner shall have no
right, without the General Partner's consent, in its sole and absolute
discretion, to receive the Redemption Amount in the form of the Shares Amount.

               "Redemption Right" has the meaning set forth in Section 8.6.A
hereof.

                                      -11-
   12

               "Regulations" means the Income Tax Regulations promulgated under
the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).

               "REIT" means a real estate investment trust under Section 856 of
the Code.

               "REIT Expenses" shall mean (i) costs and expenses relating to the
continuity of existence of the General Partner and any Person in which the
General Partner owns an equity interest, to the extent not prohibited by Section
7.5.A (and excluding expenses relating to any Person in which the General
Partner acquired an interest with the Consent of the Outside Limited Partners,
unless the Consent of the Outside Limited Partners has been obtained to include
such expenses within the definition of "REIT Expenses"), other than the
Partnership (which Persons shall, for purposes of this definition, be included
within the definition of "General Partner"), including taxes, fees and
assessments associated therewith (other than federal, state or local income
taxes imposed upon the General Partner as a result of the General Partner's
failure to distribute to its shareholders an amount equal to its taxable
income), any and all costs, expenses or fees payable to any trustee or director
of the General Partner or such Persons, (ii) costs and expenses relating to any
offer or registration of securities by the General Partner (the proceeds of
which will be contributed or advanced to the Partnership) and all statements,
reports, fees and expenses incidental thereto, including underwriting discounts
and selling commissions applicable to any such offer of securities, (iii) costs
and expenses associated with the preparation and filing of any periodic reports
by the General Partner under federal, state or local laws or regulations,
including filings with the SEC, (iv) costs and expenses associated with
compliance by the General Partner with laws, rules and regulations promulgated
by any regulatory body, including the Securities and Exchange Commission, and
(v) all other operating or administrative costs of the General Partner incurred
in the ordinary course of its business; provided, however, that any of the
foregoing expenses that are determined by the General Partner to be expenses
relating to the ownership and operation of, or for the benefit of, the
Partnership shall be treated, subject to Section 7.4.E hereof, as reimbursable
expenses under Section 7.4.B hereof rather than as "REIT Expenses".

               "REIT Requirements" has the meaning set forth in Section 5.1.A
hereof.

               "Replacement Property" has the meaning set forth in Section
7.11.C hereof.

               "Residual Gain" or "Residual Loss" means any item of gain or
loss, as the case may be, of the Partnership recognized for federal income tax
purposes resulting from a sale, exchange or other disposition of Contributed
Property or Adjusted Property, to the extent such item of gain or loss is not
allocated pursuant to Section 2.B.1(a) or 2.B.2(a) of Exhibit C hereto to
eliminate Book-Tax Disparities.

               "Restricted Partner" means any of FW/Mendik LLC, Bernard H.
Mendik, David R. Greenbaum, any Mendik Owner and any other Person identified on
Exhibit F hereto.

               "Safe Harbors" has the meaning set forth in Section 11.6.F
hereof.

               "Securities Act" means the Securities Act of 1933, as amended.

               "704(c) Value" of any Contributed Property means the fair market
value of such property at the time of contribution as determined by the General
Partner using such reasonable method of valuation as it may adopt. Subject to
Exhibit B hereto, the General Partner shall, in its sole and absolute
discretion, use such method as it deems reasonable and appropriate to allocate
the aggregate of the 704(c) Values of Contributed Properties in a single or
integrated transaction among each separate property on a basis proportional to
their fair market values. The 704(c) Values of the Contributed Properties
contributed to the Partnership as part of or in connection with the
Consolidation are set forth on Exhibit E attached hereto.

                                      -12-
   13

               "Share" means a share of beneficial interest (or other comparable
equity interest) of the General Partner Entity. Shares may be issued in one or
more classes or series in accordance with the terms of the Declaration of Trust
(or, if the General Partner is not the General Partner Entity, the
organizational documents of the General Partner Entity). In the event that there
is more than one class or series of Shares, the term "Shares" shall, as the
context requires, be deemed to refer to the class or series of Shares that
correspond to the class or series of Partnership Interests for which the
reference to Shares is made. When used with reference to Class A Units, Class C
Units, Class D Units or Class E Units, the term "Shares" refers to common shares
of beneficial interest (or other comparable equity interest) of the General
Partner Entity.

               "Shares Amount" means a number of Shares equal to the product of
the number of Partnership Units offered for redemption by a Redeeming Partner
times the Conversion Factor; provided, that in the event the General Partner
Entity issues to all holders of Shares rights, options, warrants or convertible
or exchangeable securities entitling such holders to subscribe for or purchase
Shares or any other securities or property (collectively, the "rights"), then
the Shares Amount shall also include such rights that a holder of that number of
Shares would be entitled to receive; and provided, further, that the Shares
Amount shall be adjusted pursuant to Section 7.5 hereof in the event that the
General Partner acquires material assets other than on behalf of the
Partnership.

               "Specified Redemption Date" means the tenth Business Day after
receipt by the General Partner of a Notice of Redemption; provided, that if the
Shares are not Publicly Traded, the Specified Redemption Date means the
thirtieth Business Day after receipt by the General Partner of a Notice of
Redemption.

               "Stock Option Plan" means any share or stock incentive plan or
similar compensation arrangement (including, without limitation, any arrangement
whereby the Partnership or the General Partner delivers Units or shares of
capital stock of the General Partner into a "rabbi trust") of the General
Partner, the Partnership or any Affiliate of the Partnership or the General
Partner, as the context may require.

               "Subsidiary" means, with respect to any Person, any corporation,
limited liability company, partnership or joint venture, or other entity of
which a majority of (i) the voting power of the voting equity securities or (ii)
the outstanding equity interests is owned, directly or indirectly, by such
Person.

               "Substituted Limited Partner" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 11.4 hereof.

               "Successor Entity" has the meaning set forth in the definition of
"Conversion Factor" herein.

               "Successor Partnership" has the meaning set forth in Section
7.11.C hereof.

               "Tenant" means any tenant from which the General Partner derives
rent, either directly or indirectly through limited liability companies or
partnerships, including the Partnership, or through any Qualified REIT
Subsidiary.

               "Terminating Capital Transaction" means any sale or other
disposition of all or substantially all of the assets of the Partnership for
cash or a related series of transactions that, taken together, result in the
sale or other disposition of all or substantially all of the assets of the
Partnership for cash.

               "Termination Transaction" has the meaning set forth in Section
11.2.B hereof.

               "Title 8" means Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland.

                                      -13-
   14

               "Transferred Property" has the meaning set forth in Section
7.11.C. hereof.

               "Two Penn Plaza Associates" means Two Penn Plaza Associates,
L.P., a New York limited partnership.

               "Two Penn Plaza Property" has the meaning set forth in Section
7.11.C hereof.

               "Two Penn Plaza Units" has the meaning set forth in Section
7.11.C hereof.

               "Unrealized Gain" attributable to any item of Partnership
property means, as of any date of determination, the excess, if any, of (i) the
fair market value of such property (as determined under Exhibit B hereto) as of
such date, over (ii) the Carrying Value of such property (prior to any
adjustment to be made pursuant to Exhibit B hereto) as of such date.

               "Unrealized Loss" attributable to any item of Partnership
property means, as of any date of determination, the excess, if any, of (i) the
Carrying Value of such property (prior to any adjustment to be made pursuant to
Exhibit B hereto) as of such date, over (ii) the fair market value of such
property (as determined under Exhibit B hereto) as of such date.

               "Valuation Date" means the date of receipt by the General Partner
of a Notice of Redemption or, if such date is not a Business Day, the first
Business Day thereafter.

               "Value" means, with respect to any outstanding Shares of the
General Partner Entity that are Publicly Traded, the average of the daily market
price for the ten (10) consecutive trading days immediately preceding the date
with respect to which value must be determined or, if such day is not a Business
Day, the immediately preceding Business Day. The market price for each such
trading day shall be the closing price, regular way, on such day, or if no such
sale takes place on such day, the average of the closing bid and asked prices on
such day. In the event that the outstanding Shares of the General Partner Entity
are Publicly Traded and the Shares Amount includes rights that a holder of
Shares would be entitled to receive, then the Value of such rights shall be
determined by the General Partner acting in good faith on the basis of such
quotations and other information as it considers, in its reasonable judgment,
appropriate. In the event that the Shares of the General Partner Entity are not
Publicly Traded, the Value of the Shares Amount per Partnership Unit offered for
redemption (which will be the Cash Amount per Partnership Unit offered for
redemption payable pursuant to Section 8.6.A hereof) means the amount that a
holder of one Partnership Unit would receive if each of the assets of the
Partnership were to be sold for its fair market value on the Specified
Redemption Date, the Partnership were to pay all of its outstanding liabilities,
and the remaining proceeds were to be distributed to the Partners in accordance
with the terms of this Agreement. Such Value shall be determined by the General
Partner, acting in good faith and based upon a commercially reasonable estimate
of the amount that would be realized by the Partnership if each asset of the
Partnership (and each asset of each partnership, limited liability company,
joint venture or other entity in which the Partnership owns a direct or indirect
interest) were sold to an unrelated purchaser in an arms' length transaction
where neither the purchaser nor the seller were under economic compulsion to
enter into the transaction (without regard to any discount in value as a result
of the Partnership's minority interest in any property or any illiquidity of the
Partnership's interest in any property). In connection with determining the
Deemed Value of the Partnership Interest for purposes of determining the number
of additional Partnership Units issuable upon a Capital Contribution funded by
an underwritten public offering of shares of beneficial interest (or other
comparable equity interest) of the General Partner, the Value of such shares
shall be the public offering price per share of such class of beneficial
interest (or other comparable equity interest) sold.

                                      -14-
   15

               "Vornado Sub" means Vornado/Saddle Brook L.L.C., a Delaware
limited liability company and a wholly-owned subsidiary of the General Partner.

                                   ARTICLE II
                             ORGANIZATIONAL MATTERS

Section 2.1    Organization

               The Partnership is a limited partnership organized pursuant to
the provisions of the Act and upon the terms and conditions set forth in the
Prior Agreement. The General Partner hereby amends and restate the Prior
Agreement in its entirety. Except as expressly provided herein to the contrary,
the rights and obligations of the Partners and the administration and
termination of the Partnership shall be governed by the Act. The Partnership
Interest of each Partner shall be personal property for all purposes.

Section 2.2    Name

               The name of the Partnership is Vornado Realty L.P. The
Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner, including the name of the General Partner or
any Affiliate thereof. The words "Limited Partnership," "L.P.," "Ltd." or
similar words or letters shall be included in the Partnership's name where
necessary for the purposes of complying with the laws of any jurisdiction that
so requires. The General Partner in its sole and absolute discretion may change
the name of the Partnership at any time and from time to time and shall notify
the Limited Partners of such change in the next regular communication to the
Limited Partners.

Section 2.3    Registered Office and Agent; Principal Office

               The address of the registered office of the Partnership in the
State of Delaware shall be located at Corporation Trust Center, 1209 Orange
Street, Wilmington, County of New Castle, Delaware 19801, and the registered
agent for service of process on the Partnership in the State of Delaware at such
registered office shall be Corporation Trust Company. The principal office of
the Partnership shall be Vornado Realty L.P., Park 80 West, Plaza II, Saddle
Brook, New Jersey 07663, or such other place as the General Partner may from
time to time designate by notice to the Limited Partners. The Partnership may
maintain offices at such other place or places within or outside the State of
Delaware as the General Partner deems advisable.

Section 2.4    Term

               The term of the Partnership commenced on October 2, 1996, the
date on which the Certificate was filed in the office of the Secretary of State
of the State of Delaware in accordance with the Act, and shall continue until
December 31, 2095 (as such date may be extended by the General Partner in its
sole discretion), unless it is dissolved sooner pursuant to the provisions of
Article XIII hereof or as otherwise provided by law.

                                   ARTICLE III
                                     PURPOSE

Section 3.1    Purpose and Business

               The purpose and nature of the business to be conducted by the
Partnership is (i) to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act; provided, however, that such
business shall be limited to and conducted in such a manner as to permit the
General Partner Entity (or the General Partner, as applicable) at all times to
be classified as a REIT and avoid the imposition

                                      -15-
   16

of federal income and excise taxes on the General Partner Entity (or the General
Partner, as applicable), unless the General Partner Entity (or the General
Partner, as applicable) ceases to qualify, or is not qualified, as a REIT for
any reason or reasons; (ii) to enter into any partnership, joint venture,
limited liability company or other similar arrangement to engage in any of the
foregoing or the ownership of interests in any entity engaged, directly or
indirectly, in any of the foregoing; and (iii) to do anything necessary or
incidental to the foregoing. In connection with the foregoing, the Limited
Partners acknowledge that the status of the General Partner Entity (or the
General Partner, as applicable) as a REIT and the avoidance of federal income
and excise taxes on the General Partner Entity (or the General Partner, as
applicable) inures to the benefit of all the Partners and not solely the General
Partner or its Affiliates. Notwithstanding the foregoing, the Limited Partners
acknowledge and agree that the General Partner Entity (or the General Partner,
as applicable) may terminate its status as a REIT under the Code at any time to
the full extent permitted under the Declaration of Trust.

Section 3.2    Powers

               The Partnership shall have full power and authority to do any and
all acts and things necessary, appropriate, proper, advisable, incidental to or
convenient for the furtherance and accomplishment of the purposes and business
described herein and for the protection and benefit of the Partnership,
including, without limitation, directly or through its ownership interest in
other entities, to enter into, perform and carry out contracts of any kind,
borrow money and issue evidences of indebtedness whether or not secured by
mortgage, deed of trust, pledge or other lien, acquire, own, manage, improve and
develop real property, and lease, sell, transfer and dispose of real property;
provided, however, that the Partnership shall not take, or refrain from taking,
any action which, in the judgment of the General Partner, in its sole and
absolute discretion, (i) could adversely affect the ability of the General
Partner Entity (or the General Partner, as applicable) to continue to qualify as
a REIT, (ii) could subject the General Partner Entity (or the General Partner,
as applicable) to any additional taxes under Section 857 or Section 4981 of the
Code or (iii) could violate any law or regulation of any governmental body or
agency having jurisdiction over the General Partner Entity (or the General
Partner, if different) or its securities, unless such action (or inaction) shall
have been specifically consented to by the General Partner in writing.

Section 3.3    Partnership Only for Purposes Specified

               The Partnership shall be a partnership only for the purposes
specified in Section 3.1 above, and this Agreement shall not be deemed to create
a partnership among the Partners with respect to any activities whatsoever other
than the activities within the purposes of the Partnership as specified in
Section 3.1 above.

                                   ARTICLE IV
                       CAPITAL CONTRIBUTIONS AND ISSUANCES
                            OF PARTNERSHIP INTERESTS

Section 4.1    Capital Contributions of the Partners

               A. Capital Contributions. Prior to the effective date of this
Agreement, the General Partner and the Limited Partners have made such capital
contributions as are reflected on Exhibit A hereto. The Capital Accounts and the
Carrying Values set forth on Exhibit A were determined pursuant to Section I.D
of Exhibit B hereto.

               B. General Partnership Interest. A number of Partnership Units
held by the General Partner equal to one percent (1%) of all outstanding
Partnership Units shall be deemed to be the General Partner Partnership Units
and shall be the General Partnership Interest. All other Partnership Units held
by the General Partner shall be Limited Partnership Interests and shall be held
by the General Partner in its capacity as a Limited Partner in the Partnership.

                                      -16-
   17

               C. Capital Contributions By Merger. To the extent the Partnership
acquires any property by the merger of any other Person into the Partnership,
Persons who receive Partnership Interests in exchange for their interests in the
Person merging into the Partnership shall become Partners and shall be deemed to
have made Capital Contributions as provided in the applicable merger agreement
and as set forth in Exhibit A hereto.

               D. No Obligation to Make Additional Capital Contributions. Except
as provided in Sections 7.5 and 10.5 hereof, the Partners shall have no
obligation to make any additional Capital Contributions or provide any
additional funding to the Partnership (whether in the form of loans, repayments
of loans or otherwise). No Partner shall have any obligation to restore any
deficit that may exist in its Capital Account, either upon a liquidation of the
Partnership or otherwise.

Section 4.2    Issuances of Partnership Interests

               A. General. The General Partner is hereby authorized to cause the
Partnership from time to time to issue to Partners (including the General
Partner and its Affiliates) or other Persons (including, without limitation, in
connection with the contribution of property to the Partnership) Partnership
Units or other Partnership Interests in one or more classes, or in one or more
series of any of such classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties, including
rights, powers and duties senior to Limited Partnership Interests, all as shall
be determined, subject to applicable Delaware law, by the General Partner in its
sole and absolute discretion, including, without limitation, (i) the allocations
of items of Partnership income, gain, loss, deduction and credit to each such
class or series of Partnership Interests, (ii) the right of each such class or
series of Partnership Interests to share in Partnership distributions and (iii)
the rights of each such class or series of Partnership Interests upon
dissolution and liquidation of the Partnership; provided that, no such
Partnership Units or other Partnership Interests shall be issued (x) to the
General Partner unless either (a) the Partnership Interests are issued in
connection with the grant, award or issuance of Shares or other equity interests
in the General Partner having designations, preferences and other rights such
that the economic interests attributable to such Shares or other equity
interests are substantially similar to the designations, preferences and other
rights (except voting rights) of the additional Partnership Interests issued to
the General Partner in accordance with this Section 4.2.A, or (b) the
Partnership Interests are issued to all Partners holding Partnership Interests
in the same class in proportion to their respective Percentage Interests in such
class or (c) the Partnership Interests are issued in connection with a
Termination Transaction or a transaction in which another person is merged,
combined or consolidated with or into the General Partner and in exchange for
the transfer or contribution of all or substantially all of the assets of such
other person by the General Partner to the Partnership, or (y) to any Person in
violation of Section 4.2.E. In the event that the Partnership issues Partnership
Interests pursuant to this Section 4.2.A, the General Partner shall make such
revisions to this Agreement (including but not limited to the revisions
described in Section 5.4, Section 6.2 and Section 8.6 hereof) as it deems
necessary to reflect the issuance of such additional Partnership Interests.

               B. Percentage Interest Adjustments in the Case of Capital
Contributions for Partnership Units. Upon the acceptance of additional Capital
Contributions in exchange for Partnership Units, the Percentage Interest related
thereto shall be equal to a fraction, the numerator of which is equal to the
amount of cash, if any, plus the Agreed Value of Contributed Property, if any,
contributed with respect to such additional Partnership Units and the
denominator of which is equal to the sum of (i) the Deemed Value of the
Partnership Interests for all outstanding classes (computed as of the Business
Day immediately preceding the date on which the additional Capital Contributions
are made (such contribution date being referred to as an "Adjustment Date"))
plus (ii) the aggregate amount of additional Capital Contributions contributed
to the Partnership on such Adjustment Date in respect of such additional
Partnership Units. The Percentage Interest of each other Partner holding
Partnership Interests not making a full pro rata Capital Contribution shall be
adjusted to a fraction the numerator of which is equal to the sum of (i) the
Deemed Partnership Interest Value of such Limited Partner (computed as of the
Business Day immediately preceding the Adjustment Date) plus

                                      -17-
   18

(ii) the amount of additional Capital Contributions (such amount being equal to
the amount of cash, if any, plus the Agreed Value of Contributed Property, if
any, so contributed), if any, made by such Partner to the Partnership in respect
of such Partnership Interest as of such Adjustment Date and the denominator of
which is equal to the sum of (i) the Deemed Value of the Partnership Interests
of all outstanding classes (computed as of the Business Day immediately
preceding such Adjustment Date) plus (ii) the aggregate amount of the additional
Capital Contributions contributed to the Partnership on such Adjustment Date in
respect of such additional Partnership Interests. For purposes of calculating a
Partner's Percentage Interest pursuant to this Section 4.2.B, cash Capital
Contributions by the General Partner will be deemed to equal the cash
contributed by the General Partner plus (a) in the case of cash contributions
funded by an offering of any equity interests in or other securities of the
General Partner, the offering costs attributable to the cash contributed to the
Partnership, and (b) in the case of Partnership Units issued pursuant to Section
7.5.E hereof, an amount equal to the difference between the Value of the Shares
sold pursuant to any Stock Option Plan and the net proceeds of such sale.

               C. Classes of Partnership Units. From and after April 15, 1997,
subject to Section 4.2.A above, the Partnership shall have five classes of
Common Partnership Units entitled "Class A Units", "Class B Units", "Class C
Units", "Class D Units" and "Class E Units" and one class of Preference Units
entitled "Series A Preferred Units" which shall be issued to the Partners in
connection with set forth below:

                      (i) the General Partner will receive Class A Units in
respect of its General Partnership Interest and will receive Class A Units and
Series A Preferred Units in respect of its Limited Partnership Interest;

                      (ii) initially, no Class B Units will be issued to any
Partner;

                      (iii) as specified on Exhibit A, certain Persons will
receive Class C Units, certain Persons will receive Class D Units and certain
Persons will receive Class E Units in respect of their Limited Partnership
Interests.

The General Partner may, in its sole and absolute discretion but subject to
Section 4.2.E, issue to newly admitted Partners Class A Units, Class B Units,
Class C Units, Class D Units, Class E Units or Partnership Units of any other
class established by the Partnership in accordance with Section 4.2.A (subject
to Section 4.2.E below) in exchange for the contribution by such Partners of
cash, real estate partnership interests, stock, notes or any other assets or
consideration; provided that any Partnership Unit that is not specifically
designated by the General Partner as being of a particular class shall be deemed
to be a Class A Unit unless the context clearly requires otherwise.

               D. Conversion of Class C Units, Class D Units and Class E Units.

               (i) At such time as all holders of Class A Units have received
quarterly distributions in accordance with Article V equal to the per quarter
amount set forth in Section 5.1.B(v) of this Agreement (or, if the Prior
Agreement was in effect for any portion of the period of four consecutive
quarters, the per quarter amount set forth in Section 5.1.B(v) of the Prior
Agreement for so much of the period as the Prior Agreement was in effect) per
Partnership Unit for each of four consecutive quarters (without including for
these purposes distributions, if any, made to holders of Class A Units pursuant
to Subsections 4.2.D(i) and 4.2.D(ii)) (such amount, the "Class C Minimum
Amount"), the Class C Units will be converted automatically into Class A Units
and thereafter will have the same distribution rights as all other Class A
Units. The foregoing conversion will be deemed to have occurred as of the first
day of the quarter immediately succeeding the fourth consecutive quarter with
respect to which the distributions described in the preceding sentence are made.

                      At any time prior to the first distribution made in
respect of Partnership Units that were converted from Class C Units to Class A
Units pursuant to this Subsection 4.2.D(i), the General Partner

                                      -18-
   19

may, in its sole discretion but subject to Section 5.2.B, elect to make a
one-time distribution of the Class C Accumulated Amount, calculated as of the
date of such distribution, pro rata among those Persons who hold Class A Units;
provided, however, that the foregoing distribution right shall only be available
if during each of the preceding four (4) consecutive fiscal quarters the
Partnership has earned Funds From Operations sufficient to enable the
Partnership to distribute to holders of Class A Units on a per Partnership Unit
basis (assuming a 100% payout of Funds From Operations) at least the applicable
Class C Minimum Amount per Partnership Unit (which payment must be made in a
quarter prior to the quarter in which Class C Units are converted to Class A
Units pursuant to the preceding paragraph). For purposes hereof, the "Class C
Accumulated Amount" means, as of any date the lesser of (A) $1,500,000.00 and
(B)(x)the sum of all amounts previously distributed to holders of Class C Units
pursuant to Subsections 5.1.B(iv) and 5.1.B(v) during the most recently
completed twelve (12) consecutive fiscal quarters less (y) the sum of all
amounts previously distributed to holders of Class A Units (excluding Class A
Units that were converted from Class C Units prior to such distribution) during
such period pursuant to Subsection 5.1.B(vi) but not Subsection 5.1.B(vii);
provided that the Class C Accumulated Amount shall not exceed the Partnership's
aggregate Funds From Operations for such twelve quarter period less (without
duplication) the distributions pursuant to Subsections 5.1(B)(i) through (vi).

               (ii) At such time as all holders of Class A Units have received
quarterly distributions in accordance with Article V in an amount at least equal
to the per quarter amount set forth in Section 5.1.B(iii) of this Agreement (or,
if the Prior Agreement was in effect for any portion of the period of four
consecutive quarters, the per quarter amount set forth in Section 5.1.B(iii) of
the Prior Agreement for so much of the period as the Prior Agreement was in
effect) per Partnership Unit for each of four consecutive quarters (without
including for these purposes distributions, if any, made to holders of Class A
Units pursuant to Subsections 4.2.D(i) and 4.2.D(ii)) (such amount, the "Class
D/E Minimum Amount"), the Class D Units and the Class E Units, if any, will be
converted automatically into Class A Units and thereafter will have the same
distribution rights as all other Class A Units. The foregoing conversion will be
deemed to have occurred as of the first day of the quarter immediately
succeeding the fourth consecutive quarter with respect to which the
distributions described in the preceding sentence are made.

               At any time prior to the first distribution made in respect of
Partnership Units that were converted from Class D Units or Class E Units to
Class A Units pursuant to this Subsection 5.1.D(ii), the General Partner may, in
its sole discretion but subject to Section 5.2.B, elect to make a one time
distribution of the Class D/E Accumulated Amount, calculated as of the date of
such distribution, pro rata among those Persons who hold Class A Units;
provided, however, that the foregoing distribution right shall only be available
if during each of the preceding four (4) consecutive fiscal quarters the
Partnership has earned Funds From Operations sufficient to enable the
Partnership to distribute to holders of Class A Units on a per Partnership Unit
basis (assuming a 100% payout of Funds From Operations) at least the applicable
Class D/E Minimum Amount per Partnership Unit. For purposes hereof, the "Class
D/E Accumulated Amount" means, as of any date the lesser of (A) $1,500,000 less
any amount distributed pursuant to Subsection 4.2.D(i) above and (B) (x) the sum
of all amounts previously distributed to holders of Class D Units and Class E
Units pursuant to Subsections 5.1.B(ii) and (iii) during the most recently
completed twelve (12) consecutive fiscal quarters less (y) the sum of all
amounts previously distributed to holders of Class A Units (excluding Class A
Units that were converted from Class D Units or Class E Units prior to or during
such period, if any) during such period pursuant to Subsections 5.1.B(vi) and
(vii) during such period and less the Class C Accumulated Amount distributed
previously or contemporaneously therewith, provided that the maximum amount of
the Class D/E Accumulated Amount shall not exceed the Partnership's Funds From
Operations less (without duplication) distributions pursuant to Subsections
5.1.B(i) through (vii).

               (iii) Immediately after the time at which the Prior Agreement
became effective, every Class D Unit held by any of Mendik/FW, Christopher G.
Bonk, Michael M. Downey, James D. Kuhn, John J. Silberstein, David L. Sims,
Kevin R. Wang, Mr. Mendik, Mr. Greenbaum or any Mendik Owner with respect to
either of Mr. Mendik or Mr. Greenbaum automatically, and without any further
payment or action of any kind

                                      -19-
   20

by any Person, was converted into a Class C Unit and thereafter became entitled
to all of the same distribution rights as any other Class C Unit, and the
General Partner has reflected said conversion on Exhibit A.

               E. Limitation on the Issuance of Partnership Units. The General
Partner may not, without the Consent of the Outside Limited Partners (taking
into account, for these purposes, only those Limited Partnership Interests
issued in connection with the Consolidation), cause the Partnership to issue any
Limited Partnership Interests of any class ranking senior (as to preferential
distributions or redemption or voting rights) to the Class C Units, the Class D
Units or the Class E Units (any such senior Partnership Units, "Preference
Units") unless the distribution and redemption (but not voting) rights of such
Partnership Units are substantially similar to the terms of securities issued by
the General Partner and the proceeds or other consideration from the issuance of
such securities have been contributed to the Partnership. The foregoing
limitation will expire with respect to the Partnership Units of any such class
at such time as the Partnership Units of that class issued in connection with
the Consolidation are no longer outstanding, whether as a result of redemption,
conversion to another class or otherwise.

               F. Issuance of Series A Preferred Units. In consideration of the
contribution to the Partnership on the April 15, 1997 of the entire net proceeds
received by the General Partner from the issuance of the Series A Preferred
Shares, the General Partner is deemed to have made a Capital Contribution to the
Partnership in the amount of the gross proceeds of such issuance, which was
$287,500,000, and the Partnership is deemed simultaneously to have distributed
to the General Partner, as REIT Expenses, the amount of the underwriters'
discount and other costs incurred by the General Partner in connection with such
issuance. On April 15, 1997, in consideration of the contribution to the
Partnership described in this Section 4.2.F, the Partnership issued to the
General Partner, in respect of its Limited Partnership Interest and in addition
to the Class A Units issued to the General Partner pursuant to this Section 4.2,
5,750,000 of a series of Preference Units designated as the "Series A Preferred
Units" (as defined in Exhibit G hereto). The terms of the Series A Preferred
Units are set forth in Exhibit G attached hereto.

Section 4.3    No Preemptive Rights

               Except to the extent expressly granted by the General Partner (on
behalf of the Partnership) pursuant to another agreement, no Person shall have
any preemptive, preferential or other similar right with respect to (i)
additional Capital Contributions or loans to the Partnership or (ii) issuance or
sale of any Partnership Units or other Partnership Interests.

Section 4.4    Other Contribution Provisions

               In the event that any Partner is admitted to the Partnership and
is given a Capital Account in exchange for services rendered to the Partnership,
such transaction shall be treated by the Partnership and the affected Partner as
if the Partnership had compensated such Partner in cash for the fair market
value of such services, and the Partner had contributed such cash to the capital
of the Partnership.

Section 4.5    No Interest on Capital

               No Partner shall be entitled to interest on its Capital
Contributions or its Capital Account.

                                    ARTICLE V
                                  DISTRIBUTIONS

Section 5.1    Requirement and Characterization of Distributions

                                      -20-
   21

               A. General. Subject to Section 5.1.C, the General Partner shall
have the exclusive right and authority to declare and cause the Partnership to
make distributions as and when the General Partner deems appropriate or
desirable in its sole discretion. Notwithstanding anything to the contrary
contained herein, in no event may a Partner receive a distribution with respect
to a Partnership Unit for a quarter or shorter period if such Partner is
entitled to receive a distribution for such quarter or shorter period with
respect to a Share for which such Partnership Unit has been redeemed or
exchanged. Unless otherwise expressly provided for herein or in an agreement at
the time a new class of Partnership Interests is created in accordance with
Article IV hereof, no Partnership Interest shall be entitled to a distribution
in preference to any other Partnership Interest. For so long as the General
Partner elects to qualify as a REIT, the General Partner shall make such
reasonable efforts, as determined by it in its sole and absolute discretion and
consistent with the qualification of the General Partner Entity or the General
Partner (as applicable) as a REIT, to make distributions to the Partners in
amounts such that the General Partner will receive amounts sufficient to enable
the General Partner Entity or the General Partner (as applicable) to pay
shareholder dividends that will (1) satisfy the requirements for qualification
as a REIT under the Code and the Regulations (the "REIT Requirements") and (2)
avoid any federal income or excise tax liability for the General Partner Entity
or the General Partner (as applicable).

               B. Method. When, as and if declared by the General Partner, the
Partnership will make distributions to the General Partner in any amount
necessary to enable the General Partner to pay REIT Expenses, and thereafter:

                      (i) first, to holders of Series A Preferred Units and any
               other Preference Units in an amount equal to preferential
               distributions accumulated and unpaid on such Preference Units in
               accordance with their respective terms;

                      (ii) second, to holders of Class D Units and Class E Units
               (pro rata based on the ratio of the total number of Class D Units
               or Class E Units, as applicable, to the aggregate number of Class
               D Units and Class E Units taken together on the Partnership
               Record Date) in an amount equal to any accumulated and unpaid
               Class D/E Preferential Distributions;

                      (iii) third, to holders of Class D Units and Class E Units
               (pro rata based on the ratio of the total number of Class D Units
               or Class E Units, as applicable, to the aggregate number of Class
               D Units and Class E Units taken together on the Partnership
               Record Date) until such holders have received with respect to the
               period for which such distribution is made an amount per Class D
               Unit and Class E Unit, respectively, to be determined based on a
               distribution rate of $0.50375 per quarter (the "Class D/E
               Preferential Distribution") pro rated to take into account the
               actual number of days in such period and the number of days in
               the period that such Class D Units or Class E Units, as
               applicable, were outstanding; provided, however, that if the
               General Partner does not distribute sufficient cash to pay the
               Class D/E Preferential Distribution, then the Class D/E
               Preferential Distribution will cumulate, without interest, and be
               payable by the Partnership in the future pursuant to clause (ii)
               above;

                      (iv) fourth, to holders of Class C Units in an amount
               equal to any accumulated and unpaid Class C Preferential
               Distributions;

                      (v) fifth, to holders of Class C Units until such holders
               have received with respect to the period for which such
               distribution is made an amount per Class C Unit to be determined
               based on a distribution rate of $.4225 per quarter (the "Class C
               Preferential Distribution") pro rated to take into account the
               actual number of days in such period and the number of days in
               the period that such Class C Units were outstanding; provided,
               however, that if the General Partner does not distribute
               sufficient cash to pay the Class C Preferential

                                      -21-
   22

               Distribution, then the Class C Preferential Distribution will
               cumulate, without interest, and be payable by the Partnership in
               the future pursuant to clause (iv) above;

                      (vi) sixth, to the holders of Partnership Units other than
               Class C Units, Class D Units and Class E Units (the "Other
               Units") until the holders of such Other Units have received with
               respect to the period for which such distribution is made an
               amount per Partnership Unit equal to the amount that would have
               been payable to such holders under clause (v) above if the
               Partnership Units held by them had been Class C Units (assuming,
               with respect to Class A Units held directly or indirectly by the
               General Partner, that such Partnership Units were held for the
               entire period);

                      (vii) seventh, to the holders of Partnership Units other
               than Class D Units and Class E Units (the "Non-Class D/E Units")
               until the holders of such Non-Class D/E Units have received with
               respect to the quarter for which such distribution is made a
               total amount per Partnership Unit (taking into account
               distributions made to such holders of Non-Class D/E Units with
               respect to such quarter under clause (v) or clause (vi) above as
               applicable) equal to the amount that would have been payable to
               such holders under clause (iii) above if the Partnership Units
               held by them had been Class D Units (assuming, with respect to
               Class A Units held directly or indirectly by the General Partner,
               that such Partnership Units were held for the entire period);

                      (viii) eighth, to holders of Class A Units as described in
               Subsection 4.2.D(i);

                      (ix) ninth, to holders of Class A Units as described in
               Subsection 4.2.D(ii);

                      (x) tenth, to all holders of Partnership Units of all
               classes (other than Class A Preferred Units and any other Units
               issued by the Partnership from time that, by their terms, are not
               entitled to participate in distributions under this clause (x)),
               pro rata in proportion to their respective Percentage Interests,
               in an amount sufficient to permit to the General Partner to
               satisfy the REIT Requirements and to avoid any federal income or
               excise tax liability for the General Partner Entity (or the
               General Partner, as applicable);

                      (xi) eleventh, to the extent of remaining distribution
               amount, to holders of Partnership Units of all classes (other
               than Class A Preferred Units and any other Units issued by the
               Partnership from time that, by their terms, are not entitled to
               participate in distributions under this clause (xi)) in
               proportion to their respective Percentage Interests.

Each holder of Partnership Interests that are entitled to any preference in
distribution shall be entitled to a distribution in accordance with the rights
of any such class of Partnership Interests (and, within such class, pro rata in
proportion to the respective Percentage Interests on such Partnership Record
Date). Notwithstanding anything to the contrary contained herein, in no event
shall any partner receive a distribution with respect to any Common Partnership
Unit with respect to any quarter until such time as the Partnership has
distributed to the holders of the Preference Units all distributions payable
with respect to such Preference Units through the last day of such quarter, in
accordance with the instruments designating such Preference Units.

               C. Minimum Distributions if General Partner Not a REIT or Not
Publicly Traded. In addition, if the General Partner Entity is not a REIT or the
common shares of beneficial interest (or other comparable equity interests) of
the General Partner Entity are not Publicly Traded, the General Partner shall
use commercially reasonable efforts (including, if appropriate, incurring
indebtedness), as determined by the General Partner in its sole discretion
exercised in good faith, to make cash distributions pursuant to Section 5.1.B
above at least annually for each taxable year of the Partnership beginning prior
to the twentieth (20th) anniversary of April 15, 1997 in an aggregate amount
with respect to each such taxable year at least equal to

                                      -22-
   23

95% of the Partnership's taxable income for such year other than gain subject to
Section 704(c) of the Code allocable to the Class A Units, with such
distributions to be made not later than 60 days after the end of such year;
provided, the foregoing shall not create any obligation on the part of the
General Partner to contribute or loan funds to the Partnership or dispose of
assets. Notwithstanding Section 14.1.D.(iv), this Section 5.1.C may be amended
with the Consent of Certain Limited Partners.

Section 5.2    Amounts Withheld

               All amounts withheld pursuant to the Code or any provisions of
any state or local tax law and Section 10.5 hereof with respect to any
allocation, payment or distribution to the General Partner, the Limited Partners
or Assignees shall be treated as amounts distributed to the General Partner,
Limited Partners or Assignees pursuant to Section 5.1 above for all purposes
under this Agreement.

Section 5.3    Distributions Upon Liquidation

               Proceeds from a Terminating Capital Transaction shall be
distributed to the Partners in accordance with Section 13.2 hereof.

Section 5.4    Revisions to Reflect Issuance of Additional Partnership Interests

               In the event that the Partnership issues additional Partnership
Interests to the General Partner or any Additional Limited Partner pursuant to
Article IV hereof, the General Partner shall make such revisions to this Article
V as it deems necessary to reflect the issuance of such additional Partnership
Interests.

                                   ARTICLE VI
                                   ALLOCATIONS

Section 6.1    Allocations For Capital Account Purposes

               For purposes of maintaining the Capital Accounts and in
determining the rights of the Partners among themselves, the Partnership's items
of income, gain, loss and deduction (computed in accordance with Exhibit B
hereto) shall be allocated among the Partners in each taxable year (or portion
thereof) as provided herein below.

               A. Net Income. After giving effect to the special allocations set
forth in Section 1 of Exhibit C hereto and Section 6.1.E below, Net Income shall
be allocated (i) first, to the General Partner to the extent that Net Losses
previously allocated to the General Partner pursuant to the last sentence of
Section 6.1.B below exceed Net Income previously allocated to the General
Partner pursuant to this clause (i) of Section 6.1.A,; (ii) second, to holders
of Preference Units until their aggregate allocations of Net Income under this
clause (ii) equal the sum of (x) the aggregate Net Losses allocated to them
under clause (x) of Section 6.1.B and (y) all distributions made pursuant to
clause (i) of Section 5.1.B (provided that the allocation provided for in this
clause (ii) shall not apply to the extent that distributions made pursuant to
clause (i) of Section 5.1.B are treated as or determined to be guaranteed
payments under Section 707(c) of the Code); (iii) third, to holders of Class D
Units and Class E Units until their aggregate allocations of Net Income under
this clause (iii) equal the sum of (x) the aggregate Net Losses allocated to
them under clause (ix) of Section 6.1.B and (y) all distributions made pursuant
to clause (ii) of Section 5.1.B; (iv) fourth, to holders of Class D Units and
Class E Units until their aggregate allocations of Net Income under this clause
(iv) equal the sum of (x) the aggregate Net Losses allocated to them under
clause (viii) of Section 6.1.B and (y) all distributions made pursuant to clause
(iii) of Section 5.1.B with respect to which there was not a corresponding
distribution to holders of Units other than Class D Units and Class E Units
pursuant to clauses (vi) or (vii) of Section 5.1.B; (v) fifth, to holders of
Class C Units until their aggregate allocations of Net Income under this clause
(v) equal the sum of (x) the

                                      -23-
   24

aggregate Net Losses allocated to them under clause (vii) of Section 6.1.B and
(y) all distributions made pursuant to clause (iv) of Section 5.1.B; (vi) sixth,
to holders of Class C Units until their aggregate allocations of Net Income
under this clause (vi) equal the sum of (x) the aggregate Net Losses allocated
to them under clause (vi) of Section 6.1.B and (y) all distributions made
pursuant to clause (v) of Section 5.1.B with respect to which there was not a
corresponding distribution to holders of Units other than Class C, D or E Units
pursuant to clause (vi) of Section 5.1.B; (vii) seventh, to all holders of Units
(other than Preference Units) until the aggregate allocations of Net Income
under this clause (vii) equal the sum of (x) aggregate Net Losses allocated
under clause (v) of Section 6.1.B, (y) all distributions made pursuant to
clauses (vi) or (vii) of Section 5.1.B, and (z) all distributions made pursuant
to clauses (iii) or (v) of Section 5.1.B that were not taken into account in
clauses (iv) or (vi) of this Section 6.1.A as a result of distributions pursuant
to clauses (vi) and (vii) of Section 5.1.B; (viii) eighth, to holders of Class A
Units until their aggregate allocations of Net Income under this clause (viii)
equal the sum of (x) the aggregate Net Losses allocated to them under clause
(iv) of Section 6.1.B and (y) all distributions made pursuant to clause (viii)
of Section 5.1.B, with such Net Income to be allocated only to those holders of
Class A Units who received distributions under said clause (viii); (ix) ninth,
to holders of Class A Units until their aggregate allocations of Net Income
under this clause (ix) equal the sum of (x) the aggregate Net Losses allocated
to them under clause (iii) of Section 6.1.B and (y) all distributions made
pursuant to clause (ix) of Section 5.1.B, with such Net Income to be allocated
only to those holders of Class A Units who received distributions under said
clause (ix) of Section 5.1.B; (x) tenth, to all holders of Units (other than
Preference Units) pro rata in accordance with their Percentage Interests until
the aggregate allocations of Net Income under this clause (x) equal the sum of
(x) aggregate Net Losses allocated under clause (ii) of Section 6.1.B and (y)
all distributions made pursuant to clause (xi) of Section 5.1.B.; and (xi)
eleventh, to all holders of Units (other than Class A Preferred Units and any
other Units issued by the Partnership from time that, by their terms, are not
entitled to participate in distributions under Section 5.1.B(x) in proportion to
their respective Percentage Interests.

               B. Net Losses. After giving effect to the special allocations set
forth in Section 1 of Exhibit C hereto and Section 6.1.E below, Net Losses shall
be allocated (i) first, to all holders of Units (other than Preference Units) in
proportion to their respective Percentage Interests until the aggregate
allocations of Net Losses pursuant to this clause (i) equal the aggregate amount
of allocations of Net Income pursuant to clause (xi) of Section 6.1.A; (ii)
second, to all holders of Units (other than Preference Units)pro rata in
accordance with their Percentage Interests until the aggregate allocations of
Net Losses under this clause (ii) equal the aggregate amount of Net Income
allocated pursuant to clause (x) of Section 6.1.A; (iii) third, to holders of
Class A Units until the aggregate allocations of Net Losses pursuant to this
clause (iii) equal the aggregate amount of allocations of Net Income pursuant to
clause (ix) of Section 6.1.A.; (iv) fourth to holders of Class A Units until the
aggregate allocations of Net Losses pursuant to this clause (iii) equal the
aggregate amount of allocations of Net Income pursuant to clause (viii) of
Section 6.1.A.; (v) fifth, to all holders of Units (other than Preference Units)
until the aggregate allocation of Net Losses pursuant to this clause (v) equal
the aggregate amount of Net Income allocated pursuant to clause (vii) of Section
6.1.A; (vi) sixth, to holders of Class C Units until the aggregate allocations
of Net Losses under this clause (vi) equal the aggregate amount of Net Income
allocated pursuant to clause (vi) of Section 6.1.A; (vii) seventh, to holders of
Class C Units until the aggregate allocations of Net Losses under this clause
(vii) equal the aggregate amount of Net Income allocated pursuant to clause (v)
of Section 6.1.A; (viii) eighth, to holders of Class D Units and Class E Units
until the aggregate allocations of Net Losses under this clause (viii) equal the
aggregate amount of Net Income allocated pursuant to clause (iv) of Section
6.1.A; (ix) ninth, to holders of Class D Units and Class E Units until the
aggregate allocations of Net Losses under this clause (ix) equal the aggregate
amount of Net Income allocated pursuant to clause (iii) of Section 6.1.A; (x)
tenth, to holders of the Preference Units until their aggregate allocations of
Net Losses pursuant to this clause (x) equal the aggregate amount of allocations
of Net Income pursuant to clause (ii) of Section 6.1.A (provided that the
allocation provided for in this clause (x) shall not apply to the extent that
distributions made pursuant to clause (i) of Section 5.1.B are treated as or
determined to be guaranteed payments for purposes of Section 707(c) of the
Code); and (xi) thereafter, to holders of all Units (other than Preference
Units) in proportion to their Percentage Interests; provided that, Net Losses
shall not be allocated to any Limited Partner pursuant to this Section 6.1.B to
the extent that such

                                      -24-
   25

allocation would cause such Limited Partner to have an Adjusted Capital Account
Deficit (or increase any existing Adjusted Capital Account Deficit) at the end
of such taxable year (or portion thereof). All Net Losses in excess of the
limitations set forth in this Section 6.1.B shall be allocated to the General
Partner.

               C. Allocation of Nonrecourse Debt. For purposes of Regulations
Section 1.752-3(a), the Partners agree that Nonrecourse Liabilities of the
Partnership in excess of the sum of (i) the amount of Partnership Minimum Gain
and (ii) the total amount of Nonrecourse Built-in Gain shall be allocated among
the Partners in accordance with their respective Percentage Interests.

               D. Recapture Income. Any gain allocated to the Partners upon the
sale or other taxable disposition of any Partnership asset shall, to the extent
possible after taking into account other required allocations of gain pursuant
to Exhibit C hereto, be characterized as Recapture Income in the same
proportions and to the same extent as such Partners have been allocated any
deductions directly or indirectly giving rise to the treatment of such gains as
Recapture Income.

               E. Cancellation of Indebtedness Income. Any cancellation of
indebtedness income required to be recognized by the Partnership with respect to
the Two Penn Plaza Property in connection with the acquisition of the Two Penn
Plaza Property by the Partnership and the restructuring of the outstanding
indebtedness with respect thereto shall be allocated solely to holders of Two
Penn Plaza Units. In the event that cancellation of indebtedness income is
recognized with respect to the property at 330 Madison Avenue as a result of
resolving the dispute with the lender under the loan outstanding upon
consummation of the Consolidation that is secured by a mortgage on such
property, holders of the Partnership Units issued with respect to M 330
Associates, a New York limited partnership, shall be specially allocated
cancellation of indebtedness income in an amount equal to their proportionate
share of the dollar amount of the discount as a result of the settlement
resulting in the recognition of such cancellation of indebtedness income.

