HALLWOOD REALTY PARTNERS L P - 10-K Annual Report

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

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FORM 10-K

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, 2000

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD - FROM TO
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COMMISSION FILE NUMBER: 1-10643

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HALLWOOD REALTY PARTNERS, L.P.
(Exact name of registrant as specified in its charter)

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DELAWARE 75-2313955
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

3710 RAWLINS
SUITE 1500
DALLAS, TEXAS 75219-4298
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (214) 528-5588

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Name of each exchange on
Title of each class which registered
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UNITS REPRESENTING LIMITED PARTNERSHIP INTERESTS AMERICAN STOCK EXCHANGE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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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.
----

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
--- ---
The aggregate market value of units held by nonaffiliates of the registrant as
of March 14, 2001 was $83,751,000.

CLASS: UNITS REPRESENTING LIMITED PARTNERSHIP INTERESTS.
OUTSTANDING AT MARCH 14, 2001: 1,589,948 UNITS.

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Page 1 of 40

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HALLWOOD REALTY PARTNERS, L.P.

TABLE OF CONTENTS

Page

PART I

Item 1. Business 3

Item 2. Properties 4

Item 3. Legal Proceedings 6

Item 4. Submission of Matters to a Vote of
Security Holders 6

PART II

Item 5. Market for Registrant's units and Related
Security Holder Matters 7

Item 6. Selected Financial Data 8

Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9

Item 7a. Quantitative and Qualitative Disclosures about Market Risk 13

Item 8. Financial Statements and Supplemental Information 14

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 34

PART III

Item 10. Directors and Executive Officers of the
Registrant 35

Item 11. Executive Compensation 36

Item 12. Security Ownership of Certain Beneficial Owners
and Management 38

Item 13. Certain Relationships and Related Transactions 38

PART IV

Item 14. Exhibits, Financial Statement Schedule and
Reports on Form 8-K. 39

Page 2 of 40
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PART I

ITEM 1. BUSINESS

DESCRIPTION OF THE BUSINESS

Hallwood Realty Partners, L.P. ("HRP"), a publicly traded Delaware limited
partnership, operates in the commercial real estate business segment. HRP's
activities include the acquisition, ownership and operation of its commercial
real estate assets. Units representing limited partnership interests are traded
on the American Stock Exchange under the symbol "HRY".

As of December 31, 2000, HRP owned fifteen real estate properties (the
"Properties") located in six states (see Item 2 - Properties) containing
5,576,000 net rentable square feet. HRP seeks to maximize the value of its real
estate by making capital and tenant improvements, by executing marketing
programs to attract and retain tenants, and by controlling or reducing, where
possible, operating expenses.

Hallwood Realty, LLC ("Realty" or the "General Partner"), a Delaware limited
liability company and indirectly wholly- owned subsidiary of The Hallwood Group
Incorporated ("Hallwood"), is HRP's general partner and is responsible for asset
management of HRP and its Properties, including the decision making
responsibility for financing, refinancing, acquiring and disposing of
properties. In addition, Realty provides general operating and administrative
services to HRP. Hallwood Commercial Real Estate, LLC ("HCRE"), another
indirectly wholly-owned subsidiary of Hallwood, provides property management,
leasing and construction supervision services to the Properties.

OCCUPANCY/MAJOR TENANT INFORMATION

In the aggregate, the Properties were approximately 90% occupied as of December
31, 2000. Set forth below are the percentages of square feet represented by
scheduled lease expirations for each calendar year, assuming that none of the
tenants exercise early termination or renewal options:

2001 24%
2002 17%
2003 17%
2004 10%
2005 10%
Thereafter 22%

During 2000 and 1999, two tenants leasing space contributed 10% or more of HRP's
revenues. Ford Motor Company and affiliates ("Ford") leases space in Parklane
Towers and Fairlane Commerce Park. Ford accounted for 11% and 13% of revenues in
2000 and 1999, respectively. The General Services Administration ("GSA") leases
space in Corporate Square and Executive Park. GSA accounted for 12% and 10% of
revenues in 2000 and 1999, respectively.

As of December 31, 2000, Ford occupied 200,000 square feet of office space under
8 leases at Parklane Towers and 224,000 square feet of office, technical
laboratory and industrial space under 7 leases at Fairlane Commerce Park. These
leases expire between 2001 and 2005 and most contain renewal options, providing
for one to ten year renewals. As of December 31, 2000, GSA occupied 269,000
square feet of office space at Executive Park under 5 leases which expire
between 2001 and 2007 and 309,000 square feet of office space at Corporate
Square under 2 leases which expire in 2003 and 2020.

The remaining tenants are not concentrated in any one industry, nor is HRP
otherwise dependent on any group of related tenants for 10% or more of its
revenues.

Page 3 of 40
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COMPETITION AND OTHER FACTORS

The Properties are subject to substantial competition from similar properties in
the vicinity in which they are located. In addition, there are numerous other
potential investors seeking to purchase improved real property and many property
holders seeking to dispose of real estate with which HRP will compete, including
companies substantially larger than HRP and with substantially greater
resources. Furthermore, current economic conditions in each property's
respective real estate market are competitive and as such, competition for
tenants will continue to affect rental rates and revenue.

The environmental laws of the federal government and of certain state and local
governments impose liability on current property owners for the cleanup of
hazardous and toxic substances discharged on such property. This liability may
be imposed without regard to the timing, cause or person responsible for the
release of such substances onto the property. HRP could be subject to additional
liability in the event that it owns properties having such environmental
problems. Parklane Towers, as well as certain other properties to a lesser
extent, are known to contain asbestos. Removal of asbestos at Parklane Towers is
not required because it is cementitious, it is not friable and because the
procedures in HRP's site environmental program Operations and Maintenance Manual
are performed as required.

Realty and HCRE, on behalf of HRP, monitor compliance with the Americans with
Disabilities Act and are currently not aware of any material non-compliance
issues.

HRP does not directly employ any individuals. All 93 employees rendering
services on behalf of HRP and its Properties are employees of Realty and/or
HCRE.

The business of HRP involves only one industry segment. Accordingly, all
information required by Item 101(b) of Regulation S-K is included in the
Consolidated Financial Statements included in Item 8. HRP has no foreign
operations and its business is not seasonal.

ITEM 2. PROPERTIES

As of December 31, 2000, HRP owned fifteen properties in six states with
5,576,000 net rentable square feet.

NAME AND LOCATION GENERAL DESCRIPTION OF THE PROPERTY
- ----------------- -----------------------------------

Airport Plaza Fee simple interest in a 3-story office
San Diego, California building constructed in 1982 containing
48,853 net rentable square feet of space
located on 2 acres of land. The property was
77% occupied at December 31, 2000.

Allfirst Building Fee simple interest in a 22-story office
Baltimore, Maryland building constructed in 1972 containing
345,172 net rentable square feet of office
space on 0.6 acres of land. At December 31,
2000, the property was 97% occupied.

Bellevue Corporate Plaza Fee simple interest in a 10-story office
Bellevue, Washington building constructed in 1980 containing
242,939 net rentable square feet of space
located on 3.6 acres of land. The property
was 97% occupied at December 31, 2000.

Bradshaw Business Parks Fee simple interest in 21 single-story
Sacramento and buildings located at four separate sites
Rancho Cordova, California containing an aggregate of 452,838 net
rentable square feet of office/warehouse
space on 31 acres of land and constructed
between 1973 and 1981. At December 31, 2000,
the property was 93% occupied.

Corporate Square Fee simple interest in a 10-building office
Atlanta, Georgia complex ranging from one to seven stories,
constructed between 1968 and 2000,
containing an aggregate of 591,985 net
rentable square feet of space located on 32
acres of land. The property was 98% occupied
at December 31, 2000.

Page 4 of 40
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NAME AND LOCATION GENERAL DESCRIPTION OF THE PROPERTY
- ----------------- -----------------------------------

Executive Park Fee simple interest in 25 office buildings
Atlanta, Georgia ranging from one to six stories, constructed
between 1965 and 1972, containing a total of
892,515 net rentable square feet of space
located on 70 acres of land. The property
was 92% occupied at December 31, 2000. In
addition, in 2001, HRP began constructing
(on existing land and after demolishing an
existing 1-story 18,000 square foot
building) a 5-story building which will
contain 122,000 net rentable square feet.

Fairlane Commerce Park Fee simple interest in a portion of an
Dearborn, Michigan office/industrial park consisting of 12
single-story buildings constructed between
1974 and 1990. The property consists of
417,922 net rentable square feet of space on
35 acres of land. The property was 96%
occupied at December 31, 2000.

Fountain View Business Center Fee simple interest in three 3-story office
San Diego, California buildings constructed in 1980 containing
89,432 net rentable square feet of space
located on 4.3 acres of land. As of December
31, 2000, the property was 97% occupied.

Gulley Road Industrial Park Fee simple interest in a 5-building
Dearborn, Michigan industrial park constructed between 1991 and
1993 containing 154,360 net rentable square
feet on 11 acres of land. The property was
98% occupied at December 31, 2000.

Joy Road Distribution Center Fee simple interest in a 442,201 square foot
Detroit, Michigan warehouse situated on 21 acres and
originally constructed in the early 1940's.
The property was 28% occupied at December
31, 2000.

Montrose Office Center Fee simple interest in a 10-story office
Rockville, Maryland building constructed in 1980 containing
147,658 net rentable square feet of space on
3 acres of land. The property was 97%
occupied at December 31, 2000.

Parklane Towers Fee simple interest in twin 15-story office
Dearborn, Michigan buildings constructed in 1973 containing
482,350 net rentable square feet of space on
31.8 acres of land. The property was 99%
occupied at December 31, 2000.

Raintree Industrial Park Fee simple interest in an office/industrial
Solon, Ohio complex constructed between 1971 and 1978
containing 794,953 net rentable square feet
of space in 14 buildings on 49 acres of
land. The property was 89% occupied at
December 31, 2000.

Riverbank Plaza Fee simple interest in two 3-story office
San Diego, California buildings constructed in 1978 containing
40,222 net rentable square feet of space
located on 1.6 acres of land. As of December
31, 2000, the property was 100% occupied.

Seattle Business Parks Fee simple interest in office/industrial
Kent and Tukwila, Washington parks located at two separate sites. The
buildings were completed between 1972 and
1993 and contain an aggregate of 432,313 net
rentable square feet of space in 18
buildings on 27 acres of land. At December
31, 2000, the property was 98% occupied.

For information regarding encumbrances to which the properties are subject and
the status of related mortgage loans, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources" contained in Item 7 and Note 6 to the Consolidated Financial
Statements and Schedule III in Item 8.

Page 5 of 40
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OFFICE SPACE -

HRP leases and shares offices with Hallwood in Dallas, Texas under a lease which
expires May 31, 2002. The minimum cash rental payments are $295,000 and $123,000
for 2001 and 2002, respectively, of which HRP's portion is approximately
$179,000 and $74,000 for 2001 and 2002, respectively.

ITEM 3. LEGAL PROCEEDINGS

Beginning in 1997, HRP has been a defendant in two lawsuits that were brought by
Gotham Partners, L.P. in the Delaware Court of Chancery.

The first suit was filed on February 27, 1997 in the Chancery Court for New
Castle County, Delaware, styled Gotham Partners, L.P. v. Hallwood Realty
Partners, L.P. and Hallwood Realty Corporation (C.A. No. 15578), and it sought
access to certain books and records of HRP and was subsequently settled,
allowing certain access.

The second action was filed on June 20, 1997 in a separate complaint in the
Chancery Court for New Castle County, Delaware, styled Gotham Partners, L.P. v.
Hallwood Realty Partners, L.P., et al. (C.A. No. 15754). This action alleges
claims of breach of fiduciary duties, breach of HRP's partnership agreement, and
fraud in connection with certain transactions involving HRP's units in the mid
1990's. Hallwood is alleged to have aided and abetted the alleged breaches. On
June 21, 2000, after completing fact discovery, all parties moved for summary
judgment on several issues. In September and October, 2000, the Delaware court
issued three separate written opinions resolving the summary judgment motions.
In the opinions, the court ruled that trial would be required as to all issues,
except that (i) Gotham was found to have standing to pursue its derivative
claims; (ii) defendants were entitled to judgment dismissing the fraud claim;
(iii) the general partner was entitled to judgment dismissing the breach of
fiduciary duty claims brought against it; and (iv) the general partner's outside
directors were entitled to judgment dismissing all claims brought against them.

A five-day trial was held in January 2001. The Court requested post-trial
briefings, which should be completed by mid- April 2001. Given the nature of the
plaintiff's claims and the usual uncertainties in litigation, we are not able to
predict the outcome of the litigation or whether any of the claims or defenses
will ultimately be successful.

