CRESCENT REAL ESTATE EQUITIES LTD PARTNERSHIP - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR QUARTER ENDED JUNE 30, 2002
COMMISSION FILE NO. 333-42293

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
------------------------------------------------------
(Exact name of registrant as specified in its charter)

DELAWARE 75-2531304
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)

777 Main Street, Suite 2100, Fort Worth, Texas 76102
----------------------------------------------------
(Address of principal executive offices)(Zip code)

Registrant's telephone number, including area code (817) 321-2100

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 twelve (12) months (or for such shorter period that the registrant
was required to file such report) and (2) has been subject to such filing
requirements for the past ninety (90) days.

YES [X] NO [ ]

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
FORM 10-Q
TABLE OF CONTENTS

1

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

The accompanying notes are an integral part of these financial statements.

2

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)

The accompanying notes are an integral part of these financial statements.

3

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)

The accompanying notes are an integral part of these financial statements.

4

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)

The accompanying notes are an integral part of these financial statements.

5

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)

1. ORGANIZATION AND BASIS OF PRESENTATION:

ORGANIZATION

Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership ("CREELP" and, together with its direct and indirect ownership
interests in limited partnerships, corporations and limited liability companies,
the "Operating Partnership"), was formed under the terms of a limited
partnership agreement dated February 9, 1994. The Operating Partnership is
controlled by Crescent Real Estate Equities Company, a Texas real estate
investment trust (the "Company"), through the Company's ownership of all of the
outstanding stock of Crescent Real Estate Equities, Ltd., a Delaware corporation
("the General Partner"), which owns an approximately 1% general partner interest
in the Operating Partnership. In addition, the Company owns an approximately 89%
limited partner interest in the Operating Partnership, with the remaining
approximately 10% limited partner interest held by other limited partners.

All of the limited partners of the Operating Partnership, other than
the Company, own, in addition to limited partner interests, units. Each unit
entitles the holder to exchange the unit (and the related limited partner
interest) for two common shares of the Company or, at the Company's option, an
equivalent amount of cash. For purposes of this report, the term "unit" or "unit
of partnership interest" refers to the limited partner interest and, if
applicable, related units held by a limited partner. Accordingly, as of June 30,
2002, the Company's approximately 89% limited partner interest has been treated
as equivalent, for purposes of this report, to 58,436,809 units, and the
remaining approximately 10% limited partner interest has been treated as
equivalent, for purposes of this report, to 6,591,234 units. In addition, the
Company's 1% general partner interest has been treated as equivalent, for
purposes of this report, to 656,849 units.

The Company owns its assets and carries on its operations and other
activities through the Operating Partnership and its other subsidiaries. The
limited partnership agreement of the Operating Partnership acknowledges that all
of the Company's operating expenses are incurred for the benefit of the
Operating Partnership and provides that the Operating Partnership shall
reimburse the Company for all such expenses. Accordingly, expenses of the
Company are reimbursed by the Operating Partnership.

Crescent Finance Company, a Delaware corporation wholly-owned by the
Operating partnership, was organized in March 2002 for the sole purpose of
acting as co-issuer with the Operating Partnership of $375,000 aggregate
principal amount of 9.25% senior notes due 2009. Crescent Finance Company does
not conduct operations of its own.

The following table shows by consolidated entity, the real estate
assets (the "Properties") that the Operating Partnership owned or had an
interest in as of June 30, 2002.

Operating Partnership Wholly-owned assets - The Avallon IV, Datran Center (two office properties), Houston
Center (three office properties) and The Park Shops at Houston Center. These Properties
are included in the Operating Partnership's Office Segment.

Joint Venture assets, consolidated - 301 Congress Avenue (50% interest) and The
Woodlands Office Properties (85.6% interest) (six office properties). These Properties
are included in the Operating Partnership's Office Segment.

Joint Venture assets, unconsolidated - Bank One Center (50% interest), Bank One Tower
(20% interest) and Four Westlake Park (20% interest). These Properties are included in
the Operating Partnership's Office Segment. Currently under construction is the
5 Houston Center office property (25% interest), which will be included in the Operating
Partnership's Office Segment when construction is complete.

6

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Equity Investments - Mira Vista (94% interest), The Highlands (11.6% interest),
Falcon Point (94% interest), Falcon Landing (94% interest) and Spring Lakes (94%
interest). These Properties are included in the Operating Partnership's Residential
Development Segment.

Crescent TRS Holding Equity Investments - Desert Mountain (93% interest) and The Woodlands (42.5% interest).
Corp. These Properties are included in the Operating Partnership's Residential Development
Segment.

COPI Colorado, L.P. Equity Investments - Bear Paw Lodge (60% interest), Eagle Ranch (60% interest), Main
Street Junction (30% interest), Main Street Station (30% interest), Main Street Station
Vacation Club (30% interest), Riverbend (60% interest), Three Peaks (Eagle's Nest) (30%
interest), Park Place at Riverfront (64% interest), Park Tower at Riverfront (64%
interest), Promenade Lofts at Riverfront (64% interest), Cresta (60% interest), Snow
Cloud (64% interest), One Vendue Range (62% interest), Old Greenwood (71.2% interest)
and Northstar Mountain Properties (57% interest). These Properties are included in the
Operating Partnership's Residential Development Segment.

Crescent Real Estate Wholly-owned assets - The Aberdeen, The Avallon I, II & III, Carter Burgess Plaza, The
Funding I, L.P. Citadel, The Crescent Atrium, The Crescent Office Towers, Regency Plaza One, Waterside
("Funding I") Commons and 125 E. John Carpenter Freeway. These Properties are included in the
Operating Partnership's Office Segment.

Crescent Real Estate Wholly owned assets - Albuquerque Plaza, Barton Oaks Plaza, Briargate Office and
Funding II, L.P. Research Center, Las Colinas Plaza, Liberty Plaza I & II, MacArthur Center I & II,
("Funding II") Ptarmigan Place, Stanford Corporate Center, Two Renaissance Square and 12404 Park
Central. These Properties are included in the Operating Partnership's Office Segment.
Also, the Hyatt Regency Albuquerque and the Park Hyatt Beaver Creek Resort & Spa, both
of which are included in the Operating Partnership's Resort/Hotel Segment

Crescent Real Estate Wholly-owned assets - Greenway Plaza Office Properties (ten office properties),
Funding III, IV and V, included in the Operating Partnership's Office Segment, and Renaissance Houston Hotel,
L.P. ("Funding III, IV included in the Operating Partnership's Resort/Hotel Segment.
and V")(1)

Crescent Real Estate Wholly-owned assets - Canyon Ranch - Lenox, included in the Operating Partnership's
Funding VI, L.P. Resort/Hotel Segment.
("Funding VI")

Crescent Real Estate Wholly-owned assets - nine behavioral healthcare properties, all of which are
Funding VII, L.P. classified as Properties Held for Disposition.
("Funding VII")

Crescent Real Estate Wholly-owned assets - The Addison, Addison Tower, Austin Centre, The Avallon V, Frost
Funding VIII, L.P. Bank Plaza, Greenway I & IA (two office properties), Greenway II, Palisades Central I,
("Funding VIII") Palisades Central II, Stemmons Place, Three Westlake Park, Trammell Crow Center, 3333
Lee Parkway, 1800 West Loop South and 5050 Quorum. These Properties are included in the
Operating Partnership's Office Segment. Also, Canyon Ranch - Tucson, Omni Austin Hotel,
Sonoma Mission Inn & Spa and Ventana Inn & Spa, which are included in the Operating
Partnership's Resort/Hotel Segment.

Crescent Real Estate Wholly-owned assets - Chancellor Park, MCI Tower, Miami Center, Reverchon Plaza, 44
Funding IX, L.P. Cook Street, 55 Madison and 6225 N. 24th Street (3). These Properties are included in
("Funding IX")(2) the Operating Partnership's Office Segment. Also, the Denver Marriott City Center,
which is included in the Operating Partnership's Resort/Hotel Segment.

Crescent Real Estate Wholly-owned assets - Fountain Place and Post Oak Central (three Office Properties),
Funding X, L.P. all of which are included in the Operating Partnership's Office Segment.
("Funding X")

Crescent Spectrum Wholly-owned assets - Spectrum Center, included in the Operating Partnership's Office
Center, L.P.(4) Segment.

- ----------

(1) Funding III owns nine of the ten office properties in the Greenway
Plaza office portfolio and the Renaissance Houston Hotel; Funding IV
owns the central heated and chilled water plant building located at
Greenway Plaza; and Funding V owns 9 Greenway, the remaining office
property in the Greenway Plaza office portfolio.

(2) Funding IX holds its interests in Chancellor Park and Miami Center
through its 100% membership interests in the owners of the Properties,
Crescent Chancellor Park, LLC and Crescent Miami Center, LLC.

(3) This Office Property was sold subsequent to June 30, 2002.

7

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(4) Crescent Spectrum Center, L.P. holds its interest in Spectrum Center
through its ownership of the underlying land and notes and a mortgage
on the Property.

See "Note 7. "Investments in Real Estate Mortgages and Equity of
Unconsolidated Companies" for a table that lists the Operating Partnership's
ownership in significant unconsolidated subsidiaries, including joint ventures
and equity investments as of June 30, 2002.