Section 6.2    Revisions to Allocations to Reflect Issuance of Additional
               Partnership Interests

               In the event that the Partnership issues additional Partnership
Interests to the General Partner or any Additional Limited Partner pursuant to
Article IV hereof, the General Partner shall make such revisions to this Article
VI as it deems necessary to reflect the terms of the issuance of such additional
Partnership Interests, including making preferential allocations to classes of
Partnership Interests that are entitled thereto.

                                   ARTICLE VII
                      MANAGEMENT AND OPERATIONS OF BUSINESS

Section 7.1    Management

               A. Powers of General Partner. Except as otherwise expressly
provided in this Agreement, all management powers over the business and affairs
of the Partnership are and shall be exclusively vested in the General Partner,
and no Limited Partner shall have any right to participate in or exercise
control or management power over the business and affairs of the Partnership.
The General Partner may not be removed by the Limited Partners with or without
cause. In addition to the powers now or hereafter granted a general partner of a
limited partnership under applicable law or which are granted to the General
Partner under any other provision of this Agreement, the General Partner,
subject to Sections 7.6.A, 7.6.D and 7.11 below, shall have full power and
authority to do all things deemed necessary or desirable by it, on such terms
and conditions as the General Partner in its sole discretion deems appropriate,
to conduct the business of the Partnership, to exercise all powers set forth in
Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1
hereof, including, without limitation:

                                      -25-
   26

               (1)    the making of any expenditures, the lending, subject to
                      Section 7.6.D, or borrowing of money (including, without
                      limitation, making prepayments on loans and borrowing
                      money to permit the Partnership to make distributions to
                      its Partners in such amounts as are required under Section
                      5.1.C hereof or will permit the General Partner Entity or
                      the General Partner (as applicable) (as long as the
                      General Partner Entity or the General Partner qualifies as
                      a REIT) to avoid the payment of any federal income tax
                      (including, for this purpose, any excise tax pursuant to
                      Section 4981 of the Code) and to make distributions to its
                      shareholders sufficient to permit the General Partner
                      Entity or the General Partner (as applicable) to satisfy
                      the REIT Requirements), the assumption or guarantee of, or
                      other contracting for, indebtedness and other liabilities,
                      the issuance of evidences of indebtedness (including the
                      securing of same by mortgage, deed of trust or other lien
                      or encumbrance on the Partnership's assets) and the
                      incurring of any obligations the General Partner deems
                      necessary or desirable for the conduct of the activities
                      of the Partnership;

               (2)    the making of tax, regulatory and other filings, or
                      rendering of periodic or other reports to governmental or
                      other agencies having jurisdiction over the business or
                      assets of the Partnership;

               (3)    the acquisition, disposition, sale, mortgage, pledge,
                      encumbrance, hypothecation or exchange of any or all of
                      the assets of the Partnership (including the exercise or
                      grant of any conversion, option, privilege or subscription
                      right or other right available in connection with any
                      assets at any time held by the Partnership) or the merger
                      or other combination of the Partnership with or into
                      another entity, on such terms as the General Partner deems
                      proper in its sole and absolute discretion;

               (4)    the use of the assets of the Partnership (including,
                      without limitation, cash on hand) for any purpose
                      consistent with the terms of this Agreement, including,
                      without limitation, the financing of the conduct of the
                      operations of the Partnership or any of the Partnership's
                      Subsidiaries, the lending of funds to other Persons,
                      subject to Section 7.6.D, and the repayment of obligations
                      of the Partnership and its Subsidiaries and any other
                      Person in which the Partnership has an equity investment
                      and the making of capital contributions to its
                      Subsidiaries;

               (5)    the management, operation, leasing, landscaping, repair,
                      alteration, demolition or improvement of any real property
                      or improvements owned by the Partnership or any Subsidiary
                      of the Partnership or any other Person in which the
                      Partnership has made a direct or indirect equity
                      investment;

               (6)    the negotiation, execution, and performance of any
                      contracts, conveyances or other instruments that the
                      General Partner considers useful or necessary to the
                      conduct of the Partnership's operations or the
                      implementation of the General Partner's powers under this
                      Agreement, including contracting with contractors,
                      developers, consultants, accountants, legal counsel, other
                      professional advisors and other agents and the payment of
                      their expenses and compensation out of the Partnership's
                      assets;

               (7)    the distribution of Partnership cash or other Partnership
                      assets in accordance with this Agreement;

               (8)    the holding, managing, investing and reinvesting of cash
                      and other assets of the Partnership and, in connection
                      therewith, the opening, maintaining and closing of

                                      -26-
   27

                      bank and brokerage accounts and the drawing of checks or
                      other orders for the payment of moneys;

               (9)    the collection and receipt of revenues and income of the
                      Partnership;

               (10)   the selection and dismissal of employees of the
                      Partnership (including, without limitation, employees
                      having titles such as "president," "vice president,"
                      "secretary" and "treasurer") and agents, outside
                      attorneys, accountants, consultants and contractors of the
                      Partnership, and the determination of their compensation
                      and other terms of employment or hiring;

               (11)   the maintenance of such insurance for the benefit of the
                      Partnership and the Partners;

               (12)   the formation of, or acquisition of an interest in, and
                      the contribution of property to, any further limited or
                      general partnerships, joint ventures, limited liability
                      companies or other relationships that it deems desirable
                      (including, without limitation, the acquisition of
                      interests in, and the contributions of property to its
                      Subsidiaries and any other Person in which it has an
                      equity investment from time to time);

               (13)   the control of any matters affecting the rights and
                      obligations of the Partnership, including the settlement,
                      compromise, submission to arbitration or any other form of
                      dispute resolution or abandonment of any claim, cause of
                      action, liability, debt or damages due or owing to or from
                      the Partnership, the commencement or defense of suits,
                      legal proceedings, administrative proceedings,
                      arbitrations or other forms of dispute resolution, the
                      representation of the Partnership in all suits or legal
                      proceedings, administrative proceedings, arbitrations or
                      other forms of dispute resolution, the incurring of legal
                      expense and the indemnification of any Person against
                      liabilities and contingencies to the extent permitted by
                      law;

               (14)   the determination of the fair market value of any
                      Partnership property distributed in kind, using such
                      reasonable method of valuation as the General Partner may
                      adopt;

               (15)   the exercise, directly or indirectly, through any
                      attorney-in-fact acting under a general or limited power
                      of attorney, of any right, including the right to vote,
                      appurtenant to any assets or investment held by the
                      Partnership;

               (16)   the exercise of any of the powers of the General Partner
                      enumerated in this Agreement on behalf of or in connection
                      with any Subsidiary of the Partnership or any other Person
                      in which the Partnership has a direct or indirect
                      interest, individually or jointly with any such Subsidiary
                      or other Person;

               (17)   the exercise of any of the powers of the General Partner
                      enumerated in this Agreement on behalf of any Person in
                      which the Partnership does not have any interest pursuant
                      to contractual or other arrangements with such Person;

               (18)   the making, executing and delivering of any and all deeds,
                      leases, notes, deeds to secure debt, mortgages, deeds of
                      trust, security agreements, conveyances, contracts,
                      guarantees, warranties, indemnities, waivers, releases or
                      other legal instruments or agreements in writing necessary
                      or appropriate in the judgment of the General

                                      -27-
   28

                      Partner for the accomplishment of any of the powers of the
                      General Partner under this Agreement;

               (19)   the distribution of cash to acquire Partnership Units held
                      by a Limited Partner in connection with a Limited
                      Partner's exercise of its Redemption Right under Section
                      8.6 hereof;

               (20)   the amendment and restatement of Exhibit A hereto to
                      reflect accurately at all times the Capital Contributions
                      and Percentage Interests of the Partners as the same are
                      adjusted from time to time to the extent necessary to
                      reflect redemptions, Capital Contributions, the issuance
                      of Partnership Units, the admission of any Additional
                      Limited Partner or any Substituted Limited Partner or
                      otherwise, which amendment and restatement,
                      notwithstanding anything in this Agreement to the
                      contrary, shall not be deemed an amendment of this
                      Agreement, as long as the matter or event being reflected
                      in Exhibit A hereto otherwise is authorized by this
                      Agreement;

               (21)   the approval and/or implementation of any merger
                      (including a triangular merger), consolidation or other
                      combination between the Partnership and another person
                      that is not prohibited under this Agreement, whether with
                      or without Consent, the terms of Section 17-211(g) of the
                      Act shall be applicable such that the General Partner
                      shall have the right to effect any amendment to this
                      Agreement or effect the adoption of a new partnership
                      agreement for a limited partnership if it is the surviving
                      or resulting limited partnership on the merger or
                      consolidation (except as may be expressly prohibited under
                      Section 7.11.D., Section 14.1.C, Section 14.1.D or Section
                      14.1.F); and

               (22)   the taking of any and all actions necessary or desirable
                      in furtherance of, in connection with or incidental to the
                      foregoing.

               B. No Approval by Limited Partners. Except as provided in Section
7.11 below, each of the Limited Partners agrees that the General Partner is
authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provision of this Agreement, the
Act or any applicable law, rule or regulation, to the full extent permitted
under the Act or other applicable law. The execution, delivery or performance by
the General Partner or the Partnership of any agreement authorized or permitted
under this Agreement shall not constitute a breach by the General Partner of any
duty that the General Partner may owe the Partnership or the Limited Partners or
any other Persons under this Agreement or of any duty stated or implied by law
or equity.

               C. Insurance. At all times from and after the date hereof, the
General Partner may cause the Partnership to obtain and maintain (i) casualty,
liability and other insurance on the properties of the Partnership, (ii)
liability insurance for the Indemnitees hereunder and (iii) such other insurance
as the General Partner, in its sole and absolute discretion, determines to be
necessary.

               D. Working Capital and Other Reserves. At all times from and
after the date hereof, the General Partner may cause the Partnership to
establish and maintain working capital reserves in such amounts as the General
Partner, in its sole and absolute discretion, deems appropriate and reasonable
(both in purpose and amount) from time to time, including upon liquidation of
the Partnership pursuant to Section 13.2 hereof.

               E. No Obligations to Consider Tax Consequences of Limited
Partners. In exercising its authority under this Agreement, the General Partner
may, but shall be under no obligation to, take into

                                      -28-
   29

account the tax consequences to any Partner (including the General Partner) of
any action taken (or not taken) by it. The General Partner and the Partnership
shall not have liability to a Limited Partner for monetary damages or otherwise
for losses sustained, liabilities incurred or benefits not derived by such
Limited Partner in connection with such decisions, provided that the General
Partner has acted in good faith and not beyond its authority under this
Agreement.

Section 7.2    Certificate of Limited Partnership

               The Partnership has caused the Certificate to be filed with the
Secretary of State of Delaware. To the extent that such action is determined by
the General Partner to be reasonable and necessary or appropriate, the General
Partner shall file amendments to and restatements of the Certificate and do all
the things to maintain the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability) under the laws
of the State of Delaware and each other state, the District of Columbia or other
jurisdiction in which the Partnership may elect to do business or own property.
Subject to the terms of Section 8.5.A(4) hereof, the General Partner shall not
be required, before or after filing, to deliver or mail a copy of the
Certificate or any amendment thereto to any Limited Partner. The General Partner
shall use all reasonable efforts to cause to be filed such other certificates or
documents as may be reasonable and necessary or appropriate for the formation,
continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability) in the State
of Delaware and any other state, the District of Columbia or other jurisdiction
in which the Partnership may elect to do business or own property.

Section 7.3    Title to Partnership Assets

               Title to Partnership assets, whether real, personal or mixed and
whether tangible or intangible, shall be deemed to be owned by the Partnership
as an entity, and no Partners, individually or collectively, shall have any
ownership interest in such Partnership assets or any portion thereof. Title to
any or all of the Partnership assets may be held in the name of the Partnership,
the General Partner or one or more nominees, as the General Partner may
determine, including Affiliates of the General Partner. The General Partner
hereby declares and warrants that any Partnership assets for which legal title
is held in the name of the General Partner or any nominee or Affiliate of the
General Partner shall be held by the General Partner for the use and benefit of
the Partnership in accordance with the provisions of this Agreement. All
Partnership assets shall be recorded as the property of the Partnership in its
books and records, irrespective of the name in which legal title to such
Partnership assets is held.

Section 7.4    Reimbursement of the General Partner

               A. No Compensation. Except as provided in this Section 7.4 and
elsewhere in this Agreement (including the provisions of Articles V and VI
hereof regarding distributions, payments and allocations to which it may be
entitled), the General Partner shall not be compensated for its services as
general partner of the Partnership.

               B. Responsibility for Partnership Expenses. The Partnership shall
be responsible for and shall pay all expenses relating to the Partnership's
organization, the ownership of its assets and its operations. The General
Partner shall be reimbursed on a monthly basis, or such other basis as the
General Partner may determine in its sole and absolute discretion, for all
expenses it incurs relating to the ownership and operation of, or for the
benefit of, the Partnership (including, without limitation, expenses related to
the management and administration of any Subsidiaries of the General Partner or
the Partnership or Affiliates of the Partnership such as auditing expenses and
filing fees); provided that (x), the amount of any such reimbursement shall be
reduced by (i) any interest earned by the General Partner with respect to bank
accounts or other instruments or accounts held by it as permitted in Section
7.5.A below and (ii) any amount derived by the General Partner from any
investments permitted in Section 7.5.A below and (y) REIT Expenses shall not be
treated as Partnership expenses for purposes of this Section 7.4.B. The General
Partner shall determine in

                                      -29-
   30

good faith the amount of expenses incurred by it related to the ownership and
operation of, or for the benefit of, the Partnership. In the event that certain
expenses are incurred for the benefit of the Partnership and other entities
(including the General Partner), such expenses will be allocated to the
Partnership and such other entities in such a manner as the General Partner in
its sole and absolute discretion deems fair and reasonable. Such reimbursements
shall be in addition to any reimbursement to the General Partner pursuant to
Section 10.3.C hereof and as a result of indemnification pursuant to Section 7.7
below. All payments and reimbursements hereunder shall be characterized for
federal income tax purposes as expenses of the Partnership incurred on its
behalf, and not as expenses of the General Partner.

               C. Partnership Interest Issuance Expenses. The General Partner
shall also be reimbursed for all expenses it incurs relating to any issuance of
additional Partnership Interests, Debt of the Partnership or rights, options,
warrants or convertible or exchangeable securities pursuant to Article IV hereof
(including, without limitation, all costs, expenses, damages and other payments
resulting from or arising in connection with litigation related to any of the
foregoing), all of which expenses are considered by the Partners to constitute
expenses of, and for the benefit of, the Partnership.

               D. Purchases of Shares by the General Partner. In the event that
the General Partner exercises its rights under the Declaration of Trust to
purchase shares or otherwise elects to purchase from its shareholders Shares in
connection with a share repurchase or similar program or for the purpose of
delivering such Shares to satisfy an obligation under any dividend reinvestment
or share purchase program adopted by the General Partner, any employee share
purchase plan adopted by the General Partner or any similar obligation or
arrangement undertaken by the General Partner in the future, the purchase price
paid by the General Partner for such Shares and any other expenses incurred by
the General Partner in connection with such purchase shall be considered REIT
Expenses, and the Partnership shall distribute cash to the General Partner to
offset such expenses pursuant to Section 5.1, subject to the conditions that:
(i) if such Shares subsequently are to be sold by the General Partner, the
General Partner pays to the Partnership any proceeds received by the General
Partner for such Shares (provided that a transfer of Shares for Partnership
Units pursuant to Section 8.6 hereof would not be considered a sale for such
purposes); and (ii) if such Shares are not retransferred by the General Partner
within thirty (30) days after the purchase thereof, the General Partner shall
cause the Partnership to cancel a number of Partnership Units of the appropriate
class (rounded to the nearest whole Partnership Unit) held by the General
Partner equal to the product attained by multiplying the number of such Shares
by a fraction, the numerator of which is one and the denominator of which is the
Conversion Factor.

               E. Tax Treatment of Certain Reimbursements. If and to the extent
that any reimbursement made pursuant to this Section 7.4 is determined for
federal income tax purposes not to constitute a payment of expenses of the
Partnership, then such reimbursement shall be treated as a distribution pursuant
to clause (i) of Section 5.1.B. hereof.

Section 7.5    Outside Activities of the General Partner

               A. General. Without the Consent of the Outside Limited Partners,
except as set forth in this Section 7.5.A, the General Partner shall not,
directly or indirectly, enter into or conduct any business other than in
connection with the ownership, acquisition and disposition of Partnership
Interests as a General Partner or Limited Partner and the management of the
business of the Partnership and such activities as are incidental to any of the
foregoing. Without the Consent of the Outside Limited Partners, the assets of
the General Partner shall be limited to Partnership Interests and permitted debt
obligations of the Partnership (as contemplated by Section 7.5.F below), so that
Shares and Partnership Units are completely fungible except as otherwise
specifically provided herein; provided, that the General Partner shall be
permitted to hold (i) interests in entities, including Qualified REIT
Subsidiaries, that hold no material assets; (ii) interests in Qualified REIT
Subsidiaries (or other entities that are not taxed as corporations for federal
income tax purposes) that own only interests in the Partnership and/or interests
in other Qualified REIT Subsidiaries (or other entities that are not taxed as
corporations for federal income tax purposes) that either hold no assets or hold
only interests in the

                                      -30-
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Partnership; (iii) assets and/or interests in entities, including Qualified REIT
Subsidiaries, that hold assets, having an aggregate value not greater than five
percent (5%) of the total market value of the General Partner Entity (determined
by reference to the value of all outstanding equity securities of the General
Partner Entity), provided that (X) the General Partner Entity will apply the net
income from such assets (other than net income derived as a result of a
Qualified REIT Subsidiary's ownership of an interest in the Partnership) to
offset REIT Expenses before utilizing the distribution provisions of Section
5.1.B, (Y) the General Partner will contribute all net income generated by such
assets and/or interests (other than net income derived as a result of a
Qualified REIT Subsidiary's ownership of an interest in the Partnership) to the
Operating Partnership (after taking into account REIT Expenses as described in
clause (X) above), and (Z) the General Partner will use commercially reasonable
efforts to transfer such assets and interests (other than interests in Qualified
REIT Subsidiaries and the Partnership) to the Operating Partnership or an entity
controlled by the Operating Partnership as soon as such a transfer can be made
without causing the General Partner or the Operating Partnership to incur any
material expenses in connection therewith; and (iv) such bank accounts or
similar instruments or account in its own name as it deems necessary to carry
out its responsibilities and purposes as contemplated under this Agreement and
its organizational documents; and, provided, further, that the General Partner
shall be permitted to acquire, directly or through a Qualified REIT Subsidiary
(or other entities that are not taxed as corporations for federal income tax
purposes), up to a one percent (1%) interest in any partnership or limited
liability company at least ninety-nine percent (99%) of the equity of which is
owned directly or indirectly by the Partnership. The General Partner and any of
its Affiliates may acquire Limited Partnership Interests and shall be entitled
to exercise all rights of a Limited Partner relating to such Limited Partnership
Interests.

               B. Repurchase of Shares. In the event the General Partner
exercises its rights under the Declaration of Trust to purchase Shares or
otherwise elects to purchase from its shareholders Shares in connection with a
share repurchase or similar program or for the purpose of delivering such Shares
to satisfy an obligation under any dividend reinvestment or share purchase
program adopted by the General Partner, any employee share purchase plan adopted
by the General Partner or any similar obligation or arrangement undertaken by
the General Partner in the future, and the General Partner does not resell said
Shares within thirty (30) days after the purchase thereof as contemplated in
Section 7.4.D(i), then the General Partner shall cause the Partnership to
purchase from the General Partner (and eliminate) that number of Partnership
Units of the appropriate class equal to the product obtained by multiplying the
number of Shares purchased by the General Partner times a fraction, the
numerator of which is one and the denominator of which is the Conversion Factor,
on the same terms and for the same aggregate price that the General Partner
purchased such Shares.

               C. Forfeiture of Shares. In the event the Partnership or the
General Partner acquires Shares as a result of the forfeiture of such Shares
under a restricted or similar share plan, then the General Partner shall cause
the Partnership to cancel that number of Partnership Units of the appropriate
class equal to the number of Shares so acquired, and, if the Partnership
acquired such Shares, it shall transfer such Shares to the General Partner for
cancellation.

               D. Issuances of Shares. The General Partner shall not grant,
award, or issue any additional Shares (other than Shares issued pursuant to
Section 8.6 hereof or pursuant to a dividend or distribution (including any
share split) of Shares to all of its shareholders), other equity securities of
the General Partner, New Securities or Convertible Funding Debt unless (i) the
General Partner shall cause, pursuant to Section 4.2.A hereof, the Partnership
to issue to the General Partner Partnership Interests or rights, options,
warrants or convertible or exchangeable securities of the Partnership having
designations, preferences and other rights, all such that the economic interests
are substantially the same as those of such additional Shares, other equity
securities, New Securities or Convertible Funding Debt, as the case may be, and
(ii) the General Partner transfers to the Partnership, as an additional Capital
Contribution, the proceeds from the grant, award, or issuance of such additional
Shares, other equity securities, New Securities or Convertible Funding Debt, as
the case may be, or from the exercise of rights contained in such additional
Shares, other equity securities, New Securities or Convertible Funding Debt, as
the case may be. Without limiting the foregoing, the General Partner is
expressly authorized to issue additional Shares, other equity securities, New
Securities or Convertible

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Funding Debt, as the case may be, for less than fair market value, and the
General Partner is expressly authorized, pursuant to Section 4.2.A hereof, to
cause the Partnership to issue to the General Partner corresponding Partnership
Interests, as long as (a) the General Partner concludes in good faith that such
issuance is in the interests of the General Partner and the Partnership (for
example, and not by way of limitation, the issuance of Shares and corresponding
Partnership Units pursuant to a share purchase plan providing for purchases of
Shares, either by employees or shareholders, at a discount from fair market
value or pursuant to employee share options that have an exercise price that is
less than the fair market value of the Shares, either at the time of issuance or
at the time of exercise) and (b) the General Partner transfers all proceeds from
any such issuance or exercise to the Partnership as an additional Capital
Contribution.

               E. Stock Option Plan. If at any time or from time to time, the
General Partner sells Shares pursuant to any Stock Option Plan, the General
Partner shall transfer the net proceeds of the sale of such Shares to the
Partnership as an additional Capital Contribution in exchange for an amount of
additional Partnership Units equal to the number of Shares so sold divided by
the Conversion Factor.

               F. Funding Debt. The General Partner may incur a Funding Debt,
including, without limitation, a Funding Debt that is convertible into Shares or
otherwise constitutes a class of New Securities ("Convertible Funding Debt"),
subject to the condition that the General Partner lends to the Partnership the
net proceeds of such Funding Debt; provided, that Convertible Funding Debt shall
be issued pursuant to Section 7.5.D above; and, provided, further, that the
General Partner shall not be obligated to lend the net proceeds of any Funding
Debt to the Partnership in a manner that would be inconsistent with the General
Partner's ability to remain qualified as a REIT. If the General Partner enters
into any Funding Debt, the loan to the Partnership shall be on comparable terms
and conditions, including interest rate, repayment schedule and costs and
expenses, as are applicable with respect to or incurred in connection with such
Funding Debt.

Section 7.6    Transactions with Affiliates

               A. Transactions with Certain Affiliates. Except as expressly
permitted by this Agreement (other than Section 7.1.A hereof, which shall not be
considered authority for a transaction that otherwise would be prohibited by
this Section 7.6.A), the Partnership shall not, directly or indirectly, sell,
transfer or convey any property to, or purchase any property from, or borrow
funds from, or lend funds to, any Partner or any Affiliate of the Partnership or
the General Partner or the General Partner Entity that is not also a Subsidiary
of the Partnership, except pursuant to a transaction that has been approved by a
majority of the disinterested trustees (or directors) of the General Partner or
General Partner Entity (as applicable), taking into account the fiduciary duties
of the General Partner or General Partner Entity (as applicable) to the Limited
Partners.

               B. Benefit Plans. The General Partner, in its sole and absolute
discretion and without the approval of the Limited Partners, may propose and
adopt on behalf of the Partnership employee benefit plans funded by the
Partnership for the benefit of employees of the General Partner, the
Partnership, Subsidiaries of the Partnership or any Affiliate of any of them in
respect of services performed, directly or indirectly, for the benefit of the
Partnership, the General Partner, or any of the Partnership's Subsidiaries.

               C. Conflict Avoidance. The General Partner is expressly
authorized to enter into, in the name and on behalf of the Partnership, a right
of first opportunity arrangement and other conflict avoidance agreements with
various Affiliates of the Partnership and General Partner on such terms as the
General Partner, in its sole and absolute discretion, believes are advisable.

               D. Limitation on Loans to the General Partner. Except with the
Consent of the Outside Limited Partners, the General Partner may not cause the
Partnership to loan money to the General Partner or to any Subsidiary or
Affiliate of the General Partner which is not also a Subsidiary or an entity in
which the Partnership owns an equity interest.

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Section 7.7    Indemnification

               A. General. To the maximum extent permitted by applicable law at
the time, the Partnership, without requiring a preliminary determination of the
ultimate entitlement to indemnification, shall indemnify each Indemnitee from
and against any and all losses, claims, damages, liabilities, joint or several,
expenses (including, without limitation, attorneys fees and other legal fees and
expenses), judgments, fines, settlements and other amounts arising from or in
connection with any and all claims, demands, actions, suits or proceedings,
civil, criminal, administrative or investigative incurred by the Indemnitee and
relating to the Partnership or the General Partner or the formation or the
current (and, in the case of the General Partner's right to indemnification from
the Partnership, prior) operations of, or the current (and, in the case of the
General Partner's right to indemnification from the Partnership, prior)
ownership of property by, either of them as set forth in this Agreement in which
any such Indemnitee may be involved, or is threatened to be involved, as a party
or otherwise, unless it is established by a final determination of a court of
competent jurisdiction that: (i) the act or omission of the Indemnitee was
material to the matter giving rise to the proceeding and either was committed in
bad faith or was the result of active and deliberate dishonesty, (ii) the
Indemnitee actually received an improper personal benefit in money, property or
services or (iii) in the case of any criminal proceeding, the Indemnitee had
reasonable cause to believe that the act or omission was unlawful. The
obligations of the Partnership under this Section 7.7 shall include
reimbursement of the General Partner for any indemnification or advance of
expenses by the General Partner pursuant to Title 8, the Declaration of Trust or
its Bylaws. Without limitation, the foregoing indemnity shall extend to any
liability of any Indemnitee, pursuant to a loan guarantee, contractual
obligations for any indebtedness or other obligations or otherwise, for any
indebtedness of the Partnership or any Subsidiary of the Partnership (including,
without limitation, any indebtedness which the Partnership or any Subsidiary of
the Partnership has assumed or taken subject to). The General Partner is hereby
authorized and empowered, on behalf of the Partnership, to enter into one or
more indemnity agreements not inconsistent with the provisions of this Section
7.7 in favor of any Indemnitee having or potentially having liability for any
such indebtedness. The termination of any proceeding by judgment, order or
settlement does not create a presumption that the Indemnitee did not meet the
requisite standard of conduct set forth in this Section 7.7.A. Any
indemnification pursuant to this Section 7.7 shall be made only out of the
assets of the Partnership and any insurance proceeds from the liability policy
covering the General Partner and any Indemnitees, and neither the General
Partner nor any Limited Partner shall have any obligation to contribute to the
capital of the Partnership or otherwise provide funds to enable the Partnership
to fund its obligations under this Section 7.7.

               B. Advancement of Expenses. Reasonable expenses expected to be
incurred by an Indemnitee shall be paid or reimbursed by the Partnership in
advance of the final disposition of any and all claims, demands, actions, suits
or proceedings, civil, criminal, administrative or investigative made or
threatened against an Indemnitee, in the case of any trustee/director or officer
who is an Indemnitee upon receipt by the Partnership of (i) a written
affirmation by the Indemnitee of the Indemnitee's good faith belief that the
standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 7.7.A has been met and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.

               C. No Limitation of Rights. The indemnification provided by this
Section 7.7 shall be in addition to any other rights to which an Indemnitee or
any other Person may be entitled under any agreement, pursuant to any vote of
the Partners, as a matter of law or otherwise, and shall continue as to an
Indemnitee who has ceased to serve in such capacity unless otherwise provided in
a written agreement pursuant to which such Indemnitee is indemnified.

               D. Insurance. The Partnership may purchase and maintain insurance
on behalf of the Indemnitees and such other Persons as the General Partner shall
determine against any liability that may be asserted against or expenses that
may be incurred by such Person in connection with the Partnership's activities,

                                      -33-
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regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.

               E. Benefit Plan Fiduciary. For purposes of this Section 7.7, (i)
the Partnership shall be deemed to have requested an Indemnitee to serve as
fiduciary of an employee benefit plan whenever the performance by it of its
duties to the Partnership also imposes duties on, or otherwise involves services
by, it to the plan or participants or beneficiaries of the plan, (ii) excise
taxes assessed on an Indemnitee with respect to an employee benefit plan
pursuant to applicable law shall constitute fines within the meaning of this
Section 7.7 and (iii) actions taken or omitted by the Indemnitee with respect to
an employee benefit plan in the performance of its duties for a purpose
reasonably believed by it to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be related to the Partnership.

               F. No Personal Liability for Limited Partners. In no event may an
Indemnitee subject any of the Partners to liability by reason of the
indemnification provisions set forth in this Agreement.

               G. Interested Transactions. An Indemnitee shall not be denied
indemnification in whole or in part under this Section 7.7 because the
Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by the terms
of this Agreement.

               H. Benefit. The provisions of this Section 7.7 are for the
benefit of the Indemnitees, their heirs, successors, assigns and administrators
and shall not be deemed to create any rights for the benefit of any other
Persons. Any amendment, modification or repeal of this Section 7.7, or any
provision hereof, shall be prospective only and shall not in any way affect the
obligation of the Partnership to any Indemnitee under this Section 7.7 as in
effect immediately prior to such amendment, modification or repeal with respect
to claims arising from or related to matters occurring, in whole or in part,
prior to such amendment, modification or repeal, regardless of when such claims
may arise or be asserted.

               I. Indemnification Payments Not Distributions. If and to the
extent any payments to the General Partner pursuant to this Section 7.7
constitute gross income to the General Partner (as opposed to the repayment of
advances made on behalf of the Partnership), such amounts shall constitute
guaranteed payments within the meaning of Section 707(c) of the Code, shall be
treated consistently therewith by the Partnership and all Partners, and shall
not be treated as distributions for purposes of computing the Partners' Capital
Accounts.

Section 7.8    Liability of the General Partner

               A. General. Notwithstanding anything to the contrary set forth in
this Agreement, the General Partner and its directors and officers shall not be
liable for monetary damages to the Partnership, any Partners or any Assignees
for losses sustained, liabilities incurred or benefits not derived as a result
of errors in judgment or mistakes of fact or law or of any act or omission if
the General Partner acted in good faith.

               B. No Obligation to Consider Separate Interests of Limited
Partners or Shareholders. The Limited Partners expressly acknowledge that the
General Partner is acting on behalf of the Partnership and the General Partner's
shareholders collectively, that the General Partner is under no obligation to
consider the separate interests of the Limited Partners (including, without
limitation, the tax consequences to Limited Partners or Assignees or to such
shareholders) in deciding whether to cause the Partnership to take (or decline
to take) any actions and that the General Partner shall not be liable for
monetary damages or otherwise for losses sustained, liabilities incurred or
benefits not derived by Limited Partners in connection with such decisions,
provided that the General Partner has acted in good faith.

               C. Actions of Agents. Subject to its obligations and duties as
General Partner set forth in Section 7.1.A above, the General Partner may
exercise any of the powers granted to it by this Agreement and

                                      -34-
   35

perform any of the duties imposed upon it hereunder either directly or by or
through its agents. The General Partner shall not be responsible for any
misconduct or negligence on the part of any such agent appointed by the General
Partner in good faith.

               D. Effect of Amendment. Any amendment, modification or repeal of
this Section 7.8 or any provision hereof shall be prospective only and shall not
in any way affect the limitations on the General Partner's liability to the
Partnership and the Limited Partners under this Section 7.8 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.

Section 7.9    Other Matters Concerning the General Partner

               A. Reliance on Documents. The General Partner may rely and shall
be protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, bond, debenture or other paper or document believed by it in good faith
to be genuine and to have been signed or presented by the proper party or
parties.

               B. Reliance on Advisors. The General Partner may consult with
legal counsel, accountants, appraisers, management consultants, investment
bankers and other consultants and advisors selected by it, and any act taken or
omitted to be taken in reliance upon the opinion of such Persons as to matters
which the General Partner reasonably believes to be within such Person's
professional or expert competence shall be conclusively presumed to have been
done or omitted in good faith and in accordance with such opinion.

               C. Action Through Agents. The General Partner shall have the
right, in respect of any of its powers or obligations hereunder, to act through
any of its duly authorized officers and a duly appointed attorney or
attorneys-in-fact. Each such attorney shall, to the extent provided by the
General Partner in the power of attorney, have full power and authority to do
and perform all and every act and duty which is permitted or required to be done
by the General Partner hereunder.

               D. Actions to Maintain REIT Status or Avoid Taxation of the
General Partner Entity or the General Partner (as applicable). Notwithstanding
any other provisions of this Agreement (other than the limitations on the
General Partner's authority set forth in Sections 7.5, 7.6.A, 7.6.D, and 7.11)
or the Act, any action of the General Partner on behalf of the Partnership or
any decision of the General Partner to refrain from acting on behalf of the
Partnership undertaken in the good faith belief that such action or omission is
necessary or advisable in order (i) to protect the ability of the General
Partner Entity or the General Partner (as applicable) to continue to satisfy the
REIT Requirements or (ii) to allow the General Partner Entity or the General
Partner (as applicable) to avoid incurring any liability for taxes under Section
857 or 4981 of the Code, is expressly authorized under this Agreement and is
deemed approved by all of the Limited Partners.

Section 7.10   Reliance by Third Parties

               Notwithstanding anything to the contrary in this Agreement (other
than the limitations on the General Partner's authority set forth in Sections
7.5, 7.6.A, 7.6.D, and 7.11), any Person dealing with the Partnership shall be
entitled to assume that the General Partner has full power and authority,
without consent or approval of any other Partner or Person, to encumber, sell or
otherwise use in any manner any and all assets of the Partnership, to enter into
any contracts on behalf of the Partnership and to take any and all actions on
behalf of the Partnership, and such Person shall be entitled to deal with the
General Partner as if the General Partner were the Partnership's sole party in
interest, both legally and beneficially. Each Limited Partner hereby waives any
and all defenses or other remedies which may be available against such Person to
contest, negate or disaffirm any action of the General Partner in connection
with any such dealing. In no event shall any Person

                                      -35-
   36

dealing with the General Partner or its representatives be obligated to
ascertain that the terms of this Agreement have been complied with or to inquire
into the necessity or expedience of any act or action of the General Partner or
its representatives. Each and every certificate, document or other instrument
executed on behalf of the Partnership by the General Partner or its
representatives shall be conclusive evidence in favor of any and every Person
relying thereon or claiming thereunder that (i) at the time of the execution and
delivery of such certificate, document or instrument, this Agreement was in full
force and effect, (ii) the Person executing and delivering such certificate,
document or instrument was duly authorized and empowered to do so for and on
behalf of the Partnership, and (iii) such certificate, document or instrument
was duly executed and delivered in accordance with the terms and provisions of
this Agreement and is binding upon the Partnership.

Section 7.11   Restrictions on General Partner's Authority

               A. Consent Required. The General Partner may not take any action
in contravention of an express prohibition or limitation of this Agreement
without the written Consent of (i) all Partners adversely affected or (ii) such
lower percentage of the Limited Partnership Interests as may be specifically
provided for under a provision of this Agreement or the Act.

               B. Intentionally Omitted.

               C. Required Consent of Certain Partners. (i) The General Partner
may not, directly or indirectly, cause the Partnership to take any action
prohibited by this Section 7.11.C without the requisite approval as provided in
this Section 7.11.C.

               (1)    For a period of twenty (20) years following April 15,
                      1997, the General Partner may not, directly or indirectly,
                      cause the Partnership to sell, exchange or otherwise
                      dispose of the property located at Two Penn Plaza, New
                      York, New York or any indirect interest (including,
                      without limitation, any interest of the Partnership in Two
                      Penn Plaza REIT, Inc., and any interest of Two Penn Plaza
                      REIT, Inc., in Vornado Two Penn Plaza L.L.C., whether, in
                      either case, by liquidation, merger or otherwise) therein
                      (collectively, the "Two Penn Plaza Property") (other than
                      an involuntary sale pursuant to foreclosure of the
                      mortgage secured by the Two Penn Plaza Property or
                      otherwise, including pursuant to (x) an event described in
                      Section 1033 of the Code (as determined without reference
                      to the property, if any, into which the Two Penn Plaza
                      Property is converted), other than a disposition resulting
                      from the mere threat or imminence of a requisition or
                      condemnation and (y) a deed in lieu of foreclosure
                      (provided that the General Partner may not execute any
                      deed in lieu of foreclosure unless the maturity of the
                      indebtedness secured by the Two Penn Plaza Property has
                      occurred, whether by reason of acceleration or otherwise,
                      or a proceeding in connection with a Bankruptcy of the
                      Partnership, the fee owning entity or any intermediate
                      Person between them) to any Person without the Consent of
                      the Partners at the time of the proposed sale, exchange or
                      other disposition (other than the General Partner or the
                      General Partner Entity or any Subsidiary of either the
                      General Partner or the General Partner Entity) who hold
                      seventy-five percent (75%) of the Partnership Units which
                      were issued with respect to Two Penn Plaza Associates in
                      the Consolidation and which remain outstanding (whether
                      held by the original recipient of such Partnership Units
                      or by a successor or transferee of the original recipient,
                      but not including Partnership Units, if any, held by (I)
                      the General Partner or the General Partner Entity or any
                      Subsidiary of either the General Partner or the General
                      Partner Entity and (II) the estate of Bernard H. Mendik
                      following his death) (referred to as "Two Penn Plaza
                      Units"). In addition, during such twenty-year period, the
                      General Partner may not, directly or indirectly, cause the
                      Partnership to repay, earlier than one year prior to its
                      stated maturity, any

                                      -36-
   37

                      indebtedness secured by the Two Penn Plaza Property
                      without the Consent of Partners holding seventy-five
                      percent (75%) of the Two Penn Plaza Units, unless such
                      repayment (a) is made in connection with the refinancing
                      (on a basis such that the new debt would be considered a
                      Nonrecourse Liability, or, as contemplated and only to the
                      extent required by clause (2) below, a Partner Nonrecourse
                      Debt) of such indebtedness for an amount not less than the
                      principal amount of such indebtedness on the date of such
                      refinancing, with such refinancing indebtedness (1)
                      providing for the least amount of principal amortization
                      as is available on commercially reasonable terms and (2)
                      permitting (but not requiring) a guarantee of such
                      indebtedness by the holders of the Two Penn Plaza Units
                      who elect to join in such guarantee in a form and on terms
                      consistent with the guarantees by the holders of the Two
                      Penn Plaza Units in effect immediately prior to such
                      refinancing, provided that the opportunity to provide such
                      guarantee is obtainable on commercially reasonable terms,
                      or (b) is made in connection with an involuntary sale
                      pursuant to foreclosure of the mortgage secured by the Two
                      Penn Plaza Property or otherwise, including pursuant to a
                      deed in lieu of foreclosure (provided that the General
                      Partner may not execute any deed in lieu of foreclosure
                      unless the maturity of the indebtedness secured by the Two
                      Penn Plaza Property has been accelerated) or a proceeding
                      in connection with a Bankruptcy of the Partnership, the
                      fee-owning entity or any intermediate Person between them.
                      During such twenty-year period, the General Partner shall
                      use commercially reasonable efforts during the one-year
                      period prior to the stated maturity of such indebtedness
                      to cause the Partnership to refinance (on a basis such
                      that the new debt would be considered a Nonrecourse
                      Liability, or, as contemplated and only to the extent
                      required by clause (2) below, a Partner Nonrecourse Debt)
                      the indebtedness for an amount not less than the principal
                      amount of such indebtedness on the date of such
                      refinancing, provided such refinancing can be obtained on
                      commercially reasonable terms, with such refinancing
                      indebtedness (1) providing for the least amount of
                      principal amortization as is available on commercially
                      reasonable terms and (2) permitting (but not requiring) a
                      guarantee of such indebtedness by the holders of the Two
                      Penn Plaza Units who elect to join in such guarantee in a
                      form and on terms consistent with the guarantees by the
                      holders of the Two Penn Plaza Units in effect immediately
                      prior to such refinancing, provided that the opportunity
                      to provide such guarantee is obtainable on commercially
                      reasonable terms. Finally, during such twenty-year period,
                      the General Partner shall not, without the Consent of
                      Partners holding seventy-five percent (75%) of the Two
                      Penn Plaza Units, incur indebtedness secured by the Two
                      Penn Plaza Property if, at the time such indebtedness is
                      incurred, the aggregate amount of the indebtedness secured
                      by the Two Penn Plaza Property would exceed the greater of
                      (i) seventy percent (70%) of the fair market value of the
                      Two Penn Plaza Property (or the interest therein) securing
                      such indebtedness or (ii) the then outstanding
                      indebtedness being refinanced plus all costs (including
                      prepayment fees, "breakage" payments and similar costs)
                      incurred in connection with such refinancing. All
                      references in this Section 7.11.C to "commercially
                      reasonable terms" shall be as determined by the General
                      Partner in its sole discretion, exercised in good faith.

               (2)    For a period of twenty (20) years following April 15,
                      1997, the General Partner may not, directly or indirectly,
                      cause the Partnership to sell, exchange or otherwise
                      dispose of the property located at Eleven Penn Plaza, New
                      York, New York or any indirect interest therein
                      (collectively, the "Eleven Penn Plaza Property") (other
                      than an involuntary sale pursuant to foreclosure of the
                      mortgage secured by the Eleven Penn Plaza Property or
                      otherwise, including pursuant to (x) an event described in

                                      -37-
   38

                      Section 1033 of the Code (as determined without reference
                      to the property, if any, into which the Eleven Penn Plaza
                      Property is converted), other than a disposition resulting
                      from the mere threat or imminence of a requisition or
                      condemnation and (y) a deed in lieu of foreclosure
                      (provided that the General Partner may not execute any
                      deed in lieu of foreclosure unless the maturity of the
                      indebtedness secured by the Eleven Penn Plaza Property has
                      occurred, whether by reason of acceleration or otherwise,
                      or a proceeding in connection with a Bankruptcy of the
                      Partnership, the fee-owning entity or any intermediate
                      Person between them) to any Person without the Consent of
                      the Partners at the time of the proposed sale, exchange or
                      other disposition who hold seventy-five percent (75%) of
                      the Partnership Units which were issued with respect to
                      the Eleven Penn Partnerships in the Consolidation and
                      which remain outstanding (whether held by the original
                      recipient of such Partnership Units or by a successor or
                      transferee of the original recipient, but not including
                      the Partnership Units, if any, held by (I) General Partner
                      or the General Partner Entity or any Subsidiary of either
                      the General Partner or the General Partner Entity and (II)
                      the estate of Bernard H. Mendik following his death)
                      (referred to as "Eleven Penn Plaza Units"). In addition,
                      during such twenty-year period, the General Partner may
                      not, directly or indirectly, cause the Partnership to
                      repay, earlier than one year prior to its stated maturity,
                      any indebtedness secured by the Eleven Penn Plaza Property
                      without the Consent of Partners who hold seventy-five
                      percent (75%) of the Eleven Penn Plaza Units, unless such
                      repayment (a) is made in connection with the refinancing
                      (on a basis such that the new debt would be considered a
                      Nonrecourse Liability, or, as contemplated and only to the
                      extent required by clause (2) below, a Partner Nonrecourse
                      Debt) of such indebtedness for an amount not less than the
                      principal amount of such indebtedness on the date of such
                      refinancing, with such refinancing indebtedness (1)
                      providing for the least amount of principal amortization
                      as is available on commercially reasonable terms and (2)
                      permitting (but not requiring) a guarantee of such
                      indebtedness by the holders of the Eleven Penn Plaza Units
                      who elect to join in such guarantee in a form and on terms
                      consistent with the guarantees by the holders of the
                      Eleven Penn Plaza Units in effect immediately prior to
                      such refinancing, provided that the opportunity to provide
                      such guarantee is obtainable on commercially reasonable
                      terms, or (b) is made in connection with an involuntary
                      sale pursuant to foreclosure of the mortgage secured by
                      the Eleven Penn Plaza Property or otherwise, including
                      pursuant to a deed in lieu of foreclosure (provided that
                      the General Partner may not execute any deed in lieu of
                      foreclosure unless the maturity of the indebtedness
                      secured by the Eleven Penn Plaza Property has been
                      accelerated) or a proceeding in connection with a
                      Bankruptcy of the Partnership, the fee-owning entity or
                      any intermediate Person between them. During such
                      twenty-year period, the General Partner shall use
                      commercially reasonable efforts during the one-year period
                      prior to the stated maturity of such indebtedness to cause
                      the Partnership to refinance (on a basis such that the new
                      debt would be considered a Nonrecourse Liability, or, as
                      contemplated and only to the extent required by clause (2)
                      below, a Partner Nonrecourse Debt) the indebtedness for an
                      amount not less than the principal amount of such
                      indebtedness on the date of such refinancing, provided
                      such refinancing can be obtained on commercially
                      reasonable terms, with such refinancing indebtedness (1)
                      providing for the least amount of principal amortization
                      as is available on commercially reasonable terms and (2)
                      permitting (but not requiring) a guarantee of such
                      indebtedness by the holders of the Eleven Penn Plaza Units
                      who elect to join in such guarantee in a form and on terms
                      consistent with the guarantees by the holders of the
                      Eleven Penn Plaza Units in effect immediately prior to
                      such refinancing, provided that the opportunity to

                                      -38-
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                      provide such guarantee is obtainable on commercially
                      reasonable terms. Finally, during such twenty-year period,
                      the General Partner shall not, without the Consent of
                      Partners holding seventy-five percent (75%) of the Eleven
                      Penn Plaza Units, incur indebtedness secured by the Eleven
                      Penn Plaza Property if, at the time such indebtedness is
                      incurred, the aggregate amount of the indebtedness secured
                      by the Eleven Penn Plaza Property would exceed the greater
                      of (i) seventy percent (70%) of the fair market value of
                      the Eleven Penn Plaza Property (or the interest therein)
                      securing such indebtedness or (ii) the then outstanding
                      indebtedness being refinanced plus all costs (including
                      prepayment fees, "breakage" payments and similar costs)
                      incurred in connection with such refinancing.

