CORPORATE REALTY INCOME FUND I L P - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

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

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

(Mark One)

|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

Commission file number: 0-15796

CORPORATE REALTY INCOME FUND I, L.P.
(Exact name of registrant as specified in its charter)

Delaware 13-3311993
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

475 Fifth Avenue, NY, NY 10017
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (212) 696-0701

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

Name of each exchange on
Title of each class which registered
- - ------------------- ----------------
None Not Applicable

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

Depositary Units of Limited Partnership Interest
(Title of Class)

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

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|

Documents Incorporated by Reference in Part IV of this Form 10-K

None.

CORPORATE REALTY INCOME FUND I, L. P.

Annual Report on Form 10-K

December 31, 1997

Table of Contents

Page
----

PART I .....................................................................1

Item 1. Business..........................................................1

Item 2. Properties........................................................7

Item 3. Legal Proceedings................................................13

Item 4. Submission of Matters to a Vote of Security-Holders.
................................................................13

PART II ....................................................................14

Item 5. Market for Registrant's Securities and Related
Security-Holder Matters..........................................14

Item 6. Selected Financial Data..........................................16

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................16

Item 7A. Quantitative and Qualitative Disclosures
About Market Risk.......................................20

Item 8. Financial Statements and Supplementary Data......................20

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..............................20

PART III ....................................................................21

Item 10. Directors and Executive Officers of the Registrant.
................................................................21

Item 11. Executive Compensation...........................................23

Item 12. Security Ownership of Certain Beneficial Owners and
Management.......................................................24

Item 13. Certain Relationships and Related Transactions...................24

PART IV ....................................................................26

Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.........................................................26

PART I

Item 1. Business.

General

Corporate Realty Income Fund I, L.P. ("Registrant") is a Delaware limited
partnership organized on November 25, 1985 pursuant to the Delaware Revised
Uniform Limited Partnership Act. The general partners of Registrant are 1345
Realty Corporation, a Delaware corporation (the "Corporate General Partner"),
and Robert F. Gossett, Jr. (the "Individual General Partner") (collectively, the
"General Partners"). The limited partners of Registrant are hereinafter
collectively referred to as the "Limited Partners."

Registrant's business consists of owning and leasing to others the
properties described in Item 2 below. Registrant's properties are leveraged as
described below.

On March 26, 1986, Registrant commenced an offering (the "Offering") of
$80,000,000 of depositary units of limited partnership interest (the "Units").
Registrant terminated the Offering in September 1987, having issued 3,200,000
Units ($80,000,000) and received net proceeds from the Offering (after deduction
for organization and offering expenses of $5,948,103) aggregating $74,051,897.
Since the Offering, Registrant has invested aggregate funds in excess of
$100,000,000 (including $40,000,000 of financing proceeds) in acquiring and
improving its properties, which currently number seven.

Rental revenue from the following tenants at Registrant's properties each
accounted for more than 10% of Registrant's total rental revenue for each of the
years ended December 31, 1995, 1996 and 1997:

a. For 1995, GTE Directories Corporation ("GTE") as tenant for the
Directory Building (16%); The Austin Company ("Austin") as a tenant in the
Austin Place Building (16%); James River Corporation of Nevada, Inc.
("James River") as tenant in the James River Warehouse (16%); and Mesa
Operating Limited Partnership ("Mesa") as assignee of Tenneco Oil Company
("Tenneco"), the tenant under the original lease for the Marathon Oil
Building (20%).

b. For 1996 GTE as tenant for the Directory Building (25%); Austin as
a tenant in the Austin Place Building (29%); and James River as tenant in
the James River Warehouse (16%).

c. For 1997, GTE as tenant for the Directory Building (16%) and Austin
as a tenant in the Austin Place Building (10%).

In February 1997, Registrant sold the James River Warehouse. In March 1997,
it used the proceeds from such sale to purchase an office building in San
Antonio, Texas.

Fleet Bank Loan

Registrant's properties are subject to the lien of a first mortgage
line-of-credit loan (the "Loan") from Fleet Bank, National Association (the
"Bank"). On March 17, 1997, the terms of the Loan were amended to add the Alamo
Towers in San Antonio, Texas as a project securing the Loan (see "Alamo Towers"
below in this Item 1). As of March 19, 1998, the outstanding principal balance
of the Loan was $41,323,200.

The Loan is evidenced by a Secured Promissory Note, a Loan Agreement, an
Environmental Compliance and Indemnification Agreement, a First Amendment of
Loan Agreement and Note, and a Second Amendment of Loan Agreement (collectively,
the "Loan Agreements"). The Loan is secured by a first mortgage lien, an
assignment of rents, a security agreement, and a fixture filing on and from each
of Registrant's properties, including the improvements, equipment, furnishings,
proceeds, books and records, and all payments related thereto, which consists of
the following seven properties: the GE Medical Systems Office Building; the
Directory Building; the Austin Place Building; the Flatiron Building; the
Marathon Oil Building; 475 Fifth Avenue; and the Alamo Towers.

The Loan matures on September 24, 2000 and the Bank is not required to fund
any advances after September 30, 1999. The Loan required payment of a front-end
fee in an amount equal to one and one-half percent (1.5%) of the amount of the
total loan commitment, which amount aggregated $660,000. In addition, for each
six month period ending September 30 and March 31, Registrant must pay an unused
loan commitment fee equal to one-half percent (0.5%) of the difference between
the average maximum loan commitment for the period and the average outstanding
principal balance of the Loan for such period. In 1997, Registrant paid
approximately $8,269 in such fees.

The Loan bears interest on each advance of funds from the date of such
advance at the Bank's Peg Rate, plus one-half percent (0.5%) per annum or, if
Registrant so chooses, at the LIBOR rate (offered rates for Eurodollar deposits)
or other market rate offered to the Bank (any such rate, a "Fixed Rate"), plus
two percent (2.0%) per annum. The Peg Rate is the rate announced from time to
time by the Bank as a means of pricing some of its loans to customers (not
necessarily the lowest rate actually charged to any customer class or category).
Registrant may elect to pay interest based on a Fixed Rate on the whole or a
portion of the outstanding principal amount, upon notice to the Bank, but only
in amounts of at least $1,000,000 and in additional integral multiples of
$100,000. As of March 19, 1998, the Peg Rate was 9.0% (interest using this rate
would be at 9.5%) and the 180-day Fixed Rate was 5.69141% (interest using this
rate would be at 7.69141%). The aggregate outstanding balance of the Loan as of
March 19, 1998 bears interest at rates ranging from 7.84375% (on $41,320,000) to

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7.67188% (on $3,200), both of which reflect Registrant's election to base
interest on LIBOR rates.

The Loan requires monthly payments of interest plus principal payments
equal to 1/500th of the then outstanding principal balance. The Loan may be
prepaid at any time, on notice, in whole or in part (a minimum of $1,000,000 and
additional integral multiples of $100,000). Any such prepayment will be without
premium or penalty with respect to funds bearing interest based on the Peg Rate
or, if the prepayment is made on the last day of the applicable interest period,
with respect to funds bearing interest based on a Fixed Rate; however, a
prepayment at any other time of funds bearing interest based on a Fixed Rate
will require payment of a breakage fee, which guarantees the Bank a fixed rate
yield maintenance tied to United States Treasury obligations for the period from
the date of prepayment to the end of the applicable interest period. Amounts
repaid to the Bank may be reborrowed by Registrant provided, however, that
amounts repaid in monthly amortization payments and amounts repaid on account of
475 Fifth Avenue may not be reborrowed.

Any payments not received by the Bank within 10 days after the due date
will incur a late charge equal to four percent (4%) of the amount of such
payment. Overdue amounts, whether at maturity, by acceleration, or otherwise
will bear interest at a rate equal to four percent (4%) above the otherwise
applicable interest rate.

The Loan Agreements contain continuing covenants regarding Registrant's
financial condition and the conduct of its operations. Registrant's debt service
coverage ratio (the ratio of cash from operations to a constant loan
amortization payment) cannot be less than 1.40 to 1.0 and its loan to value
ratio (the ratio of the outstanding principal balance of the Loan to the
appraised value of its properties) cannot exceed fifty-five percent (55%). In
addition, Registrant must maintain a liquid net worth (cash, short-term
investments, and marketable securities) of at least $2,000,000. The Loan
Agreements also provide that Registrant may distribute to its partners up to 90%
of the sum of its operating net income plus depreciation and amortization.
Registrant must also obtain the Bank's consent, not to be unreasonably withheld
or delayed, to any lease of 10,000 or more rentable square feet (5,000 square
feet for 475 Fifth Avenue and Alamo Towers).

The Bank's mortgage lien against any of Registrant's properties will be
released only upon payment of an amount equal to 110% of the loan amount
allocated to such property. In addition, such lien will be released only if
Registrant's remaining properties satisfy the debt service coverage ratio and
loan to value ratio.

Upon the occurrence of an event of default under the Loan Agreements (which
includes the failure to make any payment within 10 days of the due date thereof
and a failure to comply with its financial covenants which continues for 60
days), the Bank may enforce one or more of its remedies, including the right to
(i)

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declare all principal and interest on the Loan to be due and payable
immediately, (ii) require any or all of Registrant's properties (including all
equipment, fixtures, agreements, and other rights and interests relating
thereto) to be sold at auction to the highest bidder, and (iii) collect any and
all rents from the properties.

Registrant has also agreed to indemnify and hold harmless the Bank and its
officers, directors, employees, agents, representatives, contractors and
subcontractors, and their respective successors and assigns from and against any
and all claims, liability, costs, and expenses arising out of the presence
and/or clean-up of hazardous materials on or affecting Registrant's properties.

James River Warehouse

On February 28, 1997, Registrant sold the land, buildings, and other
improvements commonly known as the James River Warehouse, and situated in
Woodland, California, to Pacific Gulf Properties, Inc., pursuant to the terms of
a Purchase and Sale Agreement dated as of February 5, 1997, as amended on
February 21, 1997. The James River Warehouse contains approximately 570,000 net
rentable square feet, is used for general warehousing, distribution, and office
purposes, and is net leased to James River Corporation of Nevada, Inc.

The sale price for the James River Warehouse was $12,875,000, exclusive of
closing costs and commissions aggregating approximately $225,313 which were paid
by Registrant. The purchase price was paid as follows: (i) the sum of
$300,000.00 was paid as an earnest money deposit prior to closing; (ii) the
amount of $131,998.00 was credited to the purchase price on account of deferred
maintenance required for the property; and (iii) the balance of $12,443,002.00
was paid at closing.

Registrant acquired the James River Warehouse in October 1987 for a
purchase price of approximately $14,551,456, inclusive of acquisition fees. At
the time of its sale, Registrant had a tax basis of approximately $11,500,000 in
this property and resulting gain for tax purposes of approximately $1,000,000.
For financial statement purposes, Registrant had a net basis of approximately
$11,560,000 and a gain of approximately $912,500. The net proceeds of the sale
of the James River Warehouse have been reinvested in the Alamo Towers property
described below.