See "Note 8. Notes Payable and Borrowings under Fleet Facility" for a
list of certain other subsidiaries of the Operating Partnership, all of which
are consolidated in the Operating Partnership's financial statements and were
formed primarily for the purpose of obtaining secured debt or joint venture
financing.

On February 14, 2002, the Operating Partnership executed an agreement
with Crescent Operating, Inc. ("COPI"), pursuant to which COPI transferred to
the Operating Partnership, in lieu of foreclosure, COPI's lessee interests in
the eight Resort/Hotel Properties leased to subsidiaries of COPI and
substantially all of COPI's voting common stock in three of the Operating
Partnership's Residential Development Corporations. See "Note 16. COPI" for
additional information related to the Operating Partnership's agreement with
COPI.

SEGMENTS

The assets and operations of the Operating Partnership were divided
among four investment segments at June 30, 2002;

o the Office Segment;

o the Resort/Hotel Segment;

o the Residential Development Segment; and

o the Temperature-Controlled Logistics Segment.

The assets owned in whole or in part by the Operating Partnership as of
June 30, 2002 are classified within these investment segments as follows:

o OFFICE SEGMENT consisted of 64 wholly-owned office properties
(including three retail properties) and 10 office properties, seven of
which are consolidated and three of which are unconsolidated, in which
the Operating Partnership has a joint venture interest (collectively
referred to as the "Office Properties") located in 26 metropolitan
submarkets in six states, with an aggregate of approximately 28.3
million net rentable square feet. Additionally, the Operating
Partnership is developing an office property in Houston, Texas through
an unconsolidated entity that will be included in the Office Segment
upon completion.

o RESORT/HOTEL SEGMENT consisted of five luxury and destination fitness
resorts and spas with a total of 1,036 rooms/guest nights and four
upscale business-class hotel properties with a total of 1,771 rooms
(collectively referred to as the "Resort/Hotel Properties").

o RESIDENTIAL DEVELOPMENT SEGMENT consisted of the Operating
Partnership's ownership of real estate mortgages and voting and
non-voting common stock representing interests of 94% to 100% in five
residential development corporations (collectively referred to as the
"Residential Development Corporations"), which in turn, through joint
venture or partnership arrangements, owned in whole or in part 22
upscale residential development properties (collectively referred to as
the "Residential Development Properties").

8

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

o TEMPERATURE-CONTROLLED LOGISTICS SEGMENT consisted of the Operating
Partnership's 40% interest in a general partnership (the
"Temperature-Controlled Logistics Partnership"), which owns all of the
common stock, representing substantially all of the economic interest,
of AmeriCold Corporation (the "Temperature-Controlled Logistics
Corporation"), a real estate investment trust, which, as of June 30,
2002, directly or indirectly owned 89 temperature-controlled logistics
properties (collectively referred to as the "Temperature-Controlled
Logistics Properties") with an aggregate of approximately 445.2 million
cubic feet (17.7 million square feet) of warehouse space.

See "Note 6. Segment Reporting" for a table showing total revenues,
operating expenses, equity in net income (loss) of unconsolidated companies and
funds from operations for each of these investment segments for the three and
six months ended June 30, 2002 and 2001, and identifiable assets for each of
these investment segments at June 30, 2002 and December 31, 2001.

For purposes of segment reporting as defined in Statement of Financial
Accounting Standard ("SFAS") No. 131, "Disclosures About Segments of an
Enterprise and Related Information" and this Quarterly Report on Form 10-Q, the
Resort/Hotel Properties, the Residential Development Properties and the
Temperature-Controlled Logistics Properties are considered three separate
reportable segments, as described above. However, for purposes of investor
communications, the Operating Partnership classifies its luxury and destination
fitness resorts and spas and Residential Development Properties as a single
group referred to as the "Resort and Residential Development Sector" due to the
similar characteristics of targeted customers. This group does not contain the
four business-class hotel properties. Instead, for investor communications, the
four business-class hotel properties are classified with the
Temperature-Controlled Logistics Properties as the Operating Partnership's
"Investment Sector."

BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP") for interim
financial information, as well as in accordance with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, the information and
footnotes required by GAAP for complete financial statements are not included.
In management's opinion, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the unaudited
interim financial statements are included. Operating results for interim periods
reflected do not necessarily indicate the results that may be expected for a
full fiscal year. You should read these financial statements in conjunction with
the financial statements and the accompanying notes included in the Operating
Partnership's form 10-K, as amended, for the year ended December 31, 2001.

Certain amounts in prior period financial statements have been
reclassified to conform with current period presentation.

9

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

2. ADOPTION OF NEW ACCOUNTING STANDARDS:

In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 142, "Goodwill and Other Intangible Assets" (effective January 1,
2002). SFAS No. 142 specifies that goodwill and certain other types of
intangible assets may no longer be amortized, but instead are subject to
periodic impairment testing. If an impairment charge is required, the charge is
reported as a change in accounting principle and is included in operating
results as a Cumulative Effect of a Change in Accounting Principle. SFAS No. 142
provides for a transitional period of up to twelve months. Any need for
impairment must be assessed within the first six months and the amount of
impairment must be determined within the next six months. Any additional
impairment taken in subsequent interim periods during 2002 related to the
initial adoption of this statement will require the first quarter financial
statements to be restated. During the three months ended March 31, 2002 the
Operating Partnership recognized a goodwill impairment charge of approximately
$10,300 due to the initial application of this statement. This charge was due to
an impairment (net of taxes) of the goodwill at the Temperature-Controlled
Logistics Corporation. This charge was reported as a change in accounting
principle and was included in the Operating Partnership's consolidated
statements of operations as a "Cumulative Effect of a Change in Accounting
Principle" for the three months ended March 31, 2002. Subsequent to March 31,
2002 the Operating Partnership determined that an additional impairment charge
of $1,500, net of minority interest and taxes, was required for the goodwill at
one of the Residential Development Corporations, bringing the total impairment
charge to be recognized for the six months ended June 30, 2002 to $11,800. In
accordance with SFAS No. 142, the financial statements for the quarter ended
March 31, 2002 have been restated to include the additional impairment charge of
$1,500. Accordingly, the entire $11,800 impairment charge against the goodwill
of the Temperature-Controlled Logistics Corporation and one of the Residential
Development Corporations has been included in the Operating Partnership's
consolidated statements of operations as a "Cumulative Effect of a Change in
Accounting Principle" for the six months ended June 30, 2002.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The statement is effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. The adoption of this statement did not materially affect the Operating
Partnership's interim or annual financial statements; however, for the three and
six months ended June 30, 2002, financial statement presentation was modified to
report the results of operations, including any gains or losses recognized in
accordance with this statement, and the financial position of the Operating
Partnership's real estate assets sold or classified as held for sale, as
discontinued operations. As a result, the Operating Partnership has reclassified
certain amounts in prior period financial statements to conform with the new
presentation requirements.

3. DISCONTINUED OPERATIONS:

On January 1, 2002, the Operating Partnership adopted SFAS No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets." Accordingly,
the results of operations, including any gains or losses recognized in
accordance with this statement, are disclosed separately on the Operating
Partnership's consolidated statements of operations for the three and six months
ended June 30, 2002 and 2001 as "Discontinued Operations - Income and Gain on
Assets Sold and Held for Sale." Similarly, the financial position of the
Operating Partnership's assets held for sale are disclosed separately as
"Properties Held for Disposition, Net" on the Operating Partnership's
consolidated balance sheets at June 30, 2002, and December 31, 2001.
Accordingly, the 2001 financial statements have been restated to reflect the
adoption of SFAS No. 144.

OFFICE SEGMENT

On January 18, 2002, the Operating Partnership completed the sale of
the Cedar Springs Plaza Office Property in Dallas, Texas. The sale generated net
proceeds of approximately $12,000 and a net gain of approximately $4,500. The
proceeds from the sale of the Cedar Springs Plaza Office Property were used to
pay down the Operating Partnership's line of credit. This Property was
wholly-owned by the Operating Partnership and was included in the Operating
Partnership's Office Segment.

10

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

On May 29, 2002, the Woodlands Office Equities - '95 Limited ("WOE"),
owned by the Operating Partnership and the Woodlands Commercial Properties
Company, L.P. (the "Woodlands CPC"), sold two Office Properties located within
The Woodlands, Texas. The sale generated net proceeds of approximately $3,600,
of which the Operating Partnership's portion was approximately $3,200, and
generated a net gain of approximately $1,900, of which the Operating
Partnership's portion was approximately $1,700. The proceeds received by the
Operating Partnership were used primarily to pay down the existing line of
credit. These two Properties were consolidated, joint venture properties and
were included in the Operating Partnership's Office Segment.

As of June 30, 2002, the 6225 North 24th Street Office Property located
in Phoenix, Arizona was classified as held for sale. The carrying value of the
86,000 square foot Class A Office Property in the Camelback Corridor submarket
was approximately $7,500 at June 30, 2002. The Property was wholly-owned by the
Operating Partnership and was included in the Operating Partnership's Office
Segment. See "Note 17. Subsequent Events" for information regarding the
subsequent sale of this Property.