               (3)    For a period of twenty (20) years following April 15,
                      1997, the General Partner may not, directly or indirectly,
                      cause the Partnership to sell, exchange, or otherwise
                      dispose of the property located at 866 U.N. Plaza, New
                      York, New York or any indirect interest therein
                      (collectively, the "866 U.N. Plaza Property") (other than
                      an involuntary sale pursuant to foreclosure of the
                      mortgage secured by the 866 U.N. Plaza Property or
                      otherwise, including pursuant to (x) an event described in
                      Section 1033 of the Code (as determined without reference
                      to the property, if any, into which the 866 U.N. Plaza
                      Property is converted), other than a disposition resulting
                      from the mere threat or imminence of a requisition or
                      condemnation and (y) a deed in lieu of foreclosure
                      (provided that the General Partner may not execute any
                      deed in lieu of foreclosure unless the maturity of the
                      indebtedness secured by the 866 U.N. Plaza Property has
                      occurred, whether by reason of acceleration or otherwise,
                      or a proceeding in connection with a Bankruptcy of the
                      Partnership, the fee-owning entity or any intermediate
                      Person between them) to any Person without the Consent of
                      the Partners at the time of the proposed sale, exchange or
                      other disposition (other than the General Partner or the
                      General Partner Entity or any Subsidiary of either of the
                      General Partner of the General Partner or the General
                      Partner Entity) who hold seventy-five percent (75%) of the
                      Partnership Units which were issued with respect to 866
                      U.N. Plaza Associates in the Consolidation and which
                      remain outstanding (whether held by the original recipient
                      of such Partnership Units or by a successor or transferee
                      of the original recipient, but not including Partnership
                      Units, if any, held by (I) the General Partner or the
                      General Partner Entity or any Subsidiary of either the
                      General Partner or the General Partner Entity and (II) the
                      estate of Bernard H. Mendik following his death) (referred
                      to as "866 U.N. Plaza Units"). In addition, during such
                      twenty-year period, the General Partner may not, directly
                      or indirectly, cause the Partnership to repay, earlier
                      than one year prior to its stated maturity, any
                      indebtedness secured by the 866 U.N. Plaza Property
                      without the Consent of Partners holding seventy-five
                      percent (75%) of the 866 U.N. Plaza Units, unless such
                      repayment (a) is made in connection with the refinancing
                      (on a basis such that the new debt would be considered a
                      Nonrecourse Liability or, as contemplated and only to the
                      extent required by clause (2) below, a Partner Nonrecourse
                      Debt) of such indebtedness for an amount not less than the
                      principal amount of such indebtedness on the date of such
                      refinancing, with such refinancing indebtedness (1)
                      providing for the least amount of principal amortization
                      as is available on commercially reasonable terms and (2)
                      permitting (but not requiring) a guarantee of such
                      indebtedness by the holders of the 866 U.N. Plaza Units
                      who elect to join in such guarantee in a form and on terms
                      consistent with the guarantees by the holders of the 866
                      U.N. Plaza Units in effect immediately prior to such
                      refinancing, provided that the opportunity to provide such
                      guarantee is obtainable on commercially reasonable terms,
                      or (b) is made in connection with an involuntary sale
                      pursuant to foreclosure of the mortgage secured by the 866
                      U.N. Plaza Property

                                      -39-
   40

                      or otherwise, including pursuant to a deed in lieu of
                      foreclosure (provided that the General Partner may not
                      execute any deed in lieu of foreclosure unless the
                      maturity of the indebtedness secured by the 866 U.N. Plaza
                      Property has been accelerated) or a proceeding in
                      connection with a Bankruptcy of the Partnership, of the
                      fee-owning entity or any intermediate Person between them.
                      During such twenty-year period, the General Partner shall
                      use commercially reasonable efforts during the one-year
                      period prior to the stated maturity of such indebtedness
                      to cause the Partnership to refinance (on a basis such
                      that the new debt would be considered a Nonrecourse
                      Liability, or, as contemplated and only to the extent
                      required by clause (2) below, a Partner Nonrecourse Debt)
                      the indebtedness for an amount not less than the principal
                      amount of such indebtedness on the date of such
                      refinancing, provided such refinancing can be obtained on
                      commercially reasonable terms, with such refinancing
                      indebtedness (1) providing for the least amount of
                      principal amortization as is available on commercially
                      reasonable terms and (2) permitting (but not requiring) a
                      guarantee of such indebtedness by the holders of the 866
                      U.N. Plaza Units who elect to join in such guarantee in a
                      form and on terms consistent with the guarantees by the
                      holders of the 866 U.N. Plaza Units in effect immediately
                      prior to such refinancing, provided that the opportunity
                      to provide such guarantee is obtainable on commercially
                      reasonable terms. Finally, during such twenty-year period,
                      the General Partner shall not, without the Consent of
                      Partners holding seventy-five percent (75%) of the 866
                      U.N. Plaza Units, incur indebtedness secured by the 866
                      U.N. Plaza Property if, at the time such indebtedness is
                      incurred, the aggregate amount of the indebtedness secured
                      by the 866 U.N. Plaza Property would exceed the greater of
                      (i) seventy percent (70%) of the fair market value of the
                      866 U.N. Plaza Property (or the interest therein) securing
                      such indebtedness or (ii) the then outstanding
                      indebtedness being refinanced plus all costs (including
                      prepayment fees, "breakage" payments and similar costs)
                      incurred in connection with such refinancing.

               (4)    Subparagraphs (1), (2), and (3) shall not apply to any
                      transaction that involves the Two Penn Plaza Property, the
                      Eleven Penn Plaza Property or the 866 U.N. Plaza Property,
                      as the case may be (which Property is referred to as the
                      "Exchanged Property"), if such transaction qualifies as a
                      like-kind exchange under Section 1031 of the Code or an
                      involuntary conversion under Section 1033 of the Code
                      (other than an involuntary conversion under Section 1033
                      of the Code that is described in the second parenthetical
                      to subparagraphs (1), (2) or (3), as the case may be) in
                      which no gain is recognized by the Partnership as long as
                      the following conditions are satisfied: (x) in the case of
                      a Section 1031 like-kind exchange, such exchange is not
                      with a "related party" within the meaning of Section
                      1031(f)(3) of the Code; (y) the property received in
                      exchange for the Exchanged Property (referred to as the
                      "Replacement Property") is acquired in the same taxable
                      year of the Partnership in which the disposition of the
                      Exchanged Property occurs and is secured by nonrecourse
                      indebtedness in an amount not less than the outstanding
                      principal amount of the nonrecourse indebtedness secured
                      by the Exchanged Property at the time of the exchange, nor
                      greater than the amount that would be permitted under
                      Sections 7.11.C(1), (2), or (3), as the case may be
                      (except that 70% of fair market value shall be determined
                      by reference to the Replacement Property and not the
                      Exchanged Property, with a maturity not earlier than, and
                      a principal amortization rate not more rapid than, the
                      maturity and principal amortization rate of such
                      indebtedness secured by the Exchanged Property, which
                      indebtedness permits (but does not require) a guarantee of
                      such indebtedness by the holders of the Two Penn Plaza
                      Units, the Eleven Penn Plaza Units or the 866 U.N. Plaza
                      Units, as the case

                                      -40-
   41

                      may be, who elect to join in such guarantee in a form and
                      on terms consistent with the guarantees by the holders of
                      the Two Penn Plaza Units, the Eleven Penn Plaza Units or
                      the 866 U.N. Plaza Units, as the case may be, in effect
                      immediately prior to the time of the exchange, and (z) the
                      Replacement Property is thereafter treated for all
                      purposes of the restrictions in this Section 7.11.C as the
                      Exchanged Property and the indebtedness secured by such
                      Replacement Property is subject to the same restrictions
                      and agreements as apply with respect to the indebtedness
                      secured by the Exchanged Property.

               (5)    Subparagraphs (1), (2), and (3) shall not apply to any
                      transaction that involves the Two Penn Plaza Property, the
                      Eleven Penn Plaza Property or the 866 U.N. Plaza Property,
                      as the case may be (which Property is referred to as the
                      "Transferred Property"), if (x) such transaction is one in
                      which no gain is recognized with respect to the Two Penn
                      Plaza Property, the Eleven Penn Plaza Property or the 866
                      U.N. Plaza Property by the Partnership or the holders of
                      the Two Penn Plaza Units, the Eleven Penn Plaza Units, or
                      the 866 U.N. Plaza Units, as the case may be (other than
                      gain, if any, resulting solely because the share, if any,
                      of indebtedness allocable to a Partnership Unit is reduced
                      or eliminated), provided that (i) the amount of
                      indebtedness secured by the Two Penn Plaza Property, the
                      Eleven Penn Plaza Property or the 866 U.N. Plaza Property,
                      as applicable, is not decreased as a result of the
                      transaction and the amount of indebtedness secured by the
                      Two Penn Plaza Property, the Eleven Penn Plaza Property or
                      the 866 U.N. Plaza Property, as applicable, that is a
                      Nonrecourse Liability or Partner Nonrecourse Debt is not
                      reduced, except as permitted by the relevant provisions of
                      Subparagraph (1), (2) or (3) of this Section 7.11.C, and
                      (ii) the indebtedness secured by the Two Penn Plaza
                      Property, the Eleven Penn Plaza Property or the 866 U.N.
                      Plaza Property, as applicable, continues to be taken into
                      account in determining the Partners' basis in their
                      Partnership Interests under rules similar to those
                      provided in Section 752 of the Code and (y) the entity to
                      which such Transferred Property is transferred agrees, for
                      the benefit of the holders of the Two Penn Plaza Units,
                      the Eleven Penn Plaza Units or the 866 U.N. Plaza Units,
                      as the case may be, that all of the restrictions of this
                      Section 7.11.C shall apply to the Transferred Property and
                      the indebtedness outstanding with respect thereto in the
                      same manner and to the extent set forth in this Section
                      7.11.C and such agreement is reflected in the partnership
                      agreement (or other comparable governing instrument) of
                      the entity to which the Transferred Property is
                      transferred.

               (6)    Subparagraphs (1), (2), and (3) shall not apply to any
                      transaction that involves either a merger or consolidation
                      of the Partnership with or into another entity that
                      qualifies as a "partnership" for federal income tax
                      purposes (the "Successor Partnership") or a transfer of
                      all or substantially all of the assets of the Partnership
                      to a Successor Partnership and dissolution of the
                      Partnership in connection therewith (in either case, a
                      "Consolidation Transaction") so long as (x) no gain is
                      recognized with respect to the Two Penn Plaza Property,
                      the Eleven Penn Plaza Property or the 866 U.N. Plaza
                      Property by the Partnership or the holders of the Two Penn
                      Plaza Units, the Eleven Penn Plaza Units or the 866 U.N.
                      Plaza Units, as the case may be, in connection with such
                      Consolidation Transaction (other than gain, if any,
                      resulting solely because the share, if any, of
                      indebtedness allocable to a Partnership Unit is reduced or
                      eliminated, provided that the amount of indebtedness
                      secured by the Two Penn Plaza Property, the Eleven Penn
                      Plaza Property or the 866 U.N. Plaza Property, as
                      applicable, is not decreased as a result of the
                      transaction and the amount of indebtedness secured by the
                      Two Penn Plaza

                                      -41-
   42

                      Property, the Eleven Penn Plaza Property or the 866 U.N.
                      Plaza Property, as applicable, that is a Nonrecourse
                      Liability or Partner Nonrecourse Debt is not reduced,
                      except as permitted by the relevant provisions of
                      Subparagraph (1), (2) or (3) of this Section 7.11.C, and
                      (y) the Successor Partnership agrees in writing, for the
                      benefit of the holders of the Two Penn Plaza Units, the
                      Eleven Penn Plaza Units or the 866 U.N. Plaza Units, as
                      the case may be, that all of the restrictions of this
                      Section 7.11.C shall apply to the Two Penn Plaza Property,
                      the Eleven Penn Plaza Property and the 866 U.N. Plaza
                      Property and the indebtedness outstanding with respect
                      thereto in the same manner and to the extent set forth in
                      this Section 7.11.C.

               (7)    Subparagraphs (1), (2) and (3) shall not apply to any
                      transaction not otherwise described in Subparagraph (4),
                      (5) or (6) involving the Two Penn Plaza Property, the
                      Eleven Penn Plaza Property and/or the 866 U.N. Plaza
                      Property if, concurrently with the consummation of such
                      transaction, the Partnership pays to the holders of the
                      Two Penn Plaza Units, the Eleven Penn Plaza Units and/or
                      the 866 U.N. Plaza Units, as applicable, in addition to
                      any amounts otherwise distributable under Article V
                      hereof, an amount equal to the lesser of (x) the aggregate
                      federal, state and local income taxes payable by each
                      holder of Two Penn Plaza Units, as applicable, as a result
                      of or in connection with such transactions, or (y) the
                      aggregate federal, state and local income taxes that would
                      have been payable by such holder (or its predecessor in
                      interest) if the relevant property had been sold on April
                      15, 1997 for its 704(c) Value; provided that the amount
                      referred to in clause (y) shall be reduced to reflect (I)
                      reductions in the Book/Tax Disparity with respect to the
                      Two Penn Plaza Property, the Eleven Penn Plaza Property
                      and/or the 866 U.N. Plaza Property, as applicable, and
                      (II) with respect to a holder who acquired Two Penn Plaza
                      Units, Eleven Penn Plaza Units and/or 866 U.N. Plaza
                      Units, as applicable, subsequent to April 15, 1997, the
                      reduction in gain that results from such holder's having a
                      special inside basis under Section 743 of the Code in the
                      Two Penn Plaza Property, the Eleven Penn Plaza Property or
                      the 866 U.N. Plaza Property, as applicable (by treating
                      the special inside basis as the basis for determining gain
                      on the deemed sale described in clause (y)), but, in
                      either (I) or (II), the gain with respect to which the tax
                      is computed may not be so reduced beneath the "negative
                      basis" associated, as of the Effective Time, with the Two
                      Penn Plaza Units, the Eleven Penn Plaza Units or the 866
                      U.N. Plaza Units, as appropriate, plus in the case of
                      either (x) or (y), an amount equal to the aggregate
                      federal, state and local income taxes payable by the
                      recipient thereof as the result of the receipt of the
                      payments provided for in this subparagraph (7) (including
                      for this purpose all taxes on payments hereunder intended
                      to compensate the recipient thereof for taxes owed by the
                      recipient). For purposes of the preceding sentence, (x)
                      all income arising from the transaction that is treated as
                      ordinary income under the applicable provisions of the
                      Code and is allocated to the holders of the Two Penn Plaza
                      Units, the Eleven Penn Plaza Units and/or the 866 U.N.
                      Plaza Units, as applicable, shall be treated as subject to
                      federal, state and local income tax at the effective tax
                      rate imposed on ordinary income of New York City
                      residents, determined using the maximum federal, New York
                      State and New York City rates on ordinary income then in
                      effect and (y) all other income arising from the
                      transaction and all payments provided for in this
                      subparagraph (7) shall be treated as subject to federal,
                      state and local income tax at the effective tax rate
                      imposed on long-term capital gains of New York City
                      residents, determined using the maximum federal, New York
                      State and New York City rates on long-term capital gains
                      then in effect.

                                      -42-
   43

               If at any time prior to the twentieth (20th) anniversary of April
15, 1997, the Partnership pays the amounts described in subparagraph (7) above
in respect of any Partnership Units entitled to the benefits of Section
7.11.C(1), (2) or (3), and the amount of such payment is, at the time that it is
made, equal to the full amount that would be payable under such Sections with
respect to such Partnership Units if the Two Penn Plaza Property, the Eleven
Penn Plaza Property, or the 866 U.N. Plaza Property, as applicable, were to have
been sold on such date for its market value, then the provisions of Section
7.11.C shall thereafter cease to apply to those Partnership Units.

               (ii) Nothing herein shall be deemed to require that the
Partnership or the General Partner take any action to avoid or prevent an
involuntary disposition of any property, whether pursuant to foreclosure of a
mortgage secured by such property or otherwise, including pursuant to a deed in
lieu of foreclosure or a proceeding in connection with a Bankruptcy.

               (iii) Nothing herein shall prevent the sale, exchange, transfer
or other disposition of any property pursuant to the dissolution and liquidation
of the Partnership in accordance with Article XIII hereof (other than Section
13.1(v), which shall be subject to this Section 7.11.C).

               D. Merger or Consolidation in Which the Partnership is Not the
Surviving Entity. In the event that the Partnership is to merge or consolidate
with or into any other entity in a transaction in which holders of Partnership
Units will receive consideration other than cash or equity securities that are
Publicly Traded (an "Equity Merger") and such Equity Merger would be prohibited
by Section 7.11.C but for the application of Section 7.11.C(6) (and not Section
7.1.C(4), (5) or (7)), then, unless the Consent of Certain Limited Partners is
obtained:

               (i) the partnership agreement, limited liability agreement or
               other operative governing documents (the "Charter Documents") of
               the entity that is the surviving entity in such Equity Merger
               must contain provisions that are comparable in all material
               respects to, or the entity that is the surviving entity in such
               Equity Merger must otherwise agree in writing, for the benefit of
               the holders of the Two Penn Plaza Units, the Eleven Penn Plaza
               Units, and the 866 U.N. Plaza Units, to restrictions that are
               comparable in all material respects to the provisions of Section
               4.2.A, Article V and Article VI (except for differences that
               would be permitted pursuant to Sections 4.2, 5.1.C, 5.4, 6.2 and
               14.1.B(3) if such changes were to be made to this Agreement),
               Section 7.6.A, Section 7.11.A, this Section 7.11.D, Section 8.6
               (and all defined terms set forth in Article I that relate to the
               Redemption Right), Section 11.2, Section 13.1, Section 13.2.A(3)
               (except as permitted pursuant to Sections 4.2, 5.4, 6.2 and
               14.1.B(3)), Section 14.1.C, Section 14.1.D, and Section 14.2, all
               as in effect immediately prior to the Equity Merger; and

               (ii) the Equity Merger shall not cause a holder of a Partnership
               Unit to be a general partner or to have liability equivalent to
               that of a general partner in a partnership or otherwise modify
               the limited liability of a Limited Partner under this Agreement.

Section 7.12   Loans by Third Parties

               The Partnership may incur Debt, or enter into similar credit,
guarantee, financing or refinancing arrangements for any purpose (including,
without limitation, in connection with any acquisition of property) with any
Person upon such terms as the General Partner determines appropriate; provided,
that the Partnership shall not incur any Debt that is recourse to the General
Partner unless, and then only to the extent that, the General Partner has
expressly agreed.

                                      -43-
   44

                                  ARTICLE VIII
                   RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS

Section 8.1    Limitation of Liability

               The Limited Partners shall have no liability under this Agreement
except as expressly provided in this Agreement, including Section 10.5 hereof,
or under the Act.

Section 8.2    Management of Business

               No Limited Partner or Assignee (other than the General Partner,
any of its Affiliates or any officer, director, employee, partner, agent or
trustee of the General Partner, the Partnership or any of their Affiliates, in
their capacity as such) shall take part in the operation, management or control
(within the meaning of the Act) of the Partnership's business, transact any
business in the Partnership's name or have the power to sign documents for or
otherwise bind the Partnership. The transaction of any such business by the
General Partner, any of its Affiliates or any officer, director, employee,
partner, agent or trustee of the General Partner, the Partnership or any of
their Affiliates, in their capacity as such, shall not affect, impair or
eliminate the limitations on the liability of the Limited Partners or Assignees
under this Agreement.

Section 8.3    Outside Activities of Limited Partners

               Subject to Section 7.5 hereof, and subject to any agreements
entered into pursuant to Section 7.6.C hereof and to any other agreements
entered into by a Limited Partner or its Affiliates with the Partnership or a
Subsidiary, any Limited Partner (other than the General Partner) and any
officer, director, employee, agent, trustee, Affiliate or shareholder of any
Limited Partner shall be entitled to and may have business interests and engage
in business activities in addition to those relating to the Partnership,
including business interests and activities in direct or indirect competition
with the Partnership. Neither the Partnership nor any Partners shall have any
rights by virtue of this Agreement in any business ventures of any Limited
Partner or Assignee. None of the Limited Partners (other than the General
Partner) nor any other Person shall have any rights by virtue of this Agreement
or the partnership relationship established hereby in any business ventures of
any other Person (other than the General Partner to the extent expressly
provided herein), and such Person shall have no obligation pursuant to this
Agreement to offer any interest in any such business ventures to the
Partnership, any Limited Partner or any such other Person, even if such
opportunity is of a character which, if presented to the Partnership, any
Limited Partner or such other Person, could be taken by such Person.

Section 8.4    Return of Capital

               Except pursuant to the right of redemption set forth in Section
8.6 below, no Limited Partner shall be entitled to the withdrawal or return of
its Capital Contribution, except to the extent of distributions made pursuant to
this Agreement or upon termination of the Partnership as provided herein. No
Limited Partner or Assignee shall have priority over any other Limited Partner
or Assignee either as to the return of Capital Contributions (except as
permitted by Section 4.2.A hereof) or, except to the extent provided by Exhibit
C hereto or as permitted by Sections 4.2.A, 5.1.B(i) hereof or otherwise
expressly provided in this Agreement, as to profits, losses, distributions or
credits.

Section 8.5    Rights of Limited Partners Relating to the Partnership

               A. General. In addition to other rights provided by this
Agreement or by the Act, and except as limited by Section 8.5.D below, each
Limited Partner shall have the right, for a purpose reasonably related to such
Limited Partner's interest as a limited partner in the Partnership, upon written
demand with a statement of the purpose of such demand and at such Limited
Partner's own expense:

                                      -44-
   45

               (1)    to obtain a copy of the most recent annual and quarterly
                      reports filed with the Securities and Exchange Commission
                      by the General Partner Entity pursuant to the Exchange
                      Act;

               (2)    to obtain a copy of the Partnership's federal, state and
                      local income tax returns for each Partnership Year;

               (3)    to obtain a current list of the name and last known
                      business, residence or mailing address of each Partner;
                      and

               (4)    to obtain a copy of this Agreement and the Certificate and
                      all amendments thereto, together with copies of all powers
                      of attorney pursuant to which this Agreement, the
                      Certificate and all amendments thereto have been executed.

               B. Notice of Conversion Factor. The Partnership shall notify each
Limited Partner upon request of the then current Conversion Factor and any
changes that have been made thereto.

               C. Notice of Extraordinary Transaction of the General Partner
Entity. The General Partner Entity shall not make any extraordinary
distributions of cash or property to its shareholders or effect a merger
(including, without limitation, a triangular merger), a sale of all or
substantially all of its assets or any other similar extraordinary transaction
without notifying the Limited Partners of its intention to make such
distribution or effect such merger, sale or other extraordinary transaction at
least twenty (20) days prior to the record date to determine shareholders
eligible to receive such distribution or to vote upon the approval of such
merger, sale or other extraordinary transaction (or, if no such record date is
applicable, at least twenty (20) days before consummation of such merger, sale
or other extraordinary transaction). This provision for such notice shall not be
deemed (i) to permit any transaction that otherwise is prohibited by this
Agreement or requires a Consent of the Partners or (ii) to require a Consent of
the Limited Partners to a transaction that does not otherwise require Consent
under this Agreement. Each Limited Partner agrees, as a condition to the receipt
of the notice pursuant hereto, to keep confidential the information set forth
therein until such time as the General Partner Entity has made public disclosure
thereof and to use such information during such period of confidentiality solely
for purposes of determining whether or not to exercise the Redemption Right;
provided, however, that a Limited Partner may disclose such information to its
attorney, accountant and/or financial advisor for purposes of obtaining advice
with respect to such exercise so long as such attorney, accountant and/or
financial advisor agrees to receive and hold such information subject to this
confidentiality requirement.

               D. Confidentiality. Notwithstanding any other provision of this
Section 8.5, the General Partner may keep confidential from the Limited
Partners, for such period of time as the General Partner determines in its sole
and absolute discretion to be reasonable, any information that (i) the General
Partner reasonably believes to be in the nature of trade secrets or other
information the disclosure of which the General Partner in good faith believes
is not in the best interests of the Partnership or could damage the Partnership
or its business or (ii) the Partnership is required by law or by agreements with
unaffiliated third parties to keep confidential.

Section 8.6    Redemption Right

               A. General. (i) Subject to Section 8.6.C below, on or after the
date one (1) year (or, in the case of Partnership Units owned by a Restricted
Partner on or before April 15, 1997, two (2) years (subject to the terms of the
parenthetical and the proviso in Section 11.3.A(y))) after April 15, 1997 (or,
if later than April 15, 1997, the date of the issuance of a Partnership Unit to
a Limited Partner pursuant to Article IV hereof) which one-year (or two-year, if
applicable) period shall commence upon the issuance of such Partnership Unit
regardless of whether such Partnership Unit is designated upon issuance as a
Class A Unit, a Class B Unit, a Class C Unit, a Class D Unit, a Class E Unit or
otherwise and shall include any class A Unit

                                      -45-
   46

issued in exchange for such Partnership Unit pursuant to Section 4.2.D), or on
or after such date prior to the expiration of such one-year period or two-year
period, as applicable, as the General Partner, in its sole and absolute
discretion, designates with respect to any or all Partnership Units then
outstanding, the holder of a Partnership Unit (if other than the General Partner
or the General Partner Entity or any Subsidiary of either the General Partner or
the General Partner Entity) shall have the right (the "Redemption Right") to
require the Partnership to redeem such Partnership Unit on a Specified
Redemption Date and at a redemption price equal to and in the form of the Cash
Amount to be paid by the Partnership. In addition, at any time commencing on
July 15, 1997 and continuing until (but not after) April 15, 1998, any holder of
a Class E Unit shall have the right (which shall also be deemed a Redemption
Right hereunder) to require the Partnership to redeem such Partnership Unit on a
Specified Redemption Date and at a redemption price equal to and in the form of
ninety-four percent (94%) of the Cash Amount to be paid by the Partnership. Any
such Redemption Right shall be exercised pursuant to a Notice of Redemption
delivered to the Partnership (with a copy to the General Partner) by the Limited
Partner who is exercising the Redemption Right (the "Redeeming Partner"). A
Limited Partner may not exercise the Redemption Right for less than one thousand
(1,000) Partnership Units or, if such Redeeming Partner holds less than one
thousand (1,000) Partnership Units, for less than all of the Partnership Units
held by such Redeeming Partner.

              (ii) The Redeeming Partner shall have no right with respect to any
Partnership Units so redeemed to receive any distributions paid after the
Specified Redemption Date, unless the record date for such distribution was a
date prior to the Specified Redemption Date.

              (iii) The Assignee of any Limited Partner may exercise the rights
of such Limited Partner pursuant to this Section 8.6, and such Limited Partner
shall be deemed to have assigned such rights to such Assignee and shall be bound
by the exercise of such rights by such Limited Partner's Assignee. In connection
with any exercise of the such rights by such Assignee on behalf of such Limited
Partner, the Cash Amount shall be paid by the Partnership directly to such
Assignee and not to such Limited Partner.

            (iv) In the event that the General Partner provides notice to the
Limited Partners, pursuant to Section 8.5.C hereof, the Redemption Right shall
be exercisable, subject to the one-year limitation contained in Section
8.6(a)(i) (and, for purposes of this clause (iv), the two-year limitation
imposed on Restricted Partners under this Section 8.6 shall be shortened to one
year after April 15, 1997), during the period commencing on the date on which
the General Partner provides such notice and ending on the record date to
determine shareholders eligible to receive such distribution or to vote upon the
approval of such merger, sale or other extraordinary transaction (or, if no such
record date is applicable, the date that is twenty (20) days after the date the
General Partner provides such notice pursuant to Section 8.5.C hereof). In the
event that this subparagraph (iv) applies, the Specified Redemption Date shall
be the sooner of (1) the tenth (10th) Business Day after the Partnership
receives the Redemption Notice or (2) the Business Day immediately preceding the
record date to determine shareholders eligible to receive a distribution or vote
on approval; provided that if such time determined pursuant to clause (1) or (2)
above occurs in less than ten (10) Business Days and the Partnership elects to
redeem the subject Partnership Units for cash, the Partnership will have up to
ten (10) Business Days from receipt of the Redemption Notice to deliver payment
in respect of such Partnership Units.

               (v) Notwithstanding the terms of Section 8.6.A(i) or anything
else in this Agreement to the contrary, if there shall have been a merger or
consolidation of the General Partner, or a sale or all or substantially all of
the assets of the General Partner as an entirety, and in either case, in
connection therewith, the shareholders of the General Partner are obligated to
accept cash and/or debt obligations in full or partial consideration for their
Shares, then the portion of the Redemption Amount per Partnership Unit that
corresponds to the portion of Value of the total consideration receivable for
one Share multiplied by the Conversion Factor (a "Unit Equivalent") that is
required to be accepted in cash and/or debt obligations shall thereafter be an
amount of cash equal to the sum of (i) the cash payable for a Unit Equivalent on
the date of the closing of such merger, consolidation or sale and (ii) the Value
on the date of the closing of such merger, consolidation, or sale of the debt
obligations to be received with respect to a Unit Equivalent, adjusted as set

                                      -46-
   47

forth below (this amount of cash is referred to as the "Required Cash Payment")
(the percentage that the Required Cash Payment represents of the total
Redemption Amount with respect to a Partnership Unit, determined as of such
closing date, is referred to as the "Pro Rata Portion"). The balance of the
Redemption Amount per Partnership Unit shall be determined as provided for in
the definitions of Conversion Factor, Redemption Amount, Shares Amount, Cash
Amount and Value. In the event that the merger, consolidation or sale giving
rise to the application of this clause (v) occurs at a time when there shall be
any Persons the consent of whom is required pursuant to the definition of
"Consent of Certain Limited Partners", then the Required Cash Payment shall be
increased by a cash payment to the extent required to provide such Limited
Partner, upon the exercise of its Redemption Right with respect to a Partnership
Unit, with an Internal Rate of Return on such Required Cash Payment for the
period from the date of such merger, consolidation or sale to the date of the
redemption of the Partnership Unit, when taken together with the Pro Rata
Portion of all distributions received by such Limited Partner with respect to
such Partnership Unit from and after the effective date of the merger,
consolidation or sale equal to the Treasury Constant Yield. As used herein, the
"Treasury Constant Yield" shall mean the arithmetic mean of the rates published
as "Treasury Constant Maturities" as of 5:00 p.m., New York time, for the five
business days preceding the effective date of the merger, consolidation or sale,
as shown on the USD screen of the Telerate service (or if such service is not
available, under Section 504 in the weekly statistical release designated
H.15(519) (or any successor publication) published by the Board of Governors of
the Federal Reserve System, for "On the Run" U.S. Treasury obligations
corresponding to the twentieth anniversary of the date hereof). If no such
maturity shall so exactly correspond, yields for the two most closely
corresponding published maturities shall be calculated pursuant to the foregoing
sentence and the Treasury Constant Yield shall be interpolated or extrapolated
(as applicable) from such yields on a straight-line basis (rounding, in the case
of relevant periods, to the nearest month). As used herein, "Internal Rate of
Return" shall mean, with respect to a rate of return of the Constant Treasury
Yield, commencing on the effective date of the merger, consolidation or sale,
compounded quarterly to the extent not paid on a current basis, taking into
account the timing and amounts of this Pro Rata Portion of all distributions by
the Partnership to such Partner with respect to such Partnership Unit; for
purposes of computing the Internal Rate of Return, distributions to a Partner at
any time during a month shall be deemed to be made and received on the day
actually made.

               B. General Partner Assumption of Right. (i) If a Limited Partner
has delivered a Notice of Redemption (other than a Notice of Redemption relating
to a Class E Unit given prior to April 15, 1998), the General Partner may, in
its sole and absolute discretion (subject to any limitations on ownership and
transfer of Shares set forth in the Declaration of Trust), elect to assume
directly and satisfy a Redemption Right by paying to the Redeeming Partner
either the Cash Amount or the Shares Amount, as the General Partner determines
in its sole and absolute discretion (provided that payment of the Redemption
Amount in the form of Shares shall be in Shares registered under Section 12 of
the Exchange Act and listed for trading on the exchange or national market on
which the Shares are Publicly Traded, and provided, further, that in the event
that the Shares are not Publicly Traded at the time a Redeeming Partner
exercises its Redemption Right, the Redemption Amount shall be paid only in the
form of the Cash Amount unless the Redeeming Partner, in its sole and absolute
discretion, consents to payment of the Redemption Amount in the form of the
Shares Amount), on the Specified Redemption Date, whereupon the General Partner
shall acquire the Partnership Units offered for redemption by the Redeeming
Partner and shall be treated for all purposes of this Agreement as the owner of
such Partnership Units and such Partnership Units shall automatically convert to
Class A Units upon acquisition by the General Partner. Unless the General
Partner, in its sole and absolute discretion, shall exercise its right to assume
directly and satisfy the Redemption Right, the General Partner shall not have
any obligation to the Redeeming Partner or to the Partnership with respect to
the Redeeming Partner's exercise of the Redemption Right. In the event the
General Partner shall exercise its right to satisfy the Redemption Right in the
manner described in the first sentence of this Section 8.6.B and shall fully
perform its obligations in connection therewith, the Partnership shall have no
right or obligation to pay any amount to the Redeeming Partner with respect to
such Redeeming Partner's exercise of the Redemption Right, and each of the
Redeeming Partner, the Partnership and the General Partner shall, for federal
income tax purposes, treat the transaction between the General Partner and the
Redeeming Partner as a sale of the Redeeming Partner's Partnership Units to the
General Partner. Nothing contained in this Section 8.6.B shall imply any right
of the General Partner to

                                      -47-
   48

require any Limited Partner to exercise the Redemption Right afforded to such
Limited Partner pursuant to Section 8.6.A above.

               (ii) In the event that the General Partner determines to pay the
Redeeming Partner the Redemption Amount in the form of Shares, the total number
of Shares to be paid to the Redeeming Partner in exchange for the Redeeming
Partner's Partnership Units shall be the applicable Shares Amount. In the event
this amount is not a whole number of Shares, the Redeeming Partner shall be paid
(i) that number of Shares which equals the nearest whole number less than such
amount plus (ii) an amount of cash which the General Partner determines, in its
reasonable discretion, to represent the fair value of the remaining fractional
Share which would otherwise be payable to the Redeeming Partner.

               (iii) Each Redeeming Partner agrees to execute such documents as
the General Partner may reasonably require in connection with the issuance of
Shares upon exercise of the Redemption Right.

               C. Exceptions to Exercise of Redemption Right. Notwithstanding
the provisions of Sections 8.6.A and 8.6.B above, a Partner shall not be
entitled to exercise the Redemption Right pursuant to Section 8.6.A above if
(but only as long as) the delivery of Shares to such Partner on the Specified
Redemption Date (i) would be prohibited under the Declaration of Trust, or (ii)
as long as the Shares are Publicly Traded, would be prohibited under applicable
federal or state securities laws or regulations (assuming the General Partner
would in fact assume and satisfy the Redemption Right).

               D. No Liens on Partnership Units Delivered for Redemption. Each
Limited Partner covenants and agrees with the General Partner that all
Partnership Units delivered for redemption shall be delivered to the Partnership
or the General Partner, as the case may be, free and clear of all liens, and,
notwithstanding anything contained herein to the contrary, neither the General
Partner nor the Partnership shall be under any obligation to acquire Partnership
Units which are or may be subject to any liens. Each Limited Partner further
agrees that, in the event any state or local property transfer tax is payable as
a result of the transfer of its Partnership Units to the Partnership or the
General Partner, such Limited Partner shall assume and pay such transfer tax.

               E. Additional Partnership Interests. In the event that the
Partnership issues Partnership Interests to any Additional Limited Partner
pursuant to Article IV hereof, the General Partner shall make such amendments to
this Section 8.6 as it determines are necessary to reflect the issuance of such
Partnership Interests (including setting forth any restrictions on the exercise
of the Redemption Right with respect to such Partnership Interests).

               F. Transfer Tax Limitations. Notwithstanding anything herein to
the contrary, until the first business day following April 15, 1999, the
Partnership and the General Partner shall have the right, in connection with a
Limited Partner's exercise of its Redemption Right:

               (1)    to condition the payment of the redemption price under
                      Section 8.6(A)(i) upon the General Partner's sole
                      satisfaction that any New York Real Estate Transfer Tax
                      and New York City Real Property Transfer Tax payable by
                      reason of such Limited Partner's redemption prior to April
                      15, 1999 shall have been paid in full or that adequate
                      provision has been made therefor (as determined by the
                      General Partner in its sole discretion); and

               (2)    if the General Partner elects under Section 8.6.B to pay
                      the Shares Amount, then such Limited Partner shall be
                      obligated, as a condition to the effective exercise of the
                      Redemption Right, to escrow with the General Partner an
                      amount equal to the New York Real Estate Transfer Tax and
                      New York City Real Property Transfer Tax that would have
                      been payable as of the exercise of the Redemption Right,
                      assuming

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   49

                      such Limited Partner transferred the Share Amount received
                      on such date prior to April 15, 1999. Such escrow may be
                      used by the General Partner or the Limited Partner who
                      provided such escrow for the payment of the taxes
                      described in this subparagraph (2) above, provided, in the
                      latter event, the General Partner shall have determined,
                      in its good faith discretion, that such tax will be paid.
                      Such escrow shall be released to the Limited Partner, to
                      the extent not used, after April 15, 1999 if the General
                      Partner shall determine in its sole discretion exercised
                      in good faith that no such transfer tax shall have been
                      due and payable.

Section 8.7    Right of Offset

               The General Partner shall have the right to offset any amounts
owed to the Partnership or the General Partner by any Limited Partner pursuant
to (i) any written agreement between such Limited Partner and the Partnership,
the General Partner or an Affiliate of either of them pursuant to which such
Limited Partner acquired Partnership Units or (ii) the provisions of Section
5.2, Section 8.6.F or Section 11.7 of this Agreement, against any amounts owed
to such Limited Partner by the Partnership or the General Partner hereunder,
including the right to cancel or acquire, as applicable, the Units held by such
Limited Partner, based on the Cash Amount that would be payable therefor,
assuming a redemption as of the date of cancellation or acquisition, as
applicable. In exercising the foregoing offset rights, the General partner shall
be required to give a Limited Partner, in the case of an offset against a
distribution, five (5) days prior written notice (provided, however, that if a
distribution is to be made at any time during such five day period the General
Partner may retain the distribution payable to any Limited Partner to whom such
a written notice has been given to the extent of the amount owed by such limited
Partner pending the passage of such period and upon the passage of such period
without payment of all amounts owed by the applicable Limited Partner, the
General Partner shall be entitled to the right of offset described above, it
being understood that if the Limited Partner pays in full the amount owed the
General Partner shall promptly release the retained distribution to such Limited
Partner) and, in the case of an offset against Partnership Units (through
cancellation or acquisition), ten (10) days' prior written notice, in each case
of the amount owed (determined as of a date reasonably close to the date of such
notice) and the proposed offset and the Limited Partner has not paid the amount
owed within such period.

                                   ARTICLE IX
                     BOOKS, RECORDS, ACCOUNTING AND REPORTS

Section 9.1    Records and Accounting

               The General Partner shall keep or cause to be kept at the
principal office of the Partnership appropriate books and records with respect
to the Partnership's business, including, without limitation, all books and
records necessary to provide to the Limited Partners any information, lists and
copies of documents required to be provided pursuant to Section 9.3 below. Any
records maintained by or on behalf of the Partnership in the regular course of
its business may be kept on, or be in the form of, punch cards, magnetic tape,
computer disk, photographs, micrographics or any other information storage
device, provided that the records so maintained are convertible into clearly
legible written form within a reasonable period of time. The books of the
Partnership shall be maintained, for financial and tax reporting purposes, on an
accrual basis in accordance with generally accepted accounting principles.

Section 9.2    Fiscal Year

               The fiscal year of the Partnership shall be the calendar year.

Section 9.3    Reports

                                      -49-
   50

               A. Annual Reports. As soon as practicable, but in no event later
than the date on which the General Partner Entity mails its annual report to its
shareholders, the General Partner shall cause to be mailed to each Limited
Partner an annual report, as of the close of the most recently ended Partnership
Year, containing financial statements of the Partnership, or of the General
Partner Entity if such statements are prepared solely on a consolidated basis
with the Partnership, for such Partnership Year, presented in accordance with
generally accepted accounting principles, such statements to be audited by a
nationally recognized firm of independent public accountants selected by the
General Partner Entity.

               B. Quarterly Reports. If and to the extent that the General
Partner Entity mails quarterly reports to its shareholders, as soon as
practicable, but in no event later than the date on which such reports are
mailed, the General Partner shall cause to be mailed to each Limited Partner a
report containing unaudited financial statements, as of the last day of such
quarter, of the Partnership, or of the General Partner Entity if such statements
are prepared solely on a consolidated basis with the Partnership, and such other
information as may be required by applicable law or regulation, or as the
General Partner determines to be appropriate.

                                    ARTICLE X
                                   TAX MATTERS

Section 10.1   Preparation of Tax Returns

               The General Partner shall arrange for the preparation and timely
filing of all returns of Partnership income, gains, deductions, losses and other
items required of the Partnership for federal and state income tax purposes and
shall use all reasonable efforts to furnish, within ninety (90) days of the
close of each taxable year, the tax information reasonably required by Limited
Partners for federal and state income tax reporting purposes.

Section 10.2   Tax Elections

               Except as otherwise provided herein, the General Partner shall,
in its sole and absolute discretion, determine whether to make any available
election pursuant to the Code; provided, that the General Partner shall make the
election under Section 754 of the Code in accordance with applicable regulations
thereunder. The General Partner shall have the right to seek to revoke any such
election (including, without limitation, the election under Section 754 of the
Code) upon the General Partner's determination in its sole and absolute
discretion that such revocation is in the best interests of the Partners.

Section 10.3   Tax Matters Partner

               A. General. The General Partner shall be the "tax matters
partner" of the Partnership for federal income tax purposes. Pursuant to Section
6223(c)(3) of the Code, upon receipt of notice from the IRS of the beginning of
an administrative proceeding with respect to the Partnership, the tax matters
partner shall furnish the IRS with the name, address, taxpayer identification
number and profit interest of each of the Limited Partners and any Assignees;
provided, that such information is provided to the Partnership by the Limited
Partners.

               B. Powers. The tax matters partner is authorized, but not
required:

                      (1)    to enter into any settlement with the IRS with
                             respect to any administrative or judicial
                             proceedings for the adjustment of Partnership items
                             required to be taken into account by a Partner for
                             income tax purposes (such administrative
                             proceedings being referred to as a "tax audit" and
                             such

                                      -50-
   51

                             judicial proceedings being referred to as "judicial
                             review"), and in the settlement agreement the tax
                             matters partner may expressly state that such
                             agreement shall bind all Partners, except that such
                             settlement agreement shall not bind any Partner (i)
                             who (within the time prescribed pursuant to the
                             Code and Regulations) files a statement with the
                             IRS providing that the tax matters partner shall
                             not have the authority to enter into a settlement
                             agreement on behalf of such Partner or (ii) who is
                             a "notice partner" (as defined in Section
                             6231(a)(8) of the Code) or a member of a "notice
                             group" (as defined in Section 6223(b)(2) of the
                             Code);

                      (2)    in the event that a notice of a final
                             administrative adjustment at the Partnership level
                             of any item required to be taken into account by a
                             Partner for tax purposes (a "final adjustment") is
                             mailed to the tax matters partner, to seek judicial
                             review of such final adjustment, including the
                             filing of a petition for readjustment with the Tax
                             Court or the filing of a complaint for refund with
                             the United States Claims Court or the District
                             Court of the United States for the district in
                             which the Partnership's principal place of business
                             is located;

                      (3)    to intervene in any action brought by any other
                             Partner for judicial review of a final adjustment;

                      (4)    to file a request for an administrative adjustment
                             with the IRS at any time and, if any part of such
                             request is not allowed by the IRS, to file an
                             appropriate pleading (petition or complaint) for
                             judicial review with respect to such request;

                      (5)    to enter into an agreement with the IRS to extend
                             the period for assessing any tax which is
                             attributable to any item required to be taken into
                             account by a Partner for tax purposes, or an item
                             affected by such item; and

                      (6)    to take any other action on behalf of the Partners
                             of the Partnership in connection with any tax audit
                             or judicial review proceeding to the extent
                             permitted by applicable law or regulations.

               The taking of any action and the incurring of any expense by the
tax matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of the General
Partner set forth in Section 7.7 hereof shall be fully applicable to the tax
matters partner in its capacity as such.

               C. Reimbursement. The tax matters partner shall receive no
compensation for its services. All third party costs and expenses incurred by
the tax matters partner in performing its duties as such (including legal and
accounting fees and expenses) shall be borne by the Partnership. Nothing herein
shall be construed to restrict the Partnership from engaging an accounting firm
or a law firm to assist the tax matters partner in discharging its duties
hereunder, as long as the compensation paid by the Partnership for such services
is reasonable.

Section 10.4   Organizational Expenses

               The Partnership shall elect to deduct expenses, if any, incurred
by it in organizing the Partnership ratably over a sixty (60) month period as
provided in Section 709 of the Code.

                                      -51-
   52

Section 10.5   Withholding

               Each Limited Partner hereby authorizes the Partnership to
withhold from or pay on behalf of or with respect to such Limited Partner any
amount of federal, state, local, or foreign taxes that the General Partner
determines that the Partnership is required to withhold or pay with respect to
any amount distributable or allocable to such Limited Partner pursuant to this
Agreement, including, without limitation, any taxes required to be withheld or
paid by the Partnership pursuant to Section 1441, 1442, 1445, or 1446 of the
Code. Any amount paid on behalf of or with respect to a Limited Partner shall
constitute a recourse loan by the Partnership to such Limited Partner, which
loan shall be repaid by such Limited Partner within fifteen (15) days after
notice from the General Partner that such payment must be made unless (i) the
Partnership withholds such payment from a distribution which would otherwise be
made to the Limited Partner or (ii) the General Partner determines, in its sole
and absolute discretion, that such payment may be satisfied out of the available
funds of the Partnership which would, but for such payment, be distributed to
the Limited Partner. Any amounts withheld pursuant to the foregoing clauses (i)
or (ii) shall be treated as having been distributed to such Limited Partner.
Each Limited Partner hereby unconditionally and irrevocably grants to the
Partnership a security interest in such Limited Partner's Partnership Interest
to secure such Limited Partner's obligation to pay to the Partnership any
amounts required to be paid pursuant to this Section 10.5. In the event that a
Limited Partner fails to pay any amounts owed to the Partnership pursuant to
this Section 10.5 when due, the General Partner may, in its sole and absolute
discretion, elect to make the payment to the Partnership on behalf of such
defaulting Limited Partner, and in such event shall be deemed to have loaned
such amount to such defaulting Limited Partner and shall succeed to all rights
and remedies of the Partnership as against such defaulting Limited Partner
(including, without limitation, the right to receive distributions). Any amounts
payable by a Limited Partner hereunder shall bear interest at the base rate on
corporate loans at large United States money center commercial banks, as
published from time to time in the Wall Street Journal, plus four (4) percentage
points (but not higher than the maximum lawful rate) from the date such amount
is due (i.e., fifteen (15) days after demand) until such amount is paid in full.
Each Limited Partner shall take such actions as the Partnership or the General
Partner shall request in order to perfect or enforce the security interest
created hereunder.