On February 15, 2000, HRP filed a lawsuit in the United States District Court
for the Southern District of New York styled Hallwood Realty Partners, L.P. v.
Gotham Partners, L.P. et al. (Civ. No. 00 CV 115) alleging violations of the
Securities Exchange Act of 1934 by certain purchasers of its units, including
Gotham Partners, L.P., Gotham Partners, III, L.P., Private Management Group,
Inc., Interstate Properties, Steven Roth and EFO Realty, Inc., by virtue of
those purchasers' misrepresentations and/or omissions in connection with filings
required under the Securities Exchange Act of 1934. The complaint further
alleged that defendants, by acquiring more than 15% of the outstanding HRP
units, have triggered certain rights under its Unit Purchase Rights Agreement,
for which HRP was seeking declaratory relief. HRP was seeking various forms of
relief, including declaratory judgments, divestiture, corrective disclosures, a
"cooling-off" period and damages, including costs and disbursements.

Discovery was completed in December 2000 and trial was held in February 2001. On
February 23, 2001, the Court rendered a decision in favor of the defendants and
on February 28, 2001, the Court ordered the complaint dismissed. HRP is in the
process of determining whether to proceed with an appeal and no final decision
as to such plans has been made.

HRP is from time to time involved in various other legal proceedings and claims
which arise in the ordinary course of business. These matters are generally
covered by insurance. Management believes that the resolution of these matters
will not have a material adverse effect on HRP's financial position, cash flow
or operations.

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

No matters were submitted to a vote of the security holders of HRP during the
fourth quarter of 2000.

Page 6 of 40
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PART II

ITEM 5. MARKET FOR REGISTRANT'S UNITS AND RELATED SECURITY HOLDER MATTERS

The Partnership's units are traded on the American Stock Exchange under the
symbol "HRY". As of March 14, 2001, there were approximately 28,000 unitholders
owning the 1,589,948 units outstanding. HRP has not paid any cash distributions
since February, 1992. Each quarter Realty reviews HRP's capacity to make cash
distributions to its partners.

The following table shows the range of sales prices for the periods indicated,
as reported by the American Stock Exchange:

Trading Ranges
-----------------
High Low
---- ---

1999 -
1st Quarter $59.00 $51.00
2nd Quarter 61.50 47.75
3rd Quarter 61.25 52.00
4th Quarter 54.50 50.00

2000 -
1st Quarter $50.75 $41.88
2nd Quarter 48.00 34.25
3rd Quarter 46.50 33.25
4th Quarter 46.25 40.00

Page 7 of 40
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ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected financial data regarding the
Partnership's results of operations and financial position as of the dates
indicated. This information should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in Item 7 and the Consolidated Financial Statements and notes thereto
contained in Item 8.

Year Ended December 31,
------------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
(in thousands except per unit amounts)

STATEMENTS OF OPERATIONS:

Total revenues $ 67,292 $ 59,645 $ 56,680 $ 53,899 $ 49,612
Income (loss) before extraordinary item 90 4,062 6,246 2,357 (9,428)
Net income (loss) (299) 4,062 11,593 2,357 (9,428)

Income (loss) per unit and equivalent unit :
Basic -
Income (loss) before extraordinary item 0.06 2.40 3.70 1.40 (5.50)
Net income (loss) (0.18) 2.40 6.86 1.40 (5.50)

Assuming dilution -
Income (loss) before extraordinary item 0.05 2.31 3.55 1.35 (5.50)
Net income (loss) per unit (0.18) 2.31 6.59 1.35 (5.50)

BALANCE SHEETS:

Real estate, net(a) $ 206,392 $ 192,814 $ 175,779 $ 179,028 $ 182,877
Total assets 254,504 230,386 214,023 207,134 210,214
Mortgages payable 200,096 171,312 162,078 157,911 160,732
Partners' capital(b) 44,490 48,696 44,634 33,041 30,684

Notes to Selected Financial Data:

(a) During 1999 and 2000 through acquisition and construction activity,
HRP increased its real estate assets. These increases were partially
offset by depreciation and amortization. Prior to 1999, real estate
assets declined in each of the years, primarily due to depreciation
and amortization exceeding the additions of tenant and property
improvements.

(b) Partners' capital is allocated 99% to the limited partners and 1% to
the general partner.

Page 8 of 40
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This discussion should be read in conjunction with Item 6 - Selected Financial
Data and Item 8 - Financial Statements and Supplemental Information.

RESULTS OF OPERATIONS:

2000 VERSUS 1999 -

REVENUE FROM PROPERTY OPERATIONS in 2000 increased $7,587,000, or 12.9%,
compared to 1999. The following table illustrates the components of the change:

Rental income, net $6,638,000
Other property income 949,000
----------
Net increase $7,587,000
==========

Net rental income increased as the result of overall higher rental rates, the
August 1999 to January 2000 acquisitions of Riverbank Plaza, Gulley Road
Industrial Park, and Fountain View Business Center, and the completion of a new
building at Corporate Square in mid-2000 (collectively these four properties are
referred as "New Properties). These increases to rental income were partially
offset by a decline in average occupancy, in the aggregate, between years from
93.1% to 89.4%. The decrease in average occupancy was primarily due to Joy Road
Distribution Center's drop from 98% occupancy at year-end 1999 to 28% occupancy
at year-end 2000. As of December 31, 2000, HRP had leases executed and in place
for approximately 90% of the portfolio's net rentable square feet. Other
property income increased primarily due to increases in tenant expense
recoveries.

INTEREST INCOME increased $60,000 as a result of additional earnings on
overnight investments due to slightly higher interest rates, partially offset by
lower average cash balances available for investment.

PROPERTY OPERATING EXPENSES for 2000 increased $2,612,000, or 10.9%, compared to
1999. The increase is comprised primarily of the following components:

o Operating costs with respect to the New Properties contributed
$1,362,000 towards the overall increase.

o Professional fees increased primarily due to $539,000 of costs for
research and analysis of potential property development projects.

o Combined, all other operating costs increased $711,000, or about 3%,
between the years.

INTEREST EXPENSE for 2000 increased $1,742,000, or 12.7%, compared to 1999 as a
result of an increase in mortgage interest of $1,442,000 (including $1,453,000
for the New Properties) due to a higher average mortgage balance, in the
aggregate and, due to a lesser extent, an increase in loan cost amortization and
other interest of $300,000.

DEPRECIATION AND AMORTIZATION EXPENSE increased $2,478,000, or 20.7%, due to
$1,137,000 of depreciation for the New Properties and increases of $584,000 of
depreciation and $757,000 of lease commission amortization for comparable
properties.

GENERAL AND ADMINISTRATIVE EXPENSES for 2000 increased $1,229,000, or 32.2%,
compared to 1999, as a result of $601,000 of non-cash compensation generated
from the exercise of unit options in May 2000, (see Note 8 to the consolidated
financial statements), $414,000 of higher professional fees incurred with
proposed acquisitions, and $284,000 of increases to travel, insurance and
miscellaneous costs and expenses.

LITIGATION COSTS were $5,663,000 and $2,105,000 for 2000 and 1999, respectively,
and are related to the lawsuits described in Item 3 and Note 10 to the
consolidated financial statements.

LOSS ON EARLY EXTINGUISHMENT OF DEBT of $389,000 in 2000 is from the early
payoff of the loan secured by Bradshaw Business Parks and is comprised of a
prepayment penalty of $286,000 and the writeoff of $103,000 of unamortized loan
costs associated with the retired loan.

Page 9 of 40
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RESULTS OF OPERATIONS (CONTINUED) -

1999 VERSUS 1998 -

REVENUE FROM PROPERTY OPERATIONS in 1999 increased $2,927,000, or 5.2%, compared
to 1998. The following table illustrates the components of the change:

Rental income, net $2,122,000
Other property income 805,000
----------
Net increase $2,927,000
==========

Overall, net rental income increased primarily due to higher rental rates,
partially offset by a slight decline in average occupancy between the comparable
periods from 93.5% to 93.1%. As of December 31, 1999, HRP had leases executed
and in place for 94.3% of the portfolio's net rentable square feet. Other
property income increased due to increases in parking revenues, tenants' utility
reimbursements and various tenant services.

INTEREST INCOME increased $38,000 as a result of additional earnings on
overnight investments due to higher average cash balances available for
investment.

PROPERTY OPERATING EXPENSES for 1999 increased $1,701,000, or 7.6%, compared to
1998. The increase is comprised primarily of the following components:

o Real estate taxes increased $1,078,000 due to higher taxable values at
Executive Park, Corporate Square and Bellevue Corporate Plaza and in
1998, HRP received non-recurring tax refunds of $545,000.

o Snow removal costs increased $164,000 primarily due to a mild 1998
winter.

o Professional fees increased $141,000 due to costs incurred in 1999 for
research and analysis of potential property development projects.

o Fees paid to Realty of $105,000, which were incurred for the
acquisitions of Riverbank Plaza and Gulley Road during 1999.

o Combined, all other operating costs increased $213,000, or less than
1%.

INTEREST EXPENSE for 1999 increased $920,000, or 7.2%, compared to 1998. The
1998 period included $1,485,000 of non-cash amortization of Allfirst Building's
loan forgiveness, which served to decrease 1998 expense. This non-cash
amortization ceased in November 1998 as the result of the retirement and
refinancing of that loan. Cash mortgage interest decreased $645,000 (primarily
as the result of reduced contractual interest rates from 1998 loan refinancings)
and loan cost amortization increased $80,000 in 1999 compared to 1998.

DEPRECIATION AND AMORTIZATION EXPENSE decreased $116,000 primarily due to a
reduction in the amount of depreciable tenant improvements in 1999 compared to
1998.

GENERAL AND ADMINISTRATIVE EXPENSES for 1999 increased $673,000, or 21.4%,
compared to 1998, primarily as a result of higher personnel, occupancy and
travel costs.

LITIGATION COSTS were $2,105,000 and $134,000 for 1999 and 1998, respectively,
and are related to the lawsuits described in Item 3 and Note 10 to the
consolidated financial statements.

Page 10 of 40
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LIQUIDITY AND CAPITAL RESOURCES

HRP operates in the commercial real estate business segment. HRP's activities
include the acquisition, ownership and operation of its commercial real estate
assets. While it is the General Partner's intention to operate HRP's existing
real estate investments and to acquire and operate additional real estate
investments, Realty also continually evaluates each of HRP's real estate
investments in light of current economic trends and operations to determine if
any should be considered for disposal.

HRP's cash position increased $8,125,000 during 2000 to $16,457,000 as of
December 31, 2000. The sources of cash during the year were $12,880,000 of cash
provided by operating activities; $50,623,000 of mortgage principal proceeds;
and $213,000 from the exercise and issuance of unit options. The uses of cash
were $18,346,000 of mortgage principal repayments from mortgage proceeds;
$10,933,000 of property and tenant improvements; $7,791,000 of property
acquisition costs; $8,811,000 of property development costs; $4,721,000 of costs
to purchase units; $3,493,000 of scheduled mortgage principal payments;
$1,210,000 of loan fees and expenses; and $286,000 of mortgage prepayment
penalty.

In addition to the commitment described below with regards to Executive Park,
HRP has estimated and budgeted tenant and capital improvements of $7,800,000 and
lease commissions of about $2,500,000 for 2001.

For the foreseeable future, HRP anticipates that mortgage principal payments,
tenant and capital improvements, lease commissions and litigation costs will be
funded by net cash from operations. The primary sources of capital to fund any
future acquisitions or developments will be proceeds from the sale, financing or
refinancing of one or more of its Properties.

Each quarter Realty reviews HRP's capacity to make cash distributions. HRP has
not made any cash distributions since February, 1992.

PROPERTY DEVELOPMENT AT EXECUTIVE PARK -

In early 2001, HRP demolished a 1-story office building at its Executive Park
property in Atlanta, Georgia that contained 18,000 net rentable square feet. In
order to do so, HRP had to gain release of the prior building from Executive
Park's mortgage lien by substituting such collateral with the purchase of
$608,000 of United States Treasury Bonds, which have various maturity dates
through December 2007. In February 2001, HRP began constructing a 5-story office
building containing 122,000 net rentable square feet. The estimated construction
and development costs for the base building and tenant improvements are
approximately $21,000,000 (excluding the existing land cost). A lease for the
entire building is anticipated in the second quarter of 2001, with occupancy
expected in early 2002. Financing of the development will be a combination of
existing cash and a construction loan that HRP anticipates closing in the second
quarter of 2001.

PROPERTY DEVELOPMENT AT CORPORATE SQUARE -

During the second quarter of 2000, HRP completed new construction of a 6-story
office building containing approximately 151,000 net rentable square feet that
was commenced in the second quarter of 1999. It was constructed on undeveloped
land within the Corporate Square complex in Atlanta, Georgia. A 20-year lease
with the General Services Administration for the entire building was executed in
1999 and the tenant began paying rent August 2000.