Also classified as held for sale as of June 30, 2002 was the Washington
Harbour Phase II Land located in the Georgetown submarket of Washington, D.C.
The 1.4 acre tract of land had previously been classified as Land Held for
Investment or Development. During the six months ended June 30, 2002, the
Operating Partnership recognized an impairment charge of approximately $1,000 on
this land. After recognition of this impairment, the carrying value of the land
at June 30, 2002, was approximately $15,000. The land is wholly-owned by the
Operating Partnership and is included in the Operating Partnership's Office
Segment.

The following table indicates the rental revenue, operating expenses,
depreciation and amortization and net income (loss) for the six months ended
June 30, 2002 and 2001 and net carrying value at June 30, 2002 and 2001 of the
Office Properties sold during the six months ended June 30, 2002 and held for
sale as of June 30, 2002.

OFFICE SEGMENT

11

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

OTHER

As of June 30, 2002, the Operating Partnership owned nine behavioral
healthcare properties, all of which were classified in the Operating
Partnership's financial statements as "Properties Held for Disposition, Net."
During the six months ended June 30, 2002, the Operating Partnership recognized
an impairment charge of approximately $600 on one of the behavioral healthcare
properties held for sale. This charge was recognized in the Operating
Partnership's consolidated statements of operations as "Discontinued Operations
- - Income and Gain on Assets Sold and Held for Sale." The charge represents the
difference between the carrying value of the property and the estimated sales
price less costs of sale. After recognition of this impairment, the carrying
value of the behavioral healthcare properties at June 30, 2002 was approximately
$25,000. Depreciation expense has not been recognized since the dates the
behavioral healthcare properties were classified as held for sale. The Operating
Partnership has entered into contracts or letters of intent to sell three
behavioral healthcare properties and is actively marketing for sale the
remaining six behavioral healthcare properties. The sales of these behavioral
healthcare properties are expected to close within the next year.

12

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

4. EARNINGS PER UNIT OF PARTNERSHIP INTEREST:

SFAS No. 128 "Earnings Per Share" ("EPS") specifies the computation,
presentation and disclosure requirements for earnings per share. Basic EPS
excludes all dilution while Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common shares were
exercised or converted into common shares.

13

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The effect of the conversion of the Series A Convertible Cumulative
Preferred Units is not included in the computation of Diluted EPS for the
three and six months ended June 30, 2002 or 2001, since the effect of their
conversion would be antidilutive.

14

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

5. SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOWS:

15

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

6. SEGMENT REPORTING:

For purposes of segment reporting as defined in SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," the
Operating Partnership currently has four major investment segments based on
property type: the Office Segment; the Resort/Hotel Segment; the Residential
Development Segment; and the Temperature-Controlled Logistics Segment.
Management utilizes this segment structure for making operating decisions and
assessing performance.

The Operating Partnership uses funds from operations ("FFO") as the
measure of segment profit or loss. FFO, as used in this document, means:

o Net Income (Loss) - determined in conformity with GAAP;

o excluding gains (or losses) from sales of depreciable
operating property;

o excluding extraordinary items (as defined by GAAP);

o plus depreciation and amortization of real estate assets; and

o after adjustments for unconsolidated partnerships and joint
ventures.

The National Association of Real Estate Investment Trusts ("NAREIT")
developed FFO as a relative measure of performance and liquidity of an equity
REIT to recognize that income-producing real estate historically has not
depreciated on the basis determined under GAAP. The Operating Partnership
considers FFO an appropriate measure of performance for an equity REIT and for
its investment segments. However FFO:

o does not represent cash generated from operating activities
determined in accordance with GAAP (which, unlike FFO,
generally reflects all cash effects of transactions and other
events that enter into the determination of net income);

o is not necessarily indicative of cash flow available to fund
cash needs;

o should not be considered as an alternative to net income
determined in accordance with GAAP as an indication of the
Operating Partnership's operating performance, or to cash flow
from operating activities determined in accordance with GAAP
as a measure of either liquidity or the Operating
Partnership's ability to make distributions; and

o the Operating Partnership's measure of FFO may not be
comparable to similarly titled measures of operating
partnerships of REITs (other than the Company) because these
REITs may apply the definition of FFO in a different manner
than the Operating Partnership.

16

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Selected financial information related to each segment for the three
and six months ended June 30, 2002 and 2001, and identifiable assets for each of
the segments at June 30, 2002 and December 31, 2001 are presented below.

- ----------

Footnotes start on page 18.

17

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

- ----------

(1) For purposes of this Note, the behavioral healthcare properties' financial
information has been included in this column.

(2) Includes interest and other income, behavioral healthcare property income,
preferred return paid to GMAC Commercial Mortgage Corporation ("GMACCM"),
other unconsolidated companies, less depreciation and amortization of
non-real estate assets and amortization of deferred financing costs.

18

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(3) Reconciliation of Funds From Operations to Net Income

- ----------

(1) These amounts primarily represent impairment of the Operating
Partnership's investment in DBL Holdings, Inc., related to the Class
C-1 Notes issued by Juniper CBO 1999-1 Ltd., a privately placed equity
interest of a collateralized bond obligation. (See "Note 7. Investments
in Real Estate Mortgages and Equity of Unconsolidated Companies" for
further discussion).

SIGNIFICANT LESSEES

See "Note 7. Investments in Real Estate Mortgages and Equity of
Unconsolidated Companies - Temperature-Controlled Logistics Properties" for a
description of the sole lessee of the Temperature-Controlled Logistics
Properties.

7. INVESTMENTS IN REAL ESTATE MORTGAGES AND EQUITY OF UNCONSOLIDATED
COMPANIES:

The Operating Partnership has investments of 20% to 50% in three
unconsolidated joint ventures that own three Office Properties. Additionally,
the Operating Partnership has an investment of 25% in an unconsolidated joint
venture that is constructing the 5 Houston Center Office Property. The Operating
Partnership does not have control of these partnerships, and therefore, these
investments are accounted for using the equity method of accounting.

19

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The Operating Partnership has other unconsolidated equity investments
with interests ranging from 24% to 97.4%. The Operating Partnership does not
have control of these entities due to ownership interests of 50% or less or the
ownership of non-voting interests only, and therefore, these investments are
also accounted for using the equity method of accounting.

Investments in which the Operating Partnership does not have a
controlling interest are accounted for under the equity method. The following is
a summary of the Operating Partnership's ownership in significant joint ventures
and equity investments.

- ----------

(1) The remaining 50.0% interest in Main Street Partners, L.P. is owned by
Trizec Properties, Inc.

(2) The remaining 75% interest in Crescent 5 Houston Center, L.P. is owned
by a pension fund advised by JP Morgan Investment Management, Inc. The
Operating Partnership recorded $611 in development, and leasing fees,
related to this investment during the six months ended June 30, 2002.
The 5 Houston Center Office Property is currently under construction.

(3) The remaining 80% interest in Austin PT BK One Tower Office Limited
Partnership and Houston PT Four Westlake Office Limited Partnership is
owned by an affiliate of General Electric Pension Fund. The Operating
Partnership recorded $321 in management and leasing fees for these
Office Properties during the six months ended June 30, 2002.

(4) The remaining 6.0% interest in Mira Vista Development, Corp. ("MVDC"),
which represents 100% of the voting stock, is owned 4.0% by DBL
Holdings, Inc. ("DBL") and 2.0% by third parties.

(5) The remaining 6.0% interest in Houston Area Development Corp. ("HADC"),
which represents 100% of the voting stock, is owned 4.0% by DBL and
2.0% by a third party.

20

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(6) On February 14, 2002, the Operating Partnership executed an agreement
with COPI, pursuant to which COPI transferred to subsidiaries of the
Operating Partnership, in lieu of foreclosure, COPI's interests in
substantially all of the voting stock in three of the Operating
Partnership's Residential Development Corporations (Desert Mountain
Development Corporation ("DMDC"), The Woodlands Land Company, Inc.
("TWLC") and Crescent Resort Development, Inc. ("CRDI")), and in CRL
Investments, Inc. ("CRLI"). COPI transferred its 60% general partner
interest in COPI Colorado, L.P. which owns 10% of the voting stock in
CRDI, which increased the Operating Partnership's ownership interest in
CRDI from 90% to 96%. As a result, the Operating Partnership fully
consolidated the operations of these entities beginning on the date of
the asset transfers. The Woodlands Land Development Company, L.P. is an
unconsolidated equity investment of TWLC. Desert Mountain Commercial,
L.L.C. and GDW, L.L.C. are unconsolidated equity investments of DMDC
(collectively, the "DM Subsidiaries"). East West Resorts Development
II, L.P., L.L.L.P., Blue River Land Company, L.L.C., Iron Horse
Investments, L.L.C. and Manalapan Hotel Partners (collectively, the
"CRD Subsidiaries") are unconsolidated equity investments of CRDI.

(7) The remaining 57.5% interest in The Woodlands Land Development Company,
L.P., The Woodlands Commercial Properties Company (the "Woodlands CPC")
and The Woodlands Operating Company, L.P are owned by an affiliate of
Morgan Stanley.

(8) Distributions are made to partners based on specified payout
percentages. During the six months ended June 30, 2002, the payout
percentage to the Operating Partnership was 52.5%.