                                   ARTICLE XI
                            TRANSFERS AND WITHDRAWALS

Section 11.1   Transfer

               A. Definition. The term "transfer," when used in this Article XI
with respect to a Partnership Interest or a Partnership Unit, shall be deemed to
refer to a transaction by which the General Partner purports to assign all or
any part of its General Partnership Interest to another Person or by which a
Limited Partner purports to assign all or any part of its Limited Partnership
Interest to another Person, and includes a sale, assignment, gift, pledge,
encumbrance, hypothecation, mortgage, exchange or any other disposition by law
or otherwise. The term "transfer" when used in this Article XI does not include
any redemption or repurchase of Partnership Units by the Partnership from a
Partner (including the General Partner) or acquisition of Partnership Units from
a Limited Partner by the General Partner pursuant to Section 8.6 hereof or
otherwise. No part of the interest of a Limited Partner shall be subject to the
claims of any creditor, any spouse for alimony or support, or to legal process,
and no part of the interest of a Limited Partner may be voluntarily or
involuntarily alienated or encumbered except as may be specifically provided for
in this Agreement.

               B. General. No Partnership Interest shall be transferred, in
whole or in part, except in accordance with the terms and conditions set forth
in this Article XI. Any transfer or purported transfer of a Partnership Interest
not made in accordance with this Article XI shall be null and void.

Section 11.2   Transfers of Partnership Interests of General Partner

                                      -52-
   53

               A. Except for transfers of Partnership Units to the Partnership
as provided in Section 7.5 or Section 8.6 hereof, the General Partner may not
transfer any of its Partnership Interest (including both its General Partnership
Interest and its Limited Partnership Interest) except in connection with a
transaction described in Section 11.2.B below or as otherwise expressly
permitted under this Agreement), nor shall the General Partner withdraw as
General Partner except in connection with a transaction described in Section
11.2.B below.

               B. The General Partner shall not engage in any merger (including
a triangular merger), consolidation or other combination with or into another
person, sale of all or substantially all of its assets or any reclassification,
recapitalization or change of the terms of any outstanding Common Shares (other
than a change in par value, or from par value to no par value, or as a result of
a subdivision or combination as described in the definition of "Conversion
Factor") ("Termination Transaction"), unless , in connection therewith, all
Limited Partners (other than the General Partner, the General Partner Entity and
any entities controlled by either of them) will have the right to elect to
receive, or, subject to Section 7.11.C., will receive, for each Partnership Unit
an amount of cash, securities, or other property equal to the product of the
Conversion Factor and the greatest amount of cash, securities or other property
paid to a holder of Shares, if any, corresponding to such Partnership Unit in
consideration of one such Share; provided, that if, in connection with the
Termination Transaction, a purchase, tender or exchange offer shall have first
been made to and accepted by the holders of more than fifty percent (50%) of the
outstanding Shares and a holder of Partnership Units did not receive advance
written notice (whether from the General Partner, the offeror or otherwise) of
the offer and an opportunity to redeem its Partnership Units substantially in
accordance with the provisions in Section 8.6, then such holder of Partnership
Units shall receive, or shall have the right to elect to receive, the greatest
amount of cash, securities, or other property which such holder would have
received had it exercised the Redemption Right and received Shares in exchange
for its Partnership Units immediately prior to such purchase, tender or exchange
offer and had thereupon accepted such purchase, tender or exchange offer and to
the extent required by the terms thereof applicable to all other holders of
Shares participating in the purchase, tender or exchange offer, participated in
all other phases of such Termination Transaction as well.

Section 11.3   Limited Partners' Rights to Transfer

               A. General. Subject to the provisions of Sections 11.3.C, 11.3.D,
11.3.E, 11.4 and 11.6 below, prior to the first anniversary (or, in the case of
a Restricted Partner, the second anniversary or, in the case of Bernard H.
Mendik or David R. Greenbaum only, such earlier date, if any, on which such
individual's employment with the Partnership shall be terminated without Cause,
due to a Disability or for Good Reason (as such terms are defined in the case of
Mr. Mendik in Exhibit B to the Noncompetition Agreement dated as of April 15,
1997 by and among Vornado Realty Trust, The Mendik Company, L.P. and Bernard H.
Mendik, and in the case of Mr. Greenbaum in Section 4(b), Section 4(c), and
Section 4(d) of the Employment Agreement dated as of April 15, 1997 by and among
Vornado Realty Trust, The Mendik Company, L.P. and David R. Greenbaum)) of April
15, 1998, the Limited Partnership Interest of any Partner may not be transferred
in whole or in part, directly, indirectly or beneficially, without the prior
written consent of the General Partner, which consent the General Partner may
withhold in its sole discretion; provided, however, that it is expressly
understood that subject to the provisions of Sections 11.3.C, 11.3.D, 11.3.E,
11.4 and 11.6 below each Limited Partner will be permitted to make one or more
transfers to any Affiliated Transferee of such Limited Partner. Commencing on
April 15, 1998 (or (x) in the case of a holder of Class E Units but only with
respect to such Class E Units, commencing on July 15, 1997, and (y) in the case
of a Restricted Partner, April 15, 1999; provided, however, that the Partnership
Units identified on Exhibit H hereto (which Partnership Units are beneficially
owned, directly or indirectly, through a Restricted Partner by the Persons named
opposite such Partnership Units on Exhibit H) shall not be deemed to be held by
a Restricted Partner for purposes of Section 8.6.A and this Section 11.3.A), and
subject to the provisions of Sections 11.3.C, 11.3.D, 11.3.E, 11.4 and 11.6
below, a Limited Partner (other than the General Partner or the General Partner
Entity or any Subsidiary of either of them) may transfer all or any portion of
its Limited Partnership Interest to any person, provided such Limited Partner
obtains the prior written consent of the General Partner, which consent may be
withheld only

                                      -53-
   54

if the General Partner determines in its sole discretion exercised in good faith
that such a transfer would cause the Partnership or any or all of the Partners
other than the Limited Partner seeking to transfer its rights as a Limited
Partner to be subject to tax liability as a result of such transfer. Any
purported transfer attempted in violation of the foregoing sentence shall be
deemed void ab initio and shall have no force or effect.

               B. Incapacitated Limited Partners. If a Limited Partner is
subject to Incapacity, the executor, administrator, trustee, committee,
guardian, conservator or receiver of such Limited Partner's estate shall have
all the rights of a Limited Partner, but not more rights than those enjoyed by
other Limited Partners for the purpose of settling or managing the estate and
such power as the Incapacitated Limited Partner possessed to transfer all or any
part of its interest in the Partnership. The Incapacity of a Limited Partner, in
and of itself, shall not dissolve or terminate the Partnership.

               C. No Transfers Violating Securities Laws. The General Partner
may prohibit any transfer of Partnership Units by a Limited Partner if, in the
opinion of legal counsel to the Partnership, such transfer would require filing
of a registration statement under the Securities Act or would otherwise violate
any federal, or state securities laws or regulations applicable to the
Partnership or the Partnership Unit.

               D. No Transfers Affecting Tax Status of Partnership. No transfer
of Partnership Units by a Limited Partner (including a redemption or exchange
pursuant to Section 8.6 hereof) may be made to any Person if (i) in the opinion
of legal counsel for the Partnership, it would result in the Partnership being
treated as an association taxable as a corporation for federal income tax
purposes or would result in a termination of the Partnership for federal income
tax purposes (except as a result of the redemption or exchange for Shares of all
Partnership Units held by all Limited Partners other than the General Partner or
the General Partner Entity or any Subsidiary of either the General Partner or
the General Partner Entity or pursuant to a transaction not prohibited under
Section 11.2 hereof), (ii) in the opinion of legal counsel for the Partnership,
it would adversely affect the ability of the General Partner Entity or the
General Partner (as applicable) to continue to qualify as a REIT or would
subject the General Partner Entity or the General Partner (as applicable) to any
additional taxes under Section 857 or Section 4981 of the Code or (iii) such
transfer is effectuated through an "established securities market" or a
"secondary market (or the substantial equivalent thereof)" within the meaning of
Section 7704 of the Code.

               E. No Transfers to Holders of Nonrecourse Liabilities. No pledge
or transfer of any Partnership Units may be made to a lender to the Partnership
or any Person who is related (within the meaning of Section 1.752-4(b) of the
Regulations) to any lender to the Partnership whose loan constitutes a
Nonrecourse Liability without the consent of the General Partner, in its sole
and absolute discretion; provided, that as a condition to such consent the
lender will be required to enter into an arrangement with the Partnership and
the General Partner to exchange or redeem for the Redemption Amount any
Partnership Units in which a security interest is held simultaneously with the
time at which such lender would be deemed to be a partner in the Partnership for
purposes of allocating liabilities to such lender under Section 752 of the Code.

               F. Certain Pledged Interests. Concurrently with the execution and
delivery of this Agreement, (i) to secure its obligations under the
Indemnification Agreement, dated as of April 15, 1997, among the Partnership,
FW/Mendik LLC and others, FW/Mendik LLC, a Limited Partner, is pledging a
portion of its limited partnership interest pursuant to a Pledge and Security
Agreement, dated as of April 15, 1997, namely, 360,577 Class C Units represented
by "Certificate Evidencing Partnership Interests in Vornado Realty L.P.,
Certificate No. R - C 2"; (ii) to secure its obligations under the letter
agreement relating to certain management agreements, dated as of April 15, 1997,
between FW/Mendik LLC and the Partnership, FW/Mendik LLC is pledging a portion
of its limited partnership interest pursuant to a Pledge and Security Agreement,
dated as of the date hereof, namely, 40,386 Class C Units represented by
"Certificate Evidencing Partnership Interests in Vornado Realty L.P.,
Certificate No. R - C 3"; and (iii) to secure their respective obligations under
the Agreement for Contribution of Interests in Eleven Penn Plaza Company, dated
as of March 11, 1997, by and among The Mendik Company, L.P., Nicardo
Corporation, N.V., Rcay, S.A. and

                                      -54-
   55

Bernard H. Mendik, Rcay, S.A. and Nicardo Corporation, N.V. are pledging a
portion of their limited partnership interests, namely 44,716 and 102,860 Class
E Units, respectively, represented by "Certificate Evidencing Partnership
Interests in Vornado Realty L.P., Certificate No. R - E 1" and "Certificate
Evidencing Partnership Interests in Vornado Realty L.P., Certificate No. R - E
3", respectively.

Section 11.4   Substituted Limited Partners

               A. Consent of General Partner. No Limited Partner shall have the
right to substitute a transferee as a Limited Partner in its place without the
consent of the General Partner to the admission of a transferee of the interest
of a Limited Partner pursuant to this Section 11.4 as a Substituted Limited
Partner, which consent may be given or withheld by the General Partner in its
sole and absolute discretion. The General Partner's failure or refusal to permit
a transferee of any such interests to become a Substituted Limited Partner shall
not give rise to any cause of action against the Partnership or any Partner.

               B. Rights of Substituted Limited Partner. A transferee who has
been admitted as a Substituted Limited Partner in accordance with this Article
XI shall have all the rights and powers and be subject to all the restrictions
and liabilities of a Limited Partner under this Agreement. The admission of any
transferee as a Substituted Limited Partner shall be conditioned upon the
transferee executing and delivering to the Partnership an acceptance of all the
terms and conditions of this Agreement (including, without limitation, the
provisions of Section 15.11 hereof and such other documents or instruments as
may be required to effect the admission).

               C. Amendment and Restatement of Exhibit A. Upon the admission of
a Substituted Limited Partner, the General Partner shall amend and restate
Exhibit A hereto to reflect the name, address, Capital Account, number of
Partnership Units, and Percentage Interest of such Substituted Limited Partner
and to eliminate or adjust, if necessary, the name, address, Capital Account and
Percentage Interest of the predecessor of such Substituted Limited Partner.

Section 11.5   Assignees

               If the General Partner, in its sole and absolute discretion, does
not consent to the admission of any permitted transferee under Section 11.3
above as a Substituted Limited Partner, as described in Section 11.4 above, such
transferee shall be considered an Assignee for purposes of this Agreement,
subject, however, to Section 11.7 hereof. An Assignee shall be entitled to all
the rights of an assignee of a limited partnership interest under the Act,
including the right to receive distributions from the Partnership and the share
of Net Income, Net Losses, gain, loss and Recapture Income attributable to the
Partnership Units assigned to such transferee, and shall have the rights granted
to the Limited Partners under Section 8.6 hereof, but shall not be deemed to be
a holder of Partnership Units for any other purpose under this Agreement, and
shall not be entitled to vote such Partnership Units in any matter presented to
the Limited Partners for a vote (such Partnership Units being deemed to have
been voted on such matter in the same proportion as all other Partnership Units
held by Limited Partners are voted). In the event any such transferee desires to
make a further assignment of any such Partnership Units, such transferee shall
be subject to all the provisions of this Article XI to the same extent and in
the same manner as any Limited Partner desiring to make an assignment of
Partnership Units.

Section 11.6   General Provisions

               A. Withdrawal of Limited Partner. No Limited Partner may withdraw
from the Partnership other than as a result of a permitted transfer of all of
such Limited Partner's Partnership Units in accordance with this Article XI or
pursuant to redemption of all of its Partnership Units under Section 8.6 hereof.

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   56

               B. Termination of Status as Limited Partner. Any Limited Partner
who shall transfer all of its Partnership Units in a transfer permitted pursuant
to this Article XI or pursuant to redemption of all of its Partnership Units
under Section 8.6 hereof shall cease to be a Limited Partner.

               C. Timing of Transfers. Transfers pursuant to this Article XI may
only be made on the first day of a fiscal quarter of the Partnership, unless the
General Partner otherwise agrees.

               D. Allocations. If any Partnership Interest is transferred during
any quarterly segment of the Partnership's fiscal year in compliance with the
provisions of this Article XI or redeemed or transferred pursuant to Section 8.6
hereof, Net Income, Net Losses, each item thereof and all other items
attributable to such interest for such fiscal year shall be divided and
allocated between the transferor Partner and the transferee Partner by taking
into account their varying interests during the fiscal year in accordance with
Section 706(d) of the Code, using the interim closing of the books method
(unless the General Partner, in its sole and absolute discretion, elects to
adopt a daily, weekly, or a monthly proration period, in which event Net Income,
Net Losses, each item thereof and all other items attributable to such interest
for such fiscal year shall be prorated based upon the applicable method selected
by the General Partner). Solely for purposes of making such allocations, each of
such items for the calendar month in which the transfer or redemption occurs
shall be allocated to the Person who is a Partner as of midnight on the last day
of said month. All distributions attributable to any Partnership Unit with
respect to which the Partnership Record Date is before the date of such
transfer, assignment or redemption shall be made to the transferor Partner or
the Redeeming Partner, as the case may be, and, in the case of a transfer or
assignment other than a redemption, all distributions thereafter attributable to
such Partnership Unit shall be made to the transferee Partner.

               E. Additional Restrictions. In addition to any other restrictions
on transfer herein contained, including without limitation the provisions of
this Article XI, in no event may any transfer or assignment of a Partnership
Interest by any Partner (including pursuant to Section 8.6 hereof) be made
without the express consent of the General Partner, in its sole and absolute
discretion, (i) to any person or entity who lacks the legal right, power or
capacity to own a Partnership Interest; (ii) in violation of applicable law;
(iii) of any component portion of a Partnership Interest, such as the Capital
Account, or rights to distributions, separate and apart from all other
components of a Partnership Interest; (iv) if in the opinion of legal counsel to
the Partnership such transfer would cause a termination of the Partnership for
federal or state income tax purposes (except as a result of the redemption or
exchange for Shares of all Partnership Units held by all Limited Partners or
pursuant to a transaction not prohibited under Section 11.2 hereof); (v) if in
the opinion of counsel to the Partnership, such transfer would cause the
Partnership to cease to be classified as a partnership for federal income tax
purposes (except as a result of the redemption or exchange for Shares of all
Partnership Units held by all Limited Partners or pursuant to a transaction not
prohibited under Section 11.2 hereof); (vi) if such transfer would cause the
Partnership to become, with respect to any employee benefit plan subject to
Title I of ERISA, a "party-in-interest" (as defined in Section 3(14) of ERISA)
or a "disqualified person" (as defined in Section 4975(c) of the Code); (vii) if
such transfer would, in the opinion of counsel to the Partnership, cause any
portion of the assets of the Partnership to constitute assets of any employee
benefit plan pursuant to Department of Labor Regulations Section 2510.1-101;
(viii) if such transfer requires the registration of such Partnership Interest
pursuant to any applicable federal or state securities laws; (ix) if such
transfer is effectuated through an "established securities market" or a
"secondary market" (or the substantial equivalent thereof) within the meaning of
Section 7704 of the Code or such transfer causes the Partnership to become a
"publicly traded partnership," as such term is defined in Section 469(k)(2) or
Section 7704(b) of the Code; (x) if such transfer subjects the Partnership to
regulation under the Investment Company Act of 1940, the Investment Advisors Act
of 1940 or the Employee Retirement Income Security Act of 1974, each as amended;
(xi) if the transferee or assignee of such Partnership Interest is unable to
make the representations set forth in Section 15.15 hereof or such transfer
could otherwise adversely affect the ability of the General Partner Entity or
the General Partner (as applicable) to remain qualified as a REIT; or (xii) if
in the opinion of legal counsel for the Partnership, such transfer would
adversely affect the ability of the General Partner Entity or the General
Partner (as applicable)

                                      -56-
   57

to continue to qualify as a REIT or subject the General Partner Entity or the
General Partner (as applicable) to any additional taxes under Section 857 or
Section 4981 of the Code.

               F. Avoidance of "Publicly Traded Partnership" Status. The General
Partner shall (a) use commercially reasonable efforts (as determined by it in
its sole discretion exercised in good faith) to monitor the transfers of
interests in the Partnership to determine (i) if such interests are being traded
on an "established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Section 7704 of the Code and (ii)
whether additional transfers of interests would result in the Partnership being
unable to qualify for at least one of the "safe harbors" set forth in
Regulations Section 1.7704- 1 (or such other guidance subsequently published by
the IRS setting forth safe harbors under which interests will not be treated as
"readily tradable on a secondary market (or the substantial equivalent thereof)"
within the meaning of Section 7704 of the Code) (the "Safe Harbors") and (b)
take such steps as it believes are commercially reasonable and appropriate (as
determined by it in its sole discretion exercised in good faith) to prevent any
trading of interests or any recognition by the Partnership of transfers made on
such markets and, except as otherwise provided herein, to insure that at least
one of the Safe Harbors is met.

Section 11.7   Payment of Incremental Tax

               Notwithstanding anything herein to the contrary, until the
business day immediately following the second anniversary of April 15, 1997, no
Person shall be admitted as a Substitute Limited Partner and no person shall be
considered an Assignee for purposes of this Agreement, and any transaction or
other form of conveyance or disposition of any sort whatsoever purporting to
transfer an interest in this Agreement or in the Partnership or substitute a
limited partner shall be null and void and of no force and effect unless
concurrently with such purported transfer the transferor shall establish to the
sole satisfaction of the General Partner exercised in good faith that any New
York State Transfer Tax and/or New York City Real Estate Transfer Tax payable in
connection with the purported transfer by reason of the transferor's failure to
hold for a two-year period the Partnership Units issued as of April 15, 1997
shall have been paid. A Limited Partner shall be obligated to pay the transfer
taxes described above in this Section 11.7.

                                   ARTICLE XII
                              ADMISSION OF PARTNERS

Section 12.1   Admission of Successor General Partner

               A successor to all of the General Partner's General Partnership
Interest pursuant to Section 11.2 hereof who is proposed to be admitted as a
successor General Partner shall be admitted to the Partnership as the General
Partner, effective upon such transfer. Any such transferee shall carry on the
business of the Partnership without dissolution. In each case, the admission
shall be subject to the successor General Partner's executing and delivering to
the Partnership an acceptance of all of the terms and conditions of this
Agreement and such other documents or instruments as may be required to effect
the admission.

Section 12.2   Admission of Additional Limited Partners

               A. General. No Person shall be admitted as an Additional Limited
Partner without the consent of the General Partner, which consent shall be given
or withheld in the General Partner's sole and absolute discretion. A Person who
makes a Capital Contribution to the Partnership in accordance with this
Agreement, including, without limitation, pursuant to Section 4.1.C hereof, or
who exercises an option to receive Partnership Units shall be admitted to the
Partnership as an Additional Limited Partner only with the consent of the
General Partner and only upon furnishing to the General Partner (i) evidence of
acceptance in form satisfactory to the General Partner of all of the terms and
conditions of this Agreement, including, without limitation, the power of
attorney granted in Section 15.11 hereof and (ii) such other documents or
instruments as may be required in the discretion of the General Partner in order
to effect such Person's admission as an

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   58

Additional Limited Partner. The admission of any Person as an Additional Limited
Partner shall become effective on the date upon which the name of such Person is
recorded on the books and records of the Partnership, following the consent of
the General Partner to such admission.

               B. Allocations to Additional Limited Partners. If any Additional
Limited Partner is admitted to the Partnership on any day other than the first
day of a Partnership Year, then Net Income, Net Losses, each item thereof and
all other items allocable among Partners and Assignees for such Partnership Year
shall be allocated among such Additional Limited Partner and all other Partners
and Assignees by taking into account their varying interests during the
Partnership Year in accordance with Section 706(d) of the Code, using the
interim closing of the books method (unless the General Partner, in its sole and
absolute discretion, elects to adopt a daily, weekly or monthly proration
method, in which event Net Income, Net Losses, and each item thereof would be
prorated based upon the applicable period selected by the General Partner).
Solely for purposes of making such allocations, each of such items for the
calendar month in which an admission of any Additional Limited Partner occurs
shall be allocated among all the Partners and Assignees including such
Additional Limited Partner. All distributions with respect to which the
Partnership Record Date is before the date of such admission shall be made
solely to Partners and Assignees other than the Additional Limited Partner, and
all distributions thereafter shall be made to all the Partners and Assignees
including such Additional Limited Partner.

Section 12.3   Amendment of Agreement and Certificate of Limited Partnership

               For the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Act to amend
the records of the Partnership (including an amendment and restatement of
Exhibit A hereto) and, if necessary, to prepare as soon as practical an
amendment of this Agreement and, if required by law, shall prepare and file an
amendment to the Certificate and may for this purpose exercise the power of
attorney granted pursuant to Section 15.11 hereof.

                                  ARTICLE XIII
                           DISSOLUTION AND LIQUIDATION

Section 13.1   Dissolution

               The Partnership shall not be dissolved by the admission of
Substituted Limited Partners or Additional Limited Partners or by the admission
of a successor General Partner in accordance with the terms of this Agreement.
Upon the withdrawal of the General Partner, any successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
its affairs shall be wound up, upon the first to occur of any of the following
(each a "Liquidating Event") :

                      (i) the expiration of its term as provided in Section
2.4 hereof;

                      (ii) an event of withdrawal of the General Partner, as
defined in the Act (other than an event of Bankruptcy), unless, within ninety
(90) days after the withdrawal a Majority in Interest of the remaining Partners
Consent in writing to continue the business of the Partnership and to the
appointment, effective as of the date of withdrawal, of a substitute General
Partner;

                      (iii) an election to dissolve the Partnership made by the
General Partner, in its sole and absolute discretion, after December 31, 2046;

                      (iv) entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Act;

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   59

                      (v) the sale of all or substantially all of the assets and
properties of the Partnership for cash or for marketable securities (subject to
Section 7.11.C); or

                      (vi) a final and nonappealable judgment is entered by a
court of competent jurisdiction ruling that the General Partner is bankrupt or
insolvent, or a final and nonappealable order for relief is entered by a court
with appropriate jurisdiction against the General Partner, in each case under
any federal or state bankruptcy or insolvency laws as now or hereafter in
effect, unless prior to or within ninety days after of the entry of such order
or judgment a Majority in Interest of the remaining Partners Consent in writing
to continue the business of the Partnership and to the appointment, effective as
of a date prior to the date of such order or judgment, of a substitute General
Partner.

Section 13.2   Winding Up

               A. General. Upon the occurrence of a Liquidating Event, the
Partnership shall continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Partners. No Partner shall take any action that is inconsistent
with, or not necessary to or appropriate for, the winding up of the
Partnership's business and affairs. The General Partner (or, in the event there
is no remaining General Partner, any Person elected by a Majority in Interest of
the Limited Partners (the "Liquidator")) shall be responsible for overseeing the
winding up and dissolution of the Partnership and shall take full account of the
Partnership's liabilities and property and the Partnership property shall be
liquidated as promptly as is consistent with obtaining the fair value thereof,
and the proceeds therefrom (which may, to the extent determined by the General
Partner, include equity or other securities of the General Partner or any other
entity) shall be applied and distributed in the following order:

               (1)    First, to the payment and discharge of all of the
                      Partnership's debts and liabilities to creditors other
                      than the Partners;

               (2)    Second, to the payment and discharge of all of the
                      Partnership's debts and liabilities to the Partners; and

               (3)    The balance, if any, to the Partners in accordance with
                      their Capital Accounts, after giving effect to all
                      contributions, distributions, and allocations for all
                      periods.

The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article XIII.

               B. Deferred Liquidation. Notwithstanding the provisions of
Section 13.2.A above which require liquidation of the assets of the Partnership,
but subject to the order of priorities set forth therein, if prior to or upon
dissolution of the Partnership the Liquidator determines that an immediate sale
of part or all of the Partnership's assets would be impractical or would cause
undue loss to the Partners, the Liquidator may, in its sole and absolute
discretion, defer for a reasonable time the liquidation of any assets except
those necessary to satisfy liabilities of the Partnership (including to those
Partners as creditors) or distribute to the Partners, in lieu of cash, as
tenants in common and in accordance with the provisions of Section 13.2.A above,
undivided interests in such Partnership assets as the Liquidator deems not
suitable for liquidation. Any such distributions in kind shall be made only if,
in the good faith judgment of the Liquidator, such distributions in kind are in
the best interest of the Partners, and shall be subject to such conditions
relating to the disposition and management of such properties as the Liquidator
deems reasonable and equitable and to any agreements governing the operation of
such properties at such time. The Liquidator shall determine the fair market
value of any property distributed in kind using such reasonable method of
valuation as it may adopt.

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   60

Section 13.3   Compliance with Timing Requirements of Regulations

               Subject to Section 13.4 below, in the event the Partnership is
"liquidated" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g),
distributions shall be made pursuant to this Article XIII to the General Partner
and Limited Partners who have positive Capital Accounts in compliance with
Regulations Section 1.704-1(b)(2)(ii)(b)(2). If any Partner has a deficit
balance in its Capital Account (after giving effect to all contributions,
distributions and allocations for all taxable years, including the year during
which such liquidation occurs), such Partner shall have no obligation to make
any contribution to the capital of the Partnership with respect to such deficit,
and such deficit shall not be considered a debt owed to the Partnership or to
any other Person for any purpose whatsoever. In the discretion of the General
Partner, a pro rata portion of the distributions that would otherwise be made to
the General Partner and Limited Partners pursuant to this Article XIII may be:
(A) distributed to a trust established for the benefit of the General Partner
and Limited Partners for the purposes of liquidating Partnership assets,
collecting amounts owed to the Partnership and paying any contingent or
unforeseen liabilities or obligations of the Partnership or of the General
Partner arising out of or in connection with the Partnership (in which case the
assets of any such trust shall be distributed to the General Partner and Limited
Partners from time to time, in the reasonable discretion of the General Partner,
in the same proportions as the amount distributed to such trust by the
Partnership would otherwise have been distributed to the General Partner and
Limited Partners pursuant to this Agreement); or (B) withheld to provide a
reasonable reserve for Partnership liabilities (contingent or otherwise) and to
reflect the unrealized portion of any installment obligations owed to the
Partnership, provided, that such withheld amounts shall be distributed to the
General Partner and Limited Partners as soon as practicable.

Section 13.4   Deemed Distribution and Recontribution

               Notwithstanding any other provision of this Article XIII, in the
event the Partnership is deemed liquidated within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g) but no Liquidating Event has occurred, the
Partnership's property shall not be liquidated, the Partnership's liabilities
shall not be paid or discharged and the Partnership's affairs shall not be wound
up. Instead, for federal income tax purposes and for purposes of maintaining
Capital Accounts pursuant to Exhibit B hereto, the Partnership shall be deemed
to have distributed its assets in kind to the General Partner and Limited
Partners, who shall be deemed to have assumed and taken such assets subject to
all Partnership liabilities, all in accordance with their respective Capital
Accounts. Immediately thereafter, the General Partner and Limited Partners shall
be deemed to have recontributed the Partnership assets in kind to the
Partnership, which shall be deemed to have assumed and taken such assets subject
to all such liabilities.

Section 13.5   Rights of Limited Partners

               Except as otherwise provided in this Agreement, each Limited
Partner shall look solely to the assets of the Partnership for the return of its
Capital Contributions and shall have no right or power to demand or receive
property other than cash from the Partnership. Except as otherwise expressly
provided in this Agreement, no Limited Partner shall have priority over any
other Limited Partner as to the return of its Capital Contributions,
distributions, or allocations.

Section 13.6   Notice of Dissolution

               In the event a Liquidating Event occurs or an event occurs that
would, but for provisions of an election or objection by one or more Partners
pursuant to Section 13.1 above, result in a dissolution of the Partnership, the
General Partner shall, within thirty (30) days thereafter, provide written
notice thereof to each of the Partners and to all other parties with whom the
Partnership regularly conducts business (as determined in the discretion of the
General Partner) and shall publish notice thereof in a newspaper of general
circulation

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   61

in each place in which the Partnership regularly conducts business (as
determined in the discretion of the General Partner).

Section 13.7   Cancellation of Certificate of Limited Partnership

               Upon the completion of the liquidation of the Partnership cash
and property as provided in Section 13.2 above, the Partnership shall be
terminated and the Certificate and all qualifications of the Partnership as a
foreign limited partnership in jurisdictions other than the State of Delaware
shall be canceled and such other actions as may be necessary to terminate the
Partnership shall be taken.

Section 13.8   Reasonable Time for Winding Up

               A reasonable time shall be allowed for the orderly winding up of
the business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 above, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect among the Partners during the period of liquidation.

Section 13.9   Waiver of Partition

               Each Partner hereby waives any right to partition of the
Partnership property.

Section 13.10  Liability of Liquidator

               The Liquidator shall be indemnified and held harmless by the
Partnership in the same manner and to the same degree as an Indemnitee may be
indemnified pursuant to Section 7.11 hereof.

                                   ARTICLE XIV
                  AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS

Section 14.1   Amendments

               A. General. Amendments to this Agreement may be proposed only by
the General Partner. Following such proposal (except an amendment pursuant to
Section 14.1.B below), the General Partner shall submit any proposed amendment
to the Limited Partners and shall seek the written vote of the Partners on the
proposed amendment or shall call a meeting to vote thereon and to transact any
other business that it may deem appropriate. For purposes of obtaining a written
vote, the General Partner may require a response within a reasonable specified
time, but not less than fifteen (15) days, and failure to respond in such time
period shall constitute a vote which is consistent with the General Partner's
recommendation with respect to the proposal; provided, however, that in the case
of any Consent required under Section 7.11.C or 7.11.D, the General Partner
shall be required to give the Limited Partners (other than Mr. Mendik, Mr.
Greenbaum or any Mendik Owners with respect thereto) entitled to vote thereon
two (2) written requests for a response and in determining the votes cast for or
against such Consent the Partnership Units of Limited Partners (other than Mr.
Mendik, Mr. Greenbaum or any Mendik Owners with respect thereto) entitled to
vote thereon who do not respond in writing to either such request within the
time period established by the General Partner shall be deemed to have been
voted for or against the proposed Consent in the same proportion as the votes
actually received.

               B. Amendments Not Requiring Limited Partner Approval. Subject to
Section 14.1.C and 14.1.D, the General Partner shall have the power, without the
Consent of the Limited Partners, to amend this Agreement as may be required to
reflect any changes to this Agreement that the General Partner deems necessary
or appropriate in its sole discretion, provided that such change does not
adversely affect or eliminate

                                      -61-
   62

any right granted to a Limited Partner pursuant to any of the provisions of this
Agreement specified in Section 14.1.C or Section 14.1.D as requiring a
particular minimum vote. The General Partner shall notify the Limited Partners
when any action under this Section 14.1.B is taken in the next regular
communication to the Limited Partners.

               C. Amendments Requiring Limited Partner Approval (Excluding
General Partner). Without the Consent of the Outside Limited Partners, the
General Partner shall not amend Section 4.2.A, Section 5.1.C, Section 7.5,
Section 7.6, Section 7.8, Section 11.2, Section 13.1, this Section 14.1.C or
Section 14.2.

               D. Other Amendments Requiring Certain Limited Partner Approval.
Notwithstanding anything in this Section 14.1 to the contrary, this Agreement
shall not be amended with respect to any Partner adversely affected without the
Consent of such Partner adversely affected if such amendment would (i) convert a
Limited Partner's interest in the Partnership into a general partner's interest,
(ii) modify the limited liability of a Limited Partner, (iii) amend Section
7.11.A, (iv) amend Article V, Article VI, or Section 13.2.A(3) (except as
permitted pursuant to Sections 4.2, 5.1.C, 5.4 and 6.2, (v) amend Section 8.6 or
any defined terms set forth in Article I that relate to the Redemption Right
(except as permitted in Section 8.6.E), or (vi) amend this Section 14.1.D. In
addition, any amendment to Section 7.11.C of this Agreement shall require the
following consent:

               (i) In the event that the amendment to Section 7.11.C affects the
               Two Penn Plaza Property or the rights of holders of Two Penn
               Plaza Units, such amendment shall require the Consent of Partners
               (other than the General Partner or the General Partner Entity or
               any Subsidiary of either the General Partner or the General
               Partner Entity) who hold seventy-five percent (75%) of the Two
               Penn Plaza Units;

               (ii) In the event that the amendment to Section 7.11.C affects
               the Eleven Penn Plaza Property or the rights of holders of Eleven
               Penn Plaza Units, such amendment shall require the Consent of
               Partners (other than the General Partner or the General Partner
               Entity or any Subsidiary of either the General Partner or the
               General Partner Entity) who hold seventy-five percent (75%) of
               the Eleven Penn Plaza Units; and

               (iii) In the event that the amendment to Section 7.11.C affects
               the 866 U.N. Plaza Property or the rights of holders of 866 U.N.
               Plaza Units, such amendment shall require the Consent of Partners
               (other than the General Partner or the General Partner Entity or
               any Subsidiary of either the General Partner or the General
               Partner Entity) who hold seventy-five percent (75%) of the 866
               U.N. Plaza Units.

               E. Amendment and Restatement of Exhibit A Not An Amendment.
Notwithstanding anything in this Article XIV or elsewhere in this Agreement to
the contrary, any amendment and restatement of Exhibit A hereto by the General
Partner to reflect events or changes otherwise authorized or permitted by this
Agreement, whether pursuant to Section 7.1.A(20) hereof or otherwise, shall not
be deemed an amendment of this Agreement and may be done at any time and from
time to time, as necessary by the General Partner without the Consent of the
Limited Partners.

               F. Amendment by Merger. In the event that the Partnership
participates in any merger (including a triangular merger), consolidation or
combination with another entity in a transaction not otherwise prohibited by
this Agreement and as a result of such merger, consolidation or combination this
Agreement is to be amended (or a new agreement for a limited partnership or
limited liability company, as applicable, is to be adopted for the surviving
entity) and any of the Outside Limited Partners (as defined herein in "Consent
of Outside Limited Partners") will hold equity interests in the continuing or
surviving entity, then any such

                                      -62-
   63

amendments to this Agreement (or changes from this Agreement reflected in the
new agreement for the surviving entity) shall require the consents provided in
Section 14.1.C and Section 14.1.D.

Section 14.2   Meetings of the Partners

               A. General. Meetings of the Partners may be called only by the
General Partner. The call shall state the nature of the business to be
transacted. Notice of any such meeting shall be given to all Partners not less
than seven (7) days nor more than thirty (30) days prior to the date of such
meeting; provided that a Partner's attendance at any meeting of Partners shall
be deemed a waiver of the foregoing notice requirement with respect to such
Partner. Partners may vote in person or by proxy at such meeting. Whenever the
vote or Consent of Partners is permitted or required under this Agreement, such
vote or Consent may be given at a meeting of Partners or may be given in
accordance with the procedure prescribed in Section 14.1.A above. Except as
otherwise expressly provided in this Agreement, the Consent of holders of a
majority of the Percentage Interests held by Limited Partners (including Limited
Partnership Interests held by the General Partner) shall control.

               B. Actions Without a Meeting. Any action required or permitted to
be taken at a meeting of the Partners may be taken without a meeting if a
written consent setting forth the action so taken is signed by a majority of the
Percentage Interests of the Partners (or such other percentage as is expressly
required by this Agreement). Such consent may be in one instrument or in several
instruments, and shall have the same force and effect as a vote of a majority of
the Percentage Interests of the Partners (or such other percentage as is
expressly required by this Agreement). Such consent shall be filed with the
General Partner. An action so taken shall be deemed to have been taken at a
meeting held on the effective date so certified.

               C. Proxy. Each Limited Partner may authorize any Person or
Persons to act for such Limited Partner by proxy on all matters in which a
Limited Partner is entitled to participate, including waiving notice of any
meeting, or voting or participating at a meeting. Every proxy must be signed by
the Limited Partner or its attorney-in-fact. No proxy shall be valid after the
expiration of eleven (11) months from the date thereof unless otherwise provided
in the proxy. Every proxy shall be revocable at the pleasure of the Limited
Partner executing it, such revocation to be effective upon the Partnership's
receipt of notice thereof in writing.

               D. Conduct of Meeting. Each meeting of Partners shall be
conducted by the General Partner or such other Person as the General Partner may
appoint pursuant to such rules for the conduct of the meeting as the General
Partner or such other Person deems appropriate.

                                   ARTICLE XV
                               GENERAL PROVISIONS

Section 15.1   Addresses and Notice

               Any notice, demand, request or report required or permitted to be
given or made to a Partner or Assignee under this Agreement shall be in writing
and shall be deemed given or made when delivered in person or when sent by first
class United States mail or by other means of written communication to the
Partner or Assignee at the address set forth in Exhibit A hereto or such other
address as the Partners shall notify the General Partner in writing.

Section 15.2   Titles and Captions

               All article or section titles or captions in this Agreement are
for convenience only. They shall not be deemed part of this Agreement and in no
way define, limit, extend or describe the scope or intent of any

                                      -63-
   64

provisions hereof. Except as specifically provided otherwise, references to
"Articles" and "Sections" are to Articles and Sections of this Agreement.

Section 15.3   Pronouns and Plurals

               Whenever the context may require, any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural and
vice versa.

Section 15.4   Further Action

               The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.

Section 15.5   Binding Effect

               This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.

Section 15.6   Creditors; Other Third Parties

               Other than as expressly set forth herein with regard to any
Indemnitee, none of the provisions of this Agreement shall be for the benefit
of, or shall be enforceable by, any creditor or other third party having
dealings with the Partnership.

Section 15.7   Waiver

               No failure by any party to insist upon the strict performance of
any covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.

Section 15.8   Counterparts

               This Agreement may be executed in counterparts, all of which
together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.

Section 15.9   Applicable Law

               This Agreement shall be construed and enforced in accordance with
and governed by the laws of the State of Delaware, without regard to the
principles of conflicts of law.

Section 15.10  Invalidity of Provisions

               If any provision of this Agreement is or becomes invalid, illegal
or unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions contained herein shall not be affected thereby.

Section 15.11  Power of Attorney

                                      -64-
   65

               A. General. Each Limited Partner and each Assignee who accepts
Partnership Units (or any rights, benefits or privileges associated therewith)
is deemed to irrevocably constitute and appoint the General Partner, any
Liquidator and authorized officers and attorneys-in-fact of each, and each of
those acting singly, in each case with full power of substitution, as its true
and lawful agent and attorney-in-fact, with full power and authority in its
name, place and stead to:

               (1)    execute, swear to, acknowledge, deliver, file and record
                      in the appropriate public offices (a) all certificates,
                      documents and other instruments (including, without
                      limitation, this Agreement and the Certificate and all
                      amendments or restatements thereof) that the General
                      Partner or any Liquidator deems appropriate or necessary
                      to form, qualify or continue the existence or
                      qualification of the Partnership as a limited partnership
                      (or a partnership in which the limited partners have
                      limited liability) in the State of Delaware and in all
                      other jurisdictions in which the Partnership may conduct
                      business or own property, (b) all instruments that the
                      General Partner or any Liquidator deems appropriate or
                      necessary to reflect any amendment, change, modification
                      or restatement of this Agreement in accordance with its
                      terms, (c) all conveyances and other instruments or
                      documents that the General Partner or any Liquidator deems
                      appropriate or necessary to reflect the dissolution and
                      liquidation of the Partnership pursuant to the terms of
                      this Agreement, including, without limitation, a
                      certificate of cancellation, (d) all instruments relating
                      to the admission, withdrawal, removal or substitution of
                      any Partner pursuant to, or other events described in,
                      Article XI, XII or XIII hereof or the Capital Contribution
                      of any Partner and (e) all certificates, documents and
                      other instruments relating to the determination of the
                      rights, preferences and privileges of Partnership
                      Interests; and

               (2)    execute, swear to, acknowledge and file all ballots,
                      consents, approvals, waivers, certificates and other
                      instruments appropriate or necessary, in the sole and
                      absolute discretion of the General Partner or any
                      Liquidator, to make, evidence, give, confirm or ratify any
                      vote, consent, approval, agreement or other action which
                      is made or given by the Partners hereunder or is
                      consistent with the terms of this Agreement or appropriate
                      or necessary, in the sole discretion of the General
                      Partner or any Liquidator, to effectuate the terms or
                      intent of this Agreement.

               Nothing contained in this Section 15.11 shall be construed as
authorizing the General Partner or any Liquidator to amend this Agreement except
in accordance with Article XIV hereof or as may be otherwise expressly provided
for in this Agreement.

               B. Irrevocable Nature. The foregoing power of attorney is hereby
declared to be irrevocable and a power coupled with an interest, in recognition
of the fact that each of the Partners will be relying upon the power of the
General Partner or any Liquidator to act as contemplated by this Agreement in
any filing or other action by it on behalf of the Partnership, and it shall
survive and not be affected by the subsequent Incapacity of any Limited Partner
or Assignee and the transfer of all or any portion of such Limited Partner's or
Assignee's Partnership Units and shall extend to such Limited Partner's or
Assignee's heirs, successors, assigns and personal representatives. Each such
Limited Partner or Assignee hereby agrees to be bound by any representation made
by the General Partner or any Liquidator, acting in good faith pursuant to such
power of attorney; and each such Limited Partner or Assignee hereby waives any
and all defenses which may be available to contest, negate or disaffirm the
action of the General Partner or any Liquidator, taken in good faith under such
power of attorney. Each Limited Partner or Assignee shall execute and deliver to
the General Partner or the Liquidator, within fifteen (15) days after receipt of
the General Partner's or Liquidator's request therefor, such further
designation, powers of attorney and other instruments as the General Partner or

                                      -65-
   66

the Liquidator, as the case may be, deems necessary to effectuate this Agreement
and the purposes of the Partnership.

Section 15.12  Entire Agreement

               This Agreement and all Exhibits attached hereto (which Exhibits
are incorporated herein by reference as if fully set forth herein) contains the
entire understanding and agreement among the Partners with respect to the
subject matter hereof and supersedes any prior written oral understandings or
agreements among them with respect thereto.

Section 15.13  No Rights as Shareholders

               Nothing contained in this Agreement shall be construed as
conferring upon the holders of the Partnership Units any rights whatsoever as
shareholders of the General Partner Entity or the General Partner (if
different), including, without limitation, any right to receive dividends or
other distributions made to shareholders of the General Partner Entity or the
General Partner (if different) or to vote or to consent or receive notice as
shareholders in respect to any meeting of shareholders for the election of
directors of the General Partner Entity or the General Partner (if different) or
any other matter.

Section 15.14  Limitation to Preserve REIT Status

               To the extent that any amount paid or credited to the General
Partner or its officers, directors, employees or agents pursuant to Section 7.4
or Section 7.7 hereof would constitute gross income to the General Partner
Entity or the General Partner (if it is to be qualified as a REIT) for purposes
of Section 856(c)(2) or 856(c)(3) of the Code (a "General Partner Payment")
then, notwithstanding any other provision of this Agreement, the amount of such
General Partner Payments for any fiscal year shall not exceed the lesser of:

               (i) an amount equal to the excess, if any, of (a) 5% of the
General Partner Entity's or the General Partner's (if it is to be qualified as a
REIT) total gross income (but not including the amount of any General Partner
Payments) for the fiscal year over (b) the amount of gross income (within the
meaning of Section 856(c)(2) of the Code) derived by the General Partner Entity
or the General Partner (if it is to be qualified as a REIT) from sources other
than those described in subsections (A) through (H) of Section 856(c)(2) of the
Code (but not including the amount of any General Partner Payments); or

               (ii) an amount equal to the excess, if any of (a) 25% of the
General Partner Entity's or the General Partner's (if it is to be qualified as a
REIT) total gross income (but not including the amount of any General Partner
Payments) for the fiscal year over (b) the amount of gross income (within the
meaning of Section 856(c)(3) of the Code) derived by the General Partner Entity
or the General Partner (if it is to be qualified as a REIT) from sources other
than those described in subsections (A) through (I) of Section 856(c)(3) of the
Code (but not including the amount of any General Partner Payments);

provided, however, that General Partner Payments in excess of the amounts set
forth in subparagraphs (i) and (ii) above may be made if the General Partner
Entity or the General Partner (if it is to be qualified as a REIT), as a
condition precedent, obtains an opinion of tax counsel that the receipt of such
excess amounts would not adversely affect the General Partner Entity's or the
General Partner's (if it is to be qualified as a REIT) ability to qualify as a
REIT. To the extent General Partner Payments may not be made in a year due to
the foregoing limitations, such General Partner Payments shall carry over and be
treated as arising in the following year, provided, however, that such amounts
shall not carry over for more than five years, and if not paid within such five
year period, shall expire; provided, further, that (i) as General Partner
Payments are made, such payments shall be applied first to carry over amounts
outstanding, if any, and (ii) with respect to carry over amounts for more than
one Partnership Year, such payments shall be applied to the earliest Partnership
Year first.