Alamo Towers

On March 17, 1997, Registrant purchased the land, building and other
improvements commonly known as the Alamo Towers, and situated in San Antonio,
Texas, from St. Paul Properties, Inc. pursuant to the terms of a Purchase and
Sale Agreement dated as of January 28, 1997 and amended on February 19, 1997.
The Alamo Towers contains a multi-tenant office building comprised of
approximately 196,000 square feet. Registrant owns fee title to the Alamo
Towers, subject to the lien of the Loan.

4

The Alamo Towers is an office building consisting of two stand-alone
8-story towers with approximately 188,000 square feet of office space and 8,000
square feet of basement space. As of March 19, 1998, approximately 87% of the
rentable square footage of office space in the Alamo Towers was leased, at an
average current base rent of approximately $12.45 per square foot. Following is
a schedule of the expirations of such leases.

================================================================================
Avg. Current
Approximate Base Rent/
Expiration Square Feet % of Total Sq. Ft.
Year
- - --------------------------------------------------------------------------------
1998 22,692 12.5% $13.17
- - --------------------------------------------------------------------------------
1999 46,150 25.4% $12.61
- - --------------------------------------------------------------------------------
2000 28,139 15.5% $13.49
- - --------------------------------------------------------------------------------
2001 33,817 18.6% $12.23
- - --------------------------------------------------------------------------------
2002 21,047 11.6% $10.11
- - --------------------------------------------------------------------------------
2004 6,889 3.8% $13.00
================================================================================

In 1997, Registrant expended approximately $89,000 on the following capital
expenditures and deferred maintenance items: cooling tower replacement; elevator
safety upgrades; energy management system replacement; heating, ventilation, and
air conditioning repairs; emergency lighting repairs; and roof repairs. Over
time, Registrant anticipates installing sprinklers on all floors of the towers
at an estimated cost of $260,000 to $270,000, and refurbishing the lobby in each
tower. Registrant has expended approximately $121,200 in tenant improvements to
the Alamo Towers, including approximately $115,000 in 1997 and $6,200 to date in
1998.

The San Antonio office market includes approximately 19,270,000 aggregate
rentable square feet, of which approximately 10.6% is currently vacant. Asking
rents in this market now average $14.48 per square foot. The north-central San
Antonio market includes approximately 6,800,000 aggregate rentable square feet,
of which approximately 7.2% is vacant and for which asking rents average
approximately $15.84 per square foot. Class B buildings, including the Alamo
Towers, feature an approximate 7.7% vacancy rate and an average asking rental
rate of $14.87 per square foot.

The purchase price paid by Registrant for the Alamo Towers, excluding
capitalized closing and related costs, was $12,002,375. The purchase price was
paid as follows: (i) the sum of $200,000.00 was paid as a deposit prior to
closing; and (ii) the balance of $11,802,375.00 was paid at closing. The
purchase price was financed from proceeds of the sale of the James River
Warehouse, as described above.

5

The $12,044,883 purchase price, including capitalized closing and related
costs, for the Alamo Towers has been allocated $2,408,000 to the land and
$9,636,883 to the building and improvements.

Financing Policies

The General Partners expect to approximate Registrant's original intention
of a loan to value ratio of 50%. Accordingly, it is expected that Registrant's
total borrowings will approximate 50% of the sum of (i) the appraised values of
its five remaining original properties plus (ii) the purchase price of
additional properties acquired by Registrant. Registrant is not limited by its
Partnership Agreement as to borrowing for any individual property; the aggregate
borrowings on all properties may not exceed an amount equal to the sum of (x)
60% of the aggregate purchase price of all properties which are not refinanced
plus (y) 80% of the aggregate value of all refinanced properties. As of March
19, 1998, Registrant had a loan to value ratio of approximately 53%.

The Loan has enabled Registrant to acquire additional properties, but has
increased the risk of loss on its properties. Registrant may acquire additional
properties, the purchase of which would be funded out of the proceeds of sale of
one or more of Registrant's current properties. Registrant has no current
agreements to sell any of its existing properties. To be profitable,
Registrant's properties must generate cash flow in amounts sufficient to not
only cover operating expenses but also to pay all financing costs.

Registrant's objectives in making its investments continue to be to (i)
preserve and protect Registrant's capital; (ii) provide long term capital
appreciation, generating long term capital gains for federal income tax purposes
upon sale of the properties; (iii) build up equity through the reduction of
mortgage loans encumbering the properties; and (iv) provide cash distributions
from operations which may be partially tax-sheltered. There is no assurance that
these objectives will be achieved.

Competition

The Directory Building is fully leased to a single tenant on a net lease or
substantially equivalent basis and does not face competition from other
properties during the terms of such lease. The Flatiron Building is also
currently fully leased. However, upon termination of these and any other leases,
and for any of Registrant's other properties, Registrant does, and will continue
to, compete with other properties for tenants. Depending upon market conditions
and occupancy rates at the time and place of any vacancies in Registrant's
properties, there is currently and there may be, in the future, intense
competition in obtaining tenants to fill such vacancies. Furthermore, such
competition has resulted and may result, because of reduced rental rates and
required concessions to tenants, in decreases in the rental revenue received by
Registrant and capital outlays necessary to fund tenant

6

improvements. See Item 2 - "Properties" for a discussion of market conditions in
the areas in which Registrant currently competes for tenants.

Employees

Registrant currently employs 13 persons. The business of Registrant is
managed by the General Partners. See Item 10 - "Directors and Executive Officers
of the Registrant" and Item 13 - "Certain Relationships and Related
Transactions."

Item 2. Properties.

GE Medical Systems Office Building

On July 10, 1986, Registrant acquired the GE Medical Systems Office
Building, located in Monterey Park, California, for approximately $4,182,000,
inclusive of acquisition fees. Registrant owns fee title to the GE Building and
its 90,000 square feet of underlying land, subject to the lien of the Loan (See
Item 1. - "Business-Fleet Bank Loan"). The property was built in 1985 and
contains 20,250 net rentable square feet, of which approximately 60% is office
space and the remainder is warehouse space. The building contains an unusually
high percentage of office space for a mixed use property, but Registrant prefers
to avoid reconfiguring the space, both to avoid the construction cost and to
obtain the higher rent for office space.

General Electric Company ("GE") leases 10,600 square feet in the building,
on a net lease basis, until October 31, 2000. Annual net rent is $95,400 ($9.00
per square foot); GE also reimburses Registrant for its proportionate share of
operating expenses.

Effective August 1, 1997, Registrant leased the other 9,650 square feet
(approximately 55% of which is office space) to American Color Graphics, Inc.
for an initial five year term with a five year renewal option. Annual rent is
$48,078 ($9.00 per square foot for the office space only) until July 31, 1998
and $86,850 ($9.00 per square foot for all 9,650 square feet) from August 1,
1998 to February 29, 2000. The annual rent for the period from March 1, 2000 to
July 31, 2002 is $86,850, increased by the cumulative increase in the Consumer
Price Index from August 1, 1997 to March 1, 2000 (but not more than a three
percent increase). The tenant also reimburses Registrant for its proportionate
share of operating expenses. In 1997, Registrant became obligated to expend
approximately $75,000 in tenant improvements in connection with this lease.

Market conditions in the Monterey Park area have improved in recent years
after sharp declines from those prevailing at the time GE executed its initial
lease for the building. The vacancy rate for commercial properties in such area
approximates 20% for office buildings and 10% for industrial space. The GE
Building is situated next to a 200,000 square foot Public Storage facility
which, like the GE Building, consists of a front office with

7

warehouse space in the rear. Such facility is currently approximately 95%
occupied; rents approximate $8.64 per square foot. Rents approximate $21.00 per
square foot for office space, $6.00 per square foot for warehouse space, and
$12.00 per square foot for mixed office/warehouse space in this area.

The Directory Building (formerly, the IBM Building)

On October 27, 1986, Registrant acquired the Directory Building, located in
Las Colinas, Texas, for a purchase price of $24,580,375, inclusive of
acquisition fees. Registrant owns fee title to the Directory Building and its
6.67 acres of underlying land, subject to the lien of the Loan. The Directory
Building was built in 1982 and contains approximately 152,100 net rentable
square feet (reduced from 154,300 square feet during IBM's tenancy).

The building is 100% leased to GTE pursuant to a lease dated as of April
20, 1994, as subsequently amended by amendments dated as of July 29, 1994 and as
of February 22, 1995. The initial term of the lease expires on September 30,
2000, subject to a five-year renewal option at a rate equal to 95% of the then
market rate.

The amended lease requires approximate monthly rent of $173,800 through
September 30, 2000. GTE must also pay additional rent equal to excess electric
charges and operating expenses over base levels.

In 1997, Registrant expended approximately $128,000 on capital improvements
at the building, including installing a new airconditioning chiller. In
connection with the GTE lease, Registrant has expended approximately $2,628,000
for tenant improvements, none of which was in 1997.

The Las Colinas office market includes approximately 13,237,900 leasable
square feet, of which approximately 94% was leased as of December 31, 1997.
Weighted average rental rates for new leases at such properties range from
approximately $22.43 to $23.09 per square foot.

Austin Place Building

On December 30, 1986, Registrant acquired the Austin Place Building, a
two-wing office building located in South Plainfield, New Jersey, for a purchase
price of approximately $16,473,000, inclusive of acquisition fees. Registrant
owns fee title to the Austin Place Building and its underlying five acres of
land, subject to the lien of the Loan. The property was built in 1986 and
contains approximately 106,600 net rentable square feet for use as a
multi-tenant facility (reduced from 108,000 square feet as a single tenant
facility).

As of March 17, 1998, the property is approximately 83.8% leased, with
45,700 square feet leased to Austin (as discussed below) and the remaining
approximate 43,650 square feet at an

8

average current rent of approximately $18.45 per square foot. One of such leases
has been extended past expiration pending negotiation of an expansion
(approximately 4,100 square feet) and such other leases expire in December 2000
(approximately 17,900 square feet) and on May 31, 2007 (approximately 21,650
square feet). South Plainfield is included in the Route 287 submarket
(approximately 6,400,000 square feet of which 15% is vacant), the Somerset
County area (approximately 8,720,000 square feet, of which 6% is vacant), and
the Central New Jersey area (approximately 41,373,000 square feet, of which 11%
is vacant). Average rents for office space in such area approximate $18.00 to
$22.00 per square foot. Registrant has expended approximately $2,205,000 for
tenant improvements, all of which was incurred before 1997.

Austin's lease is for 45,700 square feet and expires on December 31, 2001.
It requires monthly rent payments of $92,009, adjusted to reflect consumer price
index changes. Austin's lease also requires it to pay Registrant an amount equal
to the operating costs of its allocable share of the property. Austin has
vacated its space but has continued to make its lease payments in full. Austin's
lease requires rent payments at a rate which is approximately 100% above the
rental rate otherwise obtainable for such space.

The James River Warehouse (formerly, the Crown Zellerbach Warehouse)

On February 28, 1997, Registrant sold the James River Warehouse (formerly,
the Crown Zellerbach Warehouse). See Item 1 - "Business-James River Warehouse."

Flatiron Building (formerly, the Cadnetix Building)

On January 5, 1988, Registrant acquired the Flatiron Building, located in
Flatiron Industrial Park, Boulder, Colorado, for $9,003,085, inclusive of
acquisition fees. Registrant owns fee title to the Flatiron Building and its 5
acres of underlying land, subject to the lien of the Loan. The property contains
approximately 96,070 net rentable square feet for use as a multi-tenant facility
(reduced from 102,000 square feet as a single tenant facility).