The building construction, tenant improvements, lease commissions and loan costs
totaled $18,779,000 (excluding the original land cost). In 1999, HRP incurred,
in connection with the leasing of the entire project, $2,982,000 of lease
commissions.

An interim-construction loan was secured in August 1999 that funded $12,621,000
of the costs ($6,998,000 in 1999 and $5,623,000 in 2000). On August 31, 2000,
HRP secured permanent financing of $21,500,000. The loan's monthly payment is
based on a twenty-year amortization period and matures August 15, 2020 and has a
fixed interest rate of 7.97%. The loan proceeds repaid the interim-construction
loan and replenished working capital for the completed project.

Page 11 of 40
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LIQUIDITY AND CAPITAL RESOURCES - (CONTINUED)

MORTGAGES -

Substantially all of the buildings in HRP's real estate properties were
encumbered and pledged as collateral by twelve non-recourse mortgages
aggregating $200,096,000 as of December 31, 2000. These mortgages have interest
rates varying from 6.97% to 9.68% (with an effective average interest rate of
8.3%) and mature between 2002 and 2020, although no mortgages have scheduled
balloon payments until 2005. Based upon loan amortizations in effect, HRP is
required to pay $5,367,000 of principal payments in 2001.

In December 2000, HRP refinanced Bradshaw Business Park's existing loan with a
new lender. The interest rate was reduced to 8.1% from 8.5% and the maturity
date was extended over ten years to a call option date in February 2011. The
monthly principal payments amortize the loan over 20 years. The loan proceeds of
$12,500,000 were used (i) to pay the outstanding principal balance of $5,724,000
with the former lender, (ii) to pay transaction costs of $267,000, (iii) to pay
a prepayment penalty of $286,000, (iv) to fund $288,000 of loan reserves, and
(v) to add $5,935,000 to general working capital.

ACCOUNTING STANDARDS -

Statements of Financial Accounting Standards ("SFAS") No. 133 "Accounting for
Derivative Instruments and Hedging Activities" is effective for all fiscal years
beginning after June 15, 2000. SFAS No. 133 [as amended by SFAS No. 137
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133" and SFAS No. 138 "Accounting for
Certain Derivative Instruments and Certain Hedging Activities (an amendment of
FASB Statement No. 133)] establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. All derivatives, whether designated
in hedging relationships or not, will be required to be recorded on the balance
sheet at fair value. If the derivative is designated as a fair-value hedge, the
changes in the fair value of the derivative and the hedged item will be
recognized in earnings. If the derivative is designated as a cash-flow hedge,
changes in the fair value of the derivative will be recorded in other
comprehensive income and will be recognized in the income statement when the
hedged item affects earnings. These statements define new requirements for
designation and documentation of hedging relationships as well as ongoing
effectiveness assessments in order to use hedge accounting. For a derivative
that does not qualify as a hedge, changes in fair value will be recognized in
earnings.

HRP adopted these statements on January 1, 2001. In connection with this
adoption, all derivatives within HRP were identified pursuant to SFAS No. 133
requirements. HRP determined it had one derivative, an interest rate cap. Since
this derivative was designated as a cash flow hedge, changes in the fair value
of the derivative will be recognized in other comprehensive income until the
hedged item is recognized in earnings. Hedge effectiveness will be measured
based on the relative changes in the fair value between the derivative contract
and the hedged item over time. Any changes in fair value resulting from
ineffectiveness, as defined by SFAS No. 133, will be recognized immediately in
current earnings. The interest rate cap is highly effective and accordingly, the
impact on HRP's financial statements from the adoption of these standards is the
amount of the difference between the carrying value of $267,000 and the
estimated fair value of $75,000.

HRP's interest rate cap was purchased in July 2000 in connection with the sale
of its interest rate swap agreement (see Item 7A and Note 6 to the consolidated
financial statements for more information).

The Derivatives Implementation Group continues to address certain implementation
issues that may have an impact on the application of this accounting standard.
Management of HRP is unable to determine the effects of such issues at this
time.

INFLATION -

Inflation did not have a significant impact on HRP in 2000, 1999, and 1998 and
is not anticipated to have a material impact in 2001.

Page 12 of 40
13

LIQUIDITY AND CAPITAL RESOURCES - (CONTINUED)

FORWARD-LOOKING STATEMENTS -

In the interest of providing investors with certain information regarding HRP's
future plans and operations, certain statements set forth in this Form 10-K
relate to management's future plans, objectives and expectations. Such
statements are forward-looking statements. Although any forward-looking
statements contained in this Form 10-K or otherwise expressed by or on behalf of
HRP are, to the knowledge and in the judgment of the officers and directors of
the General Partner, expected to prove true and come to pass, management is not
able to predict the future with absolute certainty. Although HRP believes that
the assumptions underlying the forward-looking statements are reasonable, any of
the assumptions could be inaccurate and, therefore, there can be no assurance
that the forward-looking statements will prove to be accurate.

Forward-looking statements involve known and unknown risks and uncertainties,
which may cause HRP's actual performance and financial results in future periods
to differ materially from any projection, estimate or forecasted result. These
risks and uncertainties include, among other things, interest rates, occupancy
rates, lease rental rates, outcome of litigation, future economic, competitive
and market conditions and future business decisions, all of which are difficult
or impossible to predict accurately and many of which are beyond the control of
HRP; other risks and uncertainties may be described, from time to time, in HRP's
periodic reports and filings with the Securities and Exchange Commission.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

On July 27, 2000, HRP sold its interest rate swap agreement for $1,597,000. In
1998, HRP had entered into the interest rate swap agreement to reduce its
exposure to changes in interest rates. It was designated as a hedge against
variable interest exposure relating to the $25,000,000 mortgage loan, secured by
Allfirst Building, which matures April 30, 2006. This interest rate swap
agreement, which was settled monthly, effectively fixed the loan's interest rate
at 6.78%, as opposed to the mortgage loan interest rate of LIBOR plus 1.30% (or
7.94% at the time of the swap agreement sale). The proceeds were designated for
general working capital purposes.

Also on July 27, 2000 and in connection with the sale of the swap agreement, HRP
purchased an interest rate cap for Allfirst Building's mortgage loan for
$288,000, which will limit HRP's exposure to changing interest rates at a
maximum of 10%. This interest rate cap, which has a notional amount of
$25,000,000 with terms consistent with the Allfirst Building's mortgage loan,
had a carrying value of $267,000 and an estimated fair value of $75,000 as of
December 31, 2000. Allfirst Building's interest rate was 8.12% as of December
31, 2000.

Substantially all of the mortgages payable contain fixed interest rates.
Accordingly, changes in LIBOR or prime rates do not significantly impact the
amount of interest paid by HRP. Assuming a 1% change in LIBOR or prime rates,
interest paid by HRP would increase or decrease by approximately
$275,000 on an annual basis.

Page 13 of 40
14

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION

FINANCIAL STATEMENTS: Page
----

Independent Auditors' Report 15

Consolidated Balance Sheets as of December 31, 2000 and 1999 16

Consolidated Statements of Operations for the years
ended December 31, 2000, 1999 and 1998 17

Consolidated Statements of Partners' Capital for the years
ended December 31, 2000, 1999 and 1998 18

Consolidated Statements of Cash Flows for the years
ended December 31, 2000, 1999 and 1998 19

Notes to Consolidated Financial Statements 20

FINANCIAL STATEMENT SCHEDULE:

Schedule III - Real Estate and Accumulated Depreciation 33

All other schedules have been omitted because they are not
applicable, not required, or the required information is
disclosed in the consolidated financial statements or notes thereto

Page 14 of 40
15

INDEPENDENT AUDITORS' REPORT

To the Partners of Hallwood Realty Partners, L.P.

We have audited the accompanying consolidated balance sheets of Hallwood Realty
Partners, L.P. and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations, partners' capital and cash flows
for each of the three years in the period ended December 31, 2000. Our audit for
the year ended December 31, 2000 also included the financial statement schedule
listed in the Index at Item 8. These financial statements and financial
statement schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedule based upon our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Hallwood Realty Partners, L.P. and
subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

DELOITTE & TOUCHE LLP

Dallas, Texas
February 9, 2001 (Except for Note 10,
as to which the date is February 28, 2001)

Page 15 of 40
16

HALLWOOD REALTY PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT UNIT AMOUNTS)

DECEMBER 31,
------------------------
2000 1999
--------- ---------

ASSETS

Real estate:
Land $ 60,236 $ 58,378
Buildings and improvements 293,742 282,013
Tenant improvements 23,284 17,924
--------- ---------
377,262 358,315
Accumulated depreciation and amortization (170,870) (165,501)
--------- ---------
Real estate, net 206,392 192,814

Cash and cash equivalents 16,457 8,332
Accounts receivable 3,211 2,287
Lease commissions, net 11,035 10,653
Loan reserves and escrows 7,109 7,073
Loan costs, net 3,879 3,607
Prepaid expenses and other assets 6,421 5,620
--------- ---------

Total assets $ 254,504 $ 230,386
========= =========

LIABILITIES AND PARTNERS' CAPITAL

Liabilities:
Mortgages payable $ 200,096 $ 171,312
Accounts payable and accrued expenses 5,570 6,013
Prepaid rent, security deposits and other 4,192 2,578
Payable to affiliates, net 156 1,787
--------- ---------
Total liabilities 210,014 181,690
--------- ---------

Commitments and contingencies

Partners' capital:
Limited partners -
1,589,948 and 1,672,556 units outstanding, respectively 44,045 48,209
General partner 445 487
--------- ---------
Total partners' capital 44,490 48,696
--------- ---------

Total liabilities and partners' capital $ 254,504 $ 230,386
========= =========

See notes to consolidated financial statements.

Page 16 of 40
17

HALLWOOD REALTY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER UNIT AMOUNTS)

FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
-------- -------- --------

REVENUES:
Property operations $ 66,324 $ 58,737 $ 55,810
Interest 968 908 870
-------- -------- --------
Total revenues 67,292 59,645 56,680
-------- -------- --------

EXPENSES:
Property operations 26,574 23,962 22,261
Interest 15,443 13,701 12,781
Depreciation and amortization 14,476 11,998 12,114
General and administrative 5,046 3,817 3,144
Litigation costs 5,663 2,105 134
-------- -------- --------
Total expenses 67,202 55,583 50,434
-------- -------- --------

INCOME BEFORE EXTRAORDINARY ITEM 90 4,062 6,246

Extraordinary item -
Net gain (loss) on early extinguishments of debt (389) -- 5,347
-------- -------- --------

NET INCOME (LOSS) $ (299) $ 4,062 $ 11,593
======== ======== ========

ALLOCATION OF NET INCOME (LOSS):
Limited partners $ (296) $ 4,021 $ 11,477
General partner (3) 41 116
-------- -------- --------
Total $ (299) $ 4,062 $ 11,593
======== ======== ========

NET INCOME (LOSS) PER UNIT
AND POTENTIAL UNIT:
Earnings per unit - basic
Income before extraordinary item $ 0.06 $ 2.40 $ 3.70
Net gain (loss) on early extinguishments of debt (0.24) -- 3.16
-------- -------- --------
Net income (loss) $ (0.18) $ 2.40 $ 6.86
======== ======== ========

Earnings per unit - assuming dilution
Income before extraordinary item $ 0.05 $ 2.31 $ 3.55
Net gain (loss) on early extinguishments of debt (0.23) -- 3.04
-------- -------- --------
Net income (loss) $ (0.18) $ 2.31 $ 6.59
======== ======== ========

WEIGHTED AVERAGE UNITS
USED IN COMPUTING NET INCOME (LOSS)
PER UNIT AND POTENTIAL UNIT:
Basic 1,620 1,673 1,673
======== ======== ========
Assuming dilution 1,674 1,740 1,741
======== ======== ========

See notes to consolidated financial statements.

Page 17 of 40
18

HALLWOOD REALTY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS EXCEPT UNIT AMOUNTS)

Limited
Partnership
General Limited Units
Partner Partners Total Outstanding
---------- ---------- ---------- -----------

PARTNERS' CAPITAL, JANUARY 1, 1998 $ 330 $ 32,711 $ 33,041 1,672,556

Net income 116 11,477 11,593 --
---------- ---------- ---------- ----------

PARTNERS' CAPITAL, DECEMBER 31, 1998 446 44,188 44,634 1,672,556

Net income 41 4,021 4,062 --
---------- ---------- ---------- ----------

PARTNERS' CAPITAL, DECEMBER 31, 1999 487 48,209 48,696 1,672,556

Exercise and issuance of unit options 8 806 814 17,200

Purchase of units (47) (4,674) (4,721) (99,808)

Net loss (3) (296) (299) --
---------- ---------- ---------- ----------

PARTNERS' CAPITAL, DECEMBER 31, 2000 $ 445 $ 44,045 $ 44,490 1,589,948
========== ========== ========== ==========

See notes to consolidated financial statements.