                                      -66-
   67

               IN WITNESS WHEREOF, the General Partner has executed this
Agreement as of the date first written above.

                                            VORNADO REALTY TRUST

                                            By:    /s/ Joseph Macnow
                                                   ------------------------
                                            Name:  Joseph Macnow
                                            Title: Executive Vice President

                                      -67-
   1

                                    AMENDMENT
                                       TO
                           SECOND AMENDED AND RESTATED
                        AGREEMENT OF LIMITED PARTNERSHIP
                                       OF
                               VORNADO REALTY L.P.
                  ---------------------------------------------

                          Dated as of December 16, 1997

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

            THIS AMENDMENT to the Second Amended and Restated Agreement of
Limited Partnership (the "Agreement") of Vornado Realty L.P., a Delaware limited
partnership (the "Partnership"), dated as of December 16, 1997, is hereby
adopted by Vornado Realty Trust, a Maryland real estate investment trust
(defined therein as the "General Partner"), as the general partner of the
Partnership. For ease of reference, capitalized terms used herein and not
otherwise defined have the meanings assigned to them in the Agreement.

            WHEREAS, the Partnership was formed under the name "Mendik Real
Estate Group, L.P." on October 2, 1996, and, on October 2, 1996, the Partnership
adopted an Agreement of Limited Partnership;

      WHEREAS, on November 7, 1996, the general partner of the Partnership
changed the Partnership's name to "The Mendik Company, L.P." and, in connection
therewith, caused a Certificate of Amendment to the Certificate of Limited
Partnership of the Partnership to be filed in the office of the Delaware
Secretary of State on November 8, 1996;

      WHEREAS, as of April 15, 1997, the General Partner, certain of affiliates
of the General Partner, FW/Mendik REIT, L.L.C., a Delaware limited liability
company, and The Mendik Company, Inc., a Maryland corporation, recapitalized the
Partnership and, in connection therewith, entered into a First Amended and
Restated Agreement of Limited Partnership, dated as of April 15, 1997 (the
"Prior Agreement"), and in connection therewith filed a Certificate of Amendment
to the Certificate of Limited Partnership of the Partnership in the office of
the Delaware Secretary of State, which filing was made on April 15, 1997;

      WHEREAS, effective as of October 20, 1997, the General Partner caused the
Partnership issue and distribute to each Person who was a Limited Partner on
October 15, 1997, an additional Common Partnership Unit for each Common
Partnership Unit (and in 
   2

the same Class) that was owned by such Person on October 15, 1997 and, in
connection therewith, the General Partner amended and restated the Prior
Agreement in the form of the Agreement.

            WHEREAS, as of the date of this Amendment the General Partner is
acquiring, by merger and otherwise, certain assets and businesses previously
owned by Arbor Property Trust and, in connection with that acquisition, is
issuing 39,315 Series A Convertible Preferred Shares of Beneficial Interest, no
par value, to the shareholders of Arbor Property Trust in exchange for common
shares of beneficial interest, without par value, of Arbor Property Trust;

            WHEREAS, Section 7.5.D of the Agreement provides in relevant part
that the General Partner shall not issue additional Shares unless (i) the
General Partner shall cause, pursuant to Section 4.2.A thereof, the Partnership
to issue to the General Partner Partnership Interests or rights, options,
warrants or convertible or exchangeable securities of the Partnership having
designations, preferences and other rights, all such that the economic interests
are substantially the same as those of such additional Shares, and (ii) the
General Partner transfers to the Partnership, as an Additional Capital
Contribution, the proceeds from the issuance of such additional Shares;

            WHEREAS, concurrently with the closing of the Arbor transaction the
General Partner is causing the Partnership to issue to the General Partner
39,315 additional Series A Preferred Units, which Units will satisfy the
requirements of Section 7.5.D of the Agreement as they relate to the Series A
Convertible Preferred Shares of Beneficial Interest, no par value, referred to
above;

            WHEREAS, the General Partner has determined that it is in the best
interest of the Partnership to amend Exhibit G to the Agreement to reflect the
issuance of the above-referenced additional Series A Preferred Units;

            WHEREAS, Section 14.1.B of the Agreement grants the General Partner
power and authority to amend the Agreement without the consent of any of the
Partnership's limited partners if the amendment does not adversely affect or
eliminate any right granted to a limited partner pursuant to any of the
provisions of the Agreement specified in Section 14.1.C or Section 14.1.D of the
Agreement as requiring a particular minimum vote; and

            WHEREAS, the amendment effected hereby does not adversely affect or
eliminate any of the limited partner rights specified in Section 14.1.C or
Section 14.1.D of the Agreement;

                                       -2-
   3

            NOW, THEREFORE, the General Partner hereby amends the Agreement as
follows:

            1. The text of Section 2.A. of Exhibit G to the Agreement is hereby
deleted in its entirety and replaced with the following:

            "Number. As of the close of business on December 16, 1997, the total
            number of Series A Preferred Units issued and outstanding was
            5,789,315. The General Partner may issue additional Series A
            Preferred Units from time to time in accordance with the terms of
            the Agreement and in connection with any such additional issuance
            the General Partner shall revise Exhibit A to the Agreement to
            reflect the total number of Series A Preferred Units then issued and
            outstanding."

            2. Except as expressly amended hereby, the Agreement shall remain in
full force and effect.

            IN WITNESS WHEREOF, the General Partner has executed this Amendment
as of the date first written above.

                                    VORNADO REALTY TRUST

                                    By:_________________________________
                                       Joseph Macnow
                                       Executive Vice President of Finance and
                                        Administration

                                       -3-

   1
                                                                  EXECUTION COPY

- --------------------------------------------------------------------------------
                                                                 Exhibit 10.29  

                              AMENDED AND RESTATED
                           REVOLVING CREDIT AGREEMENT

                         dated as of February ___, 1998

                                      among

                               VORNADO REALTY L.P.
                                  as Borrower,

                              VORNADO REALTY TRUST,
                               as General Partner,

                            UNION BANK OF SWITZERLAND
                               (New York Branch),
                                    as Bank,

                THE OTHER BANKS SIGNATORY HERETO, each as a Bank,

                            UNION BANK OF SWITZERLAND
                               (New York Branch),
                            as Administrative Agent,

                           CITICORP REAL ESTATE, INC.,
                              as Syndication Agent,

                            THE CHASE MANHATTAN BANK,
                              as Syndication Agent,

                                       and

                                  NATIONSBANK,
                             as Documentation Agent

- --------------------------------------------------------------------------------
   2

               AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (this
"Agreement") dated as of February ___, 1998 among VORNADO REALTY L.P., a limited
partnership organized and existing under the laws of the State of Delaware
("Borrower"), VORNADO REALTY TRUST, a real estate investment trust organized and
existing under the laws of the State of Maryland and the sole general partner of
Borrower ("General Partner"), UNION BANK OF SWITZERLAND (New York Branch), as
agent for the Banks (in such capacity, together with its successors in such
capacity, "Administrative Agent"), CITICORP REAL ESTATE, INC., as Syndication
Agent, THE CHASE MANHATTAN BANK, as Syndication Agent, NATIONSBANK, as
Documentation Agent, UNION BANK OF SWITZERLAND (New York Branch) (in its
individual capacity and not as Administrative Agent, "UBS") and the lenders
signatory hereto (UBS, said other lenders signatory hereto and the lenders who
from time to time become Banks pursuant to Section 3.07 or 12.05 and, if
applicable, any of the foregoing lenders' Designated Lender, each a "Bank" and
collectively, the "Banks").

               Borrower, General Partner, UBS and the Administrative Agent
entered into a Revolving Credit Agreement dated as of July 17, 1997 (the "Prior
Credit Agreement"), which provided for a revolving line of credit in the amount
of up to Six Hundred Million Dollars ($600,000,000) in favor of Borrower. The
Prior Credit Agreement was amended by certain letter agreements. In addition,
pursuant to the terms and provisions of the Prior Credit Agreement, certain of
the lenders who are identified on the signature pages hereof have become "Banks"
thereunder and pursuant hereto the remainder of such lenders shall become
"Banks" hereunder.

               Borrower, has now requested certain additional amendments to the
Prior Credit Agreement (as heretofore modified as set forth above) to, among
other things, increase the amount of the credit provided thereby to up to One
Billion Dollars ($1,000,000,000). The Administrative Agent and the Banks have
agreed to Borrower's request pursuant to the terms and conditions of this
Amended and Restated Revolving Loan Agreement, which supersedes the Prior Credit
Agreement (as previously modified) in its entirety. General Partner is fully
liable for the obligations of Borrower under this Agreement by virtue of its
status as the sole general partner of Borrower.

               NOW, THEREFORE, in consideration of the premises and the mutual
agreements, covenants and conditions hereinafter set forth, the Prior Credit
Agreement (as previously modified) is hereby amended and restated in its
entirety and Borrower, General Partner, the Administrative Agent and each of the
Banks agree as follows:

                                   ARTICLE I

                                DEFINITIONS; ETC.

SECTION 1.01. Definitions. As used in this Agreement the following terms have
the following meanings (except as otherwise provided, terms defined in the
singular to have a correlative meaning when used in the plural and vice versa):

               "Additional Costs" has the meaning specified in Section 3.01.
   3

               "Administrative Agent" has the meaning specified in the preamble.

               "Administrative Agent's Office" means Administrative Agent's
address located at 299 Park Avenue, New York, NY 10171, or such other address in
the United States as Administrative Agent may designate by written notice to
Borrower and the Banks.

               "Affiliate" means, with respect to any Person (the "first
Person"), any other Person: (1) which directly or indirectly controls, or is
controlled by, or is under common control with the first Person; or (2) ten
percent (10%) or more of the beneficial interest in which is directly or
indirectly owned or held by the first Person. The term "control" means the
possession, directly or indirectly, of the power, alone, to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise.

               "Agreement" means this Revolving Credit Agreement.

               "Applicable Lending Office" means, for each Bank and for its
LIBOR Loan, Bid Rate Loan(s) or Base Rate Loan, as applicable, the lending
office of such Bank (or of an Affiliate of such Bank) designated as such on its
signature page hereof or in the applicable Assignment and Assumption Agreement,
or such other office of such Bank (or of an Affiliate of such Bank) as such Bank
may from time to time specify to Administrative Agent and Borrower as the office
by which its LIBOR Loan, Bid Rate Loan(s) or Base Rate Loan, as applicable, is
to be made and maintained.

               "Applicable Margin" means, with respect to Base Rate Loans and
LIBOR Loans, the respective rates per annum determined, at any time, based on
Borrower's Credit Rating at the time, in accordance with the following table,
subject to possible adjustment in accordance with the definition of "Borrower's
Credit Rating" set forth in this Section 1.01. Any change in Borrower's Credit
Rating causing it to move to a different range on the table shall effect an
immediate change in the Applicable Margin.

- --------------------------------------------------------------------------------
Borrower's Credit Rating                Applicable Margin     Applicable Margin
(S&P/Moody's/Duff &                     for Base Rate Loans   for LIBOR Loans
Phelps/Fitch Ratings)                   (% per annum)         (% per annum)
- --------------------------------------------------------------------------------
                                                                 
A-/A3/A-/A- or higher                           0.00                  0.70
- --------------------------------------------------------------------------------
BBB+/Baal/BBB+/BBB+                             0.00                  0.80
- --------------------------------------------------------------------------------
BBB/Baa2/BBB/BBB                                0.00                  0.90
- --------------------------------------------------------------------------------
BBB-/Baa3/BBB-/BBB-                             0.00                  1.00
- --------------------------------------------------------------------------------
Below BBB-/Baa3/BBB-/BBB-  or unrated           0.00                  1.25
- --------------------------------------------------------------------------------

               "Assignee" has the meaning specified in Section 12.05.

                                       2
   4

               "Assignment and Assumption Agreement" means an Assignment and
Assumption Agreement, substantially in the form of EXHIBIT E, pursuant to which
a Bank assigns and an Assignee assumes rights and obligations in accordance with
Section 12.05.

               "Authorization Letter" means a letter agreement executed by
Borrower in the form of EXHIBIT A.

               "Available Total Loan Commitment" has the meaning specified in
Section 2.01(b).

               "Bank" and "Banks" have the respective meanings specified in the
preamble; provided, however, that the term "Bank" shall exclude each Designated
Lender when used in reference to a Ratable Loan, the Loan Commitments or terms
relating to the Ratable Loans and the Loan Commitments.

               "Bank Parties" means Administrative Agent and the Banks.

               "Banking Day" means (1) any day on which commercial banks are not
authorized or required to close in New York City and (2) whenever such day
relates to a LIBOR Loan, a Bid Rate Loan, an Interest Period with respect to a
LIBOR Loan or a Bid Rate Loan, or notice with respect to a LIBOR Loan or Bid
Rate Loan, a day on which dealings in Dollar deposits are also carried out in
the London interbank market and banks are open for business in London.

               "Base Rate" means, for any day, the higher of (1) the Federal
Funds Rate for such day plus one-half percent (.50%), or (2) the Prime Rate for
such day.

               "Base Rate Loan" means all or any portion (as the context
requires) of a Bank's Ratable Loan which shall accrue interest at a rate
determined in relation to the Base Rate.

               "Bid Borrowing Limit" means 50% of the Total Loan Commitment.

               "Bid Rate Loan" has the meaning specified in Section 2.01(c).

               "Bid Rate Loan Note" has the meaning specified in Section 2.08.

               "Bid Rate Quote" means an offer by a Bank to make a Bid Rate Loan
in accordance with Section 2.02.

               "Bid Rate Quote Request" has the meaning specified in Section
2.02(a).

               "Borrower" has the meaning specified in the preamble.

               "Borrower's Accountants" means Deloitte & Touche, or such other
accounting firm(s) selected by Borrower and reasonably acceptable to the
Required Banks.

                                       3
   5

               "Borrower's Credit Rating" means, except as provided hereafter in
this definition, the lower of the S&P and Moody's ratings (if these are the only
two (2) ratings) or the lower of the two (2) highest ratings (if one (1) of
these two highest ratings is from either S&P or Moody's and if, in addition to
S&P and Moody's, there exist ratings by either or both of Duff & Phelps and
Fitch; provided, however, if Duff & Phelps and Fitch are the two (2) highest
ratings, then the "Borrower's Credit Rating" shall be the higher of S&P and
Moody's ratings) assigned from time to time by, respectively, S&P, Moody's, Duff
& Phelps and Fitch to Borrower's cumulative preferred stock, as increased by
one-half rating grade for purposes of this definition (for example, if the
applicable cumulative preferred stock rating is Baa3, Borrower's Credit Rating
would be Baa2; if the applicable cumulative preferred stock rating is BBB,
Borrower's Credit Rating would be BBB+). Unless such stock is rated by at least
two (2) of the rating agencies identified above, at least one (1) of which must
be either S&P or Moody's, "Borrower's Credit Rating" shall be considered unrated
for purposes of determining both the Applicable Margin and Commitment Fee Rate.
At such time and for so long as Borrower's unsecured and unsubordinated
long-term indebtedness is rated by at least two (2) of the rating agencies
identified above, then during such times the two preceding sentences shall no
longer be applicable and "Borrower's Credit Rating" shall mean the lower of the
S&P and Moody's ratings (if these are the only two (2) ratings) or the lower of
the two (2) highest ratings (if one (1) of these two highest ratings is from
either S&P or Moody's and if, in addition to S&P and Moody's, there exist
ratings by either or both of Duff & Phelps and Fitch; provided, however, if Duff
& Phelps and Fitch are the two (2) highest ratings, then the "Borrower's Credit
Rating" shall be the higher of S&P and Moody's ratings) assigned from time to
time by, respectively, S&P, Moody's, Duff & Phelps and Fitch to Borrower's
unsecured and unsubordinated long-term indebtedness. For so long as Borrower's
unsecured and unsubordinated long-term indebtedness is rated as provided in the
preceding sentence, unless such indebtedness of Borrower is rated by either S&P
or Moody's, "Borrower's Credit Rating" shall be considered unrated for purposes
of determining both the Applicable Margin and Commitment Fee Rate. If at any
time Borrower's unsecured and unsubordinated long-term indebtedness is no longer
rated by at least two (2) of the rating agencies identified above, then the
first two sentences of this definition shall again be applicable.

               "Capitalization Value" means, at any time, the sum of (1)
Combined EBITDA, for the most recently ended calendar quarter, annualized (i.e.,
multiplied by four (4)) (except that for purposes of this definition, the
aggregate contribution to Combined EBITDA from leasing commissions and
management and development fees shall not exceed 5% of Combined EBITDA),
capitalized at a rate of 9.25% per annum, (2) Borrower's beneficial share of
unrestricted cash and marketable securities of Borrower and its Consolidated
Businesses and UJVs, at such time, as reflected in VRT's Consolidated Financial
Statements, and (3) without duplication, the cost basis of properties of
Borrower under construction as certified by Borrower, such certificate to be
accompanied by all appropriate documentation supporting such figure.

               "Capital Lease" means any lease which has been or should be
capitalized on the books of the lessee in accordance with GAAP.

               "Closing Date" means the date this Agreement has been executed by
all parties.

               "Code" means the Internal Revenue Code of 1986.

                                       4
   6

               "Combined EBITDA" means, for any period of time, (1) revenues
less operating costs before Interest Expense, income taxes, depreciation and
amortization and extraordinary items (including, without limitation,
non-recurring items such as gains or losses from asset sales) for Borrower and
its beneficial interest in its Consolidated Businesses, plus (2) Borrower's
beneficial interest in revenues less operating costs before Interest Expense,
income taxes, depreciation and amortization and extraordinary items (including,
without limitation, non-recurring items such as gains or losses from asset
sales) applicable to each of the UJVs (to the extent not included above), in
accordance with GAAP, in all cases as reflected in the VRT Consolidated
Financial Statements.

               "Commitment Fee Rate" means the rate per annum determined, at any
time, based on Borrower's Credit Rating, in accordance with the following table.
Any change in Borrower's Credit Rating which causes it to move into a different
range on the table shall effect an immediate change in the Commitment Fee Rate.

Borrower's Credit Rating                                     Commitment Fee Rate
(S&P/Moody's/Duff & Phelps/Fitch Ratings)                       (% per annum)
- -----------------------------------------                       -------------
                                                                 
A-/A3/A-/A- or higher                                              0.15
BBB+/Baa1/BBB+/BBB+                                                0.15
BBB/Baa2/BBB/BBB                                                   0.20
BBB-/Baa3/BBB-/BBB-                                                0.20
Below BBB-/Baa3/BBB-/BBB- or unrated                               0.25

               "Consolidated Businesses" means, collectively each Affiliate of
Borrower who is included in the VRT Consolidated Statements in accordance with
GAAP.

               "Consolidated Outstanding Indebtedness" means, as of any time,
all indebtedness and liability for borrowed money, secured or unsecured, of
Borrower and all indebtedness and liability for borrowed money, secured or
unsecured, attributable to Borrower's beneficial interest in its Consolidated
Businesses, including mortgage and other notes payable but excluding any
indebtedness which is margin indebtedness secured by cash and cash equivalent
securities, all as reflected in the VRT Consolidated Financial Statements.

               "Contingent Liabilities" means the sum of (1) those liabilities,
as determined in accordance with GAAP, set forth and quantified as contingent
liabilities in the notes to the VRT Consolidated Financial Statements and (2)
contingent liabilities, other than those described in the foregoing clause (1),
which represent direct payment guaranties of Borrower; provided, however, that
Contingent Liabilities shall exclude contingent liabilities which represent the
"Other Party's Share" of "Duplicated Obligations" (as such quoted terms are
hereinafter defined). "Duplicated Obligations" means, collectively, all those
payment guaranties in respect of Debt of UJVs for which Borrower and another
party are jointly and severally liable, where the other party's unsecured and
unsubordinated long-term indebtedness has been assigned a credit rating of BBB-

                                       5
   7

or better by S&P or Baa3 or better by Moody's. "Other Party's Share" means such
other party's fractional share of the obligation under the UJV in question.

               "Continue", "Continuation" and "Continued" refer to the
continuation pursuant to Section 2.11 of a LIBOR Loan as a LIBOR Loan from one
Interest Period to the next Interest Period.

               "Convert", "Conversion" and "Converted" refer to a conversion
pursuant to Section 2.11 of a Base Rate Loan into a LIBOR Loan or a LIBOR Loan
into a Base Rate Loan, each of which may be accompanied by the transfer by a
Bank (at its sole discretion) of all or a portion of its Ratable Loan from one
Applicable Lending Office to another.

               "Debt" means: (1) indebtedness or liability for borrowed money,
or for the deferred purchase price of property or services (including trade
obligations); (2) obligations as lessee under Capital Leases; (3) current
liabilities in respect of unfunded vested benefits under any Plan; (4)
obligations under letters of credit issued for the account of any Person; (5)
all obligations arising under bankers' or trade acceptance facilities; (6) all
guarantees, endorsements (other than for collection or deposit in the ordinary
course of business), and other contingent obligations to purchase any of the
items included in this definition, to provide funds for payment, to supply funds
to invest in any Person, or otherwise to assure a creditor against loss; (7) all
obligations secured by any Lien on property owned by the Person whose Debt is
being measured, whether or not the obligations have been assumed; and (8) all
obligations under any agreement providing for contingent participation or other
hedging mechanisms with respect to interest payable on any of the items
described above in this definition.

               "Default" means any event which with the giving of notice or
lapse of time, or both, would become an Event of Default.

               "Default Rate" means a rate per annum equal to: (1) with respect
to Base Rate Loans, a variable rate three percent (3%) above the rate of
interest then in effect thereon (including the Applicable Margin); and (2) with
respect to LIBOR Loans and Bid Rate Loans, a fixed rate three percent (3%) above
the rate(s) of interest in effect thereon (including the Applicable Margin or
the LIBOR Bid Margin, as the case may be) at the time of Default until the end
of the then current Interest Period therefor and, thereafter, a variable rate
three percent (3%) above the rate of interest for a Base Rate Loan (including
the Applicable Margin).

               "Designated Lender" means a special purpose corporation that (i)
shall have become a party to this Agreement pursuant to Section 12.16 and (ii)
is not otherwise a Bank.

               "Designating Lender" has the meaning specified in Section 12.16.

               "Designation Agreement" means an agreement in substantially the
form of EXHIBIT H, entered into by a Bank and a Designated Lender and accepted
by Administrative Agent.

                                       6
   8

               "Disposition" means a sale (whether by assignment, transfer or
Capital Lease) of an asset.

               "Dollars" and the sign "$" mean lawful money of the United States
of America.

               "Duff & Phelps" means Duff & Phelps Credit Rating Company.

               "Elect", "Election" and "Elected" refer to elections, if any, by
Borrower pursuant to Section 2.11 to have all or a portion of an advance of the
Ratable Loans be outstanding as LIBOR Loans.

               "Environmental Discharge" means any discharge or release of any
Hazardous Materials in violation of any applicable Environmental Law.

               "Environmental Law" means any applicable Law relating to
pollution or the environment, including Laws relating to noise or to emissions,
discharges, releases or threatened releases of Hazardous Materials into the work
place, the community or the environment, or otherwise relating to the
generation, manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials.

               "Environmental Notice" means any written complaint, order,
citation, letter, inquiry, notice or other written communication from any Person
(1) affecting or relating to Borrower's compliance with any Environmental Law in
connection with any activity or operations at any time conducted by Borrower,
(2) relating to the occurrence or presence of or exposure to or possible or
threatened or alleged occurrence or presence of or exposure to Environmental
Discharges or Hazardous Materials at any of Borrower's locations or facilities,
including, without limitation: (a) the existence of any contamination or
possible or threatened contamination at any such location or facility and (b)
remediation of any Environmental Discharge or Hazardous Materials at any such
location or facility or any part thereof; and (3) any violation or alleged
violation of any relevant Environmental Law.

               "Equity Value" means, at any time, Capitalization Value less the
Total Outstanding Indebtedness.

               "ERISA" means the Employee Retirement Income Security Act of
1974, including the rules and regulations promulgated thereunder.

               "ERISA Affiliate" means any corporation or trade or business
which is a member of the same controlled group of organizations (within the
meaning of Section 414(b) of the Code) as Borrower or General Partner or is
under common control (within the meaning of Section 414(c) of the Code) with
Borrower or General Partner or is required to be treated as a single employer
with Borrower or General Partner under Section 414(m) or 414(o) of the Code.

               "Event of Default" has the meaning specified in Section 9.01.

                                       7
   9

               "Federal Funds Rate" means, for any day, the rate per annum
(expressed on a 360-day basis of calculation) equal to the weighted average of
the rates on overnight federal funds transactions as published by the Federal
Reserve Bank of New York for such day provided that (1) if such day is not a
Banking Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the immediately preceding Banking Day as so published on the
next succeeding Banking Day, and (2) if no such rate is so published on such
next succeeding Banking Day, the Federal Funds Rate for such day shall be the
average of the rates quoted by three Federal Funds brokers to Administrative
Agent on such day on such transactions.

               "Fiscal Year" means each period from January 1 to December 31.

               "Fitch" means Fitch Investors Service, L.P.

               "Fixed Charges" means, for any period of time, (1) Interest
Expense plus (2) preferred dividend expense and regularly scheduled principal
amortization of Borrower and that attributable to Borrower's beneficial interest
in its Consolidated Businesses and UJV's.

               "GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time, applied on a basis
consistent with those used in the preparation of the financial statements
referred to in Section 5.15 (except for changes concurred in by Borrower's
Accountants).

               "General Partner" has the meaning specified in the preamble.

               "Good Faith Contest" means the contest of an item if: (1) the
item is diligently contested in good faith, and, if appropriate, by proceedings
timely instituted; (2) adequate reserves are established with respect to the
contested item; (3) during the period of such contest, the enforcement of any
contested item is effectively stayed; and (4) the failure to pay or comply with
the contested item during the period of the contest is not likely to result in a
Material Adverse Change.

               "Governmental Authority" means any nation or government, any
state or other political subdivision thereof, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.

               "Guaranty" means the guaranty(ies) of all or part of Borrower's
obligations to be executed by General Partner.

               "Hazardous Materials" means any pollutant, effluents, emissions,
contaminants, toxic or hazardous wastes or substances, as any of those terms are
defined from time to time in or for the purposes of any relevant Environmental
Law, including asbestos fibers and friable asbestos, polychlorinated biphenyls,
and any petroleum or hydrocarbon-based products or derivatives.

               "Initial Advance" means the first advance of proceeds of the
Loans.

                                       8
   10

               "Interest Expense" means, for any period of time, the
consolidated interest expense, whether paid, accrued or capitalized (without
deduction of consolidated interest income) of Borrower and that attributable to
Borrower's beneficial interest in its Consolidated Businesses, including,
without limitation or duplication (or, to the extent not so included, with the
addition of), (1) the portion of any rental obligation in respect of any Capital
Lease obligation allocable to interest expense in accordance with GAAP; (2) the
amortization of Debt discounts; (3) any payments or fees (other than up-front
fees) with respect to interest rate swap or similar agreements; and (4) the
interest expense and items listed in clauses (1) through (3) above applicable to
each of the UJVs (to the extent not included above) multiplied by Borrower's
respective beneficial interests in the UJVs, in all cases as reflected in the
applicable VRT Consolidated Financial Statements.

               "Interest Period" means, (1) with respect to any LIBOR Loan, the
period commencing on the date the same is advanced, converted from a Base Rate
Loan or Continued, as the case may be, and ending, as Borrower may select
pursuant to Section 2.05, on the numerically corresponding day in the first,
second or third calendar month thereafter, provided that each such Interest
Period which commences on the last Banking Day of a calendar month (or on any
day for which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Banking Day of the appropriate
calendar month; and (2) with respect to any Bid Rate Loan, the period commencing
on the date the same is advanced and ending, as Borrower may select pursuant to
Section 2.02, on the numerically corresponding day in the first, second or third
calendar month thereafter, provided that each such Interest Period which
commences on the last Banking Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Banking Day of the appropriate calendar month.

               "Invitation for Bid Rate Quotes" has the meaning specified in
Section 2.02(b).

               "Law" means any federal, state or local statute, law, rule,
regulation, ordinance, order, code, or rule of common law, now or hereafter in
effect, and in each case as amended, and any judicial or administrative
interpretation thereof by a Governmental Authority or otherwise, including any
judicial or administrative order, consent decree or judgment.

               "Letter of Credit" has the meaning specified in Section 2.16(a).

               "LIBOR Base Rate" means, with respect to any Interest Period
therefor, the rate per annum (rounded upwards if necessary to the nearest 1/16
of 1%) quoted at approximately 11:00 a.m., New York time, by the principal New
York branch of UBS two (2) Banking Days prior to the first day of such Interest
Period for the offering to leading banks in the London interbank market of
Dollar deposits in immediately available funds, for a period, and in an amount,
comparable to such Interest Period and principal amount of the LIBOR Loan or Bid
Rate Loan, as the case may be, in question outstanding during such Interest
Period.

               "LIBOR Bid Margin" has the meaning specified in Section
2.02(c)(2).

                                       9
   11

               "LIBOR Bid Rate" means the rate per annum equal to the sum of (1)
the LIBOR Interest Rate for the Bid Rate Loan and Interest Period in question
and (2) the LIBOR Bid Margin.

               "LIBOR Interest Rate" means, for any LIBOR Loan or Bid Rate Loan,
a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
determined by Administrative Agent to be equal to the quotient of (1) the LIBOR
Base Rate for such LIBOR Loan or Bid Rate Loan, as the case may be, for the
Interest Period therefor divided by (2) one minus the LIBOR Reserve Requirement
for such LIBOR Loan or Bid Rate Loan, as the case may be, for such Interest
Period.

               "LIBOR Loan" means all or any portion (as the context requires)
of any Bank's Ratable Loan which shall accrue interest at rate(s) determined in
relation to LIBOR Interest Rate(s).

               "LIBOR Reserve Requirement" means, for any LIBOR Loan or Bid Rate
Loan, the average maximum rate at which reserves (including any marginal,
supplemental or emergency reserves) are required to be maintained during the
Interest Period for such LIBOR Loan or Bid Rate Loan under Regulation D by
member banks of the Federal Reserve System in New York City with deposits
exceeding One Billion Dollars ($1,000,000,000) against "Eurocurrency
liabilities" (as such term is used in Regulation D). Without limiting the effect
of the foregoing, the LIBOR Reserve Requirement shall also reflect any other
reserves required to be maintained by such member banks by reason of any
Regulatory Change against (1) any category of liabilities which includes
deposits by reference to which the LIBOR Base Rate is to be determined as
provided in the definition of "LIBOR Base Rate" in this Section 1.01 or (2) any
category of extensions of credit or other assets which include loans the
interest rate on which is determined on the basis of rates referred to in said
definition of "LIBOR Base Rate".

               "Lien" means any mortgage, deed of trust, pledge, security
interest, hypothecation, assignment for collateral purposes, deposit
arrangement, lien (statutory or other), or other security agreement or charge of
any kind or nature whatsoever of any third party (excluding any right of setoff
but including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing, and the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction to evidence any of
the foregoing).

               "Loan" means, with respect to each Bank, its Ratable Loan and Bid
Rate Loan(s), collectively.

                                       10
   12

               "Loan Commitment" means, with respect to each Bank, the
obligation to make a Ratable Loan in the principal amount set forth below, as
such amount may be reduced from time to time in accordance with the provisions
of Section 2.15 (upon the execution of an Assignment and Assumption Agreement,
the definition of Loan Commitment shall be revised to reflect the assignment
being effected pursuant to such Assignment and Assumption Agreement):

                                                                  Loan
                         Bank                                   Commitment
                         ----                                   ----------
                                                                      
UBS                                                         $ 111,250,000.00
Citicorp Real Estate, Inc.                                  $ 111,250,000.00
The Chase Manhattan Bank                                    $ 111,250,000.00
NationsBank                                                 $ 111,250,000.00
Bank of Boston                                               $ 60,000,000.00
Bayerische Hypotheken- und Wechsel-Bank Aktiengesellschaft
  (New York Branch)                                          $ 60,000,000.00
Commerzbank AG, New York Branch                              $ 60,000,000.00
PNC Bank, National Association                               $ 60,000,000.00
Fleet Bank, National Association                             $ 60,000,000.00
Dresdner Bank AG, New York Branch and Grand Cayman Branch    $ 50,000,000.00
The Bank of New York                                         $ 40,000,000.00
Bayerische Landesbank Cayman Islands Branch                  $ 25,000,000.00
Societe Generale, Southwest Agency                           $ 25,000,000.00
The Sumitomo Bank, Limited                                   $ 25,000,000.00
Summit Bank                                                  $ 25,000,000.00
Kredietbank, N.V.                                            $ 20,000,000.00
Credit Lyonnais New York Branch                              $ 15,000,000.00
DG Bank Deutsche Genossenschaftbank, Cayman Island Branch    $ 15,000,000.00

The Sumitomo Trust & Banking Co., Ltd.                       $ 15,000,000.00

                          Total                            $1,000,000,000.00
                                                           =================

               "Loan Documents" means this Agreement, the Notes, the Guaranty,
the Authorization Letter and the Solvency Certificate.

               "Material Adverse Change" means either (1) a material adverse
change in the status of the business, results of operations, financial condition
or property of Borrower or General Partner or (2) any event or occurrence of
whatever nature which is likely to have a material adverse effect on the ability
of Borrower or General Partner to perform their obligations under the Loan
Documents.

               "Material Affiliates" means the Affiliates of Borrower listed on
EXHIBIT F.

               "Maturity Date" means July 16, 2000.

               "Maximum Loan Amount" means, from time to time, the Total Loan
Commitment less Secured Indebtedness which is recourse to Borrower.

               "Moody's" means Moody's Investors Service, Inc.

                                       11
   13

               "Multiemployer Plan" means a Plan defined as such in Section
3(37) of ERISA to which contributions have been made by Borrower or any ERISA
Affiliate and which is covered by Title IV of ERISA.

               "Note" and "Notes" have the respective meanings specified in
Section 2.08.

               "Obligations" means each and every obligation, covenant and
agreement of Borrower, now or hereafter existing, contained in this Agreement,
and any of the other Loan Documents, whether for principal, reimbursement
obligations, interest, fees, expenses, indemnities or otherwise, and any
amendments or supplements thereto, extensions or renewals thereof or
replacements therefor, including but not limited to all indebtedness,
obligations and liabilities of Borrower to Administrative Agent and any Bank now
existing or hereafter incurred under or arising out of or in connection with the
Notes, this Agreement, the other Loan Documents, and any documents or
instruments executed in connection therewith; in each case whether direct or
indirect, joint or several, absolute or contingent, liquidated or unliquidated,
now or hereafter existing, renewed or restructured, whether or not from time to
time decreased or extinguished and later increased, created or incurred, and
including all indebtedness of Borrower, under any instrument now or hereafter
evidencing or securing any of the foregoing.

               "Parent" means, with respect to any Bank, any Person controlling
such Bank.

               "PBGC" means the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.

               "Person" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture,
limited liability company, Governmental Authority or other entity of whatever
nature.

               "Plan" means any employee benefit or other plan established or
maintained, or to which contributions have been made, by Borrower or General
Partner or any ERISA Affiliate and which is covered by Title IV of ERISA or to
which Section 412 of the Code applies.

               "presence", when used in connection with any Environmental
Discharge or Hazardous Materials, means and includes presence, generation,
manufacture, installation, treatment, use, storage, handling, repair,
encapsulation, disposal, transportation, spill, discharge and release.

               "Prime Rate" means that rate of interest from time to time
announced by UBS at its Principal Office as its prime commercial lending rate.

               "Principal Office" means the principal office of UBS in the
United States, presently located at 299 Park Avenue, New York, New York 10171.

               "Pro Rata Share" means, for purposes of this Agreement and with
respect to each Bank, a fraction, the numerator of which is the amount of such
Bank's Loan Commitment and the denominator of which is the Total Loan
Commitment.

                                       12
   14

               "Prohibited Transaction" means any transaction set forth in
Section 406 of ERISA or Section 4975 of the Code.

               "Ratable Loan" has the meaning specified in Section 2.01(b).

               "Ratable Loan Note" has the meaning specified in Section 2.08.

               "Regulation D" means Regulation D of the Board of Governors of
the Federal Reserve System, as the same may be amended or supplemented from time
to time, or any similar Law from time to time in effect.

               "Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System, as the same may be amended or supplemented from time
to time, or any similar Law from time to time in effect.

               "Regulatory Change" means, with respect to any Bank, any change
after the date of this Agreement in United States federal, state, municipal or
foreign laws or regulations (including Regulation D) or the adoption or making
after such date of any interpretations, directives or requests applying to a
class of banks including such Bank of or under any United States, federal,
state, municipal or foreign laws or regulations (whether or not having the force
of law) by any court or governmental or monetary authority charged with the
interpretation or administration thereof.

               "Reportable Event" means any of the events set forth in Section
4043(c) of ERISA, other than those events as to which the thirty (30) day notice
period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg.
ss.2615.

               "Required Banks" means at any time the Banks having Pro Rata
Shares aggregating at least 66 2/3%; provided, however, that during the
existence of an Event of Default, the "Required Banks" shall be the Banks
holding at least 66 2/3% of the then aggregate unpaid principal amount of the
Loans.

               "SEC Reports" means the reports required to be delivered to the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended.

               "Secured Indebtedness" means that portion of Total Outstanding
Indebtedness that is secured.

               "Solvency Certificate" means a certificate in substantially the
form of EXHIBIT D, to be delivered by Borrower pursuant to the terms of this
Agreement.

               "Solvent" means, when used with respect to any Person, that (1)
the fair value of the property of such Person, on a going concern basis, is
greater than the total amount of liabilities (including, without limitation,
contingent liabilities) of such Person; (2) the present fair saleable value of
the assets of such Person, on a going concern basis, is not less than the amount

                                       13
   15

that will be required to pay the probable liabilities of such Person on its
debts as they become absolute and matured; (3) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature; (4) such Person is
not engaged in business or a transaction, and is not about to engage in business
or a transaction, for which such Person's property would constitute unreasonably
small capital after giving due consideration to the prevailing practice in the
industry in which such Person is engaged; and (5) such Person has sufficient
resources, provided that such resources are prudently utilized, to satisfy all
of such Person's obligations. Contingent liabilities will be computed at the
amount that, in light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or
matured liability.

               "S&P" means Standard & Poor's Ratings Services, a division of
McGraw-Hill Companies.

               "Total Loan Commitment" means an amount equal to the aggregate
amount of all Loan Commitments.

               "Total Outstanding Indebtedness" means the sum, without
duplication, of (1) Consolidated Outstanding Indebtedness, (2) VRT's Share of
UJV Outstanding Indebtedness and (3) Contingent Liabilities.

               "UJV Outstanding Indebtedness" means, as of any time, all
indebtedness and liability for borrowed money, secured or unsecured, of the
UJV's, including mortgage and other notes payable but excluding any indebtedness
which is margin indebtedness secured by cash and cash equivalent securities, all
as reflected in the balance sheets of each of the UJVs, prepared in accordance
with GAAP.

               "UJVs" means the unconsolidated joint ventures in which Borrower
owns a beneficial interest and which are accounted for under the equity method
in the VRT Consolidated Financial Statements. Alexander's, Inc. shall not be
deemed to be a UJV.

               "Unencumbered Assets" means, collectively, assets, reflected on
the VRT Consolidated Financial Statements, wholly owned, directly or indirectly,
by Borrower and not subject to any Lien to secure all or any portion of Secured
Indebtedness and assets of UJVs which are not subject to any Lien to secure all
or any portion of Secured Indebtedness.

               "Unencumbered Combined EBITDA" means that portion of Combined
EBITDA attributable to Unencumbered Assets.

               "Unfunded Current Liability" of any Plan means the amount, if
any, by which the actuarial present value of accumulated plan benefits as of the
close of its most recent plan year, based upon the actuarial assumptions used by
the Plan's actuary in the most recent annual valuation of the Plan, exceeds the
fair market value of the assets allocable thereto, determined in accordance with
Section 412 of the Code.

                                       14
   16

               "Unsecured Debt Yield" means, at any time, the ratio, expressed
as a percentage, of (1) Unencumbered Combined EBITDA for the most recently ended
calendar quarter, annualized (i.e., multiplied by four (4)) to (2) Unsecured
Indebtedness.

               "Unsecured Indebtedness" means that portion of Total Outstanding
Indebtedness that is unsecured.

               "Unsecured Interest Expense" means that portion of Interest
Expense attributable to Unsecured Indebtedness.

               "VRT Consolidated Financial Statements" means, collectively, the
consolidated balance sheet and related consolidated statement of operations,
accumulated deficiency in assets and cash flows, and footnotes thereto, of each
of General Partner and Borrower, in each case prepared in accordance with GAAP.

               "VRT Principals" means the trustees, officers and directors of
Borrower (other than General Partner) or General Partner at any applicable time.

               "VRT's Share of UJV Outstanding Indebtedness" means the sum of
the indebtedness of each of the UJVs contributing to UJV Outstanding
Indebtedness multiplied by Borrower's respective beneficial fractional interests
in each such UJV.

        SECTION 1.02. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, and all financial
data required to be delivered hereunder shall be prepared in accordance with
GAAP.

        SECTION 1.03. Computation of Time Periods. Except as otherwise provided
herein, in this Agreement, in the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including" and words "to" and "until" each means "to but excluding".

        SECTION 1.04. Rules of Construction. When used in this Agreement: (1)
"or" is not exclusive; (2) a reference to a Law includes any amendment or
modification to such Law; (3) a reference to a Person includes its permitted
successors and permitted assigns; (4) except as provided otherwise, all
references to the singular shall include the plural and vice versa; (5) except
as provided in this Agreement, a reference to an agreement, instrument or
document shall include such agreement, instrument or document as the same may be
amended, modified or supplemented from time to time in accordance with its terms
and as permitted by the Loan Documents; (6) all references to Articles or
Sections shall be to Articles and Sections of this Agreement unless otherwise
indicated; and (7) all Exhibits to this Agreement shall be incorporated into
this Agreement.

                                       15
   17

                                   ARTICLE II

                                    THE LOANS

        SECTION 2.01. Ratable Loans; Bid Rate Loans; Purpose. (a) Subject to the
terms and conditions of this Agreement, the Banks agree to make loans to
Borrower as provided in this Article II.

               (b) Each of the Banks severally agrees to make a loan to Borrower
(each such loan by a Bank, a "Ratable Loan") in an amount up to its Loan
Commitment pursuant to which the Bank shall from time to time advance and
re-advance to Borrower an amount equal to its Pro Rata Share of the excess (the
"Available Total Loan Commitment") of the Maximum Loan Amount over the sum of
(1) all previous advances (including Bid Rate Loans) made by the Banks which
remain unpaid and (2) the outstanding amount of all Letters of Credit. Within
the limits set forth herein, Borrower may borrow from time to time under this
paragraph (b) and prepay from time to time pursuant to Section 2.09 (subject,
however, to the restrictions on prepayment set forth in said Section), and
thereafter re-borrow pursuant to this paragraph (b). The Ratable Loans may be
outstanding as: (1) Base Rate Loans; (2) LIBOR Loans; or (3) a combination of
the foregoing, as Borrower shall elect and notify Administrative Agent in
accordance with Section 2.13. The LIBOR Loan, Bid Rate Loan and Base Rate Loan
of each Bank shall be maintained at such Bank's Applicable Lending Office.

               (c) In addition to Ratable Loans pursuant to paragraph (b) above,
so long as Borrower's Credit Rating is BBB- or better by S&P and Baa3 or better
by Moody's, one or more Banks may, at Borrower's request and in their sole
discretion, make non-ratable loans which shall bear interest at the LIBOR Bid
Rate in accordance with Section 2.02 (such loans being referred to in this
Agreement as "Bid Rate Loans"). Borrower may borrow Bid Rate Loans from time to
time pursuant to this paragraph (c) in an amount up to the Available Total Loan
Commitment at the time of the borrowing (taking into account any repayments of
the Loans made simultaneously therewith) and shall repay such Bid Rate Loans as
required by Section 2.08, and it may thereafter re-borrow pursuant to this
paragraph (c) or paragraph (b) above; provided, however, that the aggregate
outstanding principal amount of Bid Rate Loans at any particular time shall not
exceed the Bid Borrowing Limit.

               (d) The obligations of the Banks under this Agreement are
several, and no Bank shall be responsible for the failure of any other Bank to
make any advance of a Loan to be made by such other Bank. However, the failure
of any Bank to make any advance of the Loan to be made by it hereunder on the
date specified therefor shall not relieve any other Bank of its obligation to
make any advance of its Loan specified hereby to be made on such date.

               (e) Borrower shall use the proceeds of the Loans for general
capital and working capital purposes of Borrower and its Consolidated Businesses
and UJVs, including costs incurred in connection with real estate acquisitions
and/or developments. In no event shall proceeds of the Loans be used for any
illegal purpose or for the purpose, whether immediate, incidental or ultimate,
of buying or carrying "margin stock" within the meaning of Regulation U, or in
connection with any hostile acquisition.

                                       16
   18

        SECTION 2.02. Bid Rate Loans. (a) When Borrower has the Borrower's
Credit Rating required by Section 2.01(c) and wishes to request offers from the
Banks to make Bid Rate Loans, it shall transmit to Administrative Agent by
facsimile a request (a "Bid Rate Quote Request") substantially in the form of
EXHIBIT G-1 so as to be received not later than 10:30 a.m. (New York time) on
the fifth Banking Day prior to the date for funding of the Bid Rate Loan(s)
proposed therein, specifying:

                  (1) the proposed date of funding of the Bid Rate Loan(s),
        which shall be a Banking Day;

                  (2) the aggregate amount of the Bid Rate Loans requested,
        which shall be Twenty Five Million Dollars ($25,000,000) or a larger
        integral multiple of One Million Dollars ($1,000,000); and

                  (3) the duration of the Interest Period(s) applicable thereto,
        subject to the provisions of the definition of "Interest Period" in
        Section 1.01.

Borrower may request offers to make Bid Rate Loans for more than one (1)
Interest Period in a single Bid Rate Quote Request. No Bid Rate Quote Request
may be submitted by Borrower sooner than thirty (30) days after the submission
of any other Bid Rate Quote Request.

               (b) Promptly upon receipt of a Bid Rate Quote Request,
Administrative Agent shall send to the Banks by facsimile an invitation (an
"Invitation for Bid Rate Quotes") substantially in the form of EXHIBIT G-2,
which shall constitute an invitation by Borrower to the Banks to submit Bid Rate
Quotes offering to make Bid Rate Loans to which such Bid Rate Quote Request
relates in accordance with this Section.