As of March 19, 1998, Registrant has rented all available space in the
building to various tenants pursuant to leases providing for an average current
rent of approximately $9.56 per square foot (exclusive of expenses). Such leases
expire in 1998 (approximately 69,015 square feet), in 2001 (approximately 10,820
square feet), and in 2002 (approximately 16,235 square feet).

On March 9, 1998, Integral Peripherals Inc., a tenant with an aggregate of
approximately 54,135 square feet of space (56.3%) in the Flatiron Building filed
for protection under Chapter 11 of the U.S. Bankruptcy Code. Such space is
leased pursuant to three separate leases, at rental rates ranging from $7.42 to
$9.84 per square foot, all of which expire on October 31, 1998, and one of

9

which (for approximately 22,315 square feet) has been the subject of early
termination negotiations. This tenant is current on its rent payments under
these leases. There is no assurance that the leases will be affirmed in the
bankruptcy proceeding. There is also no assurance that the early termination
agreement will be approved by the Bankruptcy Court. Such termination, and early
terminations of leases of two other tenants, would provide space for a new
prospective tenant which is negotiating a lease for approximately 33,000 square
feet. Depending upon the outcome of this tenant's bankruptcy proceeding and
Registrant's negotiations to lease its space for expiring tenancies, the
Flatiron Building may experience significant vacancies.

The Flatiron Building is zoned IG (Industrial General), which permits
office use by manufacturers and industrial users (including software
developers), but does not permit general office use by service providers such as
attorneys and accountants. Registrant does not believe that such classification
will adversely affect its ability to fully lease this building at market rates,
and such classification does not affect any existing tenants (other than
tenancies expiring in 1998 which are not being renewed).

Market conditions in the Boulder area remain favorable for owners of
commercial buildings. The market for the Boulder area contains approximately 7.0
million square feet of commercial space of which approximately 8.85% is vacant.
Average rents for office space in such area range from approximately $12.00 to
$16.00 per square foot, exclusive of expenses. Registrant has expended
approximately $455,000, none of which was in 1997, for tenant improvements for
the Flatiron Building.

Marathon Oil Building (formerly, the Tenneco Building)

On March 21, 1988, Registrant acquired the Marathon Oil Building (formerly,
the Tenneco Building), an office building located in Oklahoma City, Oklahoma,
for approximately $10,736,200, inclusive of acquisition fees. Registrant owns
fee title to the Marathon Oil Building with its 6.1 acres of underlying land,
subject to the lien of the Loan. The property contains 90,925 net rentable
square feet on two floors, plus a 10,016 square foot basement.

Marathon and its former affiliate, Koch Midstream Services Company
("Koch"), lease 62,625 square feet (including 4,344 in the basement) and 24,704
square feet (including 567 in the basement), respectively, in the building.
Marathon's lease expires in 2001, subject to two five-year renewal options;
Koch's lease also expires in 2001, but without any renewal option.

Annual rent under such leases is approximately $750,600 ($8.75 per square
foot, plus $6.00 per square foot for basement space). Marathon and Koch must
also pay additional rent equal to their proportionate share of any increases in
operating costs of the building after 1996. Registrant has funded tenant
improvements of

10

approximately $350,000 for Marathon and Koch, none of which was expended in
1997.

Registrant leased approximately an additional 5,600 square feet in the
building in January 1997 for a five-year term at a rent of $11.00 per square
foot. Registrant funded tenant improvements of approximately $74,000 in 1997 in
connection with this lease. The remaining space (approximately 3.2% of the
office space, plus approximately 51% of the basement) is vacant and Registrant
is seeking a tenant for such space; however, the space is difficult to rent and
would require significant tenant improvements.

Market conditions in the northwest section of Oklahoma City have continued
recent improvements from the declines experienced after Tenneco executed its
lease for the building. Such market contains approximately 4.85 million square
feet of commercial space of which approximately 6.5% is vacant. Average rents
for commercial space range from $8.00 to $18.00 per square foot, with a weighted
average rate of $12.06 per square foot.

475 Fifth Avenue

On December 6, 1996, Registrant purchased the land, building and other
improvements commonly known as 475 Fifth Avenue, and situated in New York, New
York, for $27,439,998, including capitalized closing and related costs. The
property contains a multi-tenant office building comprised of approximately
240,000 square feet and is located on the southeast corner of 41st Street and
Fifth Avenue in New York City; Registrant owns fee title to 475 Fifth Avenue,
subject to the lien of the Fleet Bank loan, described above.

475 Fifth Avenue is a 23-story office building with approximately 19,200
square feet of retail space on the first floor and basement, 215,700 square feet
of office space, and 5,000 square feet of basement storage space. As of March
17, 1998, approximately 85.3% of the rentable square footage in the building was
leased (including approximately 84.1% of the office space, 100% of the retail
space, and 80.1% of the basement space), at an average current base rent of
approximately $26.92 per square foot (approximately $23.33 per square foot of
office space and $60.75 per square foot of retail space). Following is a
schedule of the expirations of such leases.

11

================================================================================
Avg. Current
Expiration Approximate Base Rent/
Year Square Feet % of Total Sq. Ft.
- - --------------------------------------------------------------------------------
1998 11,949 5.1% $15.89
- - --------------------------------------------------------------------------------
1999 8,044 3.4% $15.84
- - --------------------------------------------------------------------------------
2000 9,308 4.0% $22.92
- - --------------------------------------------------------------------------------
2001 18,453 7.9% $28.13
- - --------------------------------------------------------------------------------
2002 1,296 0.6% $25.00
- - --------------------------------------------------------------------------------
2003 6,823 2.9% $25.93
- - --------------------------------------------------------------------------------
2004 40,110 17.1% $29.29
- - --------------------------------------------------------------------------------
2005 32,507 13.8% $34.22
- - --------------------------------------------------------------------------------
2006 16,144 6.9% $24.52
- - --------------------------------------------------------------------------------
2007 5,636 2.4% $26.15
- - --------------------------------------------------------------------------------
2008 47,399 20.2% $22.39
- - --------------------------------------------------------------------------------
2012 2,947 1.3% $84.68
================================================================================

Registrant's leases generally provide for a base rent, inclusive of an
electricity charge, plus additional rent in the form of operating expense and
real estate tax escalation factors. Registrant has commenced a capital
improvement program, designed to increase rental rates and the value of the
building, which includes the following: replacement of heating system risers
($400,000, completed in 1997 and early 1998) and radiators (estimated at
$1,100,000, of which approximately $265,000 has been expended); installing a
building-wide sprinkler system (estimated at $600,000 to $700,000 plus $10,000
to $35,000 for the distribution system on each floor); installing
airconditioning in the lobby (approximately $100,000 to $150,000); upgrading the
fire system and electrical closets on each floor (estimated at $300,000, of
which approximately $65,000 has been expended); and window replacement
(approximately $400,000, of which approximately $150,000 has been completed).
Certain of such improvements can only be made as tenancies expire and thus will
not be made for several years. These improvements have been, and are expected in
the future to be, funded from working capital and loan drawdowns and eventually
from anticipated increases in rental income.

475 Fifth Avenue is situated in the Grand Central district of the New York
City midtown market. Such district includes 79 buildings with approximately
34,200,000 aggregate rentable square feet, of which approximately 11.3% is
currently vacant. Asking rents in this district average approximately $33.30 per
square foot. The entire midtown market includes 361 buildings with

12

approximately 194,500,000 aggregate rentable square feet, an approximate 9.1%
vacancy rate, and average asking rents of approximately $35.86 per square foot.

Alamo Towers

On March 17, 1997, Registrant acquired the Alamo Towers in San Antonio,
Texas. See Item 1 - "Business-Alamo Towers."

Item 3. Legal Proceedings.

Registrant does not know of any material legal proceedings, other than
ordinary immaterial routine litigation incidental to its business, pending
against or involving Registrant or any of its properties.

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

There were no matters submitted to a vote of Limited Partners or
Unitholders and none were required to be submitted during the fourth quarter of
the fiscal year covered by this report through the solicitation of proxies or
otherwise.

13

PART II

Item 5. Market for Registrant's Securities and Related Security- Holder Matters.

The Units of Registrant are not traded in any established public trading
market. Because of certain provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), as described below, the General Partners have not applied
to include the Units for quotation or listing on any national or regional stock
exchange or any other established securities market.

Registrant has administered a Unit Repurchase Plan since 1995, pursuant to
which Registrant, in its discretion, has purchased outstanding Units. Any such
purchases are made at prices no higher than the lowest current independent offer
quotation. During 1997, Registrant repurchased 50,895 Units at a price of $10.75
per Unit. Registrant is limited by the terms of the Loan to an aggregate of
$3,000,000 in Unit repurchases. In addition, repurchases both divert funds
otherwise available for capital improvements and require a monthly reallocation
of Unitholders' interests. For these reasons, in February 1998 Registrant
suspended its Unit Repurchase Plan, electing to limit future repurchases, if
any, to the final one or two months of a calendar year. To provide an
alternative outlet for Unit sales, the General Partners or their affiliates may,
during any periods of suspension in Registrant's Unit Repurchase Plan, purchase
Units on the same terms and conditions as under the Unit Repurchase Plan.

Provisions found in Section 7704 of the Code have an adverse impact on
investors in a "publicly traded partnership" ("PTP"). A PTP is a partnership
whose interests are traded on an established securities market or readily
tradeable on a secondary market (or the substantial equivalent thereof). If
Registrant were classified as a PTP, (i) Registrant may be taxed as a
corporation or (ii) income derived from an investment in Registrant would be
treated as non-passive income.

The IRS has established alternative safe harbors that allow interests in a
partnership to be transferred or redeemed in certain circumstances without
causing the partnership to be characterized a PTP. Although the Units are not
listed or quoted for trading on an established securities market, it is possible
that transfers of Units could occur in a secondary market in sufficient amount
and frequency to cause Registrant to be treated as a PTP. To the extent that any
proposed transfer of Units in secondary market transactions would exceed a safe
harbor volume limitation, the proposed transfer will be restricted pursuant to a
policy adopted by Registrant. Such a restriction could impair the ability of an
investor to liquidate its investment quickly and thus, possibly prevent the
reclassification of Registrant as a corporation pursuant to Code Section 7704.
It is anticipated that Registrant's policy will remain in effect until such
time, if ever, as further clarification of Code Section 7704 permits Registrant
to lessen the scope of its policy.

14

The General Partners, if so authorized, will take such steps as are
necessary, if any, to prevent the reclassification of Registrant as a PTP.

As of March 30, 1998, there were 2,996 Unitholders of record.

The following represents per Unit cash distributions to investors for the
fiscal years ended December 31, 1997 and 1996.