Page 18 of 40
19

HALLWOOD REALTY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
2000 1999 1998
-------- -------- --------

OPERATING ACTIVITIES:
Net income (loss) $ (299) $ 4,062 $ 11,593
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 14,476 11,998 12,114
Non-qualified unit option compensation 601 -- --
Net (gain) loss on early extinguishments of debt 389 -- (5,347)
Amortization of mortgage principal forgiveness -- -- (1,485)
Effective rent adjustments (569) (778) (444)
Changes in assets and liabilities:
Receivables (924) (831) (294)
Lease commission payments (5,021) (4,272) (2,369)
Prepaid expenses, loan reserves and other assets 567 (250) 255
Accounts payable and other liabilities 3,660 (1,055) 55
-------- -------- --------
Net cash provided by operating activities 12,880 8,874 14,078
-------- -------- --------

INVESTING ACTIVITIES:
Property and tenant improvements (10,933) (7,024) (6,603)
Property development cost (8,811) (6,427) --
Property acquisitions (7,791) (5,454) --
-------- -------- --------
Net cash used in investing activities (27,535) (18,905) (6,603)
-------- -------- --------

FINANCING ACTIVITIES:
Mortgage principal proceeds 50,623 6,998 66,500
Mortgage principal refinanced (18,346) -- (59,577)
Mortgage prepayment penalties (286) -- (1,855)
Mortgage principal payments (3,493) (2,913) (2,756)
Loan reserves -- -- (550)
Loan fees and expenses (1,210) (219) (1,405)
Exercise and issuance of unit options 213 -- --
Purchase of units (4,721) -- --
-------- -------- --------
Net cash provided by financing activities 22,780 3,866 357
-------- -------- --------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,125 (6,165) 7,832
BEGINNING CASH AND CASH EQUIVALENTS 8,332 14,497 6,665
-------- -------- --------
ENDING CASH AND CASH EQUIVALENTS $ 16,457 $ 8,332 $ 14,497
======== ======== ========

See notes to consolidated financial statements.

Page 19 of 40
20
HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 2000

1. ORGANIZATION

Hallwood Realty Partners, L.P. ("HRP"), a publicly traded Delaware limited
partnership, operates in the commercial real estate business segment. HRP's
activities include the acquisition, ownership and operation of its
commercial real estate assets. Units representing limited partnership
interests are traded on the American Stock Exchange under the symbol "HRY".
As of December 31, 2000, there were 1,589,948 units outstanding.

As of December 31, 2000, HRP owned fifteen real estate assets (the
"Properties"), located in six states containing 5,576,000 net rentable
square feet. HRP seeks to maximize the value of its real estate by making
capital and tenant improvements, by executing marketing programs to attract
and retain tenants, and by controlling or reducing, where possible,
operating expenses.

Hallwood Realty, LLC ("Realty" or the "General Partner"), a Delaware
limited liability company and indirectly wholly- owned subsidiary of The
Hallwood Group Incorporated ("Hallwood"), is HRP's general partner and is
responsible for asset management of HRP and its Properties, including the
decision making responsibility for financing, refinancing, acquiring and
disposing of properties. In addition, Realty provides general operating and
administrative services to HRP. Hallwood Commercial Real Estate, LLC
("HCRE"), another indirectly wholly-owned subsidiary of Hallwood, provides
property management, leasing and construction supervision services to the
Properties.

2. ACCOUNTING POLICIES

CONSOLIDATION

HRP fully consolidates into its financial statements majority owned
entities and reflects a minority interest for those entities not fully
owned. For each of the three years in the period ended December 31, 2000,
all entities and Properties were fully owned. All significant intercompany
balances and transactions have been eliminated in consolidation.

CASH AND CASH EQUIVALENTS

HRP considers highly liquid investments with original maturities of three
months or less at the time of purchase to be cash equivalents.

PROPERTY

Property is stated at cost. Renovations and improvements are capitalized;
maintenance and repairs are expensed. When an asset is sold or otherwise
disposed of, the related cost and accumulated depreciation are removed from
the accounts and any gain or any previously unanticipated loss is
recognized in the year of sale or disposition. HRP's management routinely
reviews its investments for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.

Depreciation of buildings is computed using the straight-line method over
estimated useful lives ranging from 15 to 43 years. Equipment and other
improvements are depreciated on the straight-line method over estimated
useful lives ranging from 3 to 23 years. Tenant improvements are
capitalized and amortized over the terms of the respective leases or useful
life, if shorter.

HRP capitalizes all costs related to the development and construction of
its projects, including interest of $493,000 and $124,000 in 2000 and 1999,
respectively. The development period of a project is considered to have
begun when activities related to the construction of the project or a
portion thereof have commenced. All costs for construction are capitalized
and allocated to each building. Capitalization of construction costs
related to a particular building is discontinued when the building is
available for occupancy.

Page 20 of 40
21

HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 2000

2. ACCOUNTING POLICIES - (CONTINUED)

HRP accrues for losses associated with environmental remediation
obligations when such losses are probable and reasonably estimable.
Accruals for estimated losses from environmental remediation obligations
generally are recognized no later than completion of a remedial feasibility
study. Such accruals are adjusted as further information develops or
circumstances change. Costs of future expenditures for environmental
remediation obligations are not discounted to their present value.
Recoveries of environmental remediation costs from other parties are
recorded as assets when their receipt is deemed probable. HRP's management
is not aware of any environmental remediation obligations which would
materially affect the operations, financial position or cash flows of HRP
and therefore has made no loss accruals.

OTHER ASSETS

Lease concessions and commissions are amortized over the terms of the
respective leases. Leases at the Properties expire from 2001 to 2020. Loan
costs are amortized over the terms of the respective loans. The loans
mature between 2002 and 2020. Amortization of lease commissions, included
in depreciation and amortization expense, was $3,158,000, $2,286,000, and
$2,232,000 in 2000, 1999, and 1998, respectively. Amortization of loan
costs, included in interest expense, was $855,000, $536,000, and $456,000
in 2000, 1999, and 1998, respectively. The caption "Prepaid expenses and
other assets" on the Consolidated Balance Sheets includes unamortized
effective rent adjustments, prepaid real estate taxes, prepaid insurance
and other miscellaneous deposits and prepaid expenses.

REVENUE RECOGNITION

Rental income is recognized as earned on a straight-line basis over the
terms of the respective leases. Amortization of effective rent income
adjustments, included in property operations revenues, was $569,000,
$778,000, and $444,000 in 2000, 1999, and 1998, respectively.

HRP has adopted Staff Accounting Bulletin No. 101 "Revenue Recognition in
Financial Statements" and its adoption did not have a significant impact on
HRP's financial position and results of operations.

INTEREST RATE AGREEMENTS

HRP has used an interest rate swap as a hedge against interest exposure of
variable rate debt. HRP's only interest rate swap was sold in July 2000.
Differences between amounts paid or received in this interest rate
agreement, which was designated as a hedge, was included in interest
expense as the payments were made or received. HRP was exposed to
credit-related gains or losses in the event of non-performance by
counterparties, however none of the counterparties failed to meet their
obligations during the term of the agreement. In July 2000, in connection
with the sale of the interest rate swap, HRP purchased an interest rate cap
derivative that limits its interest rate exposure on its mortgage for
Allfirst Building (see Notes 6 and 9 for more information).

INCOME TAXES

Currently, HRP is a non-taxable entity. Federal and state income taxes, if
any, are the responsibility of the individual partners. Accordingly, the
Consolidated Financial Statements do not include a provision for income
taxes. However, certain business and franchise taxes are the responsibility
of HRP and subsidiary entities. These business and franchise taxes,
included in general and administrative expenses, were $182,000, $243,000,
and $248,000 in 2000, 1999, and 1998, respectively. HRP's tax returns are
subject to examination by federal and state taxing authorities. If HRP's
amounts are ultimately changed by the taxing authorities, the tax liability
of the partners could be changed accordingly. Additionally, no assurance
can be given that the federal or state governments will not pass
legislation that will characterize HRP as an association taxable as a
corporation for federal income tax purposes. Such classification may have
an adverse effect on HRP.

Page 21 of 40
22

HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 2000

2. ACCOUNTING POLICIES - (CONTINUED)

COMPUTATION OF NET INCOME (LOSS) PER UNIT

Basic earnings per unit is computed by dividing net income attributable to
the limited partners' interests by the weighted average number of units
outstanding. Earnings per unit assuming dilution is computed by dividing
net income attributable to the limited partners' interests by the weighted
average number of units and potential units outstanding. Options to acquire
units were issued during 1995 and are considered to be potential units. The
number of potential units is computed using the treasury stock method which
assumes that the increase in the number of units is reduced by the number
of units which could have been repurchased by HRP with the proceeds from
the exercise of these options. The following table illustrates the amounts
used to calculate the weighted average number of units outstanding:

2000 1999 1998
------ ------ ------

Weighted average units outstanding - basic 1,620 1,673 1,673
Issuance of units from options 75 86 86
Repurchase of units from unit option proceeds (21) (19) (18)
------ ------ ------
Weighted average units outstanding - assuming dilution 1,674 1,740 1,741
====== ====== ======

ACCOUNTING PRONOUNCEMENTS AND OTHER

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of certain assets, liabilities, revenues, and expenses as
of and for the reporting periods. Actual results may differ from these
estimates. Certain reclassifications have been made in the prior year
amounts to conform to the classifications used in the current year. The
reclassifications had no effect on previously reported results.

Statements of Financial Accounting Standards ("SFAS") No. 133 "Accounting
for Derivative Instruments and Hedging Activities" is effective for all
fiscal years beginning after June 15, 2000. SFAS No. 133 [as amended by
SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities
- Deferral of the Effective Date of FASB Statement No. 133" and SFAS No.
138 "Accounting for Certain Derivative Instruments and Certain Hedging
Activities (an amendment of FASB Statement No. 133)] establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging
activities. All derivatives, whether designated in hedging relationships or
not, will be required to be recorded on the balance sheet at fair value. If
the derivative is designated as a fair-value hedge, the changes in the fair
value of the derivative and the hedged item will be recognized in earnings.
If the derivative is designated as a cash-flow hedge, changes in the fair
value of the derivative will be recorded in other comprehensive income and
will be recognized in the income statement when the hedged item affects
earnings. These statements define new requirements for designation and
documentation of hedging relationships as well as ongoing effectiveness
assessments in order to use hedge accounting. For a derivative that does
not qualify as a hedge, changes in fair value will be recognized in
earnings.

HRP adopted these statements on January 1, 2001. In connection with this
adoption, all derivatives within HRP were identified pursuant to SFAS No.
133 requirements. HRP determined it had one derivative, an interest rate
cap (see Notes 6 and 9 for more information). Since this derivative was
designated as a cash flow hedge, changes in the fair value of the
derivative will be recognized in other comprehensive income until the
hedged item is recognized in earnings. Hedge effectiveness will be measured
based on the relative changes in the fair value between the derivative
contract and the hedged item over time. Any changes in fair value resulting
from ineffectiveness, as defined by SFAS No. 133, will be recognized
immediately in current earnings. The interest rate cap is highly effective
and accordingly, the impact on HRP's financial statements from the adoption
of these standards is the amount of the difference between the carrying
value of $267,000 and the estimated fair value of $75,000.

The Derivatives Implementation Group continues to address certain
implementation issues that may have an impact on the application of this
accounting standard. Management of HRP is unable to determine the effects
of such issues at this time.

Page 22 of 40
23

HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 2000

3. TRANSACTIONS WITH RELATED PARTIES

Realty receives certain fees in connection with the ongoing management of
HRP, including an asset management fee, acquisition fees and incentive
disposition fees. Specifically, Realty is entitled to receive (i) an asset
management fee equal to 1% of the net aggregate base rents of the
Properties, (ii) acquisition fees equal to 1% of the purchase price of
newly acquired properties, and (iii) incentive fees for performing
disposition services with respect to real estate investments, other than
the properties owned at the time of HRP's formation on November 1, 1990,
equal to 10% of the amount, by which the sales price of a property disposed
of exceeds the purchase price of such property.

HCRE receives compensation in connection with the management of the
Properties, which includes a property management fee, lease commissions and
construction supervision fees. The management contracts expire June 30,
2004 and provide for (i) basic compensation from a property management fee
which is an amount equal to 2.85% of cash receipts collected from the
Properties' tenants, (ii) lease commissions equal to the current market
rate as applied to the net aggregate rent (none exceeding 6% of the net
aggregate rent), and (iii) construction supervision fees for administering
all construction projects equal to 5% of the total contracted costs of each
capital expenditure or tenant improvement project.