               (c) (1) Each Bank may submit a Bid Rate Quote containing an offer
or offers to make Bid Rate Loans in response to any Invitation for Bid Rate
Quotes. Each Bid Rate Quote must comply with the requirements of this paragraph
(c) and must be submitted to Administrative Agent by facsimile not later than
2:00 p.m. (New York time) on the fourth Banking Day prior to the proposed date
of the Bid Rate Loan(s); provided that Bid Rate Quotes submitted by UBS (or any
Affiliate of Administrative Agent) in its capacity as a Bank may be submitted,
and may only be submitted, if UBS or such Affiliate notifies Borrower of the
terms of the offer or offers contained therein not later than one (1) hour prior
to the deadline for the other Banks. Any Bid Rate Quote so made shall (subject
to Borrower's satisfaction of the conditions precedent set forth in this
Agreement to its entitlement to an advance) be irrevocable except with the
written consent of Administrative Agent given on the instructions of Borrower.
Bid Rate Loans to be funded pursuant to a Bid Rate Quote may, as provided in
Section 12.16, be funded by a Bank's Designated Lender. A Bank making a Bid Rate
Quote shall specify in its Bid Rate Quote whether the related Bid Rate Loans are
intended to be funded by such Bank's Designated Lender, as provided in Section
12.16.

               (2) Each Bid Rate Quote shall be in substantially the form of
EXHIBIT G-3 and shall in any case specify:

                                       17
   19

                  (i)  the proposed date of funding of the Bid Rate Loan(s);

                  (ii) the principal amount of the Bid Rate Loan(s) for which
        each such offer is being made, which principal amount (w) may be greater
        than or less than the Loan Commitment of the quoting Bank, (x) must be
        in the aggregate Twenty Five Million Dollars ($25,000,000) or a larger
        integral multiple of One Million Dollars ($1,000,000), (y) may not
        exceed the principal amount of Bid Rate Loans for which offers were
        requested and (z) may be subject to an aggregate limitation as to the
        principal amount of Bid Rate Loans for which offers being made by such
        quoting Bank may be accepted;

                  (iii) the margin above or below the applicable LIBOR Interest
        Rate (the "LIBOR Bid Margin") offered for each such Bid Rate Loan,
        expressed as a percentage per annum (specified to the nearest 1/1,000th
        of 1%) to be added to (or subtracted from) the applicable LIBOR Interest
        Rate;

                  (iv) the applicable Interest Period; and

                  (v) the identity of the quoting Bank.

A Bid Rate Quote may set forth up to three (3) separate offers by the quoting
Bank with respect to each Interest Period specified in the related Invitation
for Bid Rate Quotes.

               (3) Any Bid Rate Quote shall be disregarded if it:

                  (i) is not substantially in conformity with EXHIBIT G-3 or
        does not specify all of the information required by sub-paragraph (c)(2)
        above;

                  (ii) contains qualifying, conditional or similar language
        (except for an aggregate limitation as provided in sub-paragraph
        (c)(2)(ii) above);

                  (iii) proposes terms other than or in addition to those set
        forth in the applicable Invitation for Bid Rate Quotes; or

                  (iv) arrives after the time set forth in sub-paragraph (c)(1)
        above.

               (d) Administrative Agent shall on the Banking Day of receipt
thereof notify Borrower in writing of the terms of (x) any Bid Rate Quote
submitted by a Bank that is in accordance with paragraph (c) and (y) any Bid
Rate Quote that amends, modifies or is otherwise inconsistent with a previous
Bid Rate Quote submitted by such Bank with respect to the same Bid Rate Quote
Request. Any such subsequent Bid Rate Quote shall be disregarded by
Administrative Agent unless such subsequent Bid Rate Quote is submitted solely
to correct a manifest error in such former Bid Rate Quote. Administrative
Agent's notice to Borrower shall specify (A) the aggregate principal amount of
Bid Rate Loans for which offers have been received for each Interest Period
specified in the related Bid Rate Quote Request, (B) the respective principal
amounts and LIBOR Bid Margins so offered and (C) if applicable,

                                       18
   20

limitations on the aggregate principal amount of Bid Rate Loans for which offers
in any single Bid Rate Quote may be accepted.

               (e) Not later than 4:00 p.m. (New York time) on the fourth
Banking Day prior to the proposed date of funding of the Bid Rate Loan, Borrower
shall notify Administrative Agent of its acceptance or non-acceptance of the
offers so notified to it pursuant to paragraph (d). A notice of acceptance shall
be substantially in the form of EXHIBIT G-4 and shall specify the aggregate
principal amount of offers for each Interest Period that are accepted. Borrower
may accept any Bid Rate Quote in whole or in part; provided that:

                  (i) the principal amount of each Bid Rate Loan may not exceed
        the applicable amount set forth in the related Bid Rate Quote Request or
        be less than Five Million Dollars ($5,000,000) and shall be an integral
        multiple of One Hundred Thousand Dollars ($100,000);

                  (ii) acceptance of offers with respect to a particular
        Interest Period may only be made on the basis of ascending LIBOR Bid
        Margins offered for such Interest Period from the lowest effective cost;
        and

                  (iii) Borrower may not accept any offer that is described in
        sub-paragraph (c)(3) or that otherwise fails to comply with the
        requirements of this Agreement.

               (f) If offers are made by two (2) or more Banks with the same
LIBOR Bid Margins, for a greater aggregate principal amount than the amount in
respect of which such offers are accepted for the related Interest Period, the
principal amount of Bid Rate Loans in respect of which such offers are accepted
shall be allocated by Administrative Agent among such Banks as nearly as
possible (in multiples of One Hundred Thousand Dollars ($100,000), as
Administrative Agent may deem appropriate) in proportion to the aggregate
principal amounts of such offers. Administrative Agent shall promptly (and in
any event within one (1) Banking Day after such offers are accepted) notify
Borrower and each such Bank in writing of any such allocation of Bid Rate Loans.
Determinations by Administrative Agent of the allocation of Bid Rate Loans shall
be conclusive in the absence of manifest error.

               (g) In the event that Borrower accepts the offer(s) contained in
one (1) or more Bid Rate Quotes in accordance with paragraph (e), the Bank(s)
making such offer(s) shall make a Bid Rate Loan in the accepted amount (as
allocated, if necessary, pursuant to paragraph (f)) on the date specified
therefor, in accordance with the procedures specified in Section 2.04.

               (h) Notwithstanding anything to the contrary contained herein,
each Bank shall be required to fund its Pro Rata Share of the Available Total
Loan Commitment in accordance with Section 2.01(b) despite the fact that any
Bank's Loan Commitment may have been or may be exceeded as a result of such
Bank's making Bid Rate Loans.

               (i) A Bank who is notified that it has been selected to make a
Bid Rate Loan as provided above may designate its Designated Lender (if any) to
fund such Bid Rate Loan on its behalf, as described in Section 12.16. Any
Designated Lender which funds a Bid Rate Loan

                                       19
   21

shall on and after the time of such funding become the obligee under such Bid
Rate Loan and be entitled to receive payment thereof when due. No Bank shall be
relieved of its obligation to fund a Bid Rate Loan, and no Designated Lender
shall assume such obligation, prior to the time the applicable Bid Rate Loan is
funded.

        SECTION 2.03. Advances, Generally. The Initial Advance shall be in the
minimum amount of One Million Dollars ($1,000,000) and in integral multiples of
One Hundred Thousand Dollars ($100,000) above such amount and shall be made upon
satisfaction of the conditions set forth in Section 4.01. Subsequent advances
shall be made no more frequently than weekly thereafter, upon satisfaction of
the conditions set forth in Section 4.02. The amount of each advance subsequent
to the Initial Advance shall be in the minimum amount of One Million Dollars
($1,000,000) (unless less than One Million Dollars ($1,000,000) is available for
disbursement pursuant to the terms hereof at the time of any subsequent advance,
in which case the amount of such subsequent advance shall be equal to such
remaining availability) and in integral multiples of One Hundred Thousand
Dollars ($100,000) above such amount. Additional restrictions on the amounts and
timing of, and conditions to the making of, advances of Bid Rate Loans are set
forth in Section 2.02.

               Each advance shall be subject, in addition to the limitations and
conditions applicable to advances of the Loans generally, to Administrative
Agent's receipt, on or immediately prior to the date the request for such
advance is made, of a certificate from the officer requesting the advance (1)
certifying that Borrower is in compliance with all covenants enumerated in
paragraph 3(b) of Section 6.09 and containing covenant compliance calculations
that include the pro-forma adjustments described below, which calculations shall
demonstrate Borrower's compliance, on a pro-forma basis, as of the end of the
most recently ended calendar quarter for which financial results have been
reported by Borrower as required hereunder, with such covenants and (2) setting
forth the use of the advance, the income projected to be generated from such
advance for purposes of determining Combined EBITDA and the type of income so
generated.

               In connection with each advance of Loan proceeds, the following
pro-forma adjustments shall be made to the covenant compliance calculations
required as of the end of the most recently ended calendar quarter for which
financial results are required hereunder to have been reported by Borrower:

                  (i) Total Outstanding Indebtedness and Unsecured Indebtedness
        shall be adjusted by adding thereto, respectively, all indebtedness and
        unsecured indebtedness that is incurred by Borrower in connection with
        the advance;

                  (ii) Combined EBITDA, for any period, shall be adjusted by
        adding the income to be included as provided in Borrower's certificate;
        and

                  (iii) Interest Expense for any period, shall be adjusted by
        adding thereto interest expense to be incurred by Borrower in connection
        with the advance.

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   22

        SECTION 2.04. Procedures for Advances. In the case of advances of
Ratable Loans, Borrower shall submit to Administrative Agent a request for each
advance, stating the amount requested and the expected purpose for which such
advance is to be used, no later than 10:00 a.m. (New York time) on the date, in
the case of advances of Base Rate Loans, which is one (1) Banking Day, and, in
the case of advances of LIBOR Loans, which is three (3) Banking Days, prior to
the date the advance is to be made. In the case of advances of Bid Rate Loans,
Borrower shall submit a Bid Rate Quote Request at the time specified in Section
2.02, accompanied by a statement of the expected purpose for which such advance
is to be used. Administrative Agent, upon its receipt and approval of the
request for advance, will so notify the Banks either by telephone or by
facsimile. Not later than 10:00 a.m. (New York time) on the date of each
advance, each Bank (in the case of Ratable Loans) or the applicable Bank(s) (in
the case of Bid Rate Loans) shall, through its Applicable Lending Office and
subject to the conditions of this Agreement, make the amount to be advanced by
it on such day available to Administrative Agent, at Administrative Agent's
Office and in immediately available funds for the account of Borrower. The
amount so received by Administrative Agent shall, subject to the conditions of
this Agreement, be made available to Borrower, in immediately available funds,
by Administrative Agent's crediting account number 2017537183 of Borrower
maintained at Fleet Bank.

        SECTION 2.05. Interest Periods; Renewals. In the case of the LIBOR
Loans, Borrower shall select an Interest Period of any duration in accordance
with the definition of Interest Period in Section 1.01, subject to the following
limitations: (1) no Interest Period may extend beyond the Maturity Date; (2) if
an Interest Period would end on a day which is not a Banking Day, such Interest
Period shall be extended to the next Banking Day, unless such Banking Day would
fall in the next calendar month, in which event such Interest Period shall end
on the immediately preceding Banking Day; and (3) only eight (8) discrete
segments of a Bank's Ratable Loan bearing interest at a LIBOR Interest Rate for
a designated Interest Period pursuant to a particular Election, Conversion or
Continuation, may be outstanding at any one time (each such segment of each
Bank's Ratable Loan corresponding to a proportionate segment of each of the
other Banks' Ratable Loans).

               Upon notice to Administrative Agent as provided in Section 2.13,
Borrower may Continue any LIBOR Loan on the last day of the Interest Period of
the same or different duration in accordance with the limitations provided
above.

        SECTION 2.06. Interest. Borrower shall pay interest to Administrative
Agent for the account of the applicable Bank on the outstanding and unpaid
principal amount of the Loans, at a rate per annum as follows: (1) for Base Rate
Loans at a rate equal to the Base Rate plus the Applicable Margin; (2) for LIBOR
Loans at a rate equal to the applicable LIBOR Interest Rate plus the Applicable
Margin; and (3) for Bid Rate Loans at a rate equal to the applicable LIBOR Bid
Rate. Any principal amount not paid when due (when scheduled, at acceleration or
otherwise) shall bear interest thereafter, payable on demand, at the Default
Rate.

               The interest rate on Base Rate Loans shall change when the Base
Rate changes. Interest on Base Rate Loans, LIBOR Loans and Bid Rate Loans shall
not exceed the maximum amount permitted under applicable law. Interest shall be
calculated for the actual number of

                                       21
   23

days elapsed on the basis of, in the case of Base Rate Loans, LIBOR Loans and
Bid Rate Loans, three hundred sixty (360) days.

               Accrued interest shall be due and payable in arrears, (x) in the
case of both Base Rate Loans and LIBOR Loans, on the first Banking Day of each
calendar month and (y) in the case of Bid Rate Loans, at the expiration of the
Interest Period applicable thereto; provided, however, that interest accruing at
the Default Rate shall be due and payable on demand.

        SECTION 2.07. Fees. Borrower shall, during the term of the Loans, pay to
Administrative Agent for the account of each Bank a commitment fee computed (1)
during periods when Borrower's Credit Rating is below BBB- by S&P or below Baa3
by Moody's or unrated, on the daily unused Loan Commitment of such Bank and (2)
during periods when Borrower's Credit Rating is BBB- or higher by S&P and Baa3
or higher by Moody's, on the daily Loan Commitment of such Bank, in either such
case at a rate per annum equal to the daily Commitment Fee Rate, calculated on
the basis of a year of three hundred sixty (360) days for the actual number of
days elapsed. The accrued commitment fee shall be due and payable in arrears on
the first day of October, January, April and July of each year, commencing on
the first such date after the Closing Date, and upon the Maturity Date (as the
case may be accelerated) or earlier termination of the Loan Commitments.

        SECTION 2.08. Notes. The Ratable Loan made by each Bank under this
Agreement shall be evidenced by, and repaid with interest in accordance with, a
promissory note of Borrower in the form of EXHIBIT B duly completed and executed
by Borrower, in the principal amount equal to such Bank's Loan Commitment,
payable to such Bank for the account of its Applicable Lending Office (each such
note, as the same may hereafter be amended, modified, extended, severed,
assigned, substituted, renewed or restated from time to time, including any
substitute note pursuant to Section 3.07 or 12.05, a "Ratable Loan Note"). The
Bid Rate Loans of the Banks shall be evidenced by a single global promissory
note of Borrower in the form of EXHIBIT C, duly completed and executed by
Borrower, in the principal amount of Five Hundred Million Dollars
($500,000,000), payable to Administrative Agent for the account of the
respective Banks making Bid Rate Loans (such note, as the same may hereafter be
amended, modified, extended, severed, assigned, substituted, renewed or restated
from time to time, the "Bid Rate Loan Note"). A particular Bank's Ratable Loan
Note, together with its interest, if any, in the Bid Rate Loan Note, are
referred to collectively in this Agreement as such Bank's "Note"; all such
Ratable Loan Notes and interests are referred to collectively in this Agreement
as the "Notes". The Ratable Loan Notes shall mature, and all outstanding
principal and accrued interest and other sums thereunder shall be paid in full,
on the Maturity Date, as the same may be accelerated. The outstanding principal
amount of each Bid Rate Loan evidenced by the Bid Rate Loan Note, and all
accrued interest and other sums with respect thereto, shall become due and
payable to the Bank making such Bid Rate Loan at the earlier of the expiration
of the Interest Period applicable thereto or the Maturity Date, as the same may
be accelerated.

               Each Bank is hereby authorized by Borrower to endorse on the
schedule attached to the Ratable Loan Note held by it, the amount of each
advance, and each payment of principal received by such Bank for the account of
its Applicable Lending Office(s) on account of its Ratable Loan, which
endorsement shall, in the absence of manifest error, be conclusive as to the

                                       22
   24

outstanding balance of the Ratable Loan made by such Bank. Administrative Agent
is hereby authorized by Borrower to endorse on the schedule attached to the Bid
Rate Loan Note the amount of each Bid Rate Loan, the name of the Bank making the
same, the date of the advance thereof, the interest rate applicable thereto and
the expiration of the Interest Period applicable thereto (i.e., the maturity
date thereof). The failure by Administrative Agent or any Bank to make such
notations with respect to the Loans or each advance or payment shall not limit
or otherwise affect the obligations of Borrower under this Agreement or the
Notes.

        SECTION 2.09. Prepayments. Without prepayment premium or penalty but
subject to Section 3.05, Borrower may, upon at least one (1) Banking Day's
notice to Administrative Agent in the case of the Base Rate Loans, and at least
three (3) Banking Days' notice to Administrative Agent in the case of LIBOR
Loans, prepay the Ratable Loans in whole or, with respect to Base Rate Loans
only, in part, provided that (1) any partial prepayment under this Section shall
be in integral multiples of One Million Dollars ($1,000,000); and (2) each
prepayment under this Section shall include, at Administrative Agent's option,
all interest accrued on the amount of principal prepaid to (but excluding) the
date of prepayment.

        SECTION 2.10. Method of Payment. Borrower shall make each payment under
this Agreement and under the Notes not later than 11:00 a.m. (New York time) on
the date when due in Dollars to Administrative Agent at Administrative Agent's
Office in immediately available funds. Administrative Agent will thereafter, on
the day of its receipt of each such payment, cause to be distributed to each
Bank (1) such Bank's appropriate share (based upon the respective outstanding
principal amounts and interest due under the Notes of the Banks) of the payments
of principal and interest in like funds for the account of such Bank's
Applicable Lending Office; and (2) fees payable to such Bank in accordance with
the terms of this Agreement. Borrower hereby authorizes Administrative Agent and
the Banks, if and to the extent payment by Borrower is not made when due under
this Agreement or under the Notes, to charge from time to time against any
account Borrower maintains with Administrative Agent or any Bank any amount so
due to Administrative Agent and/or the Banks.

               Except to the extent provided in this Agreement, whenever any
payment to be made under this Agreement or under the Notes is due on any day
other than a Banking Day, such payment shall be made on the next succeeding
Banking Day, and such extension of time shall in such case be included in the
computation of the payment of interest and other fees, as the case may be.

        SECTION 2.11. Elections, Conversions or Continuation of Loans. Subject
to the provisions of Article III and Sections 2.05 and 2.12, Borrower shall have
the right to Elect to have all or a portion of any advance of the Ratable Loans
be LIBOR Loans, to Convert Base Rate Loans into LIBOR Loans, to Convert LIBOR
Loans into Base Rate Loans, or to Continue LIBOR Loans as LIBOR Loans, at any
time or from time to time, provided that: (1) Borrower shall give Administrative
Agent notice of each such Election, Conversion or Continuation as provided in
Section 2.13; and (2) a LIBOR Loan may be Continued only on the last day of the
applicable Interest Period for such LIBOR Loan. Except as otherwise provided in
this Agreement, each Election, Continuation and Conversion shall be applicable
to each Bank's Ratable Loan in accordance with its Pro Rata Share.

                                       23
   25

        SECTION 2.12. Minimum Amounts. With respect to the Ratable Loans as a
whole, each Election and each Conversion shall be in an amount at least equal to
Three Million Dollars ($3,000,000) and in integral multiples of One Hundred
Thousand Dollars ($100,000).

        SECTION 2.13. Certain Notices Regarding Elections, Conversions and
Continuations of Loans. Notices by Borrower to Administrative Agent of
Elections, Conversions and Continuations of LIBOR Loans shall be irrevocable and
shall be effective only if received by Administrative Agent not later than 10:00
a.m. (New York time) on the number of Banking Days prior to the date of the
relevant Election, Conversion or Continuation specified below:

                                                                             Number of
                                  Notice                                 Banking Days Prior
                                  ------                                 ------------------

     Conversions into Base Rate Loans                                         one (1)
     Elections of, Conversions into or Continuations as, LIBOR Loans         three (3)

Promptly following its receipt of any such notice, Administrative Agent shall so
advise the Banks either by telephone or by facsimile. Each such notice of
Election shall specify the portion of the amount of the advance that is to be
LIBOR Loans (subject to Section 2.12) and the duration of the Interest Period
applicable thereto (subject to Section 2.05); each such notice of Conversion
shall specify the LIBOR Loans or Base Rate Loans to be Converted; and each such
notice of Conversion or Continuation shall specify the date of Conversion or
Continuation (which shall be a Banking Day), the amount thereof (subject to
Section 2.12) and the duration of the Interest Period applicable thereto
(subject to Section 2.05). In the event that Borrower fails to Elect to have any
portion of an advance of the Ratable Loans be LIBOR Loans, the entire amount of
such advance shall constitute Base Rate Loans. In the event that Borrower fails
to Continue LIBOR Loans within the time period and as otherwise provided in this
Section, such LIBOR Loans will be automatically Converted into Base Rate Loans
on the last day of the then current applicable Interest Period for such LIBOR
Loans.

        SECTION 2.14. Late Payment Premium. Borrower shall pay to Administrative
Agent for the account of the Banks a late payment premium in the amount of 4% of
any payments of principal or interest under the Loans made more than ten (10)
days after the due date thereof, which shall be due with any such late payment.

        SECTION 2.15. Changes of Commitments. (a) At any time, Borrower shall
have the right, without premium or penalty, to terminate any unused Loan
Commitments existing as of the date of such termination, in whole or in part,
from time to time, provided that: (1) Borrower shall give notice of each such
termination to Administrative Agent no later then 10:00 a.m. (New York time) on
the date which is fifteen (15) Banking Days prior to the effectiveness of such
termination; (2) the Loan Commitments of each of the Banks must be terminated
ratably and simultaneously with those of the other Banks; and (3) each partial
termination of the Loan

                                       24
   26

Commitments as a whole (and corresponding reduction of the Total Loan
Commitment) shall be in an integral multiple of One Million Dollars
($1,000,000).

               (b) The Loan Commitments, to the extent terminated, may not be
reinstated.

        SECTION 2.16. Letters of Credit. (a) Borrower, by notice to
Administrative Agent, may request, in lieu of advances of proceeds of the
Ratable Loans, that Administrative Agent issue unconditional, irrevocable
standby letters of credit (each, a "Letter of Credit") for the account of
Borrower, payable by sight drafts, for such beneficiaries and with such other
terms as Borrower shall specify. Promptly upon issuance of a Letter of Credit,
Administrative Agent shall notify each of the Banks by telephone or by
facsimile.

               (b) The amount of any such Letter of Credit shall be limited to
the lesser of (1) Two Hundred Fifty Million Dollars ($250,000,000) less the
amount of all other Letters of Credit then issued and outstanding or (2) the
Available Total Loan Commitment, it being understood that the amount of each
Letter of Credit issued and outstanding shall effect a reduction, by an equal
amount, of the Available Total Loan Commitment as provided in Section 2.01(b)
(such reduction to be allocated to each Bank's Ratable Loan ratably in
accordance with the Banks' respective Pro Rata Shares).

               (c) The amount of each Letter of Credit shall be further subject
to the conditions and limitations applicable to amounts of advances set forth in
Section 2.03 and the procedures for the issuance of each Letter of Credit shall
be the same as the procedures applicable to the making of advances as set forth
in the first sentence of Section 2.04.

               (d) Administrative Agent's issuance of each Letter of Credit
shall be subject to Borrower's satisfaction of all conditions precedent to its
entitlement to an advance of proceeds of the Loans.

               (e) Each Letter of Credit shall expire no later than the earlier
of (x) one (1) month prior to the Maturity Date or (y) one (1) year after the
date of its issuance.

               (f) In connection with, and as a further condition to the
issuance of, each Letter of Credit, Borrower shall execute and deliver to
Administrative Agent an application for the Letter of Credit on Administrative
Agent's standard form therefor, together with such other documents, opinions and
assurances as Administrative Agent shall reasonably require.

               (g) In connection with each Letter of Credit, Borrower hereby
covenants to pay to Administrative Agent the following fees, each payable
quarterly in arrears (on the first Banking Day of each calendar quarter
following the issuance of the Letter of Credit): (i) a fee, payable to
Administrative Agent for the account of the Banks, computed daily on the amount
of the Letter of Credit issued and outstanding at a rate per annum equal to the
"Banks' L/C Fee Rate" (as hereinafter defined) and (ii) a fee, payable to
Administrative Agent for its own account, computed daily on the amount of the
Letter of Credit issued and outstanding at a rate per annum of 0.125%. For
purposes of this Agreement, the "Banks' L/C Fee Rate" shall mean, at any time, a
rate per annum equal to the Applicable Margin for LIBOR Loans less 0.125% per
annum. It is

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understood and agreed that the last installment of the fees provided for in this
paragraph (g) with respect to any particular Letter of Credit shall be due and
payable on the first day of the calendar quarter following the return, undrawn,
or cancellation, of such Letter of Credit.

               (h) The parties hereto acknowledge and agree that, immediately
upon notice from Administrative Agent of any drawing under a Letter of Credit,
each Bank shall, notwithstanding the existence of a Default or Event of Default
or the non-satisfaction of any conditions precedent to the making of an advance
of the Loans, advance proceeds of its Ratable Loan, in an amount equal to its
Pro Rata Share of such drawing, which advance shall be made to Administrative
Agent to reimburse Administrative Agent, for its own account, for such drawing.
Each of the Banks further acknowledges that its obligation to fund its Pro Rata
Share of drawings under Letters of Credit as aforesaid shall survive the Banks'
termination of this Agreement or enforcement of remedies hereunder or under the
other Loan Documents.

               (i) Borrower agrees, upon the occurrence of an Event of Default
and at the request of Administrative Agent, (x) to deposit with Administrative
Agent cash collateral in the amount of all the outstanding Letters of Credit,
which cash collateral shall be held by Administrative Agent as security for
Borrower's obligations in connection with the Letters of Credit and (y) to
execute and deliver to Administrative Agent such documents as Administrative
Agent requests to confirm and perfect the assignment of such cash collateral to
Administrative Agent.

                                  ARTICLE III

                       YIELD PROTECTION; ILLEGALITY; ETC.

        SECTION 3.01. Additional Costs. Borrower shall pay directly to each Bank
from time to time on demand such amounts as such Bank may reasonably determine
to be necessary to compensate it for any increased costs which such Bank
determines are attributable to its making or maintaining a LIBOR Loan or a Bid
Rate Loan, or its obligation to make or maintain a LIBOR Loan or a Bid Rate
Loan, or its obligation to Convert a Base Rate Loan to a LIBOR Loan hereunder,
or any reduction in any amount receivable by such Bank hereunder in respect of
its LIBOR Loan or Bid Rate Loan(s) or such obligations (such increases in costs
and reductions in amounts receivable being herein called "Additional Costs"), in
each case resulting from any Regulatory Change which:

                  (1) changes the basis of taxation of any amounts payable to
        such Bank under this Agreement or the Notes in respect of any such LIBOR
        Loan or Bid Rate Loan (other than (i) changes in the rate of general
        corporate, franchise, branch profit, net income or other income tax
        imposed on such Bank or its Applicable Lending Office or (ii) a tax
        described in Section 10.13); or

                  (2) (other than to the extent the LIBOR Reserve Requirement is
        taken into account in determining the LIBOR Rate at the commencement of
        the applicable Interest Period) imposes or modifies any reserve, special
        deposit, deposit insurance or

                                       26
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        assessment, minimum capital, capital ratio or similar requirements
        relating to any extensions of credit or other assets of, or any deposits
        with or other liabilities of, such Bank (including any LIBOR Loan or Bid
        Rate Loan or any deposits referred to in the definition of "LIBOR
        Interest Rate" in Section 1.01), or any commitment of such Bank
        (including such Bank's Loan Commitment hereunder); or

                  (3) imposes any other condition (unrelated to the basis of
        taxation referred to in paragraph (1) above) affecting this Agreement or
        the Notes (or any of such extensions of credit or liabilities).

               Without limiting the effect of the provisions of the first
paragraph of this Section, in the event that, by reason of any Regulatory
Change, any Bank either (1) incurs Additional Costs based on or measured by the
excess above a specified level of the amount of a category of deposits of other
liabilities of such Bank which includes deposits by reference to which the LIBOR
Interest Rate is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Bank which includes loans based on
the LIBOR Interest Rate or (2) becomes subject to restrictions on the amount of
such a category of liabilities or assets which it may hold, then, if such Bank
so elects by notice to Borrower (with a copy to Administrative Agent), the
obligation of such Bank to permit Elections of, to Continue, or to Convert Base
Rate Loans into, LIBOR Loans shall be suspended (in which case the provisions of
Section 3.04 shall be applicable) until such Regulatory Change ceases to be in
effect.

               Determinations and allocations by a Bank for purposes of this
Section of the effect of any Regulatory Change pursuant to the first or second
paragraph of this Section, on its costs or rate of return of making or
maintaining its Loan or portions thereof or on amounts receivable by it in
respect of its Loan or portions thereof, and the amounts required to compensate
such Bank under this Section, shall be included in a calculation of such amounts
given to Borrower and shall be conclusive absent manifest error.

        SECTION 3.02. Limitation on Types of Loans. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of the LIBOR
Interest Rate for any Interest Period:

                  (1) Administrative Agent reasonably determines (which
        determination shall be conclusive) that quotations of interest rates for
        the relevant deposits referred to in the definition of "LIBOR Interest
        Rate" in Section 1.01 are not being provided in the relevant amounts or
        for the relevant maturities for purposes of determining rates of
        interest for the LIBOR Loans or Bid Rate Loans as provided in this
        Agreement; or

                  (2) a Bank reasonably determines (which determination shall be
        conclusive) and promptly notifies Administrative Agent that the relevant
        rates of interest referred to in the definition of "LIBOR Interest Rate"
        in Section 1.01 upon the basis of which the rate of interest for LIBOR
        Loans or Bid Rate Loans for such Interest Period is to be determined do
        not adequately cover the cost to such Bank of making or maintaining such
        LIBOR Loan or Bid Rate Loan for such Interest Period;

                                       27
   29

        then Administrative Agent shall give Borrower prompt notice thereof, and
        so long as such condition remains in effect, the Banks (or, in the case
        of the circumstances described in clause (2) above, the affected Bank)
        shall be under no obligation to permit Elections of LIBOR Loans, to
        Convert Base Rate Loans into LIBOR Loans or to Continue LIBOR Loans and
        Borrower shall, on the last day(s) of the then current Interest
        Period(s) for the affected outstanding LIBOR Loans or Bid Rate Loans,
        either (x) prepay the affected LIBOR Loans or Bid Rate Loans or (y)
        Convert the affected LIBOR Loans into Base Rate Loans in accordance with
        Section 2.11 or convert the rate of interest under the affected Bid Rate
        Loans to the rate applicable to Base Rate Loans by following the same
        procedures as are applicable for Conversions into Base Rate Loans set
        forth in Section 2.11.

        SECTION 3.03. Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to honor its obligation to make or maintain a LIBOR Loan or Bid
Rate Loan hereunder, to allow Elections of a LIBOR Loan or to Convert a Base
Rate Loan into a LIBOR Loan, then such Bank shall promptly notify Administrative
Agent and Borrower thereof and such Bank's obligation to make or maintain a
LIBOR Loan or Bid Rate Loan, or to permit Elections of, to Continue, or to
Convert its Base Rate Loan into, a LIBOR Loan shall be suspended (in which case
the provisions of Section 3.04 shall be applicable) until such time as such Bank
may again make and maintain a LIBOR Loan or Bid Rate Loan.

        SECTION 3.04. Treatment of Affected Loans. If the obligations of any
Bank to make or maintain a LIBOR Loan or a Bid Rate Loan, or to permit an
Election of a LIBOR Loan, to Continue its LIBOR Loan, or to Convert its Base
Rate Loan into a LIBOR Loan, are suspended pursuant to Sections 3.01 or 3.03
(each LIBOR Loan or Bid Rate Loan so affected being herein called an "Affected
Loan"), such Bank's Affected Loan shall be automatically Converted into a Base
Rate Loan (or, in the case of an Affected Loan that is a Bid Rate Loan, the
interest rate thereon shall be converted to the rate applicable to Base Rate
Loans) on the last day of the then current Interest Period for the Affected Loan
(or, in the case of a Conversion or conversion required by Sections 3.01 or
3.03, on such earlier date as such Bank may specify to Borrower).

               To the extent that such Bank's Affected Loan has been so
Converted (or the interest rate thereon so converted), all payments and
prepayments of principal which would otherwise be applied to such Bank's
Affected Loan shall be applied instead to its Base Rate Loan (or to its Bid Rate
Loan bearing interest at the converted rate) and such Bank shall have no
obligation to Convert its Base Rate Loan into a LIBOR Loan.

        SECTION 3.05. Certain Compensation. Other than in connection with a
Conversion of an Affected Loan, Borrower shall pay to Administrative Agent for
the account of the applicable Bank, upon the request of such Bank through
Administrative Agent which request includes a calculation of the amount(s) due,
such amount or amounts as shall be sufficient (in the reasonable opinion of such
Bank) to compensate it for any loss, cost or expense which such Bank reasonably
determines is attributable to:

                                       28
   30

                  (1) any payment or prepayment of a LIBOR Loan or Bid Rate Loan
        made by such Bank, or any Conversion of a LIBOR Loan (or conversion of
        the rate of interest on a Bid Rate Loan) made by such Bank, in any such
        case on a date other than the last day of an applicable Interest Period,
        whether by reason of acceleration or otherwise; or

                  (2) any failure by Borrower for any reason to Convert or
        Continue a LIBOR Loan to be Converted or Continued by such Bank on the
        date specified therefor in the relevant notice under Section 2.13; or

                  (3) any failure by Borrower to borrow (or to qualify for a
        borrowing of) a LIBOR Loan or Bid Rate Loan which would otherwise be
        made hereunder on the date specified in the relevant Election notice
        under Section 2.13 or Bid Rate Quote acceptance under Section 2.02(e)
        given or submitted by Borrower.

               Without limiting the foregoing, such compensation shall include
an amount equal to the present value (using as the discount rate an interest
rate equal to the rate determined under (2) below) of the excess, if any, of (1)
the amount of interest (less the Applicable Margin) which otherwise would have
accrued on the principal amount so paid, prepaid, Converted or Continued (or not
Converted, Continued or borrowed) for the period from the date of such payment,
prepayment, Conversion or Continuation (or failure to Convert, Continue or
borrow) to the last day of the then current applicable Interest Period (or, in
the case of a failure to Convert, Continue or borrow, to the last day of the
applicable Interest Period which would have commenced on the date specified
therefor in the relevant notice) at the applicable rate of interest for the
LIBOR Loan or Bid Rate Loan provided for herein, over (2) the amount of interest
(as reasonably determined by such Bank) based upon the interest rate which such
Bank would have bid in the London interbank market for Dollar deposits, for
amounts comparable to such principal amount and maturities comparable to such
period. A determination of any Bank as to the amounts payable pursuant to this
Section shall be conclusive absent manifest error.

        SECTION 3.06. Capital Adequacy. If any Bank shall have determined that,
after the date hereof, the adoption of any applicable law, rule or regulation
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any Governmental Authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or any request or directive regarding capital adequacy (whether or not
having the force of law) of any such Governmental Authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on capital of such Bank (or its Parent) as a consequence of such Bank's
obligations hereunder to a level below that which such Bank (or its Parent)
could have achieved but for such adoption, change, request or directive (taking
into consideration its policies with respect to capital adequacy) by an amount
deemed by such Bank to be material, then from time to time, within fifteen (15)
days after demand by such Bank (with a copy to Administrative Agent), Borrower
shall pay to such Bank such additional amount or amounts as will compensate such
Bank (or its Parent) for such reduction. A certificate of any Bank claiming
compensation under this Section, setting forth in reasonable detail the basis
therefor, shall be conclusive absent manifest error.

                                       29
   31

        SECTION 3.07. Substitution of Banks. If any Bank (an "Affected Bank")
(i) makes demand upon Borrower for (or if Borrower is otherwise required to pay)
Additional Costs pursuant to Section 3.01 or (ii) is unable to make or maintain
a LIBOR Loan or Bid Rate Loan as a result of a condition described in Section
3.03 or clause (2) of Section 3.02, Borrower may, within ninety (90) days of
receipt of such demand or notice (or the occurrence of such other event causing
Borrower to be required to pay Additional Costs or causing said Section 3.03 or
clause (2) of Section 3.02 to be applicable), as the case may be, give written
notice (a "Replacement Notice") to Administrative Agent and to each Bank of
Borrower's intention either (x) to prepay in full the Affected Bank's Note and
to terminate the Affected Bank's entire Loan Commitment or (y) to replace the
Affected Bank with another financial institution (the "Replacement Bank")
designated in such Replacement Notice.

               In the event Borrower opts to give the notice provided for in
clause (x) above, and if the Affected Bank shall not agree within thirty (30)
days of its receipt thereof to waive the payment of the Additional Costs in
question or the effect of the circumstances described in Section 3.03 or clause
(2) of Section 3.02, then, so long as no Default or Event of Default shall
exist, Borrower may (notwithstanding the provisions of clause (2) of Section
2.15(a)) terminate the Affected Bank's entire Loan Commitment, provided that in
connection therewith it pays to the Affected Bank all outstanding principal and
accrued and unpaid interest under the Affected Bank's Note, together with all
other amounts, if any, due from Borrower to the Affected Bank, including all
amounts properly demanded and unreimbursed under Sections 3.01 and 3.05.

               In the event Borrower opts to give the notice provided for in
clause (y) above, and if (i) Administrative Agent shall, within thirty (30) days
of its receipt of the Replacement Notice, notify Borrower and each Bank in
writing that the Replacement Bank is reasonably satisfactory to Administrative
Agent and (ii) the Affected Bank shall not, prior to the end of such thirty
(30)-day period, agree to waive the payment of the Additional Costs in question
or the effect of the circumstances described in Section 3.03 or clause (2) of
Section 3.02, then the Affected Bank shall, so long as no Default or Event of
Default shall exist, assign its Note and all of its rights and obligations under
this Agreement to the Replacement Bank, and the Replacement Bank shall assume
all of the Affected Bank's rights and obligations, pursuant to an agreement,
substantially in the form of an Assignment and Assumption Agreement, executed by
the Affected Bank and the Replacement Bank. In connection with such assignment
and assumption, the Replacement Bank shall pay to the Affected Bank an amount
equal to the outstanding principal amount under the Affected Bank's Note plus
all interest accrued thereon, plus all other amounts, if any (other than the
Additional Costs in question), then due and payable to the Affected Bank;
provided, however, that prior to or simultaneously with any such assignment and
assumption, Borrower shall have paid to such Affected Bank all amounts properly
demanded and unreimbursed under Sections 3.01 and 3.05. Upon the effective date
of such assignment and assumption, the Replacement Bank shall become a Bank
Party to this Agreement and shall have all the rights and obligations of a Bank
as set forth in such Assignment and Assumption Agreement, and the Affected Bank
shall be released from its obligations hereunder, and no further consent or
action by any party shall be required. Upon the consummation of any assignment
pursuant to this Section, a substitute Ratable Loan Note shall be issued to the
Replacement Bank by Borrower, in exchange for the return of the Affected Bank's
Ratable Loan Note. The obligations evidenced by such substitute note shall
constitute "Obligations" for all purposes of this Agreement and the

                                       30
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other Loan Documents. If the Replacement Bank is not incorporated under the laws
of the United States of America or a state thereof, it shall, prior to the first
date on which interest or fees are payable hereunder for its account, deliver to
Borrower and Administrative Agent certification as to exemption from deduction
or withholding of any United States federal income taxes in accordance with
Section 10.13. Each Replacement Bank shall be deemed to have made the
representations contained in, and shall be bound by the provisions of, Section
10.13.

               Borrower, Administrative Agent and the Banks shall execute such
modifications to the Loan Documents as shall be reasonably required in
connection with and to effectuate the foregoing.

                                   ARTICLE IV

                              CONDITIONS PRECEDENT

        SECTION 4.01. Conditions Precedent to the Loans. The obligations of the
Banks hereunder and the obligation of each Bank to make the Initial Advance are
subject to the condition precedent that Administrative Agent shall have received
on or before the Closing Date (other than with respect to paragraph 13 below,
which shall be required prior to the Initial Advance) each of the following
documents, and each of the following requirements shall have been fulfilled:

                   (1) Fees and Expenses. The payment of all fees and expenses
        owed to or incurred by Administrative Agent (including, without
        limitation, the reasonable fees and expenses of legal counsel);

                   (2) Note. The Ratable Loan Note for each Bank and the Bid
        Rate Loan Note for Administrative Agent, each duly executed by Borrower;

                   (3) Financial Statements. (i) Audited VRT Consolidated
        Financial Statements as of and for the year ended December 31, 1996 and
        (ii) unaudited VRT Consolidated Financial Statements, certified by the
        chief financial officer, as and for the quarter ended September 30,
        1997, acceptable to the Banks;

                   (4) Certificates of Limited Partnership/Incorporation. A copy
        of the Certificate of Limited Partnership for Borrower and a copy of the
        articles of incorporation of General Partner, each certified by the
        appropriate Secretary of State or equivalent state official;

                   (5) Agreements of Limited Partnership/Bylaws. A copy of the
        Agreement of Limited Partnership for Borrower and a copy of the by-laws
        of General Partner, including all amendments thereto, each certified by
        the Secretary or an Assistant Secretary of General Partner as being in
        full force and effect on the Closing Date;

                                       31
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                  (6) Good Standing Certificates. A certified copy of a
        certificate from the Secretary of State or equivalent state official of
        the states where Borrower and General Partner are organized, dated as of
        the most recent practicable date, showing the good standing or
        partnership qualification of (i) Borrower and (ii) General Partner;

                   (7) Foreign Qualification Certificates. A certified copy of a
        certificate from the Secretary of State or equivalent state official of
        the state where Borrower and General Partner maintain their principal
        place of business, dated as of the most recent practicable date, showing
        the qualification to transact business in such state as a foreign
        limited partnership or foreign corporation, as the case may be, for (i)
        Borrower and (ii) General Partner;

                   (8) Resolutions. A copy of a resolution or resolutions
        adopted by the Board of Directors of General Partner, certified by the
        Secretary or an Assistant Secretary of General Partner as being in full
        force and effect on the Closing Date, authorizing the Loans provided for
        herein and the execution, delivery and performance of the Loan Documents
        to be executed and delivered by General Partner hereunder on behalf of
        itself and Borrower;

                   (9) Incumbency Certificate. A certificate, signed by the
        Secretary or an Assistant Secretary of General Partner and dated the
        Closing Date, as to the incumbency, and containing the specimen
        signature or signatures, of the Persons authorized to execute and
        deliver the Loan Documents to be executed and delivered by it and
        Borrower hereunder;

                   (10) Solvency Certificate. A Solvency Certificate, duly
        executed, from Borrower;

                   (11) Opinion of Counsel for Borrower. Favorable opinions,
        dated the Closing Date, from counsels for Borrower and General Partner,
        as to such matters as Administrative Agent may reasonably request;

                   (12) Authorization Letter. The Authorization Letter, duly
        executed by Borrower;

                   (13) Guaranty. The Guaranty duly executed by General Partner;

                   (14) Request for Advance. A request for an advance in
        accordance with Section 2.04;

                   (15) Certificate. The following statements shall be true and
        Administrative Agent shall have received a certificate dated the Closing
        Date signed by a duly authorized signatory of Borrower stating, to the
        best of the certifying party's knowledge, the following:

                                       32
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                          (a) All representations and warranties contained in
               this Agreement and in each of the other Loan Documents are true
               and correct on and as of the Closing Date as though made on and
               as of such date, and

                          (b) No Default or Event of Default has occurred and is
               continuing, or could result from the transactions contemplated by
               this Agreement and the other Loan Documents;

                   (16) Compliance Certificate. A certificate of the sort
        required by paragraph (3) of Section 6.09; and

                   (17) Insurance. Evidence of the insurance described in
        Section 5.17.

        SECTION 4.02. Conditions Precedent to Advances After the Initial
Advance. The obligation of each Bank to make advances of the Loans subsequent to
the Initial Advance shall be subject to satisfaction of the following conditions
precedent:

                  (1) No Default or Event of Default shall have occurred and be
        continuing as of the date of the advance;

                  (2) Each of the representations and warranties contained in
        this Agreement and in each of the other Loan Documents shall be true and
        correct as of the date of the advance; and

                  (3) Administrative Agent shall have received a request for an
        advance in accordance with Section 2.04.

        SECTION 4.03. Deemed Representations. Each request by Borrower for, and
acceptance by Borrower of, an advance of proceeds of the Loans shall constitute
a representation and warranty by Borrower and General Partner that, as of both
the date of such request and the date of the advance (1) no Default or Event of
Default has occurred and is continuing, and (2) each representation or warranty
contained in this Agreement or the other Loan Documents is true and correct.

                                   ARTICLE V

                         REPRESENTATIONS AND WARRANTIES

               Borrower (and General Partner, if expressly included in Sections
contained in this Article) represents and warrants to Administrative Agent and
each Bank as follows:

        SECTION 5.01. Existence. Borrower is a limited partnership duly
organized and existing under the laws of the State of Delaware, with its
principal place of business in the State of New Jersey, and is duly qualified as
a foreign limited partnership, properly licensed, in good standing and has all
requisite authority to conduct its business in each jurisdiction in which

                                       33
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it owns properties or conducts business except where the failure to be so
qualified or to obtain such authority would not constitute a Material Adverse
Change. Each of its Consolidated Businesses is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization and has
all requisite authority to conduct its business in each jurisdiction in which it
owns property or conducts business, except where the failure to be so qualified
or to obtain such authority would not constitute a Material Adverse Change.
General Partner is a real estate investment trust duly organized and existing
under the laws of the State of Maryland, with its principal place of business in
the State of New Jersey, is duly qualified as a foreign corporation and properly
licensed and in good standing in each jurisdiction where the failure to qualify
or be licensed would constitute a Material Adverse Change with respect to
General Partner. The stock of General Partner is listed on the New York Stock
Exchange.

        SECTION 5.02. Corporate/Partnership Powers. The execution, delivery and
performance of the Loan Documents required to be delivered by Borrower hereunder
are within its partnership authority and the corporate power of General Partner,
have been duly authorized by all requisite action, and are not in conflict with
the terms of any organizational instruments of such entity, or any instrument or
agreement to which Borrower or General Partner is a party or by which Borrower,
General Partner or any of their respective assets may be bound or affected.

        SECTION 5.03. Power of Officers. The officers of General Partner
executing the Loan Documents required to be delivered by it on its own behalf or
that of Borrower hereunder have been duly elected or appointed and were fully
authorized to execute the same at the time each such Loan Document was executed.