Distribution
Quarter Ended Per Unit Payment Date
- - ------------- -------- ------------
December 31, 1997 $ 0.30 February 1998

September 30, 1997 $ 0.30 November 1997

June 30, 1997 $ 0.30 August 1997

March 31, 1997 $ 0.30 May 1997

December 31, 1996 $ 0.30 February 1997

September 30, 1996 $ 0.30 November 1996

June 30, 1996 $ 0.30 August 1996

March 31, 1996 $ 0.30 May 1996

There are no material legal restrictions upon Registrant's present or
future ability to make distributions in accordance with the provisions of
Registrant's Agreement of Limited Partnership, as amended through the date of
this report. However, the Loan Agreements limit distributions to 90% of the sum
of cash from operations, depreciation and amortization. See, however, Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of economic conditions affecting Registrant's
ability to make distributions in the future.

15

Item 6. Selected Financial Data.

Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
------------ ------------ ----------- ----------- -----------

Operating
Revenues $ 14,799,866 $ 9,142,369 $ 9,827,431 $ 8,957,620 $11,205,823

Net Income $ (420,892) $ 677,914 $ 2,008,688 $ 2,450,563 $ 5,060,250

Net Income
per Unit (1) $ (0.14) $ 0.22 $ 0.62 $ 0.76 $ 1.57

Total Assets $100,946,968 $102,983,279 $74,460,139 $76,388,992 $76,891,703

Long-Term
Obligations $ 41,578,800 $ 39,955,200 $ 7,800,000 $ 7,800,000 $ 7,800,000

Distributions
per Unit
(1)(2) $ 1.20 $ 1.20 $ 1.20 $ 1.00 $ 1.40

- - ----------
(1) Per Unit numbers are based on 3,200,000 Units for all years except 1997,
1996 and 1995, which use a weighted average number of Units of 3,022,594,
3,087,170 and 3,184,222, respectively.

(2) Each year's distributions include funds distributed after the end of the
year which are attributable to that year.

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

Liquidity and Capital Resources

At December 31, 1997, Registrant had cash and receivables of approximately
$1,334,000 as contrasted to accounts payable and accrued expenses of
approximately $1,986,000. Registrant measures its liquidity by its ability to
generate sufficient cash flow from operations to meet its current operating and
debt service requirements on a short-term and long-term basis. Registrant's
operations have provided this liquidity and are expected to continue to do so.
To the extent additional funds are required, the Loan provides a source of
additional capital.

Registrant has been investing capital in acquiring additional properties
and improving its existing and additional properties with a view to increasing
its revenues from real estate operations and ultimately realizing appreciation
in property values. Registrant's acquisition of 475 Fifth Avenue in New York,
New York

16

and Alamo Towers in San Antonio, Texas and its sale of the James River Warehouse
in Woodland, California demonstrate this policy. Capital resources have also
been employed since the beginning of 1997 to make the following capital
improvements: approximately $75,000 in tenant improvements in connection with a
new lease at the GE Medical Systems Office Building; approximately $128,000 for
capital improvements, including installing a new airconditioning chiller at the
Directory Building; approximately $74,000 in tenant improvements in connection
with a new lease at the Marathon Oil Building; approximately $880,000 in capital
improvements at 475 Fifth Avenue; and approximately $89,000 in capital
improvements and $121,200 in tenant improvements at Alamo Towers. Registrant may
also require capital to fund additional tenant improvements as tenancies turn
over at its properties as well as further capital improvements at 475 Fifth
Avenue (estimated at $2,445,000) and Alamo Towers (estimated at $260,000 to
$270,000). These additional capital improvements are expected to be made over
several years, as tenancies expire.

Integral Peripherals Inc., which leases approximately 56% of the Flatiron
Building, pursuant to leases expiring in October 1998, has filed for protection
under Chapter 11 of the U.S. Bankruptcy Code. To the extent all or a portion of
such space is unproductive for any length of time, Registrant will face an
additional capital demand. However, this tenant's rental payments constituted
only approximately three percent of Registrant's aggregate 1997 property
revenues, so any effect is expected to be limited.

To date, Registrant has funded its capital requirements from the Loan and,
previously, out of working capital and through reductions in distributions to
partners. Registrant's quarterly distribution to partners for each of the four
quarters of 1997 was $0.30 per Unit. Registrant intends to maintain this level
of distributions through 1998 and, if possible, thereafter. However, to the
extent Registrant's sources of capital are inadequate for its requirements,
Registrant may need to reduce or suspend distributions to partners, incur
additional indebtedness, and/or dispose of one or more of its properties.

The Loan has provided Registrant with available capital to acquire
properties, fund improvements and leasing commissions, repurchase outstanding
Units, and otherwise fund capital requirements. The cost of such financing
ultimately must be offset by increased property revenues or Registrant's
operations and capital will be compromised. Upon maturity of the Loan in 2000,
Registrant anticipates satisfying the Loan out of the proceeds of a refinancing
or a sale of assets.

Registrant has used working capital reserves provided from the net proceeds
of the Offering, loan proceeds, and any undistributed cash from operations as
its primary source of liquidity. Registrant generally intends to distribute its
distributable cash from operations to Unitholders. However, such distributions
are subject to suspension or reduction to meet capital requirements and

17

are also limited by the Loan Agreements to 90% of cash from operations plus
depreciation and amortization.

Results of Operations

1997 versus 1996

Rental revenues increased significantly (61.8%) from 1996 to 1997,
reflecting a full year's operations at 475 Fifth Avenue and the acquisition of
Alamo Towers, more than offsetting the sale of the James River Warehouse, plus
the leasing in 1997 of previously vacant space in the GE Medical Systems Office
Building and the Marathon Oil Building.

Interest expense in 1997 increased substantially (232.2%) from 1996,
reflecting a full year's expense of the Fleet Bank loan ($42,600,000 in
aggregate advances) as compared to the PNC Bank loan ($7,800,000 line of
credit). Depreciation increased in 1997 by 19.6% because of the excess of
property acquisitions (475 Fifth Avenue and Alamo Towers) over dispositions
(James River Warehouse) and because of capital improvements made at 475 Fifth
Avenue, Alamo Towers, and the Directory Building. Amortization increased by
53.6% from 1996 to 1997 primarily because of financing costs related to the
Fleet Bank loan. The net effect of the acquisition of 475 Fifth Avenue and Alamo
Towers as contrasted to the disposition of the James River Warehouse is
primarily responsible for the 136.4% increase in property operation expenses in
1997. Management fees increased by 78.3% in 1997 primarily due to property
management fees computed as a percentage of Registrant's increased rental
revenues. General and administrative expenses decreased by 7.6% primarily
because of the absence in 1997 of due diligence expenses incurred in 1996 in
investigating property acquisitions which were not ultimately consummated.

Registrant realized a net loss from real estate operations of $1,333,393 in
1997 as compared to net income of $677,914 in 1996. A $912,501 gain from the
sale of the James River Warehouse in 1997 reduced the net loss to $420,892.
After adjusting for non-cash items (principally depreciation and amortization),
operations generated cash flows of approximately $2,710,000 in 1997 and
$3,620,000 in 1996 (a 25.2% decrease). The $912,501 gain from the sale of the
James River Warehouse increased cash flows in 1997 to approximately $3,620,000,
the level achieved in 1996.

The net loss from real estate operations in 1997 is primarily attributable
to the inability of current operations at 475 Fifth Avenue and Alamo Towers to
offset the financing costs of the Loan. Registrant expects the combination of
its capital improvement program and rising market rental rates to restore its
real estate operations to profitability. Registrant initially concentrated its
capital improvement program on 475 Fifth Avenue, conditioning the building,
after tenant improvement construction and any rent concession periods, to
realize the benefits of rising market rental rates as it leases vacant space and
renews or replaces expiring

18

tenancies. Registrant intends to fully implement its capital improvement program
at Alamo Towers in 1998. Leasing its vacant space (approximately 16% of office
space at 475 Fifth Avenue and 13% of office space at Alamo Towers) will provide
additional rental revenues with little additional operating expenses.

1996 versus 1995

Rental revenues in 1996 decreased slightly (0.3%) from 1995 primarily as a
result of the expiration of Tenneco's original lease for the Marathon Oil
Building in February 1996 and the subsequent leasing of less than all of such
space to Marathon and Koch at lower rents. Other income dropped significantly
(94.2%) from 1995 to 1996, reflecting the receipt in 1995 of $227,000 of other
income attributable to Gypsum (a former tenant of the Austin Place Building) and
Registrant's receipt in 1995 of a large real estate tax refund attributable to
the Austin Place Building.

Interest expense in 1996 increased by 31.7% from 1995, primarily because of
the replacement of the PNC Bank loan with the greater amount of the Fleet Bank
loan. Depreciation increased by 5.3% because of additional tenant improvements
made by Registrant and the purchase in December 1996 of 475 Fifth Avenue.
Amortization increased by 44.6% in 1996 primarily due to financing costs
incurred in connection with the Fleet Bank loan. The acquisition of 475 Fifth
Avenue in December 1996 is largely responsible for the increase (9.4%) in
property operation expenses. Professional fees decreased in 1996 (61.8%) in
comparison to the increased level of due diligence investigations of possible
property acquisitions in 1995. General and administrative expenses increased by
53.8% in 1996 primarily due to significant due diligence expenses incurred by
Registrant in 1996 in investigating possible property acquisitions which were
not ultimately consummated.

Net income was $677,914 in 1996 as compared to $2,008,688 in 1995 (a 66.3%
decrease). After adjusting for non-cash items (principally deferred revenue,
depreciation, and amortization), operations generated cash flows of
approximately $3,620,000 in 1996 and $4,160,000 in 1995 (a 13.0% decrease).

Inflation

In the past, inflation has not had a material impact on Registrant's
operations or financial condition, as certain leases of Registrant's properties
provide for increases in rents based on changes in the consumer price index, and
other leases provide lease payments that escalate over time. Registrant's
properties with performing leases are protected by arrangements whereby the
tenants pay to Registrant an amount equal to all or a portion of the operating
costs of the properties, with Registrant's share of expenses, if any, subject to
a predetermined limit. These arrangements help to insulate Registrant from the
effects of any increases in operating costs. However, to the extent that there
is vacant space or nonperforming leases at any of the Registrant's

19

properties, Registrant lacks this protection against inflation, particularly
with regards to increased expenses that are not reimbursed.

Year 2000 Considerations

Registrant has determined that it will need to modify or replace portions
of its software so that its computer systems will function properly with respect
to dates in the year 2000 and beyond. Registrant also has initiated discussions
with its significant suppliers, large customers and financial institutions to
ensure that those parties have appropriate plans to remediate Year 2000 issues
where their systems interface with Registrant's systems or otherwise impact its
operations. Registrant is assessing the extent to which its operations are
vulnerable should those organizations fail to remediate properly their computer
systems.

Registrant is currently replacing its computer software system, which is
scheduled to be completed in early 1999. While Registrant believes its planning
efforts are adequate to address its Year 2000 concerns, there can be no
guarantee that the systems of other companies on which Registrant's systems and
operations rely will be converted on a timely basis and will not have a material
effect on Registrant. The cost of the Year 2000 initiatives is not expected to
be material to Registrant's results of operation or financial position.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Registrant does not invest in any market risk sensitive instruments, for
trading purposes or for other purposes.

Item 8. Financial Statements and Supplementary Data.

See list of Financial Statements and Financial Statement Schedules at page
F-2, filed as part of this report.

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

None.

20

PART III

Item 10. Directors and Executive Officers of the Registrant.