Realty and HCRE are compensated for services provided to HRP and its
Properties as described above. The following table sets forth such
compensation and reimbursement paid by HRP (in thousands):

Entity
Paid or
Reimbursed 2000 1999 1998
---------- ------- ------ ------

Asset management fee Realty $ 581 $ 514 $ 495
Acquisition fee Realty 74 105 --
Reimbursement of costs (a) Realty 2,974 2,941 2,320
Property management fee HCRE 1,914 1,693 1,608
Lease commissions (b) HCRE 2,605 4,933 1,964
Construction fees HCRE 917 891 314

(a) These costs are mostly recorded as general and administrative expenses
and represent reimbursement to Realty, at cost, for partnership level
salaries and compensation, bonuses, employee and director insurance,
and certain overhead costs. HRP pays the balance of its account with
Realty on a monthly basis.

(b) As of December 31, 1999, $1,481,000 of the 1999 lease commissions
accrued were related to the development project at Corporate Square
and were paid in 2000. See Note 5.

4. STATEMENTS OF CASH FLOWS

Cash interest payments were $13,831,000 (net of capitalized interest of
$523,000), $13,114,000 (net of capitalized interest of $94,000), and
$13,934,000 in 2000, 1999, and 1998, respectively.

Supplemental disclosure of noncash investing and financing activities are
as follows -

As of December 31, 1999, HRP had accounts payable for property
development and construction cost at Corporate Square of $2,641,000.

In October 1999, HRP acquired Gulley Road Industrial Park for
$8,249,000 including the assumption of an outstanding mortgage of
$5,149,000.

Page 23 of 40

24

HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 2000

5. PROPERTY TRANSACTIONS

PROPERTY DEVELOPMENT AT EXECUTIVE PARK -

In early 2001, HRP demolished a 1-story office building at its Executive
Park property in Atlanta, Georgia that contained 18,000 net rentable square
feet. In order to do so, HRP had to gain release of the prior building from
Executive Park's mortgage lien by substituting such collateral with the
purchase of $608,000 of United States Treasury Bonds, which have various
maturity dates through December 2007. In February 2001, HRP began
constructing a 5-story office building containing 122,000 net rentable
square feet. The estimated construction and development costs for the base
building and tenant improvements are approximately $21,000,000 (excluding
the existing land cost). A lease for the entire building is anticipated in
the second quarter of 2001, with occupancy expected in early 2002.
Financing of the development will be a combination of existing cash and a
construction loan that HRP anticipates closing in the second quarter of
2001.

PROPERTY DEVELOPMENT AT CORPORATE SQUARE -

During the second quarter of 2000, HRP completed new construction of a
6-story office building containing approximately 151,000 net rentable
square feet that was commenced in the second quarter of 1999. It was
constructed on undeveloped land within the Corporate Square complex in
Atlanta, Georgia. A 20-year lease with the General Services Administration
for the entire building was executed in 1999 and the tenant began paying
rent August 2000.

The building construction, tenant improvements, lease commissions and loan
costs totaled $18,779,000 (excluding the original land cost). In 1999, HRP
incurred, in connection with the leasing of the entire project, $2,982,000
of lease commissions.

An interim-construction loan was secured in August 1999 that funded
$12,621,000 of the costs ($6,998,000 in 1999 and $5,623,000 in 2000). On
August 31, 2000, HRP secured permanent financing of $21,500,000. The loan's
monthly payment is based on a twenty-year amortization period and matures
August 15, 2020 and has a fixed interest rate of 7.97%. The loan proceeds
repaid the interim-construction loan and replenished working capital for
the completed project.

ACQUISITIONS -

On January 26, 2000, HRP acquired three 3-story office buildings in San
Diego, California (Fountain View Business Center) containing approximately
89,000 net rentable square feet on 4.3 acres of land. The acquisition cost
was $7,791,000. HRP obtained financing for $5,500,000 of the purchase price
with a new loan. The loan's monthly payment is based on a twenty-year
amortization, matures in ten years and has a fixed interest rate of 8.17%.
The property was 97% occupied as of December 31, 2000.

In October 1999, HRP acquired a 5-building industrial park in Dearborn,
Michigan (Gulley Road Industrial Park) containing approximately 154,000 net
rentable square feet on 11 acres of land. The acquisition costs of
$8,249,000 included the assumption of an outstanding mortgage of
$5,149,000. The loan, which fully amortizes over the next eleven and a half
years, matures in May 2011, and has a fixed interest rate of 7.375%. The
property was 98% occupied as of December 31, 2000.

In August 1999, HRP acquired two 3-story office buildings in San Diego,
California (Riverbank Plaza) containing approximately 40,000 net rentable
square feet on 1.6 acres of land for $2,354,000 in cash. The property was
unoccupied from December 1999 through April 2000 during a $1,765,000
property and tenant improvement renovation. In May 2000, HRP closed on a
mortgage for the property generating $2,500,000 of loan proceeds. The
loan's monthly payment is based on a twenty-year amortization, matures in
ten years and has a fixed interest rate of 8.29%. The property was 100%
occupied as of December 31, 2000.

Page 24 of 40
25

HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 2000

6. MORTGAGES PAYABLE

Substantially all of the buildings in HRP's real estate properties were
encumbered and pledged as collateral by twelve non- recourse mortgages
aggregating $200,096,000 as of December 31, 2000 and $171,312,000 as of
December 31, 1999. These mortgages have interest rates varying from 6.97%
to 9.68% (with an effective average interest rate of 8.3%) and mature
between 2002 and 2020, although no mortgages have scheduled balloon
payments until 2005. Most of the mortgages require monthly principal
payments with balloon payments due at maturity. The following table shows
for the years presented the principal and balloon payments that are
required (in thousands):

Total
Principal Balloon Mortgage
Payments Payments Payments
--------- --------- ---------

2001 $ 5,367 $ -- $ 5,367
2002 5,127 -- 5,127
2003 4,480 -- 4,480
2004 4,838 -- 4,838
2005 4,403 74,515 78,918
Thereafter 27,221 74,145 101,366
--------- --------- ----------
Total $ 51,436 $ 148,660 $ 200,096
========= ========= ==========

The following table sets forth, by real estate property, the mortgages payable
balances, maturity dates, and interest rates as of December 31, 2000 (in
thousands):

Mortgages Maturity Interest
Payable Date Rate
---------- ---------- --------

Airport Plaza $ 748 10-11-2005 8.70%
Allfirst Building 25,000 4-30-2006 8.12% (a)
Bellevue Corporate Plaza 14,964 10-11-2005 8.70%
Bradshaw Business Parks 12,500 2-1-2011 8.10%
Corporate Square 21,500 8-15-2020 7.97%
Corporate Square 8,136 10-11-2005 8.70%
Corporate Square 3,036 8-1-2005 8.625%
Executive Park 32,902 4-11-2008 7.32%
Fairlane Commerce Park 19,827 10-11-2005 8.70%
Fountain View Business Center 5,406 2-10-2010 8.17%
Gulley Road Industrial Park 4,806 5-11-2011 7.375%
Joy Road Distribution Center 2,500 7-31-2002 9.68% (b)
Montrose Office Center 6,079 10-11-2005 8.70%
Parklane Towers 22,445 10-11-2005 8.70%
Raintree Industrial Park 10,474 10-11-2005 8.70%
Riverbank Plaza 2,475 2-10-2010 8.29%
Seattle Business Parks 7,298 6-7-2008 6.97%
----------
Total $ 200,096
==========

(a) LIBOR plus 1.30%

(b) Prime plus 0.50% or LIBOR plus 3.0%

Page 25 of 40
26

HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 2000

6. MORTGAGES PAYABLE - (CONTINUED)

The following discussions only pertain to financing and refinancing
activities of HRP during the three years ended December 31, 2000.

BRADSHAW BUSINESS PARKS -

In December 2000, HRP refinanced Bradshaw Business Park's existing loan
with a new lender. The interest rate was reduced to 8.1% from 8.5% and the
maturity date was extended over ten years to a call option date in February
2011. The monthly principal payments amortize the loan over 20 years. The
loan proceeds of $12,500,000 were used (i) to pay the outstanding principal
balance of $5,724,000 with the former lender, (ii) to pay transaction costs
of $267,000, (iii) to pay a prepayment penalty of $286,000, (iv) to fund
$288,000 of loan reserves, and (v) to add $5,935,000 to general working
capital. The prepayment penalty along with the writeoff of $103,000 of
unamortized loan costs associated with the retired loan were expensed and
are included in the Consolidated Statements of Operations as an
extraordinary item.

JOY ROAD -

In August 2000, HRP received $3,000,000 of loan proceeds from a promissory
term note secured by Joy Road Distribution Center in Detroit, Michigan. The
principal payments amortize the loan over 24 months. The loan matures July
31, 2002 and has a variable interest rate of either prime plus 0.50% or
LIBOR plus 3.0%. The loan proceeds were for general working capital
purposes.

Also in August 2000, HRP closed on a $2,000,000 revolving line of credit.
The line of credit matures July 31, 2001, has a variable interest rate of
either prime plus 0.50% or LIBOR plus 3.0%, and requires monthly interest
payments but no principal amortization. As of December 31, 2000, HRP had
not borrowed against this facility.

RIVERBANK PLAZA -

In May 2000, HRP closed on a new mortgage generating $2,500,000 of loan
proceeds and is secured by Riverbank Plaza, which was acquired in August
1999 in a cash transaction. The loan's monthly payment is based on a
twenty-year amortization, matures in ten years and has a fixed interest
rate of 8.29%. The loan proceeds were for general working capital purposes.

FOUNTAIN VIEW -

In January 2000, HRP obtained financing of $5,500,000 in connection with
the acquisition of Fountain View Business Center (three 3-story office
buildings in San Diego, California). The loan has a monthly payment based
on a twenty-year amortization, matures in ten years and has a fixed
interest rate of 8.17%.

CORPORATE SQUARE -

An interim-construction loan was secured in August 1999 that funded
$12,621,000 of a development project at Corporate Square (see Note 5 for
further information) . The loan provided $6,998,000 in 1999 and $5,623,000
in 2000. On August 31, 2000, HRP secured permanent financing of
$21,500,000. The loan's monthly payment is based on a twenty-year
amortization period and matures August 15, 2020 and has a fixed interest
rate of 7.97%. The loan proceeds repaid the interim-construction loan and
replenished working capital for the completed project.

ALLFIRST BUILDING -

On November 16, 1998, HRP refinanced Allfirst Building's existing loan with
a new lender in the amount of $25,000,000. The interest rate was reduced to
LIBOR plus 1.30% from LIBOR plus 3.25% and the maturity date was extended
three years to April 30, 2006. The loan does not require any principal
amortization. In connection with the refinancing, HRP entered into an
interest rate swap agreement to reduce its exposure to changes in interest
rates. It was designated as a hedge against variable interest exposure
relating to the loan with a notional amount of $25,000,000 terminating on
April 30, 2006. This agreement, which was settled monthly, effectively
fixed the loan's interest rate at 6.78%, compared to the previous loan's
rate of LIBOR plus 325 basis points, or 8.47% as of November 1998.

Page 26 of 40
27

HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 2000

6. MORTGAGES PAYABLE - (CONTINUED)

The loan proceeds of $25,000,000 plus $15,000 of cash were used (i) to pay
the outstanding principal balance of $24,531,000 with the former lender,
(ii) to pay transaction costs of $284,000, and (iii) to pay a prepayment
penalty of $200,000.

HRP was amortizing mortgage principal forgiveness associated with
Allfirst's previous loan over that loan's life. The remaining unamortized
debt forgiveness of $7,441,000 less the prepayment penalty of $200,000 and
unamortized loan costs of $18,000, all associated with the retired loan,
resulted in a gain from early extinguishment of debt of $7,223,000, which
is included in the Consolidated Statements of Operations as an
extraordinary item in 1998.

On July 27, 2000, HRP sold its interest rate swap agreement for $1,597,000.
This interest rate swap agreement effectively fixed the loan's interest
rate at 6.78%, as opposed to the mortgage loan interest rate of LIBOR plus
1.30% (or 7.94% at the time of the swap agreement sale). The proceeds were
designated for general working capital purposes. For financial reporting
purposes, the proceeds are being amortized over the life of the loan into
interest expense. As of December 31, 2000, the unamortized balance,
included on the balance sheet in "Prepaid rent, security deposits and
other", was $1,481,000.