(9) The remaining 53.5% interest in Desert Mountain Commercial, L.L.C. is
owned by parties unrelated to the Operating Partnership.

(10) Of the remaining 61.5% interest in East West Resorts Development II,
L.P., L.L.L.P., 0.8% is indirectly owned by John Goff, Vice-Chairman of
the Board of Trust Managers and Chief Executive Officer of the Company
and sole director and Chief Executive Officer of the General Partner,
through his 20% ownership of COPI Colorado, L.P. and 60.7% is owned by
parties unrelated to the Operating Partnership.

(11) Of the remaining 68.2% interest in Blue River Land Company, L.L.C.,
0.7% is indirectly owned by John Goff, Vice-Chairman of the Board of
Trust Managers and Chief Executive Officer of the Company and sole
director and Chief Executive Officer of the General Partner, through
his 20% ownership of COPI Colorado, L.P. and 67.5% is owned by parties
unrelated to the Operating Partnership.

(12) Of the remaining 72.9% interest in Iron Horse Investments, L.L.C., 0.6%
is indirectly owned by John Goff, Vice-Chairman of the Board of Trust
Managers and Chief Executive Officer of the Company and sole director
and Chief Executive Officer of the General Partner, through his 20%
ownership of COPI Colorado, L.P. and 72.3% is owned by parties
unrelated to the Operating Partnership.

(13) Of the remaining 76.0% interest in Manalapan Hotel Partners, 0.5% is
indirectly owned by John Goff, Vice-Chairman of the Board of Trust
Managers and Chief Executive Officer of the Company and sole director
and Chief Executive Officer of the General Partner, through his 20%
ownership of COPI Colorado, L.P. and 75.5% is owned by parties
unrelated to the Operating Partnership.

(14) The remaining 33.3% interest in GDW, L.L.C. is owned by a group of
individuals unrelated to the Operating Partnership.

(15) The remaining 60.0% interest in the Temperature-Controlled Logistics
Partnership is owned by Vornado Realty Trust, L.P.

(16) John Goff, Vice-Chairman of the Board of Trust Managers and Chief
Executive Officer of the Company and sole director and Chief Executive
Officer of the General Partner, obtained the remaining 2.6% economic
interest in DBL (including 100% of the voting interest in DBL) in
exchange for his voting interests in MVDC and HADC, originally valued
at approximately $380, and approximately $63 in cash, or total
consideration valued at approximately $443. At June 30, 2002, Mr.
Goff's book value in DBL was approximately $402.

(17) The remaining 70% interest in CR License, L.L.C. is owned by a group of
individuals unrelated to the Operating Partnership.

(18) The remaining 35% interest in Canyon Ranch Las Vegas is owned by a
group of individuals unrelated to the Operating Partnership.

(19) The SunTx Fulcrum Fund, L.P.'s (the "Fund") objective is to invest in a
portfolio of acquisitions that offer the potential for substantial
capital appreciation. The remaining 67% of the Fund is owned by a group
of individuals unrelated to the Operating Partnership. The Operating
Partnership's ownership percentage will decline by the closing date of
the Fund as capital commitments from third parties are secured. The
Operating Partnership projected ownership interest will be
approximately 7.5% based on the Fund manager's expectations for the
final Fund capitalization. The Operating Partnership accounts for its
investment in the Fund under the cost method. The current investment is
$7,800.

SUMMARY FINANCIAL INFORMATION

The Operating Partnership reports its share of income and losses based
on its ownership interest in its respective equity investments, adjusted for any
preference payments. As a result of the Operating Partnership's transaction with
COPI on February 14, 2002, certain entities that were reported as unconsolidated
entities as of December 31, 2001 and for the six months ended June 30, 2001 are
consolidated in the June 30, 2002 financial statements. Additionally, certain
unconsolidated subsidiaries of the newly consolidated entities are now shown
separately as unconsolidated entities of the Operating Partnership. The
unconsolidated entities that are included under the headings on the following
tables are summarized below.

21

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Balance Sheets as of June 30, 2002:

o Other Residential Development Corporations - This includes DM
Subsidiaries, CRD Subsidiaries, MVDC and HADC. DM Subsidiaries
and CRD Subsidiaries are unconsolidated investments of DMDC
and CRDI, respectively;

o The Woodlands Land Development Company, L.P. ("TWLDC") - This
is an unconsolidated investment of TWLC;

o Temperature-Controlled Logistics ("TCL"); and

o Office - This includes Main Street Partners, L.P., Houston PT
Four Westlake Office Limited Partnership, Austin PT BK One
Tower Office Limited Partnership, Crescent 5 Houston Center,
L.P., and Woodlands CPC.

Balance Sheets as of December 31, 2001:

o Crescent Resort Development, Inc.- This entity was
consolidated beginning February 14, 2002 as a result of the
COPI transaction. Its unconsolidated investments, CRD
Subsidiaries, are included under "Other Residential
Development Corporations" in the following Balance Sheets as
of June 30, 2002;

o The Woodlands Land Company, Inc. - This entity was
consolidated beginning February 14, 2002 as a result of the
COPI transaction. Its unconsolidated subsidiary is included
under "The Woodlands Land Development Company, L.P." in the
following Balance Sheets as of June 30, 2002;

o Other Residential Development Corporations - This includes
DMDC, MVDC and HADC. DMDC was consolidated beginning February
14, 2002 as a result of the COPI transaction;

o Temperature-Controlled Logistics; and

o Office - This includes Main Street Partners, L.P., Houston PT
Four Westlake Office Limited Partnership, Austin PT BK One
Tower Office Limited Partnership, Crescent 5 Houston Center,
L.P. and Woodlands CPC.

Summary Statement of Operations for the six months ended June 30, 2002:

o Other Residential Development Corporations - This includes the
operating results of DMDC and CRDI for the period January 1
through February 14, 2002; the operating results of CRD
Subsidiaries and DM Subsidiaries for the period February 15
through June 30, 2002; and the operating results of MVDC, HADC
for the six months ended June 30, 2002.

o The Woodlands Land Development Company, L.P. - This includes
TWLDC's operating results for the period February 15 through
June 30, 2002 and TWLC's operating results for the period
January 1 through February 14, 2002. TWLDC is an
unconsolidated subsidiary of TWLC;

o Temperature-Controlled Logistics - This includes the operating
results for TCL for the six months ended June 30, 2002; and

o Office - This includes the operating results for Main Street
Partners, L.P., Houston PT Four Westlake Office Limited
Partnership, Austin PT BK One Tower Office Limited
Partnership, Crescent 5 Houston Center, L.P. and Woodlands CPC
for the six months ended June 30, 2002.

Summary Statement of Operations for the six months ended June 30, 2001:

o Crescent Resort Development, Inc.- This includes the operating
results of CRDI for the six months ended June 30, 2001;

o The Woodlands Land Company, LP - This includes the operating
results of TWLC and TWLDC for the six months ended June 30,
2001;

o Other Residential Development Corporations - This includes the
operating results of DMDC, MVDC and HADC for the six months
ended June 30, 2001;

22

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

o Temperature-Controlled Logistics - This includes the operating
results for TCL for the six months ended June 30, 2001; and

o Office - This includes the operating results for Main Street
Partners and Woodlands CPC, for the six months ended June 30,
2001.

BALANCE SHEETS:

23

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

SUMMARY STATEMENTS OF OPERATIONS:

- ----------

(1) Inclusive of the preferred return paid to Vornado Realty Trust (1% per
annum of the Total Combined Assets).

(2) Excludes the goodwill write-off for TCL, which is recorded on the
accompanying financial statements as a cumulative change in accounting
principle.

(3) Includes impairment of DBL-CBO of $5,200.

24

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

UNCONSOLIDATED PROPERTY DISPOSITIONS

During the six months ended June 30, 2002, the Woodlands CPC sold two
office properties located within The Woodlands, Texas. The sales generated net
proceeds, after the repayment of debt, of approximately $8,900, of which the
Operating Partnership's portion was approximately $4,700. The sales generated a
net gain of approximately $11,700, of which the Operating Partnership's portion
was approximately $6,000. The proceeds received by the Operating Partnership
were used primarily to pay down the existing line of credit.

TEMPERATURE-CONTROLLED LOGISTICS PROPERTIES

As of June 30, 2002, the Operating Partnership held a 40% interest in
the Temperature-Controlled Logistics Partnership, which owns the
Temperature-Controlled Logistics Corporation, which directly or indirectly owns
the 89 Temperature-Controlled Logistics Properties, with an aggregate of
approximately 445.2 million cubic feet (17.7 million square feet) of warehouse
space.

The Temperature-Controlled Logistics Corporation leases the
Temperature-Controlled Logistics Properties to a partnership ("AmeriCold
Logistics") owned 60% by Vornado Operating L.P. and 40% by a subsidiary of COPI.
The Operating Partnership has no interest in AmeriCold Logistics.

AmeriCold Logistics, as sole lessee of the Temperature-Controlled
Logistics Properties, leases the Temperature-Controlled Logistics Properties
from the Temperature-Controlled Logistics Corporation under three triple-net
master leases, as amended. On February 22, 2001, the Temperature-Controlled
Logistics Corporation and AmeriCold Logistics agreed to restructure certain
financial terms of the leases, including the adjustment of the rental obligation
for 2001 to $146,000, the adjustment of the rental obligation for 2002 to
$150,000 (plus contingent rent in certain circumstances), the increase of the
Temperature-Controlled Logistics Corporation's share of capital expenditures for
the maintenance of the properties from $5,000 to $9,500 (effective January 1,
2000) and the extension of the date on which deferred rent is required to be
paid to December 31, 2003.