Registrant has no officers or directors. The General Partners manage and
control substantially all of Registrant's affairs and have general
responsibility and ultimate authority in all matters affecting Registrant's
business.

The Individual General Partner is Robert F. Gossett, Jr. The Corporate
General Partner is 1345 Realty Corporation. All of the outstanding capital stock
of 1345 Realty Corporation is owned by the Individual General Partner and his
wife.

The directors and executive officers of the Corporate General Partner
are as follows:

Officer/
Director
Name Age Position Since
---- --- -------- -----

Robert F. Gossett, Jr. 54 President, Treasurer
and Director 1994
Pauline G. Gossett 54 Secretary 1994

Information with respect to the Individual General Partner and with respect
to the above officers and directors is set forth below:

Robert F. Gossett, Jr., the Individual General Partner since 1985, is
Managing Director of Vance Capital Corporation (1981 to present), a real estate
management and finance company. Between 1978 and 1981, Mr. Gossett served as
Executive Vice President and Director of Loeb Capital Corporation. From 1974
until 1978, he was a Vice President of Oppenheimer Properties, Inc. and, between
1969 and 1974, was associated with the Investment Banking Division of Merrill,
Lynch, Pierce, Fenner & Smith, Inc. He received a B.A. degree from the
University of Texas, a J.D. degree from Georgetown University, and an M.B.A.
degree from the University of Pennsylvania. He is a member of the Texas Bar.

Pauline G. Gossett, the Secretary of the Corporate General Partner, is a
stockholder and Director of Vance Capital Corporation (1981 to present). Mrs.
Gossett received an Associate of Arts degree from Briarcliff College. Mrs.
Gossett is the wife of Robert F. Gossett, Jr.

21

Registrant employs the following employees who make significant
contributions to the business of Registrant:

Employee
Name Age Position Since
---- --- -------- -----

James N. Walsh 44 Property Manager 1997
John R. Anthis, Jr. 57 Property Manager 1997
Wallis J. Hoskins 44 Property Manager 1993
Madeline Matlak 32 Fund Administrator 1994

James N. Walsh is the Property Manager for 475 Fifth Avenue. Mr. Walsh has
been designated a Real Property Administrator (RPA) by the Building Owners and
Managers Association. From 1989 to 1997, he was a building manager, comptroller,
and leasing manager for 584 Operating Corp., the owner of an office building in
New York, New York which is similarly sized to 475 Fifth Avenue. Prior thereto,
Mr. Walsh served for four years as an assistant comptroller and construction
accountant for the residential division of Cadillac Fairview. He also acted for
four years as a project accountant for residential properties owned by Olympia &
York. Mr. Walsh received a B.B.A. degree in accounting from Iona College.

John R. Anthis, Jr. is the Property Manager for Alamo Towers. Mr. Anthis
has been designated a Real Property Administrator (RPA, 1983) by the Building
Owners and Managers Association (San Antonio BOMA Manager of the Year,
1986-1987) and a Certified Property Manager (CPM, 1988) and is a licensed real
estate broker in Texas. Mr. Anthis was a member of the Board of Directors of the
Texas State Building Owners and Managers Association (1978 to 1980 and 1982 to
1990; President 1988 to 1989), the San Antonio Building Owners and Managers
Association (1979 to 1982 and 1984 to 1986; President 1978 to 1979), and San
Antonio Institute of Real Estate Management (1992 to present; President in
1995). From 1995 to 1997, he was a sales representative and a branch manager for
Associated Building Services, a commercial real estate cleaning company in San
Antonio. Mr. Anthis was General Manager of Homart Development Co. from 1987 to
1994, managing a 200,000 square foot office building and parking garage. From
1975 to 1986, he was a Vice President for Bank Alamo (and its pre-merger
predecessor, San Antonio Bank & Trust Co.), managing office buildings and
parking garages. Mr. Anthis also served as a Manager for Koger Properties, Inc.
from 1973 to 1975, leasing a 14 building office park. Mr. Anthis served in the
U.S. Army from 1963 to 1969, earning the Bronze Star Medal-Meritorious Service.
He received a B.S. degree in Civil Engineering from Texas A&M University and an
M.B.A. degree in Management from Georgia State University.

22

Wallis J. Hoskins is the Property Manager for the Austin Place Building.
For the 20 years prior thereto he was employed by The Prudential Insurance
Company of America, from 1981 to 1992 as a facilities manager for company-owned
buildings and from 1973 to 1980 as a claims approver.

Madeline Matlak is the Fund Administrator of the Registrant. Mrs. Matlak
was formerly employed as a Fund Administrator in the Direct Investment
Department of Smith Barney, Inc. (1989 through 1994).

Based solely upon its review of copies of Forms 3 received by it during
1997, and written representations from reporting persons that no Forms 5 were
required for such persons for 1997, Registrant believes that all filing
requirements applicable to its General Partners and the directors and officers
of the Corporate General Partner pursuant to Section 16(a) of the Securities
Exchange Act of 1934, as amended, for 1997 and prior years were complied with on
a timely basis except as previously reported.

Item 11. Executive Compensation.

Registrant is not required to and did not pay remuneration to the officers
and directors of the Corporate General Partner. However, the General Partners
and/or their affiliates receive compensation for services performed for
Registrant.

Summary Compensation Table

Share of
Adjusted Cash Management Leasing Expense
Name Year from Operations Fees Commissions Reimbursement
- - ---- ---- --------------- ---- ----------- -------------

Corporate General
Partner 1997 $29,419 $806,602 -0- $ 48,298

Individual General
Partner 1997 $ 7,355 $201,650 -0- $ 12,074

Corporate General
Partner 1996 $30,071 $452,415 88,467 $132,829

Individual General
Partner 1996 $ 7,518 $113,104 22,117 $ 33,207

Corporate General
Partner 1995 $31,006 $445,625 $194,490 $106,714

Individual General
Partner 1995 $ 7,752 $111,406 $ 48,623 $ 26,679

See Item 13 - "Certain Relationships and Related Transactions" for a
discussion of the above compensation.

23

Item 12. Security Ownership of Certain Beneficial Owners and Management.

As of March 15, 1998 no person was known by Registrant to be the beneficial
owner of more than five percent (5%) of the outstanding Units of Registrant.

As of March 15, 1998, neither the Individual General Partner nor the
Corporate General Partner nor any of its directors or officers owned any Units
of Registrant.

Robert F. Gossett, Jr., the Individual General Partner and an officer and
director of the Corporate General Partner, and Pauline G. Gossett, an officer of
the Corporate General Partner, own all of the outstanding capital stock of the
Corporate General Partner.

Item 13. Certain Relationships and Related Transactions.

Registrant has and will continue to have certain relationships with the
General Partners and their affiliates as discussed below.

The General Partners received $36,774 ($29,419 to the Corporate General
Partner and $7,355 to the Individual General Partner) as their allocable share
(1%) of adjusted cash from operations with respect to the year ended December
31, 1997. For the year ended December 31, 1997, $4,209 (1%) of Registrant's net
loss was allocated to the General Partners ($3,367 to the Corporate General
Partner and $842 to the Individual General Partner).

The General Partners or their affiliates are also entitled to receive: a
partnership management fee for managing the affairs of Registrant, equal to 7%
of adjusted cash from operations less the asset management fee; an asset
management fee for managing Registrant's funds which are not invested in
properties, equal to 0.5% per annum of the average amount of outstanding funds
during each calendar month which are not otherwise invested in properties; and a
property management fee for property management services for Registrant's
properties, equal to the normal and competitive fees customarily charged by
unaffiliated parties rendering similar services in the same geographic area, not
to exceed 1% of the annual gross revenues for leases with terms of ten years or
more or 6% of the annual gross revenues for replacement leases. During the year
ended December 31, 1997, the General Partners earned and were paid an aggregate
of $1,008,252 of such management fees ($806,602 to the Corporate General Partner
and $201,650 to the Individual General Partner). At December 31, 1997 all of
such fees had been paid.

The General Partners are also entitled to receive leasing commissions in
connection with leasing, releasing or

24

leasing related services performed on behalf of the Registrant in connection
with the negotiation of tenant leases. Such fees are computed at a rate equal to
3% of the gross revenue for the first five years of each lease signed where the
General Partners performed such leasing services. During the year ended December
31, 1997, no such fees were paid to the General Partners.

During the year ended December 31, 1997, the General Partners were also
entitled to reimbursement for expenses incurred in connection with Registrant's
operations aggregating $60,372 ($48,298 to the Corporate General Partner and
$12,074 to the Individual General Partner).

25

PART IV

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

(a)(1), (2)See page F-2.
Sequential
Page
Number
----------
(a)(3) Exhibits:

3. Certificate of Limited
Partnership,
incorporated by
reference to Exhibit 4
to Registration
Statement No. 33-2258
(the "Registration
Statement").

4.(a) Amended and Restated
Agreement of Limited
Partnership dated as of
July 24, 1995,
incorporated by
reference to Exhibit 4
to Registrant's
Quarterly Report on
Form 10-Q for the
quarter ended September
30, 1995.

10.(a) Property Management
Agreement, incorporated by reference to
Exhibit 10B to the Registration
Statement.

(b) Lease for Los Angeles
District Sales and
Service Office,
Monterey Park,
California, dated as of
December 15, 1984
between James E. Pohrer
& Associates and
General Electric
Company, incorporated
by reference to Exhibit
10(e) to Form 8,
Amendment No. 1 to
Registrant's Current
Report on Form 8-K
Dated July 10, 1986.

26

Sequential
Page
Number
----------

(c) Lease Amendment dated
October 31, 1989 by and
between Registrant and
General Electric
Company, incorporated
by reference to Exhibit
10(c) to Registrant's
Report on Form 10-K for
the year ended December
31, 1989.

(d) Lease dated as of
December 30, 1986 by
and between Registrant
and Austin,
incorporated by
reference to Exhibit
10(b) to Registrant's
Current Report on Form
8-K Dated December 30,
1986.

(e) Management Agreement
dated January 5, 1988
by and between
Registrant and Colorado
Management Group,
incorporated by
reference to Exhibit
10(e) to Registrant's
Current Report on Form
8-K Dated January 5,
1988.

(f) Lease dated as of April 20,
1994 between Registrant and
GTE.1

(g) Amendment No. 1 to Lease dated
as of July 29, 1994 between
Registrant and GTE.1

- - ----------
1 Incorporated by reference to Exhibits 10(y), (z), and (aa) to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1994.

27

Sequential
Page
Number
----------

(h) Amendment No. 2 to Lease dated
as of February 22, 1995
between Registrant and GTE.1

(i) Secured Promissory Note dated September
26, 1996, made by Registrant.2

(j) Loan Agreement dated as of September 26,
1996 between Registrant and Fleet Bank,
N.A.2

(k) Environmental Compliance and
Indemnification Agreement dated
__________, 1996, made by Registrant.2

(l) First Amendment of Loan Agreement and
Note dated December __, 1996 between
Registrant and Fleet Bank, N.A..2

(m) Deed of Trust,
Assignment of Rents,
Security Agreement and
Fixture Filing dated
September 26, 1996,
made by Registrant with
respect to the GE
Medical Systems Office
Building.2

(n) First Amendment to Deed of Trust dated
December __, 1996, made by Registrant
with respect to the GE Medical Systems
Office Building.2

- - ----------
2 Incorporated by reference to Exhibits 10(i), (j), (k), (l), (m), (n),
(o), (p), (q), (r), (s), (t), (u), (v), (w), (x), (y), (z), (aa),
(bb), and (cc) to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996.