Also on July 27, 2000 and in connection with the sale of the swap
agreement, HRP purchased an interest rate cap for Allfirst Building's
mortgage loan for $288,000, which will limit HRP's exposure to changing
interest rates at a maximum of 10%. This interest rate cap, which has a
notional amount of $25,000,000, has terms consistent with the Allfirst
Building's mortgage loan. Allfirst Building's interest rate was 8.12% as of
December 31, 2000.

The interest rate cap is a derivative and was designated as a cash flow
hedge, changes in the fair value of the derivative will be recognized in
other comprehensive income until the hedged item is recognized in earnings.
Hedge effectiveness will be measured based on the relative changes in the
fair value between the derivative contract and the hedged item over time.
Any changes in fair value resulting from ineffectiveness, as defined by
SFAS No. 133, will be recognized immediately in current earnings.

SEATTLE BUSINESS PARKS -

On June 1, 1998, HRP refinanced the mortgage loan secured by Seattle
Business Parks into two new loans which reduced the interest rate from
9.25% to 6.97%. The new loans lengthened the amortization period from
twenty-two years to thirty years and the maturity date was extended by
seven years to June 7, 2008. The loan proceeds of $7,500,000 were used (i)
to pay the outstanding principal balance of $6,339,000 with the former
lender, (ii) to pay transaction costs of $220,000, (iii) to pay a
prepayment penalty of $190,000, and (iv) for general working capital. The
prepayment penalty along with the writeoff of $75,000 of unamortized loan
costs associated with the retired loan were expensed and are included in
the Consolidated Statements of Operations as an extraordinary item in 1998.

EXECUTIVE PARK -

On February 27, 1998, HRP entered into an agreement to refinance the
mortgage loan secured by Executive Park that became effective March 20,
1998. The new loan reduced the interest rate from 8.87% to an effective
interest rate of 7.32% and extended the amortization period from fifteen
years to twenty-seven years with a maturity date of April 11, 2008. The
loan proceeds of $34,000,000 were used (i) to pay the outstanding principal
balance of $28,707,000 with the former lender, (ii) to pay transaction
costs of $901,000, (iii) to pay a prepayment penalty of $1,465,000, (iv) to
pay $550,000 of net loan reserves, and (v) for general working capital. The
prepayment penalty along with the writeoff of $146,000 of unamortized loan
costs associated with the retired loan were expensed and are included in
the Consolidated Statements of Operations as an extraordinary item in 1998.

Page 27 of 40
28

HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 2000

7. LEASE AGREEMENTS

The lease provisions generally require tenants to pay fixed rental amounts
plus their proportionate share of certain building operating costs and real
property taxes. In addition, certain leases include provisions for annual
rental adjustments. Revenue from expense recoveries, included in property
operations, was $3,315,000, $2,539,000, and $2,591,000 in 2000, 1999, and
1998, respectively. At December 31, 2000, the Properties, in the aggregate,
were 90% occupied. The following table sets forth the minimum cash rental
payments to be received under non-cancelable leases with tenants and
minimum cash rental payments that may be received under leases with early
termination rights (in thousands):

Payments
Non- with Early
cancelable Termination
Payments Rights Total
---------- ----------- ----------

2001 $ 54,443 $ 2,625 $ 57,068
2002 47,030 2,424 49,454
2003 37,290 2,596 39,886
2004 28,251 3,191 31,442
2005 20,109 3,041 23,150
Thereafter 78,907 16,065 94,972
--------- -------- ---------
Total $ 266,030 $ 29,942 $ 295,972
========= ======== =========

During 2000 and 1999, two tenants leasing space contributed 10% or more of
HRP's revenues. Ford Motor Company and affiliates ("Ford") leases space in
Parklane Towers and Fairlane Commerce Park. Ford accounted for 11% and 13%
of revenues in 2000 and 1999, respectively. The General Services
Administration ("GSA") leases space in Corporate Square and Executive Park.
GSA accounted for 12% and 10% of revenues in 2000 and 1999, respectively.

As of December 31, 2000, Ford occupied 200,000 square feet of office space
under 8 leases at Parklane Towers and 224,000 square feet of office,
technical laboratory and industrial space under 7 leases at Fairlane
Commerce Park. These leases expire between 2001 and 2005 and most contain
renewal options, providing for one to ten year renewals. As of December 31,
2000, GSA occupied 269,000 square feet of office space at Executive Park
under 5 leases which expire between 2001 and 2007 and 309,000 square feet
of office space at Corporate Square under 2 leases which expire in 2003 and
2020.

The remaining tenants are not concentrated in any one industry, nor is HRP
otherwise dependent on any group of related tenants for 10% or more of its
revenues.

HRP leases and shares offices with Hallwood in Dallas, Texas under a lease
which expires May 31, 2002. The minimum cash rental payments are $295,000
and $123,000 for 2001 and 2002, respectively, of which HRP's portion is
approximately $179,000 and $74,000 for 2001 and 2002, respectively.

Page 28 of 40
29

HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 2000

8. PARTNERS' CAPITAL

In 1995, HRP issued options totaling 86,000 units to certain executives of
Realty and HCRE with an exercise price of $11.875 per unit. The options
were vested over a three year period ending in 1997. The options expire on
February 27, 2005 and generally, the optionees may borrow the amounts
necessary to exercise the options. As of December 31, 2000, 17,200 options
had been exercised (all during 2000), none have been canceled and 68,800
options remained exercisable. No options have been granted since the
adoption of the disclosure only provisions of SFAS No. 123 - "Accounting
for Stock Based Compensation".

As part of the resignation of Brian Troup as an officer and director of
Hallwood and HRP's general partner on December 21, 1999, Hallwood
transferred 82,608 units of HRP that it owned to a trust controlled by Mr.
Troup. On May 12, 2000, Mr. Troup exercised his unit options to purchase
17,200 HRP units at the option plan's exercise price of $11.875 per unit,
which generated $601,000 of non-cash compensation. Also on May 12, 2000,
HRP purchased and retired all of Mr. Troup's above-mentioned 99,808 units
at $46.825 per unit (the average of the closing market prices of the units
for the twenty trading days prior to the purchase). As a result of these
transactions, HRP's outstanding units have decreased from 1,672,556 to
1,589,948.

9. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

Estimated fair value amounts of certain financial instruments have been
determined using available market information based upon negotiations held
by Realty with potential lenders or other appropriate valuation
methodologies that require considerable judgment in interpreting market
data and developing estimates. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Partnership could
realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts.

The fair value of financial instruments that are short-term or re-price
frequently and have a history of negligible credit losses is considered to
approximate their carrying value. These include cash and cash equivalents,
short term receivables, accounts payable and other liabilities. Real estate
and other assets consist of nonfinancial instruments.

Management has reviewed the fair values of its mortgages payable in
connection with interest rates currently available to the Partnership for
borrowing with similar characteristics and maturities (approximately 8.0%
and 8.2% as of December 31, 2000 and 1999, respectively) and has determined
that the estimated fair value as of December 31, 2000 and 1999 would equal
approximately $200,564,000 and $167,212,000, respectively.

The estimated fair value and carrying value of HRP's interest rate cap as
of December 31, 2000 was $75,000 and $267,000, respectively, base on a
quote obtained from the issuer of the cap agreement.

As of December 31, 2000 and 1999, the fair value information presented
herein is based on pertinent information available to management. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date and,
therefore current estimates of fair value may differ significantly from the
amounts presented herein.

Page 29 of 40
30

HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 2000

10. COMMITMENTS AND CONTINGENCIES

LITIGATION

Beginning in 1997, HRP has been a defendant in two lawsuits that were
brought by Gotham Partners, L.P. in the Delaware Court of Chancery.

The first suit was filed on February 27, 1997 in the Chancery Court for New
Castle County, Delaware, styled Gotham Partners, L.P. v. Hallwood Realty
Partners, L.P. and Hallwood Realty Corporation (C.A. No. 15578), and it
sought access to certain books and records of HRP and was subsequently
settled, allowing certain access.

The second action was filed on June 20, 1997 in a separate complaint in the
Chancery Court for New Castle County, Delaware, styled Gotham Partners,
L.P. v. Hallwood Realty Partners, L.P., et al. (C.A. No. 15754). This
action alleges claims of breach of fiduciary duties, breach of HRP's
partnership agreement, and fraud in connection with certain transactions
involving HRP's units in the mid 1990's. Hallwood is alleged to have aided
and abetted the alleged breaches. On June 21, 2000, after completing fact
discovery, all parties moved for summary judgment on several issues. In
September and October, 2000, the Delaware court issued three separate
written opinions resolving the summary judgment motions. In the opinions,
the court ruled that trial would be required as to all issues, except that
(i) Gotham was found to have standing to pursue its derivative claims; (ii)
defendants were entitled to judgment dismissing the fraud claim; (iii) the
general partner was entitled to judgment dismissing the breach of fiduciary
duty claims brought against it; and (iv) the general partner's outside
directors were entitled to judgment dismissing all claims brought against
them.

A five-day trial was held in January 2001. The Court requested post-trial
briefings, which should be completed by mid- April 2001. Given the nature
of the plaintiff's claims and the usual uncertainties in litigation, we are
not able to predict the outcome of the litigation or whether any of the
claims or defenses will ultimately be successful.

On February 15, 2000, HRP filed a lawsuit in the United States District
Court for the Southern District of New York styled Hallwood Realty
Partners, L.P. v. Gotham Partners, L.P. et al. (Civ. No. 00 CV 115)
alleging violations of the Securities Exchange Act of 1934 by certain
purchasers of its units, including Gotham Partners, L.P., Gotham Partners,
III, L.P., Private Management Group, Inc., Interstate Properties, Steven
Roth and EFO Realty, Inc., by virtue of those purchasers'
misrepresentations and/or omissions in connection with filings required
under the Securities Exchange Act of 1934. The complaint further alleged
that defendants, by acquiring more than 15% of the outstanding HRP units,
have triggered certain rights under its Unit Purchase Rights Agreement, for
which HRP was seeking declaratory relief. HRP was seeking various forms of
relief, including declaratory judgments, divestiture, corrective
disclosures, a "cooling-off" period and damages, including costs and
disbursements.

Discovery was completed in December 2000 and trial was held in February
2001. On February 23, 2001, the Court rendered a decision in favor of the
defendants and on February 28, 2001, the Court ordered the complaint
dismissed. HRP is in the process of determining whether to proceed with an
appeal and no final decision as to such plans has been made.

HRP is from time to time involved in various other legal proceedings and
claims which arise in the ordinary course of business. These matters are
generally covered by insurance. Management believes that the resolution of
these matters will not have a material adverse effect on HRP's financial
position, cash flow or operations.

Page 30 of 40
31

HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 2000

10. COMMITMENTS AND CONTINGENCIES - (CONTINUED)

ASBESTOS

The environmental laws of the federal government and of certain state and
local governments impose liability on current property owners for the
cleanup of hazardous and toxic substances discharged on such property. This
liability may be imposed without regard to the timing, cause or person
responsible for the release of such substances onto the property. HRP could
be subject to additional liability in the event that it owns properties
having such environmental problems. Parklane Towers, as well as certain
other properties to a lesser extent, are known to contain asbestos. Removal
of asbestos at Parklane Towers is not required because it is cementitious,
it is not friable and because the procedures in HRP's site environmental
program Operations and Maintenance Manual are performed as required.

RIGHTS PLAN

HRP has a Unit Purchase Rights Agreement ("Rights Plan") that provides for
a distribution of one right for each unit of the Partnership to holders of
record at the close of business as of December 10, 1990. The rights will
become exercisable only in the event, with certain exceptions, an acquiring
party accumulates 15 percent or more of the Partnership's units, or if a
party commences or announces an intent to commence a tender offer or
exchange offer to acquire 30 percent or more of such units. Each right will
entitle the holder to buy one additional unit at a price of $250. In
addition, upon the occurrence of certain events, holders of the rights will
be entitled to purchase either Partnership units or shares in an "acquiring
entity" at half of market value. HRP will generally be entitled to redeem
the rights at $.01 per right at any time on or prior to the tenth day
following the acquisition of a 15 percent or greater interest in its units.

Although it is HRP's position in the litigation filed in the Southern
District of New York that certain holders of HRP's units have become an
"Acquiring Person" under the Rights Plan by virtue of obtaining dispositive
power over more than 15% of the outstanding units, a final determination of
this issue will be made by the court. As a result, the general partner has
amended the Rights Plan, among other things, to postpone the "Distribution
Date" under the Rights Plan based on the general partner's current
understanding of the facts. By taking such action, the rights will become
exercisable, if at all, only after the final resolution by a court that an
"Acquiring Person" exists for the purposes of the Rights Plan.
Additionally, the expiration of the redemption period under the Rights Plan
has also been extended pending litigation. However, if additional facts
come to the general partner's attention or the status or unit ownership of
any unitholder change in any respect, the general partner will review the
circumstances at that time and may change its conclusions. HRP has also
amended the Rights Plan to extend the expiration period of the rights until
one year after entry of an order, which is final and not subject to appeal,
resolving the above-mentioned lawsuit.