In December 2001, the Temperature Controlled Logistics Corporation
waived its right to collect $39,800 (the Operating Partnership's share of which
was $15,900) of the total $49,900 of deferred rent. The Temperature-Controlled
Logistics Corporation and the Operating Partnership began to recognize rental
income when earned and collected during the year ended December 31, 2000 and
continued this accounting treatment for the year ended December 31, 2001;
therefore, there was no financial statement impact to the Temperature-Controlled
Logistics Corporation or to the Operating Partnership related to the
Temperature-Controlled Logistics Corporation's decision in December 31, 2001 to
waive collection of deferred rent.

AmeriCold Logistics deferred $9,300 of the total $68,900 of rent
payable for the six months ended June 30, 2002. The Operating Partnership's
share of the deferred rent was $3,700. The Operating Partnership recognizes
rental income when earned and collected and has not recognized the $3,700 of
deferred rent in equity in net income of the Temperature-Controlled Logistics
Properties for the six months ended June 30, 2002.

25

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The following table shows the total, and the Operating Partnership's
portion of, deferred rent and valuation allowance at December 31, 2001 and for
the six months ended June 30, 2002.

OTHER

In March 1999, DBL-CBO, Inc., a wholly-owned subsidiary of DBL
Holdings, Inc., acquired an aggregate of $6,000 in principal amount of Class C-1
Notes issued by Juniper CBO 1999-1 Ltd., a Cayman Island limited liability
company. Juniper 1999-1 Class C-1 is the previously placed equity interest of a
collateralized bond obligation. During the six months ended June 30, 2002, the
Operating Partnership recognized an impairment charge related to this investment
of $5,200. As a result of this impairment charge at June 30, 2002 this
investment was valued at $0.

26

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

UNCONSOLIDATED DEBT ANALYSIS

The following table shows the Operating Partnership's unconsolidated
debt at June 30, 2002.

(1) Consists of several notes. Maturity date is based on largest debt
instrument representing 94% of debt balance. All interest rates are
fixed.

(2) Consists of two notes: Senior Note - variable interest rate at LIBOR +
189 basis points with no LIBOR floor. Mezzanine Note - variable
interest rate at LIBOR + 890 basis points with a LIBOR floor of 3.0%.
Interest-rate cap agreement maximum LIBOR of 4.52% on both notes.

(3) The Operating Partnership obtained a Letter of Credit to guarantee the
repayment of up to $4,250 of principal of the Main Street Partners,
L.P. loan.

(4) A full and unconditional guarantee of loan from Fleet for the
construction of 5 Houston Center is held by the Operating Partnership.
At June 30, 2002 and December 31, 2001, $38,200 and $10,400 was
outstanding, respectively.

(5) On February 14, 2002, the Operating Partnership executed an agreement
with COPI to transfer, in lieu of foreclosure, COPI's 5% interest in
Woodlands Land Development Company.

(6) There was an interest rate cap agreement executed with this credit
facility which limits interest rate exposure on the notional amount of
$145,000 to a maximum LIBOR rate of 9.0%.

(7) To mitigate interest rate exposure, WLDC has entered into an interest
rate swap against $50,000 notional amount to effectively fix the
interest rate at 5.28%. WLDC has also entered into an interest rate
swap against $50,000 notional amount to effectively fix the interest
rate at 4.855%.

(8) There was an interest rate cap agreement executed with this agreement
which limits interest rate exposure on the notional amount of $33,750
to a maximum LIBOR rate of 9.0%.

(9) There was an interest rate cap agreement executed with this agreement
which limits interest rate exposure on the notional amount of $19,500
to a maximum LIBOR rate of 8.5%.

(10) The Operating Partnership guarantees $3,000 of this facility.

27

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The following table shows, as of June 30, 2002, information about the
Operating Partnership's share of unconsolidated fixed and variable-rate debt and
does not take into account any extension options, hedging arrangements or the
entities' anticipated pay-off dates.

(1) Based on contractual maturities.

Listed below are the Operating Partnership's share of aggregate
principal payments by year required as of June 30, 2002 related to the Operating
Partnership's unconsolidated debt. Scheduled principal installments and amounts
due at maturity are included. The following table does not take into account any
extension options or hedging arrangements.

- ----------

(1) These amounts do not represent the effect of two one-year extension
options on two of The Woodlands Fleet National Bank loans totaling $99,200
that have initial maturity dates of November 2002 and October 2003.

28

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

8. NOTES PAYABLE AND BORROWINGS UNDER FLEET FACILITY:

The following is a summary of the Operating Partnership's debt financing at
June 30, 2002:

29

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

- ----------

(1) The outstanding principal balance of this note at maturity will be
approximately $224,100.

(2) In August 2007, the interest rate will increase, and the Operating
Partnership is required to remit, in addition to the monthly debt service
payment, excess property cash flow, as defined, to be applied first against
principal and thereafter, against accrued excess interest, as defined. It
is the Operating Partnership's intention to repay the note in full at such
time (August 2007) by making a final payment of approximately $220,500.

(3) This includes both a Deutsche Bank-CMBS note and a Fleet-Mezzanine note.
The notes are due May 2004 and bear interest at the 30-day LIBOR rate plus
a spread of (i) 164.7 basis points for the CMBS note (at June 30, 2002, the
interest rate was 5.15%), and (ii) 600 basis points for the Mezzanine note
(at June 30, 2002, the interest rate was 9.50%). The blended rate at June
30, 2002 for the two notes was 5.84%. The notes have three-year interest
only terms and two one-year extension options, and are secured by the
Office Properties owned by Funding X and the Operating Partnership's
interest in Spectrum Center. The Fleet-Mezzanine note is also secured by
the Operating Partnership's interests in Funding X and Crescent Spectrum
Center, L.P. and the Operating Partnership's interest in their general
partner.

(4) At the end of seven years (October 2006), the interest rate will also
adjust based on current interest rates at that time. It is the Operating
Partnership's intention to repay the note in full at such time (October
2006) by making a final payment of approximately $177,800.

(5) In March 2006, the interest rate will increase, and the Operating
Partnership is required to remit, in addition to the monthly debt service
payment, excess property cash flow, as defined, to be applied first against
principal and thereafter, against accrued excess interest, as defined. It
is the Operating Partnership's intention to repay the note in full at such
time (March 2006) by making a final payment of approximately $154,100.

(6) The outstanding principal balance of this loan at maturity will be
approximately $29,100.

(7) This facility is a $50,000 line of credit secured by certain DMDC land and
improvements ("vertical facility"), club facilities ("club loan"), and
notes receivable ("warehouse facility"). The line restricts the vertical
facility and club loan to a maximum outstanding amount of $40,000 and

30

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

is subject to certain borrowing base limitations and bears interest at
Prime (at June 30, 2002, the interest rate was 4.75%). The warehouse
facility bears interest at Prime plus 100 basis points (at June 30, 2002,
the interest rate was 5.75%) and is limited to $10,000. The blended rate at
June 30, 2002 for the vertical facility and club loan and the warehouse
facility was 5.04%.

(8) The outstanding principal balance of this loan at maturity will be
approximately $8,200.

(9) In July 2010, the interest rate due under the note will change to a 10-year
Treasury yield plus 500 basis points or, if the Operating Partnership so
elects, it may repay the note without penalty at that date by making a
final payment of $6,135.

(10) For a description of the 2009 Notes, see "Debt Offering" section below.

(11) The $400,000 Fleet Facility is an unsecured revolving line of credit to
Funding VIII and guaranteed by the Operating Partnership. Availability
under the line of credit is subject to certain covenants including total
leverage based on trailing twelve months net operating income from the
Properties, debt service coverage, specific mix of office and hotel assets
and average occupancy of Office Properties. At June 30, 2002, the
capacity under the Fleet Facility was approximately $383,700.

(12) The notes were issued in an offering registered with the SEC.

The following table shows information about the Operating Partnership's
consolidated fixed and variable-rate debt and does not take into account any
extension options, hedging arrangements or the Operating Partnership's
anticipated pay-off dates.

(1) Based on contractual maturities. The overall weighted average maturity is
4.1 years based on the Operating Partnership's expected payoff dates.

(2) Including the $527,000 of hedged variable-rate debt for percentages by
year for fixed-rate debt and variable-rate debt are 92% and 8%,
respectively.

(3) Including the effect of the hedge arrangements, the overall weighted
average interest rate would have been 7.89%.

Listed below are the aggregate principal payments by year required
as of June 30, 2002 under indebtedness of the Operating Partnership. Scheduled
principal installments and amounts due at maturity are included.

- ----------

(1) These amounts do not represent the effect of a one-year extension option on
the Fleet Facility and two one-year extension options on the Deutsche Bank
- CMBS Loan as noted above.