28

Sequential
Page
Number
----------

(o) Deed of Trust, Assignment of Rents,
Security Agreement and Fixture Filing
dated September 26, 1996, made by
Registrant with respect to the Flatiron
Building.2

(p) First Amendment to Deed of Trust dated
December __, 1996, made by Registrant
with respect to the Flatiron Building.2

(q) Mortgage, Assignment of
Leases and Rents and
Security Agreement
dated September 26,
1996, made by
Registrant with respect
to the Austin Place
Building.2

(r) First Amendment to
Mortgage dated December
__, 1996, made by
Registrant with respect
to the Austin Place
Building.2

(s) Mortgage, Assignment of
Leases and Rents and
Security Agreement
dated December __,
1996, made by
Registrant with respect
to 475 Fifth Avenue.2

(t) Mortgage, Assignment of
Leases and Rents,
Security Agreement and
Fixture Filing dated
September 26, 1996,
made by Registrant with
respect to the Marathon
Oil Building.2

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

29

Sequential
Page
Number
----------

(u) First Amendment to
Mortgage dated December
__, 1996, made by
Registrant with respect
to the Marathon Oil
Building.2

(v) Deed of Trust,
Assignment of Rents,
Security Agreement and
Fixture Filing dated
September 26, 1996,
made by Registrant with
respect to the
Directory Building.2

(w) First Amendment to Deed
of Trust dated December
__, 1996, made by
Registrant with respect
to the Directory
Building.2

(x) Sale Agreement dated as of November
13, 1996 between Metropolitan Life
Insurance Company and Registrant with
respect to 475 Fifth Avenue, including
as Exhibits:

(i) Bargain and Sale Deed;
(ii) Form of Assignment of Leases;
(iii) Form of Assignment of Contracts.2

(y) Purchase and Sale Agreement dated as of
February 5, 1997 between Registrant and
Pacific Gulf Properties Inc. with respect to
the James River Warehouse, including as
Exhibits:

(i) Assignment and Assumption Agreement;
(ii) Form of Deed.2

(z) First Amendment to Purchase and Sale
Agreement dated February 21, 1997 with
respect to the James River Warehouse.2

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

30

(aa) Purchase and Sale Agreement dated as of
January 28, 1997 between St. Paul Properties,
Inc. and Registrant with respect to the Alamo
Towers, including as Exhibits:

(i) Bill of Sale;
(ii) Assignment and Assumption Agreement;
(iii) Form of Deed.2

(bb) First Amendment to Purchase and Sale
Agreement dated February 19, 1997 with
respect to the Alamo Towers.2

(cc) Second Amendment of Loan Agreement
dated March 17, 1997 among Fleet Bank,
First American Bank Texas SSB, and
Registrant.2

27. Financial Data Schedule.

(b) Reports on Form 8-K: No reports on Form 8-K were
filed during the last quarter of the period covered
by this report.

31

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.

CORPORATE REALTY INCOME FUND I, L.P.
(Registrant)

By: 1345 REALTY CORPORATION
as Corporate General Partner

Dated: March 30, 1998 By: /s/ Robert F. Gossett, Jr.
----------------------------------
ROBERT F. GOSSETT, JR.,
President

Dated: March 30, 1998 By: /s/ Robert F. Gossett, Jr.
----------------------------------
ROBERT F. GOSSETT, JR.
Individual General Partner

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 (with respect to the Corporate General Partner)
and on the dates indicated.

1345 REALTY CORPORATION

Dated: March 30, 1998 By: /s/ Robert F. Gossett, Jr.
----------------------------------
Robert F. Gossett, Jr.
President, Director

Dated: March 30, 1998 By: /s/ Pauline G. Gossett
----------------------------------
Pauline G. Gossett
Secretary

Corporate Realty Income Fund I, L.P.

List of Financial Statements and Financial Statement Schedules

The following financial statements of Corporate Realty Income Fund I, L.P. are
included in Item 8:

Report of Independent Auditors - Ernst & Young LLP.....................................................F-3
Report of Independent Auditors - KPMG Peat Marwick LLP.................................................F-4

Financial Statements

Balance Sheets as of December 31, 1997 and 1996........................................................F-5
Statements of Operations for the years ended December 31, 1997, 1996 and 1995..........................F-6
Statements of Changes in Partners' Capital for the years ended
December 31, 1997, 1996 and 1995......................................................................F-7
Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995..........................F-8
Notes to Financial Statements..........................................................................F-9
Schedule III - Real Estate and Accumulated Depreciation...............................................F-20

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted since
(1) the information required is disclosed in the financial statements and notes
thereto; (2) the schedules are not required under the related instructions; or
(3) the schedules are inapplicable.

Report of Independent Auditors

To the Partners of
Corporate Realty Income Fund I, L.P.

We have audited the accompanying balance sheet of Corporate Realty Income Fund
I, L.P. (a Delaware limited partnership) as of December 31, 1997 and the related
statements of operations, changes in partners' capital and cash flows for the
year then ended. We also have audited the financial statement schedule listed on
the Index at Item 14 (a). These financial statements and the financial statement
schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Corporate Realty Income Fund I,
L.P. as of December 31, 1997 and the results of its operations and its cash
flows for the year ended December 31, 1997, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

/s/ Ernst & Young LLP

New York, New York
January 30, 1998

F-3

Independent Auditors' Report

The Partners
Corporate Realty Income Fund I, L.P.:

We have audited the financial statements of Corporate Realty Income Fund I, L.P.
(a Delaware limited partnership) as listed in the accompanying index insofar as
they relate to December 31, 1996 and each of the years in the two-year period
ended December 31, 1996. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements 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 assurances about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Corporate Realty Income Fund I,
L.P. as of December 31, 1996 and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.

/s/ KPMG Peat Marwick LLP

KPMG Peat Marwick LLP

New York, New York
February 5, 1997

F-4

Corporate Realty Income Fund I, L.P.
(A Delaware Limited Partnership)

Balance Sheets

December 31,
1997 1996
------------------------------------

Assets
Real estate, at cost:
Land $ 19,875,846 $ 19,086,425
Buildings and improvements 92,162,859 93,885,121
Equipment and furniture 78,029 --
------------------------------------
112,116,734 112,971,546
Less accumulated depreciation 18,592,878 18,553,069
------------------------------------
93,523,856 94,418,477
Cash and cash equivalents at cost, which approximates market value 855,840 2,025,925
Accounts receivable 478,380 431,889
Due from general partners 158,248 99,797
Note receivable 2,628 10,312
Deferred rent receivable 2,955,384 2,945,163
Deferred financing costs, net of accumulated amortization of
$507,542 in 1997 and $180,636 in 1996 1,015,084 1,395,740
Lease commissions, net of accumulated amortization of
$1,866,901 in 1997 and $1,400,260 in 1996 1,844,392 1,545,245
Deposits and other assets 113,156 110,731
------------------------------------
Total assets $ 100,946,968 $ 102,983,279
====================================

Liabilities and partners' capital
Accounts payable and accrued expenses $ 1,986,273 $ 1,198,537
Mortgage loan payable 41,578,800 39,955,200
Other liabilities 1,141,712 943,966
------------------------------------
Total liabilities 44,706,785 42,097,703
Commitments and contingencies
Partners' capital:
General partners:
Capital contributions 1,000 1,000
Net income 375,926 380,135
Cash distributions (530,944) (494,170)
------------------------------------
(154,018) (113,035)
------------------------------------
Limited partners: ($25 per unit; 4,000,000 units authorized,
2,992,211 and 3,043,106 issued and outstanding in 1997 and
1996, respectively):
Capital contributions, net of offering costs 71,818,166 72,365,286
Net income 37,216,567 37,633,250
Cash distributions (52,640,532) (48,999,925)
------------------------------------
56,394,201 60,998,611
------------------------------------
Total partners' capital 56,240,183 60,885,576
------------------------------------
Total liabilities and partners' capital $ 100,946,968 $ 102,983,279
====================================

See accompanying notes.

F-5

Corporate Realty Income Fund I, L.P.
(A Delaware Limited Partnership)

Statements of Operations

For the year ended December 31,
1997 1996 1995
-------------------------------------------------------

Revenue:
Rental $ 14,726,541 $ 9,101,611 $ 9,127,768
Interest and other income 73,325 40,758 699,663
-------------------------------------------------------
14,799,866 9,142,369 9,827,431
-------------------------------------------------------
Expenses:
Interest 3,207,254 965,540 733,005
Depreciation 3,084,463 2,578,638 2,448,270
Amortization 847,297 551,760 381,533
Property operations 7,321,229 3,097,440 2,831,459
Management fees 1,008,252 565,519 557,031
Professional fees 204,301 207,379 543,573
General and administrative 460,463 498,179 323,872
-------------------------------------------------------
16,133,259 8,464,455 7,818,743
-------------------------------------------------------

(Loss) income from real estate operations (1,333,393) 677,914 2,008,688
Gain on sale of real estate 912,501 -- --
-------------------------------------------------------
Net (loss) income $ (420,892) $ 677,914 $ 2,008,688
=======================================================

Net loss (income) allocated:
General partners (4,209) 6,779 20,087
Limited partners (416,683) 671,135 1,988,601
-------------------------------------------------------
$ (420,892) $ 677,914 $ 2,008,688
=======================================================

Net (loss) income per unit of limited partnership
interest $ (0.14) $ 0.22 $ 0.62
=======================================================

See accompanying notes.

F-6

Corporate Realty Income Fund I, L.P.
(A Delaware Limited Partnership)

Statements of Changes in Partners' Capital

General Limited
Total Partners Partners
-----------------------------------------------------------

Partners' capital (deficit) at
December 31, 1994 $ 67,520,256 $ (63,556) $ 67,583,812
Redemption of units (775,247) -- (775,247)
Cash distributions to partners (3,875,748) (38,756) (3,836,992)
Net income 2,008,688 20,087 1,988,601
-----------------------------------------------------------
Partners' capital (deficit) at
December 31, 1995 64,877,949 (82,225) 64,960,174
Redemption of units (911,364) -- (911,364)
Cash distributions to partners (3,758,923) (37,589) (3,721,334)
Net income 677,914 6,779 671,135
-----------------------------------------------------------
Partners' capital (deficit) at
December 31, 1996 60,885,576 (113,035) 60,998,611
Redemption of units (547,120) -- (547,120)
Cash distributions to partners (3,677,381) (36,774) (3,640,607)
Net loss (420,892) (4,209) (416,683)
-----------------------------------------------------------
Partners' capital (deficit) at
December 31, 1997 $ 56,240,183 $(154,018) $ 56,394,201
===========================================================

See accompanying notes.