OTHER

In addition to the commitment previously described in Note 5 with regards
to Executive Park, HRP has estimated and budgeted tenant and capital
improvements of $7,800,000 and lease commissions of about $2,500,000 for
2001.

11. SUBSEQUENT EVENTS

In January 2001, HRP sold one of the warehouse buildings at Seattle
Business Parks that contained 63,000 net rentable square feet for a gross
selling price of $3,287,000. The sale resulted in approximately $3,035,000
of net proceeds to HRP and a net gain of about $2,150,000. Also in January
2001, HRP sold one building at Fairlane Commerce Park that contained less
than 2,000 net rentable square feet for a gross selling price of $575,000.
The sale resulted in approximately $526,000 of net proceeds to HRP and a
net gain of about $153,000. The combined carrying value of the assets was
approximately $1,258,000.

Page 31 of 40
32

HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 2000

12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Set forth below is selected quarterly financial data for the years ended
December 31, 2000 and 1999 (in thousands except per unit amounts) :

Quarter Ending
--------------------------------------------------------
March 31 June 30 September 30 December 31
---------- ---------- ------------ -----------

2000

Total revenues $ 16,169 $ 16,203 $ 17,171 $ 17,749

Property operations revenues less property
operations expenses, general and administrative
expenses and litigation costs(a) 8,041 7,125 7,712 6,163

Income (loss) before extraordinary item(a)(b) 1,450 533 659 (2,552)
Net income (loss)(a) 1,450 533 659 (2,941)

Earnings per unit - basic
Income (loss) before extraordinary item .86 .32 .41 (1.59)
Extinguishment of debt(b) -- -- -- (.24)
Net income (loss)(a) .86 .32 .41 (1.83)
Earnings per unit - assuming dilution(c)
Income (loss) before extraordinary item .83 .31 .40 (1.59)
Extinguishment of debt(b) -- -- -- (.24)
Net income (loss)(a) .83 .31 .40 (1.83)

1999

Total revenues $ 14,559 $ 14,252 $ 15,140 $ 15,694

Property operations revenues less property
operations expenses, general and administrative
expenses and litigation costs(d) 7,397 7,302 7,399 6,755

Net income(d) 1,214 1,182 1,239 427

Net income per unit - basic(d) .72 .70 .73 .25
Net income per unit - assuming dilution(d) .69 .67 .70 .24

(a) Litigation costs were $616, $1,292, $1,359 and $2,396 in the first, second,
third, and fourth quarters of 2000, respectively, and accordingly affected
these amounts. (See Note 10 to the Consolidated Financial Statements for
more information about the litigation).

(b) The extraordinary item in the fourth quarter of 2000 is a loss on early
extinguishment of debt of $389.

(c) Unit options are considered antidilutive in the fourth quarter of 2000 and
therefore are not taken into consideration in the computation of earnings
per unit assuming dilution.

(d) Litigation costs were $180, $430, $700 and $795 in the first, second,
third, and fourth quarters of 1999, respectively, and accordingly affected
these amounts. (See Note 10 to the Consolidated Financial Statements for
more information about the litigation).

Page 32 of 40
33

HALLWOOD REALTY PARTNERS, L.P.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2000
(IN THOUSANDS)

Costs
capitalized
subsequent
to Gross amount at which
Initial cost acquisition carried at close of period
--------------------- ----------- ---------------------------------
Buildings Buildings Buildings
and and and
Description (A) Encumbrances Land improvements improvements Land improvements Total (B)
- ---------------- ------------ ---- ------------ ------------ ---- ------------ ---------

Airport Plaza $ 748 $ 300 $ 4,013 $ 329 $ 300 $ 4,342 $ 4,642
Allfirst Building 25,000 2,100 43,772 3,863 2,100 47,635 49,735
Bellevue Corporate Plaza 14,964 7,428 17,617 2,751 7,428 20,368 27,796
Bradshaw Business Parks 12,500 5,018 15,563 5,147 5,018 20,710 25,728
Corporate Square 32,672 6,142 14,112 23,615 6,142 37,727 43,869
Executive Park 32,902 15,243 34,982 8,920 15,243 43,902 59,145
Fairlane Commerce Park 19,827 5,191 18,080 6,039 5,191 24,119 29,310
Fountain View Business Center 5,406 1,858 5,933 421 1,858 6,354 8,212
Gulley Road Industrial Park 4,806 1,227 7,022 116 1,227 7,138 8,365
Joy Road Distribution Center 2,500 359 1,340 2,107 359 3,447 3,806
Montrose Office Center 6,079 5,096 15,754 3,510 5,096 19,264 24,360
Parklane Towers 22,445 3,420 37,592 8,189 3,420 45,781 49,201
Raintree Industrial Park 10,474 1,191 18,208 1,368 1,191 19,576 20,767
Riverbank Plaza 2,475 710 1,644 1,784 710 3,428 4,138
Seattle Business Parks 7,298 4,953 8,730 4,233 4,953 12,963 17,916
Corporate office - FF&E -- -- -- 272 -- 272 272
-------- -------- -------- -------- -------- -------- --------

TOTAL $200,096 $ 60,236 $244,362 $ 72,664 $ 60,236 $317,026 $377,262
======== ======== ======== ======== ======== ======== ========

Accumulated
depreciation Date
Description (A) (B)(C) acquired
- ---------------- ------------ --------

Airport Plaza $ 3,818 4/30/87
Allfirst Building 29,462 6/29/84
Bellevue Corporate Plaza 6,515 6/30/88
Bradshaw Business Parks 12,330 9/24/85
Corporate Square 15,051 8/2/85 & 10/1/92
Executive Park 31,978 12/19/85
Fairlane Commerce Park 11,898 12/30/86 & 7/1/87
Fountain View Business Center 252 1/26/00
Gulley Road Industrial Park 410 10/29/99
Joy Road Distribution Center 793 2/14/96
Montrose Office Center 8,728 1/8/88
Parklane Towers 30,232 12/16/84
Raintree Industrial Park 10,726 7/17/86
Riverbank Plaza 309 8/19/99
Seattle Business Parks 8,244 4/24/86
Corporate office - FF&E 124 various
--------

TOTAL $170,870
========

See notes to Schedule III on following page.

Page 33 of 40
34

HALLWOOD REALTY PARTNERS, L.P.
NOTES TO SCHEDULE III
DECEMBER 31, 2000
(IN THOUSANDS)

(A) PROPERTY LOCATIONS ARE AS FOLLOWS:

Airport Plaza San Diego, California
Allfirst Building Baltimore, Maryland
Bellevue Corporate Plaza Bellevue, Washington
Bradshaw Business Parks Sacramento and Rancho Cordova, California
Corporate Square Atlanta, Georgia
Executive Park Atlanta, Georgia
Fairlane Commerce Park Dearborn, Michigan
Fountain View Business Center San Diego, California
Gulley Road Industrial Park Dearborn, Michigan
Joy Road Distribution Center Detroit, Michigan
Montrose Office Center Rockville, Maryland
Parklane Towers Dearborn, Michigan
Raintree Industrial Park Solon, Ohio
Riverbank Plaza San Diego, California
Seattle Business Parks Kent and Tukwila, Washington

(B) RECONCILIATION OF CARRYING COSTS (in thousands):

Accumulated
Cost Depreciation
--------- ------------

Balance, January 1, 1998 $ 334,395 $ 155,367

Additions 6,603 9,852
Retirements (4,277) (4,277)
--------- ---------

Balance, December 31, 1998 336,721 160,942

Additions 26,694 9,659
Retirements (5,100) (5,100)
--------- ---------

Balance, December 31, 1999 358,315 165,501

Additions 24,896 11,318
Retirements (5,949) (5,949)
--------- ---------

Balance, December 31, 2000 $ 377,262 $ 170,870
========= =========

(C) COMPUTATION OF DEPRECIATION:

Depreciation of buildings is computed using the straight-line method
over estimated useful lives ranging from 15 to 43 years. Equipment and
other improvements are depreciated on the straight-line method over
estimated useful lives ranging from 3 to 23 years. Tenant improvements
are capitalized and amortized over the term of the respective leases
or useful life, if shorter.

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

None.

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35

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

HRP has no officers or directors. Realty, as general partner, performs functions
generally performed by officers and directors. Realty was formed in Delaware as
a corporation in January 1990 and became a limited liability company in December
1998.

BUSINESS EXPERIENCE OF DIRECTORS AND OFFICERS OF REALTY -

ANTHONY J. GUMBINER, 56, CHAIRMAN OF THE BOARD AND DIRECTOR OF REALTY
Mr. Gumbiner has served a director and Chairman of the Board of Realty
since January 1990. He has served as a director and Chairman of the Board
since 1981 and Chief Executive Officer since 1984 of Hallwood. He has also
served as Hallwood's President and Chief Operating Officer since December
21, 1999. He has served as Chairman of the Board and Chief Executive Office
of Hallwood Energy Corporation and its predecessors ("HEC") since 1987 and
as a director of Hallwood Holdings S.A. since 1984. Mr. Gumbiner is also a
solicitor of the Supreme Court of Judicature of England.

WILLIAM L. GUZZETTI, 57, PRESIDENT AND DIRECTOR OF REALTY
Mr. Guzzetti has been President, Chief Operating Officer and a director of
Realty since January 1990. He has served as Executive-Vice President of
Hallwood since October 1989 and in that capacity may devote a portion of
his time to the activities of Hallwood, including the management of real
estate investments, acquisitions and restructurings of entities controlled
by Hallwood. He has served as President, Chief Operating Officer and a
director of HEC since 1985 and in that capacity devotes a portion of his
time to the activities of HEC. He is a member of The Florida Bar and the
State Bar of Texas.

JOHN G. TUTHILL, 57, EXECUTIVE VICE PRESIDENT AND SECRETARY
Mr. Tuthill has been an Executive Vice President and Secretary of Realty
since January 1990. He joined Hallwood in October 1989 to head all property
management functions, having previously served as President of Southmark
Commercial Management since November 1986, where he was responsible for a
diversified real estate portfolio of over 18,000,000 square feet.

UDO H. WALTHER, 52, SENIOR VICE PRESIDENT
Mr. Walther has been an Executive Vice President of Realty since November
1998. Mr. Walther was a member of the Board of Directors of Realty from
June 1994 to November 1998. Mr. Walther had been President and Chief
Executive Officer of Walther Group, Inc., a full service design and
construction consultancy, and President of Precept Builders, Inc. from 1991
to 1998. Previously, Mr. Walther was a Partner at Trammell Crow Company,
Project Manager with HCB Contractors and Marketing Vice President for
Researched Investments, Ltd.

JEFFREY D. GENT, 53, VICE PRESIDENT - FINANCE
Mr. Gent joined Hallwood in March 1990 and has been Vice President-Finance
of Realty since March 1990. He previously served as Vice President -Finance
of Southmark Commercial Management since September 1984, where he was
responsible for the financial functions of a diversified real estate
portfolio of over 18,000,000 square feet.

ALAN G. CRISP, 59, DIRECTOR OF REALTY
Mr. Crisp was Chairman and Chief Executive Officer of Atlantic Metropolitan
Holdings (U.K.) plc from 1979 until 1988, when he joined Interallianz Bank
Zurich AG. From 1988 to 1993, he was General Manager of the London Office
of the Bank. Since 1994, Mr. Crisp has been a consultant for various
international companies. He is a Fellow of the Royal Institution of
Chartered Surveyors and holds a B.A. (Hons) Degree and is a Master of
Literature from Oxford University.

WILLIAM F. FORSYTH, 51, DIRECTOR OF REALTY
Mr. Forsyth has been Chairman of Kildalton & Co., an investment management
consultancy based in Edinburgh, Scotland since 1992. He graduated in law at
Edinburgh University in 1971, and is a member of the Society of Investment
Analysts in the United Kingdom.

EDWARD T. STORY, 57, DIRECTOR OF REALTY
Mr.Story has been President and Chief Executive Officer of SOCO
International, plc, an oil and gas company, since September, 1991. Prior to
September 1991, he was Founder and Chairman of Thaitex Petroleum Company,
Co-founder and Chief Financial Officer of Conquest Exploration Company, the
Chief Financial Officer for Superior Oil Company and Exploration and
Production Controller with Exxon Corporation.