The Operating Partnership has $201,200 of secured and unsecured debt
due during 2002, consisting primarily of the Cigna Note, the Mitchell Mortgage
Note, unsecured short-term borrowings and the 2002 Notes. Borrowings under the
Operating Partnership's revolving line of credit are expected to be used to
repay or repurchase from time to time the remaining $97,900 of outstanding 2002
Notes due in September 2002. In addition, borrowings under the revolving line of
credit are expected to be used to repay the $63,500 CIGNA Note due in December
2002.

Any uncured or unwaived events of default on the Operating
Partnership's loans can trigger an acceleration of payment on the loan in
default. In addition, a default by the Operating Partnership or any of its
subsidiaries with respect to any indebtedness in excess of $5,000 generally will
result in a default under the Fleet Facility and the Fleet Fund I and II Term
Loan after the notice and cure periods for the other indebtedness have passed.
As of June 30, 2002, the Operating Partnership was in compliance with all of its
debt service coverage ratios and other covenants related to its outstanding
debt. The Operating Partnership's debt facilities generally prohibit loan
pre-payment for an initial period, allow pre-payment with a penalty during a
following specified period and allow pre-payment without penalty after the

31

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

expiration of that period. During the six months ended June 30, 2002, there were
no circumstances that required a pre-payment penalties or increased collateral
related to the Operating Partnership's existing debt.

In addition to the subsidiaries listed in "Note 1. Organization and
Basis of Presentation," certain other subsidiaries of the Operating Partnership
were formed primarily for the purpose of obtaining secured and unsecured debt or
joint venture financings. These entities, all of which are consolidated and are
grouped based on the Properties to which they relate are: Funding I and Funding
II Properties (CREM Holdings, LLC, Crescent Capital Funding, LLC, Crescent
Funding Interest, LLC, CRE Management I Corp., CRE Management II Corp.); Funding
III Properties (CRE Management III Corp.); Funding IV Properties (CRE Management
IV Corp.); Funding V Properties (CRE Management V Corp.); Funding VI Properties
(CRE Management VI Corp.); Funding VIII Properties (CRE Management VIII, LLC);
Funding IX Properties (CRE Management IX, LLC); Funding X Properties (CREF X
Holdings Management, LLC, CREF X Holdings, L. P., CRE Management X, LLC); and
Spectrum Center (Spectrum Center Partners, L.P., Spectrum Mortgage Associates,
L. P., CSC Holdings Management, LLC, Crescent SC Holdings, L.P., CSC Management,
LLC).

DEBT OFFERING

On April 15, 2002, the Operating Partnership completed a private
offering of $375,000 in senior, unsecured notes due 2009. The notes bear
interest at an annual rate of 9.25% and were issued at 100% of issue price. The
notes are callable after April 15, 2006. Interest will be payable in cash on
April 15 and October 15 of each year, beginning October 15, 2002. The Operating
Partnership has filed a registration statement with the SEC to register a
similar series of notes with the SEC and to effect an exchange offer of the
registered notes for the privately placed notes. In addition, the Operating
Partnership has agreed to register certain of the notes for resale by their
holders. In the event that the exchange offer or resale registration is not
completed on or before October 15, 2002, the interest rate on the notes will
increase to 9.75% and increase to 10.25% after 90 days until the exchange offer
or resale registration is completed.

The net proceeds from the offering of notes were approximately
$366,500. Approximately $309,500 of the proceeds were used to pay down amounts
outstanding under the Fleet Facility, and the remaining proceeds were used to
pay down $5,000 of short-term indebtedness and redeem approximately $52,000 of
Class A Units in Funding IX from GMAC Commercial Mortgage Corporation. See "Note
13. Sale of Preferred Equity Interests in Subsidiary" for a description of the
Class A Units in Funding IX held by GMAC Commercial Mortgage Corporation.

32

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

9. INTEREST RATE CAPS:

In connection with the closing of the Deutsche Bank - CMBS Loan in May
2001, the Operating Partnership entered into a LIBOR interest rate cap struck at
7.16% for a notional amount of $220,000, and simultaneously sold a LIBOR
interest rate cap with the same terms. Since these instruments do not reduce the
Operating Partnership's net interest rate risk exposure, they do not qualify as
hedges and changes to their respective fair values are charged to earnings as
the changes occur. As the significant terms of these arrangements are
substantially the same, the effects of a revaluation of these instruments are
expected to substantially offset each other.

10. CASH FLOW HEDGES:

The Operating Partnership uses derivative financial instruments to
convert a portion of its variable-rate debt to fixed-rate debt and to manage its
fixed to variable-rate debt ratio. As of June 30, 2002, the Operating
Partnership had entered into three cash flow hedge agreements, which are
accounted for in conformity with SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities - an Amendment of
FASB Statement No. 133."

The following table shows information regarding the Operating
Partnership's cash flow hedge agreements as of June 30, 2002, additional
interest expense and unrealized gains recorded for the six months ended June 30,
2002:

33

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The Operating Partnership has designated its three cash flow hedge
agreements as cash flow hedges of LIBOR-based monthly interest payments on a
designated pool of variable-rate LIBOR indexed debt that reprices closest to the
reset dates of each cash flow hedge agreement. For retrospective effectiveness
testing, the Operating Partnership uses the cumulative dollar offset approach as
described in DIG Issue E8. The DIG is a task force designed to assist the FASB
in answering questions that companies have resulting from implementation of SFAS
No. 133 and SFAS No. 138. The Operating Partnership uses the change in variable
cash flows method as described in DIG Issue G7 for prospective testing as well
as for the actual recording of ineffectiveness, if any. Under this method, the
Operating Partnership will compare the changes in the floating rate portion of
each cash flow hedge to the floating rate of the hedged items. The cash flow
hedges have been and are expected to remain highly effective. Changes in the
fair value of these highly effective hedging instruments are recorded in
accumulated other comprehensive income. The effective portion that has been
deferred in accumulated other comprehensive income will be reclassified to
earnings as interest expense when the hedged items impact earnings. If a cash
flow hedge falls outside 80%-125% effectiveness for a quarter, all changes in
the fair value of the cash flow hedge for the quarter will be recognized in
earnings during the current period. If it is determined based on prospective
testing that it is no longer likely a hedge will be highly effective on a
prospective basis, the hedge will no longer be designated as a cash flow hedge
and no longer qualify for accounting in conformity with SFAS Nos. 133 and 138.

Over the next twelve months, an estimated $18,000 to $19,000 will be
reclassified from accumulated other comprehensive income to interest expense and
charged against earnings related to the effective portions of the cash flow
hedge agreements.

CRDI, a consolidated subsidiary of the Operating Partnership, also uses
derivative financial instruments to convert a portion of its variable-rate debt
to fixed-rate debt. As of June 30, 2002, CRDI had entered into three cash flow
hedge agreements, which are accounted for in conformity with SFAS Nos. 133 and
138.

The following table shows information regarding CRDI's cash flow hedge
agreements as of June 30, 2002 and additional capitalized interest recognized
for the six months ended June 30, 2002. Unlike the additional interest on the
Operating Partnership's cash flow hedges which was expensed, the additional
interest on CRDI's cash flow hedges was capitalized, as it is related to debt
incurred for projects that are currently under development.

CRDI uses the shortcut method described in SFAS No. 133, which
eliminates the need to consider ineffectiveness of the hedges, and instead
assumes that the hedges are highly effective.

11. INCOME TAXES:

The Company intends to maintain its qualification as a REIT under
Section 856 of the U.S. Internal Revenue Code of 1986, as amended (the "Code").
As a REIT, the Company generally will not be subject to corporate federal income
taxes as long as it satisfies certain technical requirements of the Code,
including the requirement to distribute 90% of REIT taxable income to its
shareholders. Accordingly, the Operating Partnership does not believe that it
will be liable for current income taxes on the Company's REIT taxable income at
the Federal level or in most of the states in which it operates. Additionally,
in conjunction with the Operating Partnership's agreement with COPI, the
Operating Partnership consolidated certain taxable REIT subsidiaries (the
"TRS"), which are subject to federal and state income tax. The Operating
Partnership's $3,900 total consolidated income tax benefit at June 30, 2002
includes tax expense

34

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

related to the operations of the TRS of $2,800, offset by a tax benefit of
$6,700. The $6,700 benefit results from the temporary difference between the
financial reporting basis and the respective tax basis of the hotel leases
acquired as part of the Operating Partnership's agreement with COPI. This
temporary difference will be reversed over an estimated five-year period, which
is the remaining lease term of the hotel leases. Cash paid for income taxes
totaled approximately $11,000 for the six months ended June 30, 2002.

The Operating Partnership's total net tax asset of approximately
$37,700 includes $20,900 of net deferred tax assets and a $16,800 net current
tax asset at June 30, 2002. The tax effects of each type of temporary difference
that give rise to a significant portion of the $20,900 deferred tax asset are as
follows:

Deferred recognition of DMDC club membership revenue $ 26,800
Recognition of development land cost of sales at DMDC
and TWLC (10,500)
Recognition of hotel lease cost 6,700
Other (2,100)
--------
Total deferred tax asset $ 20,900
========

The Operating Partnership recognizes deferred tax assets only to the
extent that it is more likely than not that they will be realized based on
consideration of available evidence, including tax planning strategies and other
factors. As of June 30, 2002, no valuation allowances have been recorded.