F-7

Corporate Realty Income Fund I, L.P.
(A Delaware Limited Partnership)

Statements of Cash Flows

For the year ended December 31,
1997 1996 1995
--------------------------------------------------------

Operating activities
Net (loss) income $ (420,892) $ 677,914 $ 2,008,688
--------------------------------------------------------
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 3,931,760 3,130,398 2,829,803
Gain on sale of marketable securities -- -- (27,682)
Gain on sale of real estate (912,501) -- --
Increase in deferred rent receivable (10,221) (160,361) (543,871)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (46,491) 5,302 (391,910)
Increase in due from general partners (58,451) (55,009) (116,673)
Decrease in note receivable 7,684 7,382 7,093
Increase in deposits -- (38,600) --
Increase in leasing commissions (765,788) (310,302) (403,296)
(Increase) decrease in other assets (2,425) 2,635 12,139
Increase (decrease) in accounts payable and
accrued expenses 787,736 (258,492) 757,925
Increase in other liabilities 197,746 618,805 27,414
--------------------------------------------------------
Total adjustments 3,129,049 2,941,758 2,150,942
--------------------------------------------------------
Net cash provided by operating activities 2,708,157 3,619,672 4,159,630
--------------------------------------------------------
Investing activities
Proceeds from sale of marketable securities -- -- 128,579
Proceeds from sale of real estate 12,475,923 -- --
Acquisition of real estate (13,753,264) (27,928,966) (502,504)
--------------------------------------------------------
Net cash (used in) investing activities (1,277,341) (27,928,966) (373,925)
--------------------------------------------------------
Financing activities
Deferred financing costs -- (1,547,126) (29,250)
Proceeds from mortgage loan payable 2,600,000 42,000,000 --
Repayments of mortgage loan payable (976,400) (9,844,800) --
Redemption of units (547,120) (911,364) (775,247)
Cash distributions to partners (3,677,381) (3,758,923) (3,875,748)
--------------------------------------------------------
Net cash (used in) provided by financing activities (2,600,901) 25,937,787 (4,680,245)
--------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (1,170,085) 1,628,493 (894,540)
Cash and cash equivalents at beginning of
year 2,025,925 397,432 1,291,972
--------------------------------------------------------
Cash and cash equivalents at end of year $ 855,840 $ 2,025,925 $ 397,432
========================================================

See accompanying notes.

F-8

Corporate Realty Income Fund I, L.P.
(A Delaware Limited Partnership)

Notes to Financial Statements

December 31, 1997

1. Organization

Corporate Realty Income Fund I, L.P. (the "Partnership") was formed as a limited
partnership on November 25, 1985 under the laws of the State of Delaware. The
Partnership was formed for the purpose of acquiring and owning income-producing
commercial and industrial real estate properties for lease to others. The
Partnership will terminate on December 31, 2010 or sooner, in accordance with
the Partnership Agreement.

The general partners of the Partnership are 1345 Realty Corporation, the
corporate general partner, and Robert F. Gossett, Jr., the individual general
partner.

On November 30, 1994, all of the outstanding capital stock of the corporate
general partner was acquired by the individual general partner in a transaction
which was effective as of July 1, 1994. As a result of this acquisition, the
entire interest of the general partners is controlled by the individual general
partner.

The initial capital was $1,025 representing capital contributions of $1,000 by
the general partners and $25 by the original limited partner. The Partnership
commenced operations on June 2, 1986 with the acceptance of subscriptions for
1,082,640 Depositary Units of limited partnership interest (the "Units"). The
Partnership has authorized the issuance of up to 4,000,000 Units. The
Partnership sold 3,200,000 Units, representing $80,000,000, which completed the
offering. Upon the first admittance of the additional limited partners and
unitholders, the original limited partner withdrew from the Partnership.

Offering costs incurred in connection with the initial offering are
nonamortizable and have been deducted from limited partners' capital.

During 1997 and 1996, 50,895 and 84,778 units, respectively, were redeemed from
unitholders and canceled.

F-9

Corporate Realty Income Fund I, L.P.
(A Delaware Limited Partnership)

Notes to Financial Statements (continued)

2. Significant Accounting Policies

Depreciation

Depreciation of buildings for financial reporting purposes is computed under the
straight-line method over an estimated economic useful life of forty years.
Depreciation of buildings for tax purposes is determined in accordance with the
Accelerated Cost Recovery System.

Deferred Financing Costs

Deferred financing costs are being amortized using the straight-line method over
the term of the loan agreement.

Deferred Rent

Rental income is recognized on the straight-line basis over the entire term of
the lease including rent-free periods. Accordingly, rental income for the years
ended December 31, 1997, 1996 and 1995, includes approximately $169,154,
$160,361 and $543,871, respectively, of the excess of income on the
straight-line basis over the actual amount billed. During 1997, upon the sale of
the James River Building, deferred rent receivable of approximately $158,933 was
written-off.

Income Taxes

No provision for income taxes has been made since all items of income or losses
and tax benefits are passed through to the individual partners. At December 31,
1997 and 1996, the net difference between the tax bases and the reported amounts
of assets and liabilities was $13,839,658 and $14,367,316, respectively.

Cash Equivalents

The Partnership considers all highly liquid financial instruments with a
maturity of three months or less when purchased to be cash equivalents. Cash
equivalents, which consist principally of money market funds, are carried at
cost which approximates market value.

F-10

Corporate Realty Income Fund I, L.P.
(A Delaware Limited Partnership)

Notes to Financial Statements (continued)

2. Significant Accounting Policies (continued)

Fair Value of Financial Instruments

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," defines
fair value of a financial instrument as the amount at which the instrument could
be exchanged in a current transaction between willing parties. The Partnership's
accounts receivable and note receivable, deposits, accounts payable and accrued
expenses, interest payable and mortgage loan payable are carried at cost, which
approximates fair value.

Adoption of Recently Issued Accounting Standards

The Partnership adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of the Partnership's assets, which are held for use,
are measured by a comparison of the carrying amount of an asset to future net
cash flow expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by which the
carrying amount of the assets exceeds the fair value. Assets to be disposed of
are reported at the lower of carrying amount or fair value less costs to sell.
No impairment losses were required on any of the properties owned by the
Partnership.

Use of Estimates

The general partners have made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent assets
and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.

Recently Issued Accounting Pronouncements

Statement of Financial Accounting Standards No. 131 "Disclosure about Segments
of an Enterprise and Related Information", ("Statement 131") is effective for
financial statements issued for periods beginning after December 15, 1997.
Statement 131 requires disclosures about segments of an enterprise and related
information regarding the

F-11

Corporate Realty Income Fund I, L.P.
(A Delaware Limited Partnership)

Notes to Financial Statements (continued)

2. Significant Accounting Policies (continued)

Recently Issued Accounting Pronouncements (continued)

different types of business activities in which an enterprise engages and the
different economic environments in which it operates.

The Partnership does not believe that the implementation of Statement 131 will
have a material impact on its financial statements.

3. Partnership Agreement

The Partnership Agreement provides that profits, losses and distributions shall
be allocated 99% to the limited partners and 1% to the general partners.

Sale or refinancing proceeds will generally be distributed 99% to the limited
partners and 1% to the general partners until the limited partners have received
an amount which, when added to all prior distributions of cash, will equal their
original invested capital plus an 8% per annum cumulative noncompounded return.
Thereafter, after payment of the subordinated disposition fee, proceeds will be
distributed 75% to the limited partners and 25% to the general partners.

The Partnership Agreement further provides that net income shall be allocated to
each calendar month of the year and shall be apportioned on a monthly basis to
the holders of interests in the ratio in which the number of interests owned by
each limited partner or unitholder on the first day of the month bears to the
total number of interests owned by the limited partners and unitholders as of
that date.

The amount of net income per limited partnership unit was calculated using the
weighted average number of units outstanding of 3,022,492, 3,087,170 and
3,184,222 in 1997, 1996 and 1995, respectively.

F-12

Corporate Realty Income Fund I, L.P.
(A Delaware Limited Partnership)

Notes to Financial Statements (continued)

4. Investments in Real Estate

GE Medical Systems Office Building

On July 10, 1986, the Partnership purchased the GE Medical Systems Office
Building, an office building located in Monterey Park, California, and the
90,000 square feet of underlying land. The property contains approximately
20,250 square feet of net rentable area.

The terms of the agreement with the seller provided for a purchase price,
including acquisition fees, of $4,182,000.

The building was fully leased to GE through October 21, 1995. In October 1995,
GE renewed its lease with respect to 52% of the rentable area of the building
for a term which expires in October 2000. The remaining 48% of the building is
leased to American Color Graphics, Inc. for a term which expires in July 2002.

The Directory Building

On October 27, 1986, the Partnership purchased the Directory Building (formerly
the IBM Building), an office building located in Las Colinas, Texas, and the
6.67 acres of underlying land. The property contains approximately 152,100
square feet of net rentable area.

The terms of the agreement with the seller provided for a purchase price,
including acquisition fees, of $24,580,375.

As of December 31, 1997, the building was 100% leased to GTE Directories
Corporation for a term which expires on September 30, 2000. Rent from the tenant
represented 16% and 25% of the Partnership's total rental revenue in 1997 and
1996, respectively.

Austin Place Building

On December 30, 1986, the Partnership purchased the Austin Place Building, an
office building located in South Plainfield, New Jersey, and the five acres of
underlying land. The property contains approximately 106,600 square feet of net
rentable area.

F-13

Corporate Realty Income Fund I, L.P.
(A Delaware Limited Partnership)

Notes to Financial Statements (continued)

4. Investments in Real Estate (continued)

Austin Place Building (continued)

The terms of the agreement with the seller provided for a purchase price,
including acquisition fees, of $16,473,000.

As of December 31, 1997, the building was 100% leased to various tenants under
leases with terms ranging from four to fifteen years.

Rent from one of the tenants, The Austin Company, represented 10% and 29% of the
Partnership's total rental revenue in 1997 and 1996, respectively.

James River Building

On October 16, 1987, the Partnership purchased the James River Building
(formerly the Crown Zellerbach building) located in Woodland, California (a
suburb of Sacramento), and the 21 acres of underlying land. The building
contains approximately 570,000 square feet of net rentable area.

The terms of the agreement with the seller provided for a purchase price,
including acquisition fees, of $14,551,456. The building was net leased to James
River Corporation of Nevada, Inc. for a term which expires in January, 2002. On
February 28, 1997, the land and building were sold to an unrelated party for
$12,875,000.

Rent from the tenant, James River Corporation of Nevada, Inc., represented 16%
of the Partnership's total rental revenue in 1996.

Flatiron Building

On January 5, 1988, the Partnership purchased the Flatiron Building (formerly
the Cadnetix Building) located in Boulder, Colorado, and the five acres of
underlying land. The building contains approximately 96,000 square feet of net
rentable area.

The terms of the agreement with the seller provided for a purchase price,
including acquisition fees, of $9,003,085.

F-14

Corporate Realty Income Fund I, L.P.
(A Delaware Limited Partnership)

Notes to Financial Statements (continued)

4. Investments in Real Estate (continued)

Flatiron Building (continued)

As of December 31, 1997, the building was 100% leased to various tenants under
leases with terms ranging from three to five years.

Marathon Oil Building

On March 21, 1988, the Partnership purchased the Marathon Oil Building (formerly
the Tenneco Oil Building) located in Oklahoma City, Oklahoma, and the 6.1 acres
of underlying land. The building contains approximately 90,925 net rentable
square feet plus a 10,016 square foot basement.