        SECTION 5.04. Power and Authority; No Conflicts; Compliance With Laws.
The execution and delivery of, and the performance of the obligations required
to be performed by Borrower and General Partner under, the Loan Documents do not
and will not (a) violate any provision of, or require any filing, registration,
consent or approval under, any Law (including, without limitation, Regulation
U), order, writ, judgment, injunction, decree, determination or award presently
in effect having applicability to either of them, (b) result in a breach of or
constitute a default under or require any consent under any indenture or loan or
credit agreement or any other agreement, lease or instrument to which either of
them may be a party or by which either of them or their properties may be bound
or affected except for consents which have been obtained, (c) result in, or
require, the creation or imposition of any Lien, upon or with respect to any of
its properties now owned or hereafter acquired, or (d) cause either of them to
be in default under any such Law, order, writ, judgment, injunction, decree,
determination or award or any such indenture, agreement, lease or instrument; to
the best of their knowledge, Borrower and General Partner are in compliance with
all Laws applicable to them and their properties where the failure to be in
compliance would cause a Material Adverse Change to occur.

        SECTION 5.05. Legally Enforceable Agreements. Each Loan Document is a
legal, valid and binding obligation of Borrower and/or General Partner, as the
case may be, enforceable in accordance with its terms, except to the extent that
such enforcement may be limited by applicable bankruptcy, insolvency and other
similar laws affecting creditors' rights generally.

                                       34
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        SECTION 5.06. Litigation. Except as disclosed in General Partner's SEC
Reports existing as of the date hereof, there are no actions, suits or
proceedings pending or, to its knowledge, threatened against Borrower, General
Partner or any of their Affiliates before any court or arbitrator or any
Governmental Authority reasonably likely to have a material effect on Borrower's
ability to repay the Loans.

        SECTION 5.07. Good Title to Properties. Borrower and each of its
Affiliates have good, marketable and legal title to all of the properties and
assets each of them purports to own (including, without limitation, those
reflected in the December 31, 1996 financial statements referred to in Section
5.15) and only with exceptions which do not materially detract from the value of
such property or assets or the use thereof in Borrower's and such Affiliate's
business, and except to the extent that any such properties and assets have been
encumbered or disposed of since the date of such financial statements without
violating any of the covenants contained in Article VII or elsewhere in this
Agreement. Borrower and its Material Affiliates enjoy peaceful and undisturbed
possession of all leased property necessary in any material respect in the
conduct of their respective businesses. All such leases are valid and subsisting
and are in full force and effect.

        SECTION 5.08. Taxes. Borrower and General Partner have filed all tax
returns (federal, state and local) required to be filed and have paid all taxes,
assessments and governmental charges and levies due and payable without the
imposition of a penalty, including interest and penalties, except to the extent
they are the subject of a Good Faith Contest.

        SECTION 5.09. ERISA. Borrower and General Partner are in compliance in
all material respects with all applicable provisions of ERISA. Neither a
Reportable Event nor a Prohibited Transaction has occurred with respect to any
Plan; no notice of intent to terminate a Plan has been filed nor has any Plan
been terminated within the past five (5) years; no circumstance exists which
constitutes grounds under Section 4042 of ERISA entitling the PBGC to institute
proceedings to terminate, or appoint a trustee to administer, a Plan, nor has
the PBGC instituted any such proceedings; Borrower, General Partner and the
ERISA Affiliates have not completely or partially withdrawn under Sections 4201
or 4204 of ERISA from a Multiemployer Plan; Borrower, General Partner and the
ERISA Affiliates have met the minimum funding requirements of Section 412 of the
Code and Section 302 of ERISA of each with respect to the Plans of each and
there is no Unfunded Current Liability with respect to any Plan established or
maintained by each; and Borrower, General Partner and the ERISA Affiliates have
not incurred any liability to the PBGC under ERISA (other than for the payment
of premiums under Section 4007 of ERISA). No part of the funds to be used by
Borrower in satisfaction of its obligations under this Agreement constitute
"plan assets" of any "employee benefit plan" within the meaning of ERISA or of
any "plan" within the meaning of Section 4975(e)(1) of the Code, as interpreted
by the Internal Revenue Service and the U.S. Department of Labor in rules,
regulations, releases, bulletins or as interpreted under applicable case law.

        SECTION 5.10. No Default on Outstanding Judgments or Orders. Borrower
and General Partner have satisfied all judgments which are not being appealed
and are not in default with respect to any judgment, order, writ, injunction,
decree, rule or regulation of any

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court, arbitrator or federal, state, municipal or other Governmental Authority,
commission, board, bureau, agency or instrumentality, domestic or foreign.

        SECTION 5.11. No Defaults on Other Agreements. Except as disclosed to
the Bank Parties in writing or as disclosed in General Partner's SEC Reports,
Borrower or General Partner, to the best of their knowledge, are not a party to
any indenture, loan or credit agreement or any lease or other agreement or
instrument or subject to any partnership, trust or other restriction which is
likely to result in a Material Adverse Change. To the best of their knowledge,
neither Borrower nor General Partner is in default in any respect in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument which is likely to result in
a Material Adverse Change.

        SECTION 5.12. Government Regulation. Neither Borrower nor General
Partner is subject to regulation under the Investment Company Act of 1940 or any
statute or regulation limiting any such Person's ability to incur indebtedness
for money borrowed as contemplated hereby.

        SECTION 5.13. Environmental Protection. To Borrower's knowledge, except
as disclosed in General Partner's SEC Reports existing as of the date hereof,
none of Borrower's or its Affiliates' properties contains any Hazardous
Materials that, under any Environmental Law currently in effect, (1) would
impose liability on Borrower or General Partner that is likely to result in a
Material Adverse Change, or (2) is likely to result in the imposition of a Lien
on any assets of Borrower, General Partner or any Material Affiliates that is
likely to result in a Material Adverse Change. To Borrower's knowledge, neither
it, General Partner nor any Material Affiliates are in violation of, or subject
to any existing, pending or threatened investigation or proceeding by any
Governmental Authority under any Environmental Law that is likely to result in a
Material Adverse Change.

        SECTION 5.14. Solvency. Borrower and General Partner are, and upon
consummation of the transactions contemplated by this Agreement, the other Loan
Documents and any other documents, instruments or agreements relating thereto,
will be, Solvent.

        SECTION 5.15. Financial Statements. The VRT Consolidated Financial
Statements most recently delivered to the Banks pursuant to the terms of this
Agreement are in all material respects complete and correct and fairly present
the financial condition of the subjects thereof as of the dates of and for the
periods covered by such statements, all in accordance with GAAP. There has been
no Material Adverse Change since the date of such most recently delivered VRT
Consolidated Financial Statements.

        SECTION 5.16. Valid Existence of Affiliates. Each Material Affiliate is
an entity duly organized and existing in good standing under the laws of the
jurisdiction of its formation. As to each Material Affiliate, its correct name,
the jurisdiction of its formation, Borrower's direct or indirect percentage of
beneficial interest therein, and the type of business in which it is primarily
engaged, are set forth on said EXHIBIT F. Borrower and each of its Material
Affiliates have the power to own their respective properties and to carry on
their respective businesses now being conducted. Each Material Affiliate is duly
qualified as a

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foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the respective businesses conducted by it or its
respective properties, owned or held under lease, make such qualification
necessary and where the failure to be so qualified would have the effect of a
Material Adverse Change on Borrower and its Consolidated Businesses taken as a
whole.

        SECTION 5.17. Insurance. Borrower and each of its Affiliates has in
force paid insurance with financially sound and reputable insurance companies or
associations in such amounts and covering such risks as are usually carried by
companies engaged in the same or a similar business and similarly situated and
reasonably acceptable to Administrative Agent.

        SECTION 5.18. Accuracy of Information; Full Disclosure. Neither this
Agreement nor any documents, financial statements, reports, notices, schedules,
certificates, statements or other writings furnished by or on behalf of Borrower
to Administrative Agent or any Bank in connection with the negotiation of this
Agreement or the consummation of the transactions contemplated hereby, or
required herein to be furnished by or on behalf of Borrower (other than
projections which are made by Borrower in good faith), contains any untrue or
misleading statement of a material fact or omits a material fact necessary to
make the statements herein or therein not misleading. There is no fact which
Borrower has not disclosed to Administrative Agent and the Banks in writing or
which is not included in General Partner's SEC Reports which materially affects
adversely nor, so far as Borrower can now foresee, will materially affect
adversely the business or financial condition of Borrower or the ability of
Borrower to perform this Agreement and the other Loan Documents.

                                   ARTICLE VI

                              AFFIRMATIVE COVENANTS

               So long as any of the Notes shall remain unpaid or the Loan
Commitments remain in effect, or any other amount is owing by Borrower to any
Bank hereunder or under any other Loan Document, Borrower and General Partner
shall each:

        SECTION 6.01. Maintenance of Existence. Preserve and maintain its legal
existence and, if applicable, good standing in the jurisdiction of organization
and, if applicable, qualify and remain qualified as a foreign entity in each
jurisdiction in which such qualification is required, except to the extent that
failure to so qualify is not likely to result in a Material Adverse Change.

        SECTION 6.02. Maintenance of Records. Keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP,
reflecting all of its financial transactions.

        SECTION 6.03. Maintenance of Insurance. At all times, maintain and keep
in force, and cause each of its Material Affiliates to maintain and keep in
force, insurance with financially sound and reputable insurance companies or
associations in such amounts and

                                       37
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covering such risks as are usually carried by companies engaged in the same or a
similar business and similarly situated, which insurance may provide for
reasonable deductibility from coverage thereof.

        SECTION 6.04. Compliance with Laws; Payment of Taxes. Comply in all
material respects with all Laws applicable to it or to any of its properties or
any part thereof, such compliance to include, without limitation, paying before
the same become delinquent all taxes, assessments and governmental charges
imposed upon it, General Partner or upon any of their property, except to the
extent they are the subject of a Good Faith Contest.

        SECTION 6.05. Right of Inspection. At any reasonable time and from time
to time upon reasonable notice, permit Administrative Agent or any Bank or any
agent or representative thereof (provided that, at Borrower's request,
Administrative Agent or such Bank, agent or representative must be accompanied
by a representative of Borrower), to examine and make copies and abstracts from
the records and books of account of, and visit the properties of, Borrower and
to discuss the affairs, finances and accounts of Borrower with the independent
accountants of Borrower.

        SECTION 6.06. Compliance With Environmental Laws. Comply in all material
respects with all applicable Environmental Laws and immediately pay or cause to
be paid all costs and expenses incurred in connection with such compliance,
except to the extent there is a Good Faith Contest.

        SECTION 6.07. Payment of Costs. Pay all costs and expenses required for
the satisfaction of the conditions of this Agreement.

        SECTION 6.08. Maintenance of Properties. Do all things reasonably
necessary to maintain, preserve, protect and keep its and its Affiliates'
properties in good repair, working order and condition.

        SECTION 6.09. Reporting and Miscellaneous Document Requirements. Furnish
directly to each of the Banks:

                   (1) Annual Financial Statements. As soon as available and in
        any event within ninety (90) days after the end of each Fiscal Year, the
        VRT Consolidated Financial Statements as of the end of and for such
        Fiscal Year, in reasonable detail and stating in comparative form the
        respective figures for the corresponding date and period in the prior
        Fiscal Year and audited by Borrower's Accountants;

                   (2) Quarterly Financial Statements. As soon as available and
        in any event within forty-five (45) days after the end of each calendar
        quarter (other than the last quarter of the Fiscal Year), the unaudited
        VRT Consolidated Financial Statements as of the end of and for such
        calendar quarter, in reasonable detail and stating in comparative form
        the respective figures for the corresponding date and period in the
        prior Fiscal Year;

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   40

                  (3) Certificate of No Default and Financial Compliance. Within
        fifty (50) days after the end of each of the first three quarters of
        each Fiscal Year and within ninety-five (95) days after the end of each
        Fiscal Year, a certificate of the chief financial officer or treasurer
        of General Partner (a) stating that, to the best of his or her
        knowledge, no Default or Event of Default has occurred and is
        continuing, or if a Default or Event of Default has occurred and is
        continuing, specifying the nature thereof and the action which is
        proposed to be taken with respect thereto; (b) stating that the
        covenants contained in Sections 7.02 and 7.03 and in Article VIII have
        been complied with (or specifying those that have not been complied
        with) and including computations demonstrating such compliance (or
        non-compliance); (c) setting forth the details by property (or by pool
        of properties where the pool of properties secures a particular loan) of
        all items comprising Total Outstanding Indebtedness (including amount,
        maturity, interest rate and amortization requirements), Capitalization
        Value, Secured Indebtedness, Combined EBITDA, Unencumbered Combined
        EBITDA, Interest Expense, Unsecured Interest Expense and Unsecured
        Indebtedness; and (d) only at the end of each Fiscal Year stating
        Borrower's taxable income;

                   (4) Certificate of Borrower's Accountants. Simultaneously
        with the delivery of the annual financial statements required by
        paragraph (1) of this Section, (a) a statement of Borrower's Accountants
        who audited such financial statements comparing the computations set
        forth in the financial compliance certificate required by paragraphs
        (3)(b) and (d) of this Section to the audited financial statements
        required by paragraph (1) of this Section and (b) when the audited
        financial statements required by paragraph (1) of this Section have a
        qualified auditor's opinion, a statement of Borrower's Accountants who
        audited such financial statements of whether any Default or Event of
        Default has occurred and is continuing;

                   (5) Notice of Litigation. Promptly after the commencement and
        knowledge thereof, notice of all actions, suits, and proceedings before
        any court or arbitrator, affecting Borrower or General Partner which, if
        determined adversely to Borrower or General Partner is likely to result
        in a Material Adverse Change and which would be required to be reported
        in Borrower's or General Partner's SEC Reports;

                   (6) Notices of Defaults and Events of Default. As soon as
        possible and in any event within ten (10) days after Borrower becomes
        aware of the occurrence of a material Default or any Event of Default a
        written notice setting forth the details of such Default or Event of
        Default and the action which is proposed to be taken with respect
        thereto;

                   (7) Sales or Acquisitions of Assets. Promptly after the
        occurrence thereof, written notice of any Disposition or acquisition of
        assets (other than acquisitions or Dispositions of investments such as
        certificates of deposit, Treasury securities and money market deposits
        in the ordinary course of Borrower's cash management) in excess of Fifty
        Million Dollars ($50,000,000) together with, in the case of any
        acquisition of such an asset, copies of the agreements governing the
        acquisition and historical financial information and Borrower's
        projections with respect to the property acquired;

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   41

                  (8) Material Adverse Change. As soon as is practicable and in
        any event within five (5) days after knowledge of the occurrence of any
        event or circumstance which is likely to result in or has resulted in a
        Material Adverse Change and which would be required to be reported in
        General Partner's SEC Reports, written notice thereof;

                   (9) Bankruptcy of Tenants. Promptly after becoming aware of
        the same, written notice of the bankruptcy, insolvency or cessation of
        operations of any tenant in any property of Borrower or in which
        Borrower has an interest to which four percent (4%) or more of aggregate
        minimum rent payable to Borrower directly or through its Consolidated
        Businesses or UJVs is attributable;

                   (10) Offices. Thirty (30) days' prior written notice of any
        change in the chief executive office or principal place of business of
        Borrower;

                   (11) Environmental and Other Notices. As soon as possible and
        in any event within thirty (30) days after receipt, copies of all
        Environmental Notices received by Borrower which are not received in the
        ordinary course of business and which relate to a previously undisclosed
        situation which is likely to result in a Material Adverse Change;

                   (12) Insurance Coverage. Promptly, such information
        concerning Borrower's insurance coverage as Administrative Agent may
        reasonably request;

                   (13) Proxy Statements, Etc. Promptly after the sending or
        filing thereof, copies of all proxy statements, financial statements and
        reports which Borrower or its Material Affiliates sends to its
        shareholders, and copies of all regular, periodic and special reports,
        and all registration statements which Borrower or its Material
        Affiliates files with the Securities and Exchange Commission or any
        Governmental Authority which may be substituted therefor, or with any
        national securities exchange;

                   (14) Rent Rolls. As soon as available and in any event within
        ninety (90) days after the end of each Fiscal Year, a rent roll, tenant
        sales report and operating statement for each property directly or
        indirectly owned in whole or in part by Borrower;

                   (15) Capital Expenditures. As soon as available and in any
        event within ninety (90) days after the end of each Fiscal Year, a
        schedule of such Fiscal Year's capital expenditures and a budget for the
        next Fiscal Year's planned capital expenditures for each property
        directly or indirectly owned in whole or in part by Borrower;

                   (16) Change in Borrower's Credit Rating. Within two (2)
        Banking Days after any change in Borrower's Credit Rating, written
        notice of such change; and

                   (17) General Information. Promptly, such other information
        respecting the condition or operations, financial or otherwise, of
        Borrower or any properties of Borrower as Administrative Agent may from
        time to time reasonably request.

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        SECTION 6.10. Management. At all times, cause Borrower or its Affiliates
to provide property management and leasing services for at least seventy-five
percent (75%) of the total square footage of the properties then owned, directly
or indirectly, in whole or in part by Borrower.

                                  ARTICLE VII

                               NEGATIVE COVENANTS

               So long as any of the Notes shall remain unpaid, or the Loan
Commitments remain in effect, or any other amount is owing by Borrower to
Administrative Agent or any Bank hereunder or under any other Loan Document,
Borrower shall not do any or all of the following:

        SECTION 7.01. Mergers Etc. Merge or consolidate with (except where
Borrower is the surviving entity), or sell, assign, lease or otherwise dispose
of (whether in one transaction or in a series of transactions) all or
substantially all of its assets (whether now owned or hereafter acquired) (or
enter into any agreement to do any of the foregoing).

        SECTION 7.02. Investments. Make any loan or advance to any Person or
purchase or otherwise acquire any capital stock, assets, obligations or other
securities of, make any capital contribution to, or otherwise invest in, or
acquire any interest in, any Person (any such transaction, an "Investment") if
such Investment constitutes the acquisition of a minority interest in a Person
(a "Minority Interest") and the amount of such Investment, together with the
value of all other Minority Interests acquired after the Closing Date
contributing to Equity Value, would exceed fifteen percent (15%) of
Capitalization Value. A fifty percent (50%) beneficial interest in a Person, in
connection with which the holder thereof exercises joint control over such
Person with the holder(s) of the other fifty percent (50%) beneficial interest,
shall constitute a "Minority Interest" for purposes of this Section.

        SECTION 7.03. Sale of Assets. Effect a Disposition of any of its now
owned or hereafter acquired assets (other than "margin stock" as defined in
Regulation U), including assets in which Borrower owns a beneficial interest
through its ownership of interests in joint ventures, aggregating more than
twenty five percent (25%) of Capitalization Value.

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                                  ARTICLE VIII

                               FINANCIAL COVENANTS

               So long as any of the Notes shall remain unpaid, or the Loan
Commitments remain in effect, or any other amount is owing by Borrower to
Administrative Agent or any Bank under this Agreement or under any other Loan
Document, Borrower shall not permit or suffer:

        SECTION 8.01. Equity Value. At any time, Equity Value to be less than
One Billion Five Hundred Million Dollars ($1,500,000,000).

        SECTION 8.02. Relationship of Total Outstanding Indebtedness to
Capitalization Value. At any time, Total Outstanding Indebtedness to exceed
sixty percent (60%) of Capitalization Value.

        SECTION 8.03. Secured Indebtedness. At any time, Secured Indebtedness
which is recourse to Borrower such that the Maximum Loan Amount is less than the
sum of (1) the aggregate principal amount outstanding under all Ratable Loans
and Bid Rate Loans and (2) the outstanding amount of all Letters of Credit.

        SECTION 8.04. Relationship of Combined EBITDA to Interest Expense. At
any time, the ratio of (1) Combined EBITDA to (2) Interest Expense, each for the
most recently ended calendar quarter, to be less than 2.00 to 1.00.

        SECTION 8.05. Relationship of Combined EBITDA to Total Outstanding
Indebtedness. At any time, the ratio (expressed as a percentage) of (1) Combined
EBITDA for the most recently ended calendar quarter, annualized (i.e.,
multiplied by four (4), to (2) Total Outstanding Indebtedness as of the end of
such quarter, to be less than fifteen percent (15%).

        SECTION 8.06. Unsecured Debt Yield. At any time, Unsecured Debt Yield to
be less than twelve percent (12%).

        SECTION 8.07. Relationship of Combined EBITDA to Fixed Charges. At any
time, the ratio of Combined EBITDA to Fixed Charges, each for the most recently
ended calendar quarter, to be less than 1.80 to 1.00.

        SECTION 8.08. Relationship of Unencumbered Combined EBITDA to Unsecured
Interest Expense. At any time, the ratio of Unencumbered Combined EBITDA to
Unsecured Interest Expense, each for the most recently ended calendar quarter,
to be less than 1.50 to 1.00.

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                                   ARTICLE IX

                                EVENTS OF DEFAULT

        SECTION 9.01. Events of Default. Any of the following events shall be an
"Event of Default":

                  (1) If Borrower shall: fail to pay the principal of any Notes
        as and when due; or fail to pay interest accruing on any Notes as and
        when due and such failure to pay shall continue unremedied for five (5)
        days after the due date of such amount; or fail to pay any fee or any
        other amount due under this Agreement or any other Loan Document as and
        when due and such failure to pay shall continue unremedied for two (2)
        days after notice by Administrative Agent of such failure to pay; or

                  (2) If any representation or warranty made by Borrower or
        General Partner in this Agreement or in any other Loan Document or which
        is contained in any certificate, document, opinion, financial or other
        statement furnished at any time under or in connection with a Loan
        Document shall prove to have been incorrect in any material respect on
        or as of the date made; or

                  (3) If Borrower shall fail (a) to perform or observe any term,
        covenant or agreement contained in Article VII or Article VIII; or (b)
        to perform or observe any term, covenant or agreement contained in this
        Agreement (other than obligations specifically referred to elsewhere in
        this Section 9.01) and such failure shall remain unremedied for thirty
        (30) consecutive calendar days after notice thereof; provided, however,
        that if any such default under clause (b) above cannot by its nature be
        cured within such thirty (30) day grace period and so long as Borrower
        shall have commenced cure within such thirty (30) day grace period and
        shall, at all times thereafter, diligently prosecute the same to
        completion, Borrower shall have an additional period to cure such
        default; in no event, however, is the foregoing intended to effect an
        extension of the Maturity Date; or

                  (4) If Borrower or General Partner shall fail (a) to pay any
        Debt (other than the payment obligations described in paragraph (1) of
        this Section) in an amount equal to or greater than Ten Million Dollars
        ($10,000,000) when due (whether by scheduled maturity, required
        prepayment, acceleration, demand, or otherwise) after the expiration of
        any applicable grace period, or (b) to perform or observe any material
        term, covenant, or condition under any agreement or instrument relating
        to any such Debt, when required to be performed or observed, if the
        effect of such failure to perform or observe is to accelerate, or to
        permit the acceleration of, after the giving of notice or the lapse of
        time, or both (other than in cases where, in the judgment of the
        Required Banks, meaningful discussions likely to result in (i) a waiver
        or cure of the failure to perform or observe, or (ii) otherwise averting
        such acceleration are in progress between Borrower and the obligee of
        such Debt), the maturity of such Debt, or any such Debt shall be
        declared to be due and payable, or required to be prepaid (other than by
        a regularly scheduled or otherwise required prepayment), prior to the
        stated maturity thereof; or

                                       43
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                  (5) If any of Borrower, General Partner or any Affiliate of
        Borrower to which One Hundred Million Dollars ($100,000,000) or more of
        Capitalization Value is attributable, shall: (a) generally not, or be
        unable to, or shall admit in writing its inability to, pay its debts as
        such debts become due; or (b) make an assignment for the benefit of
        creditors, petition or apply to any tribunal for the appointment of a
        custodian, receiver or trustee for it or a substantial part of its
        assets; or (c) commence any proceeding under any bankruptcy,
        reorganization, arrangement, readjustment of debt, dissolution or
        liquidation law or statute of any jurisdiction, whether now or hereafter
        in effect; or (d) have had any such petition or application filed or any
        such proceeding shall have been commenced, against it, in which an
        adjudication or appointment is made or order for relief is entered, or
        which petition, application or proceeding remains undismissed or
        unstayed for a period of sixty (60) days or more; or (e) be the subject
        of any proceeding under which all or a substantial part of its assets
        may be subject to seizure, forfeiture or divestiture; or (f) by any act
        or omission indicate its consent to, approval of or acquiescence in any
        such petition, application or proceeding or order for relief or the
        appointment of a custodian, receiver or trustee for all or any
        substantial part of its property; or (g) suffer any such custodianship,
        receivership or trusteeship for all or any substantial part of its
        property, to continue undischarged for a period of sixty (60) days or
        more; or

                  (6) If one or more judgments, decrees or orders for the
        payment of money in excess of Ten Million Dollars ($10,000,000) in the
        aggregate shall be rendered against Borrower or General Partner, and any
        such judgments, decrees or orders shall continue unsatisfied and in
        effect for a period of thirty (30) consecutive days without being
        vacated, discharged, satisfied or stayed or bonded pending appeal; or

                  (7) If any of the following events shall occur or exist with
        respect to Borrower, General Partner, or any ERISA Affiliate: (a) any
        Prohibited Transaction involving any Plan; (b) any Reportable Event with
        respect to any Plan: (c) the filing under Section 4041 of ERISA of a
        notice of intent to terminate any Plan or the termination of any Plan;
        (d) any event or circumstance which might constitute grounds entitling
        the PBGC to institute proceedings under Section 4042 of ERISA for the
        termination of, or for the appointment of a trustee to administer, any
        Plan, or the institution by the PBGC of any such proceedings; or (e)
        complete or partial withdrawal under Section 4201 or 4204 of ERISA from
        a Multiemployer Plan or the reorganization, insolvency, or termination
        of any Multiemployer Plan; and in each case above, if such event or
        conditions, if any, could in the opinion of any Bank subject Borrower,
        General Partner or any ERISA Affiliate to any tax, penalty, or other
        liability to a Plan, Multiemployer Plan, the PBGC or otherwise (or any
        combination thereof) which in the aggregate exceeds or may exceed Fifty
        Thousand Dollars ($50,000); or

                  (8) If at any time General Partner is not a qualified real
        estate investment trust under Sections 856 through 860 of the Code or is
        not listed on the New York Stock Exchange; or

                  (9) If at any time Borrower or General Partner constitutes
        plan assets for ERISA purposes (within the meaning of C.F.R.
        ss.2510.3-101).

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   46

        SECTION 9.02. Remedies. If any Event of Default shall occur and be
continuing, Administrative Agent shall, upon request of the Required Banks, by
notice to Borrower, (1) declare the unpaid balance of the Notes, all interest
thereon, and all other amounts payable under this Agreement to be forthwith due
and payable, whereupon such balance, all such interest, and all such amounts due
under this Agreement shall become and be forthwith due and payable, without
presentment, demand, protest, or further notice of any kind, all of which are
hereby expressly waived by Borrower; and/or (2) exercise any remedies provided
in any of the Loan Documents or by law.

                                   ARTICLE X

                   ADMINISTRATIVE AGENT; RELATIONS AMONG BANKS

        SECTION 10.01. Appointment, Powers and Immunities of Administrative
Agent. Each Bank hereby irrevocably appoints and authorizes Administrative Agent
to act as its agent hereunder and under any other Loan Document with such powers
as are specifically delegated to Administrative Agent by the terms of this
Agreement and any other Loan Document, together with such other powers as are
reasonably incidental thereto. Administrative Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement and any
other Loan Document or required by law, and shall not by reason of this
Agreement be a fiduciary or trustee for any Bank except to the extent that
Administrative Agent acts as an agent with respect to the receipt or payment of
funds (nor shall Administrative Agent have any fiduciary duty to Borrower nor
shall any Bank have any fiduciary duty to Borrower or to any other Bank).
Administrative Agent shall not be responsible to the Banks for any recitals,
statements, representations or warranties made by Borrower or any officer,
partner or official of Borrower or any other Person contained in this Agreement
or any other Loan Document, or in any certificate or other document or
instrument referred to or provided for in, or received by any of them under,
this Agreement or any other Loan Document, or for the value, legality, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document or any other document or instrument referred to or
provided for herein or therein, for the perfection or priority of any Lien
securing the Obligations or for any failure by Borrower to perform any of its
obligations hereunder or thereunder. Administrative Agent may employ agents and
attorneys-in-fact and shall not be responsible, except as to money or securities
received by it or its authorized agents, for the negligence or misconduct of any
such agents or attorneys-in-fact selected by it with reasonable care. Neither
Administrative Agent nor any of its directors, officers, employees or agents
shall be liable or responsible for any action taken or omitted to be taken by it
or them hereunder or under any other Loan Document or in connection herewith or
therewith, except for its or their own gross negligence or willful misconduct.
Borrower shall pay any fee agreed to by Borrower and Administrative Agent with
respect to Administrative Agent's services hereunder. Notwithstanding anything
to the contrary contained in this Agreement, Administrative Agent agrees with
the Banks that Administrative Agent shall perform its obligations under this
Agreement in good faith according to the same standard of care as that
customarily exercised by it in administering its own revolving credit loans.

                                       45
   47

        SECTION 10.02. Reliance by Administrative Agent. Administrative Agent
shall be entitled to rely upon any certification, notice or other communication
(including any thereof by telephone, telex, telegram or cable) believed by it to
be genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by Administrative Agent.
Administrative Agent may deem and treat each Bank as the holder of the Loan made
by it for all purposes hereof and shall not be required to deal with any Person
who has acquired a participation in any Loan or participation from a Bank. As to
any matters not expressly provided for by this Agreement or any other Loan
Document, Administrative Agent shall in all cases be fully protected in acting,
or in refraining from acting, hereunder in accordance with instructions signed
by the Required Banks, and such instructions of the Required Banks and any
action taken or failure to act pursuant thereto shall be binding on all of the
Banks and any other holder of all or any portion of any Loan or participation.

        SECTION 10.03. Defaults. Administrative Agent shall not be deemed to
have knowledge of the occurrence of a Default or Event of Default unless
Administrative Agent has received notice from a Bank or Borrower specifying such
Default or Event of Default and stating that such notice is a "Notice of
Default." In the event that Administrative Agent receives such a notice of the
occurrence of a Default or Event of Default, Administrative Agent shall give
prompt notice thereof to the Banks. Administrative Agent, following consultation
with the Banks, shall (subject to Section 10.07) take such action with respect
to such Default or Event of Default which is continuing as shall be directed by
the Required Banks; provided that, unless and until Administrative Agent shall
have received such directions, Administrative Agent may take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interest of the Banks; and
provided further that Administrative Agent shall not send a Notice of Default or
acceleration to Borrower without the approval of the Required Banks. In no event
shall Administrative Agent be required to take any such action which it
determines to be contrary to law.

        SECTION 10.04. Rights of Administrative Agent as a Bank. With respect to
its Loan Commitment and the Loan provided by it, Administrative Agent in its
capacity as a Bank hereunder shall have the same rights and powers hereunder as
any other Bank and may exercise the same as though it were not acting as
Administrative Agent, and the term "Bank" or "Banks" shall include
Administrative Agent in its capacity as a Bank. Administrative Agent and its
Affiliates may (without having to account therefor to any Bank) accept deposits
from, lend money to (on a secured or unsecured basis), and generally engage in
any kind of banking, trust or other business with Borrower (and any Affiliates
of Borrower) as if it were not acting as Administrative Agent.

        SECTION 10.05. Indemnification of Administrative Agent. Each Bank agrees
to indemnify Administrative Agent (to the extent not reimbursed under Section
12.04 or under the applicable provisions of any other Loan Document, but without
limiting the obligations of Borrower under Section 12.04 or such provisions),
for its Pro Rata Share of any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever which may be imposed on, incurred by or asserted
against Administrative Agent in any way relating to or arising out of this
Agreement,

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any other Loan Document or any other documents contemplated by or referred to
herein or the transactions contemplated hereby or thereby (including, without
limitation, the costs and expenses which Borrower is obligated to pay under
Section 12.04) or under the applicable provisions of any other Loan Document or
the enforcement of any of the terms hereof or thereof or of any such other
documents or instruments; provided that no Bank shall be liable for (1) any of
the foregoing to the extent they arise from the gross negligence or willful
misconduct of the party to be indemnified, (2) any loss of principal or interest
with respect to Administrative Agent's Loan or (3) any loss suffered by
Administrative Agent in connection with a swap or other interest rate hedging
arrangement entered into with Borrower.

        SECTION 10.06. Non-Reliance on Administrative Agent and Other Banks.
Each Bank agrees that it has, independently and without reliance on
Administrative Agent or any other Bank, and based on such documents and
information as it has deemed appropriate, made its own credit analysis of
Borrower and the decision to enter into this Agreement and that it will,
independently and without reliance upon Administrative Agent or any other Bank,
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own analysis and decisions in taking or not taking
action under this Agreement or any other Loan Document. Administrative Agent
shall not be required to keep itself informed as to the performance or
observance by Borrower of this Agreement or any other Loan Document or any other
document referred to or provided for herein or therein or to inspect the
properties or books of Borrower. Except for notices, reports and other documents
and information expressly required to be furnished to the Banks by
Administrative Agent hereunder, Administrative Agent shall not have any duty or
responsibility to provide any Bank with any credit or other information
concerning the affairs, financial condition or business of Borrower (or any
Affiliate of Borrower) which may come into the possession of Administrative
Agent or any of its Affiliates. Administrative Agent shall not be required to
file this Agreement, any other Loan Document or any document or instrument
referred to herein or therein, for record or give notice of this Agreement, any
other Loan Document or any document or instrument referred to herein or therein,
to anyone.

        SECTION 10.07. Failure of Administrative Agent to Act. Except for action
expressly required of Administrative Agent hereunder, Administrative Agent shall
in all cases be fully justified in failing or refusing to act hereunder unless
it shall have received further assurances (which may include cash collateral) of
the indemnification obligations of the Banks under Section 10.05 in respect of
any and all liability and expense which may be incurred by it by reason of
taking or continuing to take any such action.

        SECTION 10.08. Resignation or Removal of Administrative Agent.
Administrative Agent shall have the right to resign at any time. Administrative
Agent may be removed at any time with cause by the Required Banks, provided that
Borrower and the other Banks shall be promptly notified thereof. Upon any such
removal or resignation, the Required Banks shall have the right to appoint a
successor Administrative Agent which successor Administrative Agent, so long as
it is reasonably acceptable to the Required Banks, shall be that Bank then
having the greatest Loan Commitment. If no successor Administrative Agent shall
have been so appointed by the Required Banks and shall have accepted such
appointment within thirty (30) days after the Required Banks' removal of the
retiring Administrative Agent, then the

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retiring Administrative Agent may, on behalf of the Banks, appoint a successor
Administrative Agent, which shall be one of the Banks. The Required Banks or the
retiring Administrative Agent, as the case may be, shall upon the appointment of
a successor Administrative Agent promptly so notify Borrower and the other
Banks. Upon the acceptance of any appointment as Administrative Agent hereunder
by a successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Administrative Agent's removal hereunder as Administrative Agent, the
provisions of this Article X shall continue in effect for its benefit in respect
of any actions taken or omitted to be taken by it while it was acting as
Administrative Agent.

        SECTION 10.09. Amendments Concerning Agency Function. Notwithstanding
anything to the contrary contained in this Agreement, Administrative Agent shall
not be bound by any waiver, amendment, supplement or modification of this
Agreement or any other Loan Document which affects its duties, rights, and/or
function hereunder or thereunder unless it shall have given its prior written
consent thereto.

        SECTION 10.10. Liability of Administrative Agent. Administrative Agent
shall not have any liabilities or responsibilities to Borrower on account of the
failure of any Bank to perform its obligations hereunder or to any Bank on
account of the failure of Borrower to perform its obligations hereunder or under
any other Loan Document.

        SECTION 10.11. Transfer of Agency Function. Without the consent of
Borrower or any Bank, Administrative Agent may at any time or from time to time
transfer its functions as Administrative Agent hereunder to any of its offices
wherever located in the United States, provided that Administrative Agent shall
promptly notify Borrower and the Banks thereof.

        SECTION 10.12. Non-Receipt of Funds by Administrative Agent. Unless
Administrative Agent shall have received notice from a Bank or Borrower (either
one as appropriate being the "Payor") prior to the date on which such Bank is to
make payment hereunder to Administrative Agent of the proceeds of a Loan or
Borrower is to make payment to Administrative Agent, as the case may be (either
such payment being a "Required Payment"), which notice shall be effective upon
receipt, that the Payor will not make the Required Payment in full to
Administrative Agent, Administrative Agent may assume that the Required Payment
has been made in full to Administrative Agent on such date, and Administrative
Agent in its sole discretion may, but shall not be obligated to, in reliance
upon such assumption, make the amount thereof available to the intended
recipient on such date. If and to the extent the Payor shall not have in fact so
made the Required Payment in full to Administrative Agent, the recipient of such
payment shall repay to Administrative Agent forthwith on demand such amount made
available to it together with interest thereon, for each day from the date such
amount was so made available by Administrative Agent until the date
Administrative Agent recovers such amount, at the customary rate set by
Administrative Agent for the correction of errors among Banks for three (3)
Banking Days and thereafter at the Base Rate.

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        SECTION 10.13. Withholding Taxes. Each Bank represents at all times
during the term of this Agreement that it is entitled to receive any payments to
be made to it hereunder without the withholding of any tax and will furnish to
Administrative Agent and Borrower such forms, certifications, statements and
other documents as Administrative Agent or Borrower may request from time to
time to evidence such Bank's exemption from the withholding of any tax imposed
by any jurisdiction or to enable Administrative Agent or Borrower to comply with
any applicable Laws or regulations relating thereto. Without limiting the effect
of the foregoing, if any Bank is not created or organized under the laws of the
United States of America or any state thereof, such Bank will furnish to
Administrative Agent and Borrower a United States Internal Revenue Service Form
4224 in respect of all payments to be made to such Bank by Borrower or
Administrative Agent under this Agreement or any other Loan Document or a United
States Internal Revenue Service Form 1001 establishing such Bank's complete
exemption from United States withholding tax in respect of payments to be made
to such Bank by Borrower or Administrative Agent under this Agreement or any
other Loan Document, or such other forms, certifications, statements or
documents, duly executed and completed by such Bank as evidence of such Bank's
exemption from the withholding of U.S. tax with respect thereto. Administrative
Agent shall not be obligated to make any payments hereunder to such Bank in
respect of any Loan or participation or such Bank's Loan Commitment or
obligation to purchase participations until such Bank shall have furnished to
Administrative Agent and Borrower the requested form, certification, statement
or document.

        SECTION 10.14. Minimum Commitment by UBS. Subsequent to the Closing
Date, UBS hereby agrees to maintain a Loan Commitment in an amount no less than
Seventy Five Million Dollars ($75,000,000) for so long as (1) no Event of
Default exists under this Agreement and (2) UBS remains as Administrative Agent,
and further agrees to hold and not to participate or assign any of such amount
other than an assignment to a Federal Reserve Bank or to the Parent or a
majority-owned subsidiary of UBS.

        SECTION 10.15. Pro Rata Treatment. Except to the extent otherwise
provided, (1) each advance of proceeds of the Ratable Loans shall be made by the
Banks, (2) each reduction of the amount of the Total Loan Commitment under
Section 2.15 shall be applied to the Loan Commitments of the Banks and (3) each
payment of the commitment fee accruing under Section 2.07(a) shall be made for
the account of the Banks, ratably according to the amounts of their respective
Loan Commitments.

        SECTION 10.16. Sharing of Payments Among Banks. If a Bank shall obtain
payment of any principal of or interest on any Loan made by it through the
exercise of any right of setoff, banker's lien, counterclaim, or by any other
means (including direct payment), and such payment results in such Bank
receiving a greater payment than it would have been entitled to had such payment
been paid directly to Administrative Agent for disbursement to the Banks, then
such Bank shall promptly purchase for cash from the other Banks participations
in the Loans made by the other Banks in such amounts, and make such other
adjustments from time to time as shall be equitable to the end that all the
Banks shall share ratably the benefit of such payment. To such end the Banks
shall make appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is rescinded or must otherwise
be restored. Borrower agrees that any Bank so purchasing a participation in the
Loans made by other Banks

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may exercise all rights of setoff, banker's lien, counterclaim or similar rights
with respect to such participation. Nothing contained herein shall require any
Bank to exercise any such right or shall affect the right of any Bank to
exercise, and retain the benefits of exercising, any such right with respect to
any other indebtedness of Borrower.

        SECTION 10.17. Possession of Documents. Each Bank shall keep possession
of its own Ratable Loan Note. Administrative Agent shall hold all the other Loan
Documents and related documents in its possession and maintain separate records
and accounts with respect thereto, and shall permit the Banks and their
representatives access at all reasonable times to inspect such Loan Documents,
related documents, records and accounts.

                                   ARTICLE XI

                              NATURE OF OBLIGATIONS

        SECTION 11.01. Absolute and Unconditional Obligations. Borrower and
General Partner acknowledge and agree that their obligations and liabilities
under this Agreement and under the other Loan Documents shall be absolute and
unconditional irrespective of: (1) any lack of validity or enforceability of any
of the Obligations, any Loan Documents, or any agreement or instrument relating
thereto; (2) any change in the time, manner or place of payment of, or in any
other term in respect of, all or any of the Obligations, or any other amendment
or waiver of or consent to any departure from any Loan Documents or any other
documents or instruments executed in connection with or related to the
Obligations; (3) any exchange or release of any collateral, if any, or of any
other Person from all or any of the Obligations; or (4) any other circumstances
which might otherwise constitute a defense available to, or a discharge of,
Borrower, General Partner or any other Person in respect of the Obligations.

               The obligations and liabilities of Borrower and General Partner
under this Agreement and other Loan Documents shall not be conditioned or
contingent upon the pursuit by any Bank or any other Person at any time of any
right or remedy against Borrower, General Partner or any other Person which may
be or become liable in respect of all or any part of the Obligations or against
any collateral or security or guarantee therefor or right of setoff with respect
thereto.

        SECTION 11.02. Non-Recourse to VRT Principals. This Agreement and the
obligations hereunder and under the Loan Documents are fully recourse to
Borrower and General Partner. Notwithstanding anything to the contrary contained
in this Agreement, in any of the other Loan Documents, or in any other
instruments, certificates, documents or agreements executed in connection with
the Loans (all of the foregoing, for purposes of this Section, hereinafter
referred to, individually and collectively, as the "Relevant Documents"), no
recourse under or upon any Obligation, representation, warranty, promise or
other matter whatsoever shall be had against any of the VRT Principals, and each
Bank expressly waives and releases, on behalf of itself and its successors and
assigns, all right to assert any liability whatsoever under or with respect to
the Relevant Documents against, or to satisfy any claim or obligation arising
thereunder against, any of the VRT Principals or out of any assets of the VRT
Principals,

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provided, however, that nothing in this Section shall be deemed to: (1) release
Borrower or General Partner from any personal liability pursuant to, or from any
of its respective obligations under, the Relevant Documents, or from personal
liability for its fraudulent actions or fraudulent omissions; (2) release any
VRT Principals from personal liability for its or his own fraudulent actions or
fraudulent omissions; (3) constitute a waiver of any obligation evidenced or
secured by, or contained in, the Relevant Documents or affect in any way the
validity or enforceability of the Relevant Documents; or (4) limit the right of
Administrative Agent and/or the Banks to proceed against or realize upon any
collateral hereafter given for the Loans or any and all of the assets of
Borrower or General Partner (notwithstanding the fact that the VRT Principals
have an ownership interest in Borrower or General Partner and, thereby, an
interest in the assets of Borrower or General Partner) or to name Borrower or
General Partner (or, to the extent that the same are required by applicable law
or are determined by a court to be necessary parties in connection with an
action or suit against Borrower, General Partner or any collateral hereafter
given for the Loans, any of the VRT Principals) as a party defendant in, and to
enforce against any collateral hereafter given for the Loans and/or assets of
Borrower or General Partner any judgment obtained by Administrative Agent and/or
the Banks with respect to, any action or suit under the Relevant Documents so
long as no judgment shall be taken (except to the extent taking a judgment is
required by applicable law or determined by a court to be necessary to preserve
Administrative Agent's and/or Banks' rights against any collateral hereafter
given for the Loans or Borrower or General Partner, but not otherwise) or shall
be enforced against the VRT Principals or their assets.

                                  ARTICLE XII

                                  MISCELLANEOUS

        SECTION 12.01. Binding Effect of Request for Advance. Borrower agrees
that, by its acceptance of any advance of proceeds of the Loans under this
Agreement, it shall be bound in all respects by the request for advance
submitted on its behalf in connection therewith with the same force and effect
as if Borrower had itself executed and submitted the request for advance and
whether or not the request for advance is executed and/or submitted by an
authorized person.

        SECTION 12.02. Amendments and Waivers. No amendment or material waiver
of any provision of this Agreement or any other Loan Document nor consent to any
material departure by Borrower therefrom, shall in any event be effective unless
the same shall be in writing and signed by the Required Banks and, solely for
purposes of its acknowledgment thereof, Administrative Agent, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given, provided, however, that no amendment, waiver
or consent shall, unless in writing and signed by all the Banks do any of the
following: (1) reduce the principal of, or interest on, the Notes or any fees
due hereunder or any other amount due hereunder or under any Loan Document; (2)
postpone any date fixed for any payment of principal of, or interest on, the
Notes or any fees due hereunder or under any Loan Document; (3) change the
definition of Required Banks; (4) amend this Section or any other provision
requiring the consent of all the Banks; (5) waive any default under paragraph
(5) of

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Section 9.01; (6) increase the Total Loan Commitment; or (7) release the
Guaranty. Any advance of proceeds of the Loans made prior to or without the
fulfillment by Borrower of all of the conditions precedent thereto, whether or
not known to Administrative Agent and the Banks, shall not constitute a waiver
of the requirement that all conditions, including the non-performed conditions,
shall be required with respect to all future advances. No failure on the part of
Administrative Agent or any Bank to exercise, and no delay in exercising, any
right hereunder shall operate as a waiver thereof or preclude any other or
further exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law. All
communications from Administrative Agent to the Banks requesting the Banks'
determination, consent, approval or disapproval (i) shall be given in the form
of a written notice to each Bank, (ii) shall be accompanied by a description of
the matter or thing as to which such determination, approval, consent or
disapproval is requested and (iii) shall include Administrative Agent's
recommended course of action or determination in respect thereof. Each Bank
shall reply promptly, but in any event within fifteen (15) Banking Days (or five
(5) Banking Days with respect to any decision to accelerate or stop acceleration
of the Loan) after receipt of the request therefor by Administrative Agent (the
"Bank Reply Period"). Unless a Bank shall give written notice to Administrative
Agent that it objects to the recommendation or determination of Administrative
Agent (together with a written explanation of the reasons behind such objection)
within the Bank Reply Period, such Bank shall be deemed to have approved or
consented to such recommendation or determination.