The $16,800 net current tax asset results primarily from anticipated
tax refunds related to recognition of a net operating loss carryback and 2001
overpayments of $11,700 for DMDC and cash paid for income taxes of $11,000,
offset by $5,900 current taxes payable.

12. MINORITY INTEREST:

Minority interest in real estate partnerships represents joint venture
or preferred equity partners' proportionate share of the equity in certain real
estate partnerships. The Operating Partnership holds a majority (50% or greater)
controlling interest in the real estate partnerships and thus, consolidates the
accounts into the Operating Partnership. Income in the real estate partnerships
is allocated to minority interest based on weighted average percentage ownership
during the year.

13. SALE OF PREFERRED EQUITY INTERESTS IN SUBSIDIARY AND INTRACOMPANY LOAN:

SALE OF CLASS A UNITS IN FUNDING IX

During the year ended December 31, 2000, the Operating Partnership
formed Funding IX and contributed seven Office Properties and two Resort/Hotel
Properties to Funding IX. As of June 30, 2002, Funding IX held seven Office
Properties and one Resort/Hotel Property. The Operating Partnership owns 100% of
the common voting interests in Funding IX, 0.1% in the form of a general partner
interest and 99.9% in the form of a limited partner interest.

Also during the year ended December 31, 2000, GMAC Commercial Mortgage
Corporation ("GMACCM") purchased $275,000 of non-voting, redeemable preferred
Class A Units in Funding IX (the "Class A Units"). The Class A Units are
redeemable at the option of the Operating Partnership at the original purchase
price. As of December 31, 2000, approximately $56,600 of the Class A Units had
been redeemed from GMACCM by the Operating Partnership. No redemptions occurred
during the year ended December 31, 2001. During the six months ended June 30,
2002, the Operating Partnership redeemed approximately $187,000 of the Class A
Units, reducing to $31,400 the amount of Class A Units held by GMACCM. The Class
A Units initially received a preferred variable-rate dividend calculated at
LIBOR plus 450 basis points. Beginning March 16, 2002, the preferred
variable-rate dividend increased to LIBOR plus 550 basis points, which resulted
in a dividend rate of approximately 7.34% per annum as of June 30, 2002.

35

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

IMPACT ON FINANCIAL STATEMENTS OF INTRACOMPANY LOAN

As of June 30, 2002, Funding IX had loaned a total of $281,107 from the
net proceeds from the sale of the Class A Units and a portion of the net
proceeds of the sale of one of the Properties held by Funding IX to Crescent SH
IX, Inc. ("SH IX"), for the purchase of common shares of the Company. The note,
which is included in Notes Receivable, Net, bears interest based on the
dividends paid on the common shares held by SH IX, a wholly-owned subsidiary of
the General Partner, and matures on March 15, 2003. SH IX is required to repay
the loan, plus any accrued and unpaid interest, at that time. SH IX will receive
the funds to repay the loan from the Company, pursuant to an agreement that
requires the Company to repurchase, on or before March 15, 2003, the common
shares of the Company held by SH IX. The Company will receive the funds to
repurchase the common shares from SH IX from the Operating Partnership, pursuant
to the limited partnership agreement of the Operating Partnership, which
requires the Operating Partnership to repurchase from the Company a
corresponding portion of the Company's limited partnership interest at such time
as the Company repurchases shares. A portion of the proceeds received by Funding
IX for the repayment of the principal amount of the note will be used to redeem
Class A Units.

As of June 30, 2002, the annual interest rate on the note was
approximately 7.72%. For the six months ended June 30, 2002, the Operating
Partnership recognized interest income of $10,800 on the note. The repurchased
common shares will be held in SH IX until all the Class A Units are redeemed.
The Company, as a partner of the Operating Partnership, receives quarterly
distributions from the Operating Partnership, which it then uses to make
distributions to it shareholders. Distributions on these repurchased common
shares will continue to be paid by the Company to SH IX, as a shareholder of
the Company, and will be used by SH IX to make payments of interest due to
Funding IX on the loan. Funding IX in turn will use these funds to pay
dividends on the Class A Units.

The operations, assets and liabilities of Funding IX and SH IX are
consolidated with those of the Company in the Company's consolidated financial
statements. The operations, assets and liabilities of Funding IX (but not those
of SH IX) are consolidated with those of the Operating Partnership in the
consolidated financial statements of the Operating Partnership. As a result, the
note and the payments on the note by SH IX to Funding IX are eliminated in the
Company's financial statements but are not eliminated in the financial
statements of the Operating Partnership. These items, therefore, are included in
Notes Receivable, Net and in Interest and Other Income in the Operating
Partnership's financial statements.

The following table compares the current financial statements of the
Operating Partnership prepared in accordance with GAAP and the adjusted
Operating Partnership financial statements, adjusted for the elimination of the
intracompany loan and associated interest income. This table provides certain
components of the financial statements, which would be affected by the
elimination of the intracompany loan, accrued interest related to the loan and
associated interest income.

36

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(1) The weighted average units used to calculate basic and diluted earnings per
unit include the common shares of the Company held in SH IX of 14,468,623
(7,234,312 equivalent units) for the six months ended June 30, 2002 and
2001. The adjusted basic and diluted earnings per unit after the
elimination of the intracompany loan exclude the common shares of the
Company held in SH IX.

14. PARTNERS' CAPITAL:

Each unit may be exchanged for either two common shares or, at the
election of the Company, cash equal to the fair market value of two common
shares at the time of the exchange. When a unitholder exchanges a unit, the
Company's percentage interest in the Operating Partnership increases. During the
six months ended June 30, 2002, there were 3,287 units exchanged for 6,574
common shares of the Company.

SHARE REPURCHASE PROGRAM

The Company commenced its Share Repurchase Program in March 2000. On
October 15, 2001, the Company's Board of Trust Managers increased from $500,000
to $800,000 the amount of outstanding common shares that can be repurchased from
time to time in the open market or through privately negotiated transactions
(the "Share Repurchase Program"). As of June 30, 2002, the Company had
repurchased 20,256,423 common shares, at an aggregate cost of approximately
$386,615, resulting in an average repurchase price of $19.09 per common share.
The repurchase of common shares by the Company will decrease the Company's
limited partner interest, which will result in an increase in net income per
unit.

The following table shows a summary of the Company's common share
repurchases by year, as of June 30, 2002.

37

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

- ----------

(1) Additionally, 14,530 of the Company's common shares were repurchased
outside of the Share Repurchase Program as part of an executive incentive
program.

The Operating Partnership expects the Share Repurchase Program to
continue to be funded through a combination of debt, equity, joint venture
capital and selected asset disposition alternatives available to the Operating
Partnership. The amount of common shares that the Company will actually purchase
will be determined from time to time, in its reasonable judgment, based on
market conditions and the availability of funds, among other factors. There can
be no assurance that any number of common shares will actually be purchased
within any particular time period.

SERIES A PREFERRED OFFERING

On April 26, 2002, the Company completed an institutional placement
(the "April 2002 Series A Preferred Offering") of an additional 2,800,000 shares
of 6 3/4% Series A Convertible Cumulative Preferred Shares (the "Series A
Preferred Shares") at an $18.00 per share price and with a liquidation
preference of $25.00 per share for aggregate total offering proceeds of
approximately $50,400. The Series A Preferred Shares are convertible at any
time, in whole or in part, at the option of the holders thereof into common
shares of the Company at a conversion price of $40.86 per common share
(equivalent to a conversion rate of .6119 common shares per Series A Preferred
Share), subject to adjustment in certain circumstances. The Series A Preferred
Shares have no stated maturity, are not subject to sinking fund or mandatory
redemption and may not be redeemed before February 18, 2003, except in order to
preserve the Company's status as a REIT. On or after February 13, 2003, the
Series A Preferred Shares may be redeemed, at the Company's option, by paying
$25.00 per share plus any accumulated accrued and unpaid distribution. Dividends
on the Series A Preferred Shares are cumulative from the date of original
issuance and are payable quarterly in arrears on the fifteenth of February, May,
August and November, commencing May 15, 2002. The annual fixed dividend is
$1.6875 per share. In connection with the April 2002 Series A Preferred
Offering, the Operating Partnership issued additional Series A Preferred Units
to the Company in exchange for the contribution of the net proceeds, after
underwriting discounts and other offering costs of approximately $2,200, of
approximately $48,200. The net proceeds from the April 2002 Series A Preferred
Offering were used by the Operating Partnership to redeem Class A Units from
GMACCM.

SERIES B PREFERRED OFFERING

On May 17, 2002, the Company completed an offering (the "May 2002
Series B Preferred Offering") of 3,000,000 shares of 9.50% Series B Cumulative
Redeemable Preferred Shares (the "Series B Preferred Shares") with a liquidation
preference of $25.00 per share for aggregate total offering proceeds of
approximately $75,000. The Series B Preferred Shares have no stated maturity,
are not subject to sinking fund or mandatory redemption, are not convertible
into any other securities of the Company and may not be redeemed before May 17,
2007, except in order to preserve the Company's status as a REIT. On or after
May 17, 2007, the Series B Preferred Shares may be redeemed, at the Company's
option, by paying $25.00 per share plus any accumulated, accrued and unpaid
distributions. Dividends on the Series B Preferred Shares are cumulative from
the date of original issuance and are payable quarterly in arrears on the
fifteenth of February, May, August and November, commencing August 15, 2002. The
annual fixed dividend is $2.375 per share. In connection with the May 2002
Series B Preferred Offering, the Operating Partnership issued Series B Preferred
Units to the Company in exchange for the contribution of the net proceeds, after
underwriting discounts and other offering costs of approximately $2,700, of
approximately $72,300. The net proceeds from the May 2002 Series B Preferred
Offering were used by the Operating Partnership to redeem Class A Units from
GMACCM.