The terms of the agreement with the seller provided for a purchase price,
including acquisition fees, of $10,736,200.

As of December 31, 1997, the building was 93% leased to various tenants. The
Marathon Oil Company ("Marathon") leases 62,600 square feet of space pursuant to
five-year lease which expires in February, 2001, and a two-year lease with a
former affiliate of Marathon with respect to 24,700 square feet of space which
expires in February 2001. Approximately 5,600 square feet of remaining space is
leased to another tenant for a term of five years.

475 Fifth Avenue

On December 6, 1996 the Partnership purchased an office building and the
underlying land located at 475 Fifth Avenue, New York, New York. The building
contains approximately 240,000 net rentable square feet.

The terms of the agreement with the seller provided for a purchase price,
including acquisition fees of $27,439,998.

As of December 31, 1997, the building was 85% leased to various tenants under
operating leases with remaining terms ranging from one to eleven years.

F-15

Corporate Realty Income Fund I, L.P.
(A Delaware Limited Partnership)

Notes to Financial Statements (continued)

4. Investments in Real Estate (continued)

Alamo Towers

On March 17, 1997, the Partnership purchased an office building and the
underlying land located in San Antonio, Texas, for a purchase price, excluding
capitalized closing and related costs, of $12,002,375. The building contains
approximately 196,000 net rentable square feet.

As of December 31, 1997, the building was 80% leased to various tenants under
operating leases with remaining terms ranging from one to seven years.

5. Leases

Minimum future rentals from tenants under noncancellable operating leases as of
December 31, 1997 are approximately as follows:

Year ending December 31:

1998 $12,012,000
1999 11,229,000
2000 10,213,000
2001 7,264,000
2002 5,137,000
Thereafter 15,494,000
-----------
Total $61,349,000
===========

In addition to the minimum lease amounts, the leases provide for escalation
charges to the tenants for operating expenses, electric and real estate taxes.
For the years ended December 31, 1997, 1996, and 1995, escalation charges
amounting to approximately $2,735,000, $1,765,000, and $1,735,000, respectively,
have been included in rental income.

F-16

Corporate Realty Income Fund I, L.P.
(A Delaware Limited Partnership)

Notes to Financial Statements (continued)

6. Transactions With General Partners and Affiliates

The general partners or their affiliates receive a property management fee equal
to either 1% for a long-term net lease or 6% for other types of leases on the
gross revenue from the property, and a partnership management fee equal to 7% of
adjusted cash from operations, as defined, and reimbursement of administrative
expenses. The general partners also receive leasing commissions in connection
with leasing, re-leasing or leasing related services performed on behalf of the
Partnership in connection with the negotiation of tenant leases. Such
commissions are computed at a rate equal to 3% of the gross revenues for the
first five years of each lease signed where the general partners have performed
such leasing services.

Following is a summary of the fees earned and reimbursable expenses for the
years ended December 31, 1997, 1996 and 1995:

1997 1996 1995
------------------------------------
Partnership management fees $257,664 $263,577 $271,302
Property management fees 750,588 301,942 285,729
Administrative expenses 60,372 166,036 133,393

During 1996 and 1995, leasing commissions of $110,584 and $243,113, respectively
were billed to the Partnership by the general partners and recorded by the
Partnership as deferred leasing commissions on the accompanying balance sheet.
There were no leasing commissions billed by the general partner in 1997.

7. Loan Payable

In March 1996, the Partnership extended the $7,800,000 line of credit from PNC
Bank, N.A. (the "Lender") for an additional six-month period which ended on
September 30, 1996. In connection with this extension, the structure of the
indebtedness was changed from a term loan to a secured revolving line of credit.
Interest only was payable monthly on the first day of each calendar month with
all unpaid interest and outstanding principal due on September 30, 1996. In
connection with the extension of the loan, the Partnership paid fees of $24,500.
The loan was secured by a deed of trust given with respect to the Directory,
James River, Austin Place and GE properties. In September 1996, this loan was
repaid with the proceeds of a new line of credit obtained from Fleet Bank.

F-17

Corporate Realty Income Fund I, L.P.
(A Delaware Limited Partnership)

Notes to Financial Statements (continued)

7. Loan Payable (continued)

On September 26, 1996, the Partnership entered into a loan agreement (the
"Mortgage") with Fleet Bank, N.A. The purpose of the Mortgage was to refinance
the existing indebtedness to PNC Bank, to provide working capital for tenant
improvements and leasing commissions with respect to the properties owned by the
Partnership, and to provide funds for the acquisition of additional properties.

The terms of the Mortgage, as amended, provide for a term of four years and
maximum gross borrowings of $44,000,000. Borrowings under the Mortgage bear
interest monthly at a rate, selected at the option of the Partnership at the
time of the associated borrowing, based on (I) the lender's Peg Rate (as defined
in the loan agreement) plus .50% or (ii) the applicable LIBOR rate or other
market rate offered to the bank plus 2%. The Mortgage requires monthly
amortization of principal in an amount equal to 1/500th of the outstanding
principal amount of the Mortgage on the first day of the applicable month with a
final payment of the then outstanding balance at maturity. The Mortgage may be
prepaid at any time. Borrowings under the Mortgage are secured by all of the
properties of the Partnership. Upon the sale of any property, the Partnership is
required to repay principal on the total indebtedness under the Mortgage in an
amount equal to 110% of that portion of outstanding balance of the loan
attributable to the sold property, as defined in the Mortgage agreement. The
Mortgage requires the Partnership to comply with certain covenants, including
but not limited to, maintenance of certain financial ratios. In addition the
Mortgage provides that the Partnership may distribute to its partners up to 90%
of the sum of its operating net income plus depreciation and amortization.

Through December 31, 1997, the Partnership had borrowed $42,600,000 under the
Mortgage, of which $41,578,800 was outstanding at December 31, 1997 at varying
interest rates, (7.97% at December 31, 1997).

In connection with the Mortgage, the Partnership incurred fees and expenses of
$1,522,626, which have been capitalized and are being amortized over the term of
the loan agreement.

8. Supplemental Disclosure of Cash Flow Information

1997 1996 1995
------------------------------------

Cash paid during the year for interest $3,154,925 $ 789,306 $ 734,608
========== ========== ==========

F-18

Corporate Realty Income Fund I, L.P.
(A Delaware Limited Partnership)

Notes to Financial Statements (continued)

9. Employee Savings Plan

During 1997, the Partnership established an employee savings plan (the "Plan")
in accordance with Section 401(K) of the Internal Revenue Code. The Plan permits
eligible employees to make contributions through salary reductions. For the
period ended December 31, 1997, the Partnership has not made any contributions
to the Plan.

10. Earnings per Limited Partnership Unit

Basic earnings per limited partnership unit amounts were computed based on
3,022,492, 3,087,170 and 3,184,222 weighted average limited partnership units
outstanding in 1997, 1996 and 1995, respectively.

For the three years ended December 31, 1997, there were no partnership unit
equivalents and in accordance with the provisions of SFAS No. 128, dilutive
earnings per limited partnership unit for the three years ended December 31,
1997, were computed based on the weighted average limited partnership units
outstanding.

F-19

Corporate Realty Income Fund I, L.P.
(a Delaware Limited Partnership)

Schedule III - Real Estate and Accumulated Depreciation

December 31, 1997

Costs
Capitalized
Subsequent to Gross Amount at Which
Initial Cost (B) Acquisition Carried at Close of Period
------------------------------------------------------------------------
Encumbrances Building and Building and Building and
Description (A) Land Improvements Improvements Land Improvements Total
- - -----------------------------------------------------------------------------------------------------------------------------

Office Building
Monterey Park, CA $ 664,198 $ 1,762,126 $ 2,459,141 $ 125,245 $ 1,762,126 $ 2,584,386 $ 4,346,512
Office Building
Las Colinas, TX 5,313,584 4,925,745 19,702,979 2,755,710 4,925,745 22,458,689 27,384,434
Office Building
So. Plainfield, NJ 6,163,759 3,147,912 13,378,294 2,205,562 3,147,912 15,583,856 18,731,768

Office Building
San Antonio, TX 6,376,302 2,408,000 9,636,883 204,344 2,408,000 9,841,227 12,249,227
Office Building
Boulder, CO 4,250,868 1,080,369 7,922,716 455,415 1,080,369 8,378,131 9,458,500
Office Building
Oklahoma City, OK 1,275,260 1,063,694 9,713,348 427,350 1,063,694 10,140,698 11,204,392
Office Building
New York, NY 17,534,829 5,488,000 21,951,998 1,301,903 5,488,000 23,253,901 28,741,901
------------------------------------------------------------------------------------------------------
$ 41,578,800 $ 19,875,846 $ 84,765,359 $ 7,475,529 $ 19,875,846 $92,240,888 $112,116,734
======================================================================================================

Life on Which
Accumulated Date of Depreciation Is
Description Depreciation Construction Date Acquired Computed
- - -------------------------------------------------------------------------------------------

Office Building
Monterey Park, CA $ 751,632 1985 July, 1986 5 to 40 years
Office Building
Las Colinas, TX 6,936,785 1982 October, 1986 5 to 40 years
Office Building
So. Plainfield, NJ 5,080,143 1986 December, 5 to 40 years
1986
Office Building
San Antonio, TX 208,551 1975/1980 March, 1997 5 to 40 years
Office Building
Boulder, CO 2,425,934 1987 January, 1988 5 to 40 years
Office Building
Oklahoma City, OK 2,534,160 1986 March, 1988 5 to 40 years
Office Building December,
New York, NY 655,673 1925 1996 5 to 40 years
------------
$ 18,592,878
============

F-20

Corporate Realty Income Fund I, L.P.
(a Delaware Limited Partnership)

Schedule III - Real Estate and Accumulated Depreciation (continued)

December 31, 1997

Notes:

(A) Encumbrances represent a loan secured by a deed of trust given with respect
to all of the properties of the Partnership.

(B) The initial cost to the Partnership represents the original purchase price
of the properties net of purchase price adjustments, including amounts
incurred subsequent to acquisition which were contemplated. The initial
cost includes the purchase price paid by the Partnership and acquisition
fees and expenses. There is no difference between costs for financial
reporting purposes and cost for federal income tax purposes.

(C) Reconciliation Summary of Transactions - Real Estate Owned

Year Ended December 31,
1997 1996 1995
----------------------------------------------

Balance at beginning of year $ 112,971,546 $ 85,042,580 $ 84,585,569
Net additions during the year 13,753,264 27,928,966 502,504
Cost of real estate sold (11,563,422) -- --
Write off fully depreciated assets (3,044,654) -- (45,493)
----------------------------------------------
Balance at close of year $ 112,116,734 $ 112,971,546 $ 85,042,580
==============================================

(D) Reconciliation Summary of Transactions - Accumulated Depreciation

Year Ended December 31,
1997 1996 1995
----------------------------------------------

Balance at beginning of year $ 18,553,069 $ 15,974,431 $ 13,371,654
Depreciation charged to expense 3,084,463 2,578,438 2,448,270
Write-off of fully depreciated assets (3,044,654) -- (45,493)
----------------------------------------------
Balance at close of year $ 18,592,878 $ 18,553,069 $ 15,974,431
==============================================

F-21