Page 35 of 40
36
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - (CONTINUED)

Section 16(a) of the Securities and Exchange Act of 1934 requires the officers
and directors of Hallwood Realty, LLC and persons who own more than ten percent
of HRP's units to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "SEC"). Officers, directors and greater
than ten percent owners are required by the SEC regulations to furnish HRP with
copies of all Section 16(a) forms they file. Based solely on a review of the
copies of such forms furnished to HRP, or written representations from certain
reporting persons that no forms were required of those persons, HRP believes
that during the period January 1, 2000 to December 31, 2001, all officers and
directors of Hallwood Realty, LLC and ten percent owners complied with
applicable filing requirements, except that, as alleged in litigation filed in
the Southern District of New York, HRP believes that certain holders of HRP's
units have obtained dispositive power over more than 15% of the outstanding
units, which has not been properly disclosed. A final determination of this
issue will be made by the court.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION COMMITTEE INTERLOCKS, INSIDER PARTICIPATION AND COMPENSATION OF
DIRECTORS

Realty does not have a compensation committee and compensation decisions are
made by the Board of Directors of Realty. During 2000, Messrs. Gumbiner and
Guzzetti served on the Board of Directors of Realty. Mr. Gumbiner is also Chief
Executive Officer of Hallwood, Realty, and HEC. Mr. Guzzetti is also President
and Chief Operating Officer of Realty; Chief Operating Officer and President of
HEC; and Executive Vice President of Hallwood. Messrs. Forsyth, Crisp, and Story
were each paid $25,000, $20,000, and $20,000 in 2000, 1999, and 1998,
respectively, for director fees. Mr. Walther was paid $20,000 in 1998 for
director fees.

Realty receives certain fees in connection with the ongoing management of HRP,
including an asset management fee, acquisition fees and incentive disposition
fees. Specifically, Realty is entitled to receive (i) an asset management fee
equal to 1% of the net aggregate base rents of the Properties, (ii) acquisition
fees equal to 1% of the purchase price of newly acquired properties, and (iii)
incentive fees for performing disposition services with respect to real estate
investments, other than the properties owned at the time of HRP's formation on
November 1, 1990, equal to 10% of the amount, by which the sales price of a
property disposed of exceeds the purchase price of such property.

HCRE receives compensation in connection with the management of the Properties,
which includes a property management fee, lease commissions and construction
supervision fees. The management contracts expire June 30, 2004 and provide for
(i) basic compensation from a property management fee which is an amount equal
to 2.85% of cash receipts collected from the Properties' tenants, (ii) lease
commissions equal to the current market rate as applied to the net aggregate
rent (none exceeding 6% of the net aggregate rent), and (iii) construction
supervision fees for administering all construction projects equal to 5% of the
total contracted costs of each capital expenditure or tenant improvement
project.

Realty and HCRE are compensated for services provided to HRP and its Properties
as described above. The following table sets forth such compensation and
reimbursement paid by HRP (in thousands):

Entity
Paid or
Reimbursed 2000 1999 1998
---------- ------ ------ ------

Asset management fee Realty $ 581 $ 514 $ 495
Acquisition fee Realty 74 105 --
Reimbursement of costs(a) Realty 2,974 2,941 2,320
Property management fee HCRE 1,914 1,693 1,608
Lease commissions(b) HCRE 2,605 4,933 1,964
Construction fees HCRE 917 891 314

(a) These costs are mostly recorded as general and administrative expenses and
represent reimbursement to Realty, at cost, for partnership level salaries
and compensation, bonuses, employee and director insurance, and certain
overhead costs. HRP pays the balance of its account with Realty on a
monthly basis.

(b) As of December 31, 1999, $1,481,000 of the 1999 lease commissions accrued
were related to the development project at Corporate Square and were paid
in 2000.

Page 36 of 40
37

ITEM 11. EXECUTIVE COMPENSATION - (CONTINUED)

CASH COMPENSATION OF EXECUTIVE OFFICERS

The Partnership has no executive officers, however, employees of Realty (general
partner of the Partnership) perform all functions ordinarily performed by
executive officers. The following table sets forth annual compensation
information for the Chief Executive Officer and the four other executive
officers with earnings that exceeded $100,000 for the year ended December 31,
2000. Bonuses and other annual compensation are with respect to years presented
and are usually paid in the following year.

SUMMARY COMPENSATION TABLE

Annual Compensation
-----------------------------------------------
Other Annual
Name and Principal Position Year Salary(a) Bonus Compensation(b)
- --------------------------- ---- --------- -------- ---------------

Anthony J. Gumbiner 2000 $ -- $150,000 $ --
Chairman of the Board and 1999 -- 150,000 --
Chief Executive Officer 1998 -- -- --

William L. Guzzetti 2000 200,000 32,333 --
President and Chief 1999 200,000 32,333 --
Operating Officer 1998 200,000 28,833 --

John G. Tuthill 2000 150,360 68,265 7,895
Executive Vice President 1999 150,360 68,265 7,923
and Secretary 1998 150,360 56,265 8,282

Udo H. Walther 2000 150,000 68,250 7,895
Senior Vice President 1999 150,000 68,250 --
1998 25,000 6,250 --

Jeffrey D. Gent 2000 115,000 19,471 6,245
Vice President - Finance 1999 108,541 18,784 6,206
1998 104,366 15,523 8,017

(a) Represents executive officers' gross salary before contributions to the
qualified 401(k) Tax Favored Savings Plan.

(b) Represents employer matching contributions to the 401(k) Tax Favored
Savings Plan or payments in lieu thereof made under a special bonus
arrangement.

In 1995, HRP issued options totaling 86,000 units to certain executives of
Realty and HCRE with an exercise price of $11.875 per unit. The following table
discloses for each of the executive officers of Realty the number of these
options held by each of the executive officers and the potential realizable
values for their options at December 31, 2000. None of the executive officers
exercised any options during the year ended December 31, 2000 and HRP has not
granted SARs.

AGGREGATED OPTION/SAR EXERCISES IN 2000
AND OPTION/SAR VALUES AT DECEMBER 31, 2000

Value of Unexercised
Number of Unexercised In-the-Money
Options at Options at
Units December 31, 2000 December 31, 2000
Acquired ------------------------------- -----------------------------
Name on Exercise Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ------------- ----------- -------------

Anthony J. Gumbiner 0 25,800 0 $886,875 $ 0
William L. Guzzetti 0 15,000 0 515,625 0
John G. Tuthill 0 13,000 0 446,875 0
Jeffrey D. Gent 0 7,000 0 240,625 0

Page 37 of 40
38

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of March 14, 2001 concerning the
number of Partnership units owned beneficially by (l) the persons who, to the
knowledge of the management, beneficially owned more than 5% of the units
outstanding on such date, (2) each director and (3) the present directors and
executive officers of Realty as a group:

Amount Percent
Name and Address of Beneficially of
Beneficial Owner Owned(f) Class
------------------- ------------ -----

HWG, LLC 330,432 20.8%
c/o The Hallwood Group Incorporated
3710 Rawlins, Suite 1500
Dallas, Texas 75219

Gotham Partners, L.P. and 247,994 15.6%
Gotham Partners, L.P. III
237 Park Avenue, 9th Floor
New York, NY 10017(a)

Interstate Properties 167,700 10.5%
Park 80 West, Plaza II
Saddle Brook, NJ 07662(a)

Alan G. Crisp(b) -- --

William F. Forsyth(b) -- --

Anthony J. Gumbiner(b) 25,800 (c) 1.6% (c)

William L. Guzzetti(b) 15,100 (d) 0.9% (d)

Edward T. Story(b) -- --

All directors and executive officers
as a group (8 persons) 60,900 (e) 3.7% (e)

(a) See discussion in Item 3 regarding certain litigation filed in the
Southern District of New York.

(b) Represents the following address: c/o Hallwood Realty, LLC, 3710
Rawlins, Suite 1500, Dallas, Texas, 75219.

(c) Comprised of currently exercisable options to purchase 25,800 units.

(d) Includes currently exercisable options to purchase 15,000 units.

(e) Includes currently exercisable options to purchase 60,800 units.

(f) Unless otherwise indicated, each of the persons named has sole voting
and investment power with respect to the units reported.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

For information covered by this item, see Note 3 to the Registrant's
consolidated financial statements included in Item 8 hereof.

Page 38 of 40
39

PART IV

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

(1) Financial Statements.

See Index contained in Item 8.

(2) Reports on Form 8-K.

No reports on Form 8-K were filed during the fourth quarter of 2000 or in
2001 prior to the filing of this Form 10-K for the year ended December 31,
2000.

(3) Exhibits and Reports on Form 8-K.

The response to this portion of Item 14 is incorporated by reference as
detailed in the Exhibit Index.

(4) Financial Statement Schedules.

See Index contained in Item 8.

Page 39 of 40
40

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.

HALLWOOD REALTY PARTNERS, L.P.
BY: HALLWOOD REALTY, LLC
GENERAL PARTNER

DATE: March 15, 2001 BY: /s/ WILLIAM L. GUZZETTI
-------------- ------------------------
William L. Guzzetti
President and Chief Operating Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report on Form 10-K for the year ended December 31, 2000, has been signed below
by the following persons on behalf of the Registrant in the capacities and on
the date indicated.

Signature Capacity Date
--------- -------- ----

/s/ ANTHONY J. GUMBINER Chairman of the Board and Director, March 15, 2001
- -------------------------------------------------- Hallwood Realty, LLC
Anthony J. Gumbiner (Chief Executive Officer)

/s/ WILLIAM L. GUZZETTI President and Director, March 15, 2001
- -------------------------------------------------- Hallwood Realty, LLC
William L. Guzzetti (Chief Operating Officer)

/s/ JEFFREY D. GENT Vice President - Finance, March 15, 2001
- -------------------------------------------------- Hallwood Realty, LLC
Jeffrey D. Gent (Chief Accounting Officer)

/s/ALAN G. CRISP Director, March 15, 2001
- -------------------------------------------------- Hallwood Realty, LLC
Alan G. Crisp

/s/ WILLIAM F. FORSYTH Director, March 15, 2001
- -------------------------------------------------- Hallwood Realty, LLC
William F. Forsyth

/s/ EDWARD T. STORY Director, March 15, 2001
- -------------------------------------------------- Hallwood Realty, LLC
Edward T. Story

Page 40 of 40

41

HALLWOOD REALTY PARTNERS, L.P.
EXHIBIT INDEX

Exhibit
Number Exhibit
- ------ -------

3.1 Certificate of Limited Partnership of Hallwood Realty Partners, L.P., dated January 10, 1990.
(Filed as an Exhibit to Registration Statement No. 33-35621 on Form S-4 of the Partnership,
filed with the Commission on June 28, 1990, as amended, on June 29, 1990 and incorporated
herein by reference.)

3.2 Amended and Restated Agreement of Limited Partnership of Hallwood Realty Partners, L.P.,
dated June 7, 1990. (Filed as an Exhibit to Registration Statement No. 33-35621 on Form S-4
of the Partnership, filed with the Commission on June 28, 1990, as amended, on June 29, 1990
and incorporated herein by reference.)

4.1 Unit Purchase Rights Agreement, dated as of November 30, 1990, between the Partnership and
The First National Bank of Boston, as Rights Agent (Filed as part of Exhibit 1 to Current Report
of Form 8-K, dated November 30, 1990, and which is incorporated herein by reference - File
No. 1-10643). (Incorporated by reference from exhibit 4.1 filed with Annual Report on Form
10-K for the fiscal year ended December 31, 1999.)

4.2 Amendment No. 1 to Unit Purchase Rights Agreement dated February 14, 2000 (Incorporated
by reference from exhibit 4.2 filed with Annual Report on Form 10-K for the fiscal year ended
December 31, 1999.)

10.1* 1995 Unit Option Plan for Hallwood Realty Partners, L.P. (Incorporated by reference as the
exhibit indicated and filed with Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.)

10.2* 1995 Unit Option Plan Loan Program for Hallwood Realty Partners, L.P. (Incorporated by
reference as the exhibit indicated and filed with Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.)

10.3 Loan Agreement between Hallwood 95, L.P. and Nomura Asset Capital Corporation.
(Incorporated by reference from exhibit 2.1 filed with Current Report on Form 8-K dated
September 29, 1995.)

10.4 Amended and Restate Agreement of Limited Partnership of Hallwood 95, L.P. (Incorporated
by reference from exhibit 10.17 filed with Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.)

10.5 Management Agreement between Hallwood Real Estate Investors Fund XV and Hallwood Commercial Real Estate, LLC
dated July 1, 1999. (Agreement is representative of each individual management agreement for real estate
properties owned by Hallwood Realty Partners, L.P. Differences in the individual agreements include, but not
limited to, owners' name, property name, and legal description. Exhibit D to this item is a schedule
reflecting the economic differences in leasing fee compensation.) (Incorporated by reference from exhibit 10.5
filed with Annual Report on Form 10-K for the fiscal year ended December 31, 1999.)

* Constitutes a management compensation plan.