        SECTION 12.03. Usury. Anything herein to the contrary notwithstanding,
the obligations of Borrower under this Agreement and the Notes shall be subject
to the limitation that payments of interest shall not be required to the extent
that receipt thereof would be contrary to provisions of law applicable to a Bank
limiting rates of interest which may be charged or collected by such Bank.

        SECTION 12.04. Expenses; Indemnification. Borrower agrees to reimburse
Administrative Agent on demand for all costs, expenses, and charges (including,
without limitation, all reasonable fees and charges of engineers, appraisers and
external legal counsel) incurred by Administrative Agent in connection with the
Loans and to reimburse each of the Banks for reasonable legal costs, expenses
and charges incurred by each of the Banks in connection with the performance or
enforcement of this Agreement, the Notes, or any other Loan Documents; provided,
however, that Borrower is not responsible for costs, expenses and charges
incurred by the Bank Parties in connection with the administration or
syndication of the Loans (other than any administration fee payable to
Administrative Agent). Borrower agrees to indemnify Administrative Agent and
each Bank and their respective directors, officers, employees and agents from,
and hold each of them harmless against, any and all losses, liabilities, claims,
damages or expenses incurred by any of them arising out of or by reason of (x)
any claims by brokers due to acts or omissions by Borrower, or (y) any
investigation or litigation or other proceedings (including any threatened
investigation or litigation or other proceedings) relating to any actual or
proposed use by Borrower of the proceeds of the Loans, including without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation or litigation or other proceedings (but
excluding any such losses, liabilities, claims, damages or expenses incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified).

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               The obligations of Borrower under this Section shall survive the
repayment of all amounts due under or in connection with any of the Loan
Documents and the termination of the Loans.

        SECTION 12.05. Assignment; Participation. This Agreement shall be
binding upon, and shall inure to the benefit of, Borrower, Administrative Agent,
the Banks and their respective successors and permitted assigns. Borrower may
not assign or transfer its rights or obligations hereunder.

               Any Bank or its Designated Lender may at any time grant to one or
more banks or other institutions (each a "Participant") participating interests
in its Loan (the "Participations"). In the event of any such grant by a Bank of
a participating interest to a Participant, whether or not Borrower or
Administrative Agent was given notice, such Bank shall remain responsible for
the performance of its obligations hereunder, and Borrower and Administrative
Agent shall continue to deal solely and directly with such Bank in connection
with such Bank's rights and obligations hereunder. Any agreement pursuant to
which any Bank may grant such a participating interest shall provide that such
Bank shall retain the sole right and responsibility to enforce the obligations
of Borrower hereunder and under any other Loan Document including, without
limitation, the right to approve any amendment, modification or waiver of any
provision of this Agreement or any other Loan Document; provided that such
participation agreement may provide that such Bank will not agree to any
modification, amendment or waiver of this Agreement described in clauses (1)
through (7) of Section 12.02 without the consent of the Participant.

               Subject to the provisions of Section 10.14, any Bank may at any
time assign to any bank or other institution with the acknowledgment of
Administrative Agent and the consent of UBS and, provided there exists no Event
of Default, of Borrower, which consents shall not be unreasonably withheld or
delayed (such assignee, a "Consented Assignee"), or to one or more banks or
other institutions which are majority owned subsidiaries of a Bank or to the
Parent of a Bank (each Consented Assignee or subsidiary bank or institution, an
"Assignee") all, or a proportionate part of all, of its rights and obligations
under this Agreement and its Note, and such Assignee shall assume rights and
obligations, pursuant to an Assignment and Assumption Agreement executed by such
Assignee and the assigning Bank, provided that, in each case, after giving
effect to such assignment the Assignee's Loan Commitment and, in the case of a
partial assignment, the assigning Bank's Loan Commitment, each will be equal to
or greater than Fifteen Million Dollars ($15,000,000). Upon (i) execution and
delivery of such instrument, (ii) payment by such Assignee to the Bank of an
amount equal to the purchase price agreed between the Bank and such Assignee and
(iii) payment by such Assignee to Administrative Agent of a fee, for
Administrative Agent's own account, in the amount of Two Thousand Five Hundred
Dollars ($2,500), such Assignee shall be a Bank Party to this Agreement and
shall have all the rights and obligations of a Bank as set forth in such
Assignment and Assumption Agreement, and the assigning Bank shall be released
from its obligations hereunder to a corresponding extent, and no further consent
or action by any party shall be required. Upon the consummation of any
assignment pursuant to this paragraph, substitute Ratable Loan Notes shall be
issued to the assigning Bank (in the case of a partial assignment) and Assignee
by Borrower, in exchange for

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the return of the original Ratable Loan Note of the assigning Bank. The
obligations evidenced by such substitute notes shall constitute "Obligations"
for all purposes of this Agreement and the other Loan Documents. If the Assignee
is not incorporated under the laws of the United States of America or a state
thereof, it shall, prior to the first date on which interest or fees are payable
hereunder for its account, deliver to Borrower and Administrative Agent
certification as to exemption from deduction or withholding of any United States
federal income taxes in accordance with Section 10.13. Each Assignee shall be
deemed to have made the representations contained in, and shall be bound by the
provisions of, Section 10.13.

               Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Note to a Federal Reserve Bank. No such assignment
shall release the transferor Bank from its obligations hereunder.

               Borrower recognizes that in connection with a Bank's selling of
Participations or making of assignments, any or all documentation, financial
statements and other data, or copies thereof, relevant to Borrower or the Loans
may be exhibited to and retained by any such Participant or assignee or
prospective Participant or assignee. In connection with a Bank's delivery of any
financial statements and appraisals to any such Participant or assignee or
prospective Participant or assignee, such Bank shall also indicate that the same
are delivered on a confidential basis. Borrower agrees to provide all assistance
reasonably requested by a Bank to enable such Bank to sell Participations or
make assignments of its Loan as permitted by this Section. Each Bank agrees to
provide Borrower with notice of all Participations sold by such Bank.

        SECTION 12.06. Documentation Satisfactory. All documentation required
from or to be submitted on behalf of Borrower in connection with this Agreement
and the documents relating hereto shall be subject to the prior approval of, and
be satisfactory in form and substance to, Administrative Agent, its counsel and,
where specifically provided herein, the Banks. In addition, the persons or
parties responsible for the execution and delivery of, and signatories to, all
of such documentation, shall be acceptable to, and subject to the approval of,
Administrative Agent and its counsel and the Banks.

        SECTION 12.07. Notices. Unless the party to be notified otherwise
notifies the other parties in writing as provided in this Section, and except as
otherwise provided in this Agreement, notices shall be given to Administrative
Agent by telephone, confirmed by writing, and to the Banks and to Borrower and
General Partner by ordinary mail or overnight courier or telecopy, receipt
confirmed, addressed to such party at its address on the signature page of this
Agreement. Notices shall be effective: (1) if by telephone, at the time of such
telephone conversation, (2) if given by mail, three (3) days after mailing; (3)
if given by overnight courier, upon receipt; and (4) if given by telecopy, upon
receipt.

        SECTION 12.08. Setoff. To the extent permitted or not expressly
prohibited by applicable law, Borrower and General Partner agree that, in
addition to (and without limitation of) any right of setoff, bankers' lien or
counterclaim a Bank may otherwise have, each Bank shall be entitled, at its
option, to offset balances (general or special, time or demand, provisional or
final) held by it for the account of Borrower or General Partner at any of such
Bank's offices, in

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Dollars or in any other currency, against any amount payable by Borrower or
General Partner to such Bank under this Agreement or such Bank's Note, or any
other Loan Document which is not paid when due (regardless of whether such
balances are then due to Borrower or General Partner), in which case it shall
promptly notify Borrower, General Partner and Administrative Agent thereof;
provided that such Bank's failure to give such notice shall not affect the
validity thereof. Payments by Borrower or General Partner hereunder or under the
other Loan Documents shall be made without setoff or counterclaim.

        SECTION 12.09. Table of Contents; Headings. Any table of contents and
the headings and captions hereunder are for convenience only and shall not
affect the interpretation or construction of this Agreement.

        SECTION 12.10. Severability. The provisions of this Agreement are
intended to be severable. If for any reason any provision of this Agreement
shall be held invalid or unenforceable in whole or in part in any jurisdiction,
such provision shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without in any manner affecting the validity
or enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.

        SECTION 12.11. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and any party hereto may execute this Agreement by signing any
such counterpart.

        SECTION 12.12. Integration. The Loan Documents set forth the entire
agreement among the parties hereto relating to the transactions contemplated
thereby (except with respect to agreements relating solely to compensation,
consideration and the coordinated syndication of the Loan) and supersede any
prior oral or written statements or agreements with respect to such
transactions.

        SECTION 12.13. Governing Law. This Agreement shall be governed by, and
interpreted and construed in accordance with, the laws of the State of New York.

        SECTION 12.14. Waivers. To the extent permitted or not expressly
prohibited by applicable law, in connection with the obligations and liabilities
as aforesaid, Borrower and General Partner hereby waive: (1) promptness and
diligence; (2) notice of any actions taken by any Bank Party under this
Agreement, any other Loan Document or any other agreement or instrument relating
thereto except to the extent otherwise provided herein; (3) all other notices,
demands and protests, and all other formalities of every kind in connection with
the enforcement of the Obligations, the omission of or delay in which, but for
the provisions of this Section, might constitute grounds for relieving Borrower
or General Partner of their obligations hereunder; (4) any requirement that any
Bank Party protect, secure, perfect or insure any Lien on any collateral or
exhaust any right or take any action against Borrower, General Partner or any
other Person or any collateral; (5) any right or claim of right to cause a
marshalling of the assets of Borrower or General Partner; and (6) all rights of
subrogation or contribution, whether arising by contract or operation of law
(including, without limitation, any such right arising under the

                                       55
   57

Federal Bankruptcy Code) or otherwise by reason of payment by Borrower or
General Partner, either jointly or severally, pursuant to this Agreement or
other Loan Documents.

        SECTION 12.15. Jurisdiction; Immunities. Borrower, General Partner,
Administrative Agent and each Bank hereby irrevocably submit to the jurisdiction
of any New York State or United States Federal court sitting in New York City
over any action or proceeding arising out of or relating to this Agreement, the
Notes or any other Loan Document. Borrower, General Partner, Administrative
Agent, and each Bank irrevocably agree that all claims in respect of such action
or proceeding may be heard and determined in such New York State or United
States Federal court. Borrower, General Partner, Administrative Agent, and each
Bank irrevocably consent to the service of any and all process in any such
action or proceeding by the mailing of copies of such process to Borrower,
General Partner, Administrative Agent or each Bank, as the case may be, at the
addresses specified herein. Borrower, General Partner, Administrative Agent and
each Bank agree that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Borrower, General Partner, Administrative
Agent and each Bank further waive any objection to venue in the State of New
York and any objection to an action or proceeding in the State of New York on
the basis of forum non conveniens. Borrower, General Partner, Administrative
Agent and each Bank agree that any action or proceeding brought against
Borrower, General Partner, Administrative Agent or any Bank, as the case may be,
shall be brought only in a New York State court sitting in New York City or a
United States Federal court sitting in New York City, to the extent permitted or
not expressly prohibited by applicable law.

               Nothing in this Section shall affect the right of Borrower,
General Partner, Administrative Agent or any Bank to serve legal process in any
other manner permitted by law.

               To the extent that Borrower, General Partner, Administrative
Agent or any Bank have or hereafter may acquire any immunity from jurisdiction
of any court or from any legal process (whether from service or notice,
attachment prior to judgment, attachment in aid of execution, execution or
otherwise) with respect to itself or its property, Borrower, General Partner,
Administrative Agent and each Bank hereby irrevocably waive such immunity in
respect of its obligations under this Agreement, the Notes and any other Loan
Document.

               BORROWER, GENERAL PARTNER, ADMINISTRATIVE AGENT AND EACH BANK
WAIVE ANY RIGHT EACH SUCH PARTY MAY HAVE TO JURY TRIAL IN CONNECTION WITH ANY
SUIT, ACTION OR PROCEEDING BROUGHT WITH RESPECT TO THIS AGREEMENT, THE NOTES OR
THE LOAN. IN ADDITION, BORROWER AND GENERAL PARTNER HEREBY WAIVE, IN CONNECTION
WITH ANY SUIT, ACTION OR PROCEEDING BROUGHT BY ADMINISTRATIVE AGENT OR THE BANKS
WITH RESPECT TO THE NOTES, ANY RIGHT BORROWER OR GENERAL PARTNER MAY HAVE TO (1)
TO THE EXTENT PERMITTED OR NOT EXPRESSLY PROHIBITED BY APPLICABLE LAW, INTERPOSE
ANY COUNTERCLAIM THEREIN (OTHER THAN A COUNTERCLAIM THAT IF NOT BROUGHT IN THE
SUIT, ACTION OR PROCEEDING BROUGHT BY ADMINISTRATIVE AGENT OR THE BANKS COULD
NOT BE BROUGHT IN A SEPARATE SUIT, ACTION OR PROCEEDING OR WOULD BE

                                       56
   58

SUBJECT TO DISMISSAL OR SIMILAR DISPOSITION FOR FAILURE TO HAVE BEEN ASSERTED IN
SUCH SUIT, ACTION OR PROCEEDING BROUGHT BY ADMINISTRATIVE AGENT OR THE BANKS) OR
(2) TO THE EXTENT PERMITTED OR NOT EXPRESSLY PROHIBITED BY APPLICABLE LAW, HAVE
THE SAME CONSOLIDATED WITH ANY OTHER OR SEPARATE SUIT, ACTION OR PROCEEDING.
NOTHING HEREIN CONTAINED SHALL PREVENT OR PROHIBIT BORROWER OR GENERAL PARTNER
FROM INSTITUTING OR MAINTAINING A SEPARATE ACTION AGAINST ADMINISTRATIVE AGENT
OR THE BANKS WITH RESPECT TO ANY ASSERTED CLAIM.

        SECTION 12.16. Designated Lender. Any Bank (other than a Bank which is
such solely because it is a Designated Lender) (each, a "Designating Lender")
may at any time designate one (1) Designated Lender to fund Bid Rate Loans on
behalf of such Designating Lender subject to the terms of this Section and the
provisions in Section 12.05 shall not apply to such designation. No Bank may
designate more than one (1) Designated Lender. The parties to each such
designation shall execute and deliver to Administrative Agent for its acceptance
a Designation Agreement. Upon such receipt of an appropriately completed
Designation Agreement executed by a Designating Lender and a designee
representing that it is a Designated Lender, Administrative Agent will accept
such Designation Agreement and give prompt notice thereto to Borrower,
whereupon, (i) from and after the "Effective Date" specified in the Designation
Agreement, the Designated Lender shall become a party to this Agreement with a
right to make Bid Rate Loans on behalf of its Designating Lender pursuant to
Section 2.02 after Borrower has accepted the Bid Rate Quote of the Designating
Lender and (ii) the Designated Lender shall not be required to make payments
with respect to any obligations in this Agreement except to the extent of excess
cash flow of such Designated Lender which is not otherwise required to repay
obligations of such Designated Lender which are then due and payable; provided,
however, that regardless of such designation and assumption by the Designated
Lender, the Designating Lender shall be and remain obligated to Borrower,
Administrative Agent and the Banks for each and every of the obligations of the
Designating Lender and its related Designated Lender with respect to this
Agreement, including, without limitation, any indemnification obligations under
Section 10.05. Each Designating Lender shall serve as the administrative agent
of its Designated Lender and shall on behalf of, and to the exclusion of, the
Designated Lender: (i) receive any and all payments made for the benefit of the
Designated Lender and (ii) give and receive all communications and notices and
take all actions hereunder, including, without limitation, votes, approvals,
waivers and consents under or relating to this Agreement and the other Loan
Documents. Any such notice, communication, vote, approval, waiver or consent
shall be signed by the Designating Lender as administrative agent for the
Designated Lender and shall not be signed by the Designated Lender on its own
behalf, but shall be binding on the Designated Lender to the same extent as if
actually signed by the Designated Lender. Borrower, Administrative Agent and the
Banks may rely thereon without any requirement that the Designated Lender sign
or acknowledge the same. No Designated Lender may assign or transfer all or any
portion of its interest hereunder or under any other Loan Document, other than
assignments to the Designating Lender which originally designated such
Designated Lender.

                                       57
   59

        SECTION 12.17. No Bankruptcy Proceedings. Each of Borrower, the Banks
and Administrative Agent hereby agrees that it will not institute against any
Designated Lender or join any other Person in instituting against any Designated
Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceeding under any federal or state bankruptcy or similar law, for one (1)
year and one (1) day after the payment in full of the latest maturing commercial
paper note issued by such Designated Lender.

                                       58
   60

               IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first above written.

                          VORNADO REALTY L.P.,
                            a Delaware limited partnership

                          By:    Vornado Realty Trust, a Maryland real
                                 estate investment trust, general partner

                                 By_____________________________________
                                      Name:  Joseph Macnow
                                      Title:  Executive Vice President

                          VORNADO REALTY TRUST,
                            a Maryland real estate investment trust

                          By________________________________________
                               Name:  Joseph Macnow
                               Title:  Executive Vice President

                          Address for Notices for both:

                          Park 80 West
                          Plaza II
                          Saddle Brook, New Jersey 07663

                          Attention:    Steven Roth, Chairman and
                                        Joseph Macnow, Executive Vice
                                        President

                          Telephone:  (201) 587-1000
                          Telecopy:   (201) 587-0600

                          with copies to:
     
                          Sullivan & Cromwell
                          125 Broad Street
                          New York, New York 10004

                          Attention:    Alan Sinsheimer, Esq.

                          Telephone:  (212) 558-4000
                          Telecopy:   (212) 558-3588
   61

                          UNION BANK OF SWITZERLAND
                            (New York Branch)
                          (as Bank and Administrative Agent)

                          By________________________________________
                               Name:  Joseph Bassil
                               Title:  Director

                          By________________________________________
                               Name:  Albert Rabil, III
                               Title:  Managing Director

                          Address for Notices and Applicable Lending Office
                          for Base Rate Loan and LIBOR Loan:

                          299 Park Avenue
                          38th Floor
                          New York, New York 10171-0026

                          Attention:    Real Estate Finance and Mara Martez

                          Telephone:  (212) 821-3872
                          Telecopy:   (212) 821-3943

                          with copies to:

                          Dewey Ballantine LLP
                          1301 Avenue of the Americas
                          New York, New York 10019

                          Attention:  George C. Weiss

                          Telephone:  (212) 259-7320
                          Telecopy:   (212) 259-6333
   62

                          FLEET BANK, NATIONAL ASSOCIATION
                          (as Bank)

                          By________________________________________
                              Name:
                              Title:

                          Address for Notices and Applicable Lending Office
                          for Base Rate Loan and LIBOR Loan:

                          Fleet Bank, National Association
                          1133 Avenue of the Americas
                          40th Floor
                          New York, New York 10036

                          Attention:  Mr. Stephen M. Soled

                          Telephone:  (212) 703-1933
                          Telecopy:   (212) 703-1807
   63

                          BAYERISCHE LANDESBANK CAYMAN
                            ISLANDS BRANCH
                          (as Bank)

                          By________________________________________
                              Name:
                              Title:

                          By________________________________________
                              Name:
                              Title:

                          Address for Notices and Applicable Lending Office
                          for Base Rate Loan and LIBOR Loan:

                          Bayerische Landesbank Cayman Islands Branch
                          560 Lexington Avenue
                          New York, New York 10022

                          Attention:  Mr. John Wain

                          Telephone:  (212) 310-9829
                          Telecopy:   (212) 310-9868
   64

                          SOCIETE GENERALE, SOUTHWEST AGENCY
                            (as Bank)

                          By________________________________________
                              Name:
                              Title:

                          Applicable Lending Office for Base Rate Loan and
                           LIBOR Loan:

                          Societe General, New York
                          1221 Avenue of the Americas
                          New York, New York 10020

                          Address for Notices for Base Rate Loan and LIBOR
                          Loan:

                          Societe Generale, Southwest Agency
                          2001 Ross Avenue
                          Suite 4900
                          Dallas, Texas 75201

                          Attention:  Mr. Jeffrey A. Etter

                          Telephone:  (214) 979-2746
                          Telecopy:   (214) 979-2727
   65

                          PNC BANK, NATIONAL ASSOCIATION
                          (as Bank)

                          By________________________________________
                              Name:
                              Title:

                          Address for Notices and Applicable Lending Office
                          for Base Rate Loan and LIBOR Loan:

                          PNC Bank, National Association
                          345 Park Avenue
                          29th Floor
                          New York, New York 10154

                          Attention:  Mr. Dan Sefcik

                          Telephone:  (212) 409-3715
                          Telecopy:   (212) 409-3737
   66

                          CREDIT LYONNAIS NEW YORK BRANCH
                          (as Bank)

                          By________________________________________
                              Name:
                              Title:

                          Address for Notices and Applicable Lending Office
                          for Base Rate Loan and LIBOR Loan:

                          Credit Lyonnais New York Branch
                          1301 Avenue of the Americas
                          New York, New York 10019

                          Attention:  Mr. Matt O'Hara

                          Telephone:  (212) 261-7820
                          Telecopy:   (212) 261-7890
   67

                          KREDIETBANK, N.V.
                          (as Bank)

                          By________________________________________
                              Name:
                              Title:

                          By________________________________________
                              Name:
                              Title:

                          Address for Notices and Applicable Lending Office
                          for Base Rate Loan and LIBOR Loan:

                          Kredietbank N.V.
                          125 West 55th Street
                          New York, New York 10019

                          Attention:  Mr. Frank Payne

                          Telephone:  (212) 541-0723
                          Telecopy:   (212) 541-0793
   68

                          DRESDNER BANK AG, NEW YORK BRANCH
                           AND GRAND CAYMAN BRANCH
                         (as Bank)

                          By________________________________________
                              Name:
                              Title:

                          By________________________________________
                              Name:
                              Title:

                          Applicable Lending Office for Base Rate Loan and
                           LIBOR Loan:

                          Dresdner Bank AG, New York
                            Branch and Grand Cayman Branch

                          Address for Notices for Base Rate Loan and LIBOR
                          Loan:

                          75 Wall Street
                          25th Floor
                          New York, New York 10005

                          Attention:  Mr. Michael Seton

                          Telephone:  (212) 429-3277
                          Telecopy:   (212) 429-2781
   69

                          COMMERZBANK AG, NEW YORK BRANCH
                          (as Bank)

                          By________________________________________
                              Name:
                              Title:

                          By________________________________________
                              Name:
                              Title:

                          Address for Notices and Applicable Lending Office
                          for Base Rate Loan and LIBOR Loan:

                          Commerzbank AG
                          New York Branch
                          2 World Financial Center
                          New York, New York 10281

                          Attention:  David Schwarz/Christine Finkel

                          Telephone:  (212) 266-7632/7375
                          Telecopy:   (212) 266-7530
   70

                          DG BANK DEUTSCHE
                            GENOSSENSCHAFTBANK,
                            CAYMAN ISLAND BRANCH
                          (as Bank)

                          By________________________________________
                              Name:
                              Title:

                          By________________________________________
                              Name:
                              Title:

                          Address for Notices and Applicable Lending Office
                          for Base Rate Loan and LIBOR Loan:

                          DG Bank Deutsche Genossenschaftbank,
                            Cayman Island Branch
                          609 Fifth Avenue
                          New York, New York 10017

                          Attention:  Ms. Linda J. O'Connell

                          Telephone:  (212) 745-1586
                          Telecopy:   (212) 745-1556
   71

                          THE BANK OF NEW YORK
                          (as Bank)

                          By________________________________________
                              Name:
                              Title:

                          Address for Notices and Applicable Lending Office
                          for Base Rate Loan and LIBOR Loan:

                          The Bank of New York
                          One Wall Street
                          21st Floor
                          New York, New York 10286

                          Attention:  Ms. Maria Kastanis

                          Telephone:  (212) 635-7519
                          Telecopy:   (212) 809-9526
   72

                          CITICORP REAL ESTATE, INC.
                          (as Bank)

                          By________________________________________
                              Name:
                              Title:

                          Address for Notices and Applicable Lending Office
                          for Base Rate Loan and LIBOR Loan:

                          399 Park Avenue
                          3rd Floor/Zone 2
                          New York, New York 10043

                          Attention:  Mr. G. Mark Brown

                          Telephone:  (212) 559-8270
                          Telecopy:   (212) 793-5602
   73

                          THE SUMITOMO BANK, LIMITED
                          (as Bank)

                          By________________________________________
                              Name:
                              Title:

                          Address for Notices and Applicable Lending Office
                          for Base Rate Loan and LIBOR Loan:

                          The Sumitomo Bank, Limited
                          277 Park Avenue
                          6th Floor
                          New York, New York 10172

                          Attention:  Mr. Anthony Mugno

                          Telephone:  (212) 224-4170
                          Telecopy:  (212) 224-4887
   74

                          THE SUMITOMO TRUST & BANKING
                            CO., LTD.
                          (as Bank)

                          By________________________________________
                              Name:
                              Title:

                          Address for Notices and Applicable Lending Office
                          for Base Rate Loan and LIBOR Loan:

                          The Sumitomo Trust & Banking Co., Ltd.
                          New York Branch
                          527 Madison Avenue
                          New York, New York 10022

                          Attention:  Ms. Annette Colletti

                          Telephone:  (212) 326-0740
                          Telecopy:  (212) 418-4848

                                        and

                          The Sumitomo Trust & Banking Co., Ltd.
                          New York Branch
                          527 Madison Avenue
                          New York, New York 10022

                          Attention:  Naoya Takeuchi

                          Telephone:  (212) 418-4803
                          Telecopy:  (212) 418-4848
   75

                          SUMMIT BANK
                          (as Bank)

                          By________________________________________
                              Name:
                              Title:

                          Address for Notices and Applicable Lending Office
                          for Base Rate Loan and LIBOR Loan:

                          Summit Bank
                          Commercial Real Estate Department
                          750 Walnut Avenue
                          Cranford, New Jersey 07106

                          Attention:  Mr. Greg Haines

                          Telephone:  (908) 709-6079
                          Telecopy:  (908) 709-6440
   76

                          BAYERISCHE HYPOTHEKEN- UND
                            WECHSEL-BANK AKTIENGESELLSCHAFT
                            (New York Branch)
                          (as Bank)

                          By________________________________________
                              Name:
                              Title:

                          By________________________________________
                              Name:
                              Title:

                          Address for Notices and Applicable Lending Office
                          for Base Rate Loan and LIBOR Loan:

                          Financial Square
                          32 Old Slip
                          32nd Floor
                          New York, New York 10005

                          Attention:  Mr. Peter Hannigan

                          Telephone:  (212) 440-0757
                          Telecopy:  (212) 440-0824
   77

                          THE CHASE MANHATTAN BANK
                          (as Bank)

                          By________________________________________
                              Name:
                              Title:

                          Address for Notices and Applicable Lending Office
                          for Base Rate Loan and LIBOR Loan:

                          380 Madison Avenue
                          10th Floor
                          New York, New York 10017

                          Attention:  Ms. Sharon Harris

                          Telephone:  (212) 622-3208
                          Telecopy:  (212) 622-3397
   78

                          NATIONSBANK
                          (as Bank)

                          By________________________________________
                              Name:
                              Title:

                          By________________________________________
                              Name:
                              Title:

                          Address for Notices and Applicable Lending Office
                          for Base Rate Loan and LIBOR Loan:

                          NationsBank
                          8300 Greensboro Drive
                          Suite 300
                          McLean, Virginia 22102

                          Attention:    Mr. Terence Hatton and
                                        Ms. Eleanor Mitchell Wharton

                          Telephone:  (703) 761-8149
                          Telecopy:  (703) 761-8179
   79

                          BANK OF BOSTON
                          (as Bank)

                          By________________________________________
                              Name:
                              Title:

                          Address for Notices and Applicable Lending Office
                          for Base Rate Loan and LIBOR Loan:

                          100 Federal Street
                          (01-32-05)
                          Boston, Massachusetts 02110

                          Attention:  Ms. Cathy Camarda

                          Telephone:  (617) 434-2297
                          Telecopy:  (617) 434-1337
   1
 
                                                                      EXHIBIT 12
 
                              VORNADO REALTY TRUST
 
              CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES AND
        COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDEND REQUIREMENTS

                             DECEMBER 31,    DECEMBER 31,    DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                 1997            1996            1995            1994            1993
                             ------------    ------------    ------------    ------------    ------------
                                                                              
Income from continuing
  operations before income
  taxes....................    $ 45,474        $61,364         $53,008         $41,240         $25,386
Fixed charges..............      59,104         17,214          17,333          16,229          31,892
                               --------        -------         -------         -------         -------
Income from continuing
  operations before income
  taxes and fixed
  charges..................    $104,578        $78,578         $70,341         $57,469         $57,278
                               ========        =======         =======         =======         =======
Fixed charges:
  Interest and debt
     expense...............      42,888        $16,726         $16,426         $14,209         $31,155
  Preferred stock
     dividends.............      15,549             --              --              --              --
   1/3 of rent
     expense -- interest
     factor................         667            488             465             438             455
                               --------        -------         -------         -------         -------
                                 59,104         17,214          16,891          14,647          31,610
  Capitalized interest.....          --             --             442           1,582             282
                               --------        -------         -------         -------         -------
                               $ 59,104        $17,214         $17,333         $16,229         $31,892
                               ========        =======         =======         =======         =======
Ratio of earnings to fixed
  charges..................        1.76           4.56            4.06            3.54            1.80

Note: For purposes of this calculation, earnings before fixed charges consist of
      earnings before income taxes plus fixed charges. Fixed charges consist of
      interest expense on all indebtedness (including amortization of deferred
      debt issuance costs) preferred stock dividends and the portion of
      operating lease rental expense that is representative of the interest
      factor (deemed to be one third of operating lease rentals).

                                                                              
       Rent Expense........    $  2,001        $ 1,465         $ 1,395         $ 1,313         $ 1,366
                               ========        =======         =======         =======         =======

   1
 
                                                                      EXHIBIT 21
 
                              VORNADO REALTY TRUST
                         SUBSIDIARIES OF THE REGISTRANT

                     NAME OF SUBSIDIARY                       STATE OF ORGANIZATION
                     ------------------                       ---------------------
                                                           
150 East 58th Street L.L.C. ................................  New York
1740 Broadway Associates L.P. ..............................  Delaware
20 Broad Lender L.L.C. .....................................  New York
201 East 66th Street Corp. .................................  New York
201 East 66th Street L.L.C. ................................  New York
330 Madison Company.........................................  New York
40 East 14 Realty Associates L.L.C. ........................  New York
401 Commercial Son, L.L.C. .................................  Delaware
401 Commercial, L.P. .......................................  Delaware
401 General Partner, L.L.C. ................................  Delaware
401 Hotel General Partner, L.L.C. ..........................  Delaware
401 Hotel, L.P. ............................................  Delaware
570 Lexington Associates, L.P. .............................  New York
570 Lexington Company, L.P. ................................  New York
825 Seventh Avenue Holding L.L.C. ..........................  New York
866 U.N. Plaza Associates L.L.C. ...........................  New York
909 Third Avenue Assignee L.L.C. ...........................  New York
Americold Corporation.......................................  Oregon
Americold Services Corporation..............................  Delaware
Amherst Holding L.L.C. .....................................  New York
Amherst Industries L.L.C. ..................................  New York
Arbor Property, L.P. .......................................  Delaware
Atlanta Parent, Inc. .......................................  Delaware
Atlantic City Holding L.L.C. ...............................  New Jersey
B&B Park Avenue L.P. .......................................  Delaware
Bensalem Holding Company L.L.C. ............................  Pennsylvania
Bensalem Holding Company L.P. ..............................  Pennsylvania
Bethlehem Holding Company L.L.C. ...........................  Pennsylvania
Bethlehem Holding Company L.P. .............................  Pennsylvania
Bethlehem Properties Holding Company L.L.C. ................  Pennsylvania
Bethlehem Properties Holding Company L.P. ..................  Pennsylvania
Bordentown Holding L.L.C. ..................................  New Jersey
Brentwood Development L.L.C. ...............................  New York
Bridgeland Warehouses L.L.C. ...............................  New Jersey
Camden Holding L.L.C. ......................................  New Jersey
Charles E. Smith Commercial Realty L.P. ....................  Delaware
Chicopee Holding L.L.C. ....................................  Massachusetts
Clementon Holding L.L.C. ...................................  New Jersey
Cumberland Holding L.L.C. ..................................  New Jersey
Darby Development Corp. ....................................  Florida
Delran Holding L.L.C. ......................................  New Jersey
Dover Holding L.L.C. .......................................  New Jersey
DSAC L.L.C. ................................................  Texas
DUN L.L.C. .................................................  Maryland
Durham Leasing L.L.C. ......................................  New Jersey
EH L.L.C. ..................................................  Maryland

   2

                     NAME OF SUBSIDIARY                       STATE OF ORGANIZATION
                     ------------------                       ---------------------
                                                           
Eleven Penn Plaza L.L.C. ...................................  New York
Evesham Holding L.L.C. .....................................  New Jersey
Gallery Market Holding Company L.L.C. ......................  Pennsylvania
Gallery Market Holding Company L.P. ........................  Pennsylvania
Gallery Market Properties Holding Company L.L.C. ...........  Pennsylvania
Gallery Market Properties Holding Company L.P. .............  Pennsylvania
GBSPI L.L.C. ...............................................  Maryland
Green Acres Mall, L.L.C. ...................................  Delaware
Hackbridge L.L.C. ..........................................  New Jersey
Hanover Holding L.L.C. .....................................  New Jersey
Hanover Industries L.L.C. ..................................  New Jersey
Hanover Leasing L.L.C. .....................................  New Jersey
Hanover Public Warehousing L.L.C. ..........................  New Jersey
Henrietta Holding L.L.C. ...................................  New York
HHC L.L.C. .................................................  Maryland
Jersey City Leasing L.L.C. .................................  New Jersey
Kearny Holding L.L.C. ......................................  New Jersey
Kearny Leasing L.L.C. ......................................  New Jersey
Lancaster Leasing Company L.L.C. ...........................  Pennsylvania
Lancaster Leasing Company L.P. .............................  Pennsylvania
Landthorp Enterprises L.L.C. ...............................  Delaware
Lawnside Holding L.L.C. ....................................  New Jersey
Lawnwhite Holding L.L.C. ...................................  New Jersey
Lewisville Centre L.P. .....................................  Texas
Lewisville TC L.L.C. .......................................  Texas
Littleton Holding L.L.C. ...................................  New Jersey
Lodi Industries L.L.C. .....................................  New Jersey
Lodi Leasing L.L.C. ........................................  New Jersey
M 330 Associates, L.P. .....................................  New York
M 393 Associates L.L.C. ....................................  New York
Manalapan Industries L.L.C. ................................  New Jersey
Marple Holding Company L.L.C. ..............................  Pennsylvania
Marple Holding Company L.P. ................................  Pennsylvania
Mart Franchise Center, Inc. ................................  Illinois
Mart Franchise Venture, L.L.C. .............................  Delaware
Menands Holding L.L.C. .....................................  New York
Mendik Management Company Inc. .............................  New York
Merchandise Mart Enterprises, Inc. .........................  Delaware
Merchandise Mart Properties, Inc. ..........................  Illinois
Merchandise Mart Properties, Inc. (DE)......................  Delaware
Mesquite - Texas Crossing L.P. .............................  Texas
Mesquite TC L.L.C. .........................................  Texas
Middletown Holding L.L.C. ..................................  New Jersey
Montclair Holding L.L.C. ...................................  New Jersey
Morris Plains Leasing L.L.C. ...............................  New Jersey
MRC Management L.L.C. ......................................  New York
National Hydrant L.L.C. ....................................  New York
New Hanover L.L.C. .........................................  New Jersey
New Woodbridge L.L.C. ......................................  New Jersey
Newington Connecticut Holding L.L.C. .......................  Connecticut
Ninety Park Lender LLC .....................................  New York
Ninety Park Lender QRS, Inc. ...............................  Delaware

   3

                     NAME OF SUBSIDIARY                       STATE OF ORGANIZATION
                     ------------------                       ---------------------
                                                           
Ninety Park Manager LLC.....................................  New York
Ninety Park Option LLC......................................  New York
Ninety Park Property LLC....................................  New York
No. Plainfield Holding L.L.C. ..............................  New Jersey
North Bergen Stores L.L.C. .................................  New Jersey
One Penn Plaza LLC..........................................  New York
Philadelphia Holding Company L.L.C. ........................  Pennsylvania
Philadelphia Holding Company L.P. ..........................  Pennsylvania
Phillipsburg Holding L.L.C. ................................  New Jersey
Pike Holding Company L.L.C. ................................  Pennsylvania
Pike Holding Company L.P. ..................................  Pennsylvania
Portland Parent, Inc. ......................................  Delaware
Rahway Leasing L.L.C. ......................................  New Jersey
Rochester Holding L.L.C. ...................................  New York
Skillman Abrams Crossing L.P. ..............................  Texas
Springfield Holding L.L.C. .................................  Massachusetts
Star Universal L.L.C. ......................................  New Jersey
T53 Condominium L.L.C. .....................................  New York
T.G. Hanover L.L.C. ........................................  New Jersey
TGSI L.L.C. ................................................  Maryland
The Second Lawnside L.L.C. .................................  New Jersey
The Second Rochester Holding L.L.C. ........................  New York
Trees Acquisition Subsidiary, Inc. .........................  Delaware
Turnersville Holding L.L.C. ................................  New Jersey
Two Guys From Harrison Holding Co. L.P. ....................  Pennsylvania
Two Guys From Harrison Holding Co. LLC......................  Pennsylvania
Two Guys From Harrison L.L.C. ..............................  New Jersey
Two Guys From Harrison N.Y. L.L.C. .........................  New York
Two Guys Mass. L.L.C. ......................................  Massachusetts
Two Guys-Connecticut Holding L.L.C. ........................  Connecticut
Two Park Company............................................  New York
Two Penn Plaza REIT, Inc. ..................................  New York
Unado L.L.C. ...............................................  New Jersey
Upper Moreland Holding Company L.L.C. ......................  Pennsylvania
Upper Moreland Holding Company L.P. ........................  Pennsylvania
URS Logistics, Inc. ........................................  Delaware
VFC Connecticut Holding L.L.C. .............................  Delaware
VFC Massachusetts Holding L.L.C. ...........................  Delaware
VFC New Jersey Holding L.L.C. ..............................  Delaware
Vornado - Westport L.L.C. ..................................  Connecticut
Vornado 1740 Broadway L.L.C. ...............................  New York
Vornado 401 Commercial L.L.C. ..............................  New York
Vornado 401 Hotel, Inc. ....................................  New York
Vornado 570 Lexington L.L.C. ...............................  New York
Vornado 63rd Street, Inc. ..................................  New York
Vornado 640 Fifth Avenue L.L.C. ............................  New York
Vornado 90 Park Avenue L.L.C. ..............................  New York
Vornado 90 Park QRS, Inc. ..................................  New York
Vornado B&B L.L.C. .........................................  New York
Vornado Center Building L.L.C. .............................  New York
Vornado CESCR Holdings L.L.C. ..............................  Delaware
Vornado CESCR II L.L.C. ....................................  Delaware

   4

                     NAME OF SUBSIDIARY                       STATE OF ORGANIZATION
                     ------------------                       ---------------------
                                                           
Vornado CESCR L.L.C. .......................................  Delaware
Vornado Crescent Atlanta Partnership........................  Delaware
Vornado Crescent Holding L.P. ..............................  Delaware
Vornado Crescent Portland Partnership.......................  Delaware
Vornado Finance GP L.L.C. ..................................  Delaware
Vornado Finance L.P. .......................................  Delaware
Vornado Finance SPE, Inc. ..................................  Delaware
Vornado Green Acres Acquisition L.L.C. .....................  Delaware
Vornado Green Acres Delaware L.L.C. ........................  Delaware
Vornado Green Acres Funding L.L.C. .........................  Delaware
Vornado Green Acres Holdings L.L.C. ........................  Delaware
Vornado Investment Corporation..............................  New York
Vornado Investments L.L.C. .................................  Delaware
Vornado Lending L.L.C. .....................................  New Jersey
Vornado M 330 L.L.C. .......................................  New York
Vornado M 393 L.L.C. .......................................  New York
Vornado M 393 QRS, Inc. ....................................  New York
Vornado Management Corp. ...................................  New Jersey
Vornado Montehiedra OP L.P. ................................  Delaware
Vornado Montehiedra Acquisition L.L.C. .....................  Delaware
Vornado Montehiedra Acquisition L.P. .......................  Delaware
Vornado Montehiedra Holding II L.P. ........................  Delaware
Vornado Montehiedra Holding L.L.C. .........................  Delaware
Vornado Montehiedra Holding L.P. ...........................  Delaware
Vornado Montehiedra Inc. ...................................  Delaware
Vornado Montehiedra OP L.L.C. ..............................  Delaware
Vornado New York RR One L.L.C. .............................  New York
Vornado Realty L.L.C. ......................................  Delaware
Vornado Realty L.P. ........................................  Delaware
Vornado RR Midtown L.L.C. ..................................  New York
Vornado Two Penn Plaza L.L.C. ..............................  New York
VR Retail Holdings LLC......................................  New York
VRT Massachusetts Holding L.L.C. ...........................  Delaware
VRT New Jersey Holding L.L.C. ..............................  Delaware
Watchung Holding L.L.C. ....................................  New Jersey
West Windsor Holding L.L.C. ................................  New Jersey
Whitehorse Lawnside L.L.C. .................................  New Jersey
York Holding Company L.L.C. ................................  Pennsylvania
York Holding Company L.P. ..................................  Pennsylvania

   1
 
                                                                      EXHIBIT 23
 
                         INDEPENDENT AUDITORS' CONSENT
 
     We consent to the incorporation by reference in Amendment No. 4 to
Registration Statement No. 333-40787 and Amendment No. 2 to Registration
Statement No. 333-29013 both on Form S-3 of Vornado Realty Trust and Vornado
Realty L.P. and Registration Statement Nos. 333-29011 and 333-09159 both on Form
S-8 of Vornado Realty Trust of our report dated March 25, 1998, appearing in
this Annual Report on Form 10-K of Vornado Realty Trust for the year ended
December 31, 1997.
 
DELOITTE & TOUCHE LLP
 
Parsippany, New Jersey
March 25, 1998

 5

This schedule contains summary financial information extracted from the
Company's audited financial statements for the year ended December 31, 1997 and
is qualified in its entirety by reference to such financial statements.

1,000

                   YEAR
                          DEC-31-1997
                             JAN-01-1997
                               DEC-31-1997
                                         355,954
                                    34,469
                                   16,663
                                       658
                                          0
                                     0
                                       1,564,093
                                 173,434
                               2,524,089
                                0
                                        956,654
                                0
                                    279,884
                                         2,887
                                   1,030,991
                 2,524,089
                                              0
                               209,131
                                                0
                                   74,745
                                59,480
                                     0
                              42,888
                                 61,023
                                         0
                             61,023
                                       0
                                      0
                                            0
                                    45,474
                                      .83
                                      .79

  

 5

This schedule contains summary financial information extracted from the
Company's financial statements for the periods shown below and is qualified in
its entirety by reference to such financial statements.

 1,000

                                                                                                     
                   9-MOS                6-MOS                 3-MOS                  YEAR                  YEAR
             DEC-31-1996          DEC-31-1996           DEC-31-1996            DEC-31-1996         DEC-31-1995
                JAN-01-1996          JAN-01-1996           JAN-01-1996            JAN-01-1996         JAN-01-1995
                  SEP-30-1996          JUN-30-1996           MAR-31-1996            DEC-31-1996         DEC-31-1995
                             21,769               16,748                25,672                 89,696              19,127 
                       31,004               31,654                29,356                 27,549              70,997 
                       8,274                9,725                 8,847                  9,786               7,086 
                          516                  550                   587                    575                 578 
                             0                    0                     0                      0                   0 
                        0                    0                     0                      0                   0 
                             93,934              393,506               383,975                397,298             382,476 
                     48,155              145,225               142,328                151,049             139,495 
                     73,886              472,459               471,742                565,204             491,496 
                   0                    0                     0                      0                   0 
                            42,572              243,000               243,178                232,387             233,353 
                   0                    0                     0                      0                   0 
                             0                    0                     0                      0                   0 
                              981                  972                   971                  1,044                 970 
                         99,986              195,520               195,112                275,213             193,304 
       73,886              472,459               471,742                565,204             491,496 
                                 0                    0                     0                      0                   0 
                   86,918               57,855                28,610                116,887             108,718 
                                   0                    0                     0                      0                   0 
                      26,944               18,059                 8,914                 36,412              32,282 
                   12,550                8,240                 4,024                 18,839              17,477 
                        0                    0                     0                      0                   0 
                 12,623                8,415                 4,223                 16,726              16,426 
                    45,981               31,042                15,922                 61,364              53,008 
                            0                    0                     0                      0                   0 
                45,981               31,042                15,922                 61,364              53,008 
                          0                    0                     0                      0                   0 
                         0                    0                     0                      0                   0  
                               0                    0                     0                      0                   0 
                       45,981               31,042                15,922                 61,364              53,008 
                         .95                  .64                   .33                   1.26                1.13 
                         .95                  .64                   .33                   1.25                1.12 

  

 5

This schedule contains summary financial information extracted from the
Company's unaudited financial statements for the periods shown below and is
qualified in its entirety by reference to such financial statements.

1,000

                                                                       
                   9-MOS                   6-MOS                   3-MOS
                          DEC-31-1997             DEC-31-1997             DEC-31-1997
                             JAN-01-1997             JAN-01-1997             JAN-01-1997
                               SEP-30-1997             JUN-30-1997             MAR-01-1997
                                          58,367                 199,826                  92,427
                                    31,277                  31,225                  28,239
                                   15,331                  15,171                   9,861
                                       917                     631                     641
                                          0                       0                       0
                                     0                       0                       0
                                       1,231,386               1,047,477                 397,663
                                 166,072                 159,450                 154,016
                               1,551,506               1,646,296                 561,485
                                0                       0                       0
                                        772,156                 862,883                 232,197
                                0                       0                       0
                                    277,168                 276,599                       0
                                         2,116                   1,062                   1,044
                                     255,618                 261,680                 268,218
                 1,551,506               1,646,296                 561,485
                                              0                       0                       0
                               141,827                  79,959                  29,297
                                                0                       0                       0
                                   48,557                  26,658                   8,507
                                41,995                  25,675                  11,061
                                     0                       0                       0
                              30,972                  17,350                   4,078
                                 39,104                  23,478                   9,690
                                         0                       0                       0
                             39,104                  23,478                   9,690
                                       0                       0                       0
                                      0                       0                       0
                                            0                       0                       0
                                    29,008                  18,623                   9,690
                                      .56                     .36                     .19
                                      .54                     .35                     .18