38

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

On June 6, 2002, an additional 400,000 Series B Preferred Shares were
sold (the "June 2002 Series B Preferred Offering") resulting in gross proceeds
to the Company of approximately $10,000. In connection with the June 2002 Series
B Preferred Offering, the Operating Partnership issued additional Series B
Preferred Units to the Company in exchange for the contribution of the net
proceeds, after underwriting discounts and other offering costs of approximately
$400, of approximately $9,600. The net proceeds from the June 2002 Series B
Preferred Offering were used by the Operating Partnership to redeem Class A
Units from GMACCM.

DISTRIBUTIONS

The following table summarizes the distributions paid or declared to
unitholders during the six months ended June 30, 2002.

- ----------

(1) As of June 30, 2002, the Company was holding 14,468,623 of its common
shares in SH IX. These distribution amounts include $5,426 for each of the
distributions paid, or to be paid, on February 15, 2002, and May 15, 2002,
and August 15, 2002, related to these common shares.

(2) See "Series A Preferred Offering" above for a description of issuance of
additional shares.

(3) See "Series B Preferred Offering" above for a description of this offering.

15. RELATED PARTY TRANSACTIONS:

DBL HOLDINGS, INC

As of June 30, 2002, the Operating Partnership owned 97.44% of DBL with
the remaining 2.56% economic interest in DBL (including 100% of the voting
interest in DBL) held by John Goff, Vice-Chairman of the Board of Trust Managers
and Chief Executive Officer of the Company and sole director and Chief Executive
Officer of the General Partner. Originally, Mr. Goff contributed his voting
interests in MVDC and HADC, originally valued at approximately $380, and
approximately $63 in cash, or total consideration valued at approximately $443
for his interest in DBL.

DBL has two wholly owned subsidiaries, DBL-ABC, Inc. and DBL-CBO, Inc.,
the assets of which are described in the following paragraphs, and DBL directly
holds 66% of the voting stock in MVDC and HADC. At June 30, 2002, Mr. Goff's
book value in DBL was approximately $402.

Since June 1999, the Operating Partnership has contributed
approximately $23,800 to DBL, in the form of cash and loans. These funds were
used by DBL to make an equity contribution to DBL-ABC, Inc., which committed to
purchase a limited partnership interest representing a 12.5% interest in G2
Opportunity Fund, LP ("G2"). G2 was formed for the purpose of investing in
commercial mortgage backed securities and other commercial real estate
investments and is managed and controlled by an entity that is owned equally by
Goff-Moore Strategic Partners, LP ("GMSP") and GMACCM. The day-to-day operations
of G2 are managed jointly by an affiliate of GMACCM and a division of GMSP
headquartered in Greenwich, Connecticut and overseen by Hugh Balloch, a
principal of GMSP who is unrelated to the Operating Partnership. The ownership
structure of the entity that ultimately controls GMSP consists of 50% ownership
by Darla Moore, who is married to Richard Rainwater, Chairman of the Board of
Trust Managers of the Company, and 50% by John Goff. Mr. Rainwater is also a
limited partner of GMSP. At June 30, 2002, DBL had an approximately $14,500
investment in G2 and had repaid in full the loans from the Operating
Partnership.

In March 1999, DBL-CBO, Inc. acquired an aggregate of $6,000 in
principal amount of Class C-1 Notes issued by Juniper CBO 1999-1 Ltd., a Cayman
Island limited liability company. Juniper 1999-1 Class C-1 is the privately
placed equity interest of a collateralized bond obligation. During the six
months ended June 30, 2002, the Operating Partnership recognized an impairment
charge related to this investment of $5,200. As a result of this impairment
charge at June 30, 2002 this investment was valued at $0.

COPI COLORADO, L. P.

On February 14, 2002, the Operating Partnership executed an agreement
with COPI, pursuant to which COPI transferred to the Operating Partnership, in
lieu of foreclosure, COPI's 60% general partner interest in COPI Colorado which
owns 10% of the voting stock in CRDI. As a result, the Operating Partnership
increased its ownership interest in CRDI from 90% to 96%. John Goff,
Vice-Chairman of the Board of Trust Managers and Chief Executive Officer of the
Company and sole director and Chief Executive Officer of the General Partner,
owns a 2.0% voting interest in CRDI with a cost basis of $410 and the remaining
2.0% voting interest is owned by a third party.

39

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

LOANS TO EMPLOYEES AND TRUST MANAGERS OF THE COMPANY FOR EXERCISE OF STOCK
OPTIONS AND UNIT OPTIONS

As of June 30, 2002, the Operating Partnership had approximately
$36,600 of recourse loans outstanding (including approximately $4,100 loaned
during the six months ended June 30, 2002) to certain employees and trust
managers of the Company. The loans were made pursuant to the Company's stock
incentive plans and unit incentive plans in accordance with agreements approved
by the Board of Trust Managers and the Executive Compensation Committee of the
Company. The proceeds of these loans were used by the employees and the trust
managers to acquire common shares of the Company pursuant to the exercise of
vested stock and unit options. According to the loan agreements, these loans may
be repaid in full or in part at any time without premium or penalty. John Goff,
Vice-Chairman of the Board of Trust Managers and Chief Executive Officer of the
Company and sole director and Chief Executive Officer of the General Partner,
had a loan representing approximately $26,300 of the $36,600 total outstanding
loans at June 30, 2002.

Every month, Federal short-term, mid-term and long-term rates
(Applicable Federal Rates) are determined and published by the IRS based upon
average market yields of specified maturities. The loans granted during the six
months ended June 30, 2002 were granted at the Applicable Federal Rate of 2.7%,
which reflects a below prevailing market interest rate; therefore, the Operating
Partnership recorded approximately $100 of compensation expense for the six
months ended June 30, 2002. As of June 30, 2002, approximately $200 of current
interest was outstanding related to these loans. No conditions exist at June 30,
2002 which would cause any of the loans to be in default.

See "Note 17. Subsequent Events" for a description of amendments to the
terms of these loans subsequent to June 30, 2002.

DEBT OFFERING

On April 15, 2002, the Operating Partnership completed a private
offering of $375,000 in senior, unsecured notes due 2009, $50,000 of which were
purchased by Richard E. Rainwater, Chairman of the Board of Trust Managers of
the Company, and his affiliates and family members (the "Rainwater Group"). The
notes bear interest at 9.25% and were issued at 100% of issue price. The
Operating Partnership has agreed to register the notes issued to the Rainwater
Group for resale. See "Note 8. Notes Payable and Borrowings under Fleet
Facility" for additional information regarding the offering and the notes.

OTHER

On June 28, 2002, the Operating Partnership purchased and is holding
for sale, the home of an executive officer of the Company for approximately
$2,650, which approximates fair market value of the home. This purchase was part
of the officer's relocation agreement with the Operating Partnership.

16. COPI:

In April 1997, the Operating Partnership established a new Delaware
corporation, COPI. All of the outstanding common stock of COPI, valued at $0.99
per share, was distributed in a spin-off, effective June 12, 1997, to those
persons who were limited partners of the Operating Partnership or shareholders
of the Company on May 30, 1997.

COPI was formed to become a lessee and operator of various assets to be
acquired by the Operating Partnership and to perform the intercompany agreement
between COPI and the Operating Partnership, pursuant to which each party agreed
to provide the other with rights to participate in certain transactions. The
Company was not permitted to operate or lease these assets under the tax laws in
effect and applicable to REITs at that time. In connection with the formation
and capitalization of COPI, and the subsequent operations and investments of
COPI since 1997, the Operating Partnership made loans to COPI under a line of
credit and various term loans.

On January 1, 2001, The REIT Modernization Act became effective. This
legislation allows the Company, through its subsidiaries, to operate or lease
certain of its investments that had previously been operated or leased by COPI.

On February 14, 2002, the Operating Partnership executed an agreement
(the "Agreement") with COPI, pursuant to which COPI transferred to subsidiaries
of the Operating Partnership, in lieu of foreclosure, COPI's lessee interests in
the eight Resort/Hotel Properties leased to subsidiaries of COPI, substantially
all of COPI's voting interests in three of the Operating Partnership's
Residential Development Corporations and other assets. The Operating Partnership
agreed to assist and provide funding to COPI for the implementation of a
prepackaged bankruptcy of COPI. In connection with the transfer, COPI's rent
obligations to the Operating Partnership were reduced by $23,600 and its

40

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

debt obligations were reduced by $40,100. These amounts include $18,300 of value
attributed to the lessee interests transferred by COPI to the Operating
Partnership; however, in conformity with GAAP, the Operating Partnership
assigned no value to these interests for financial reporting purposes.

The Operating Partnership holds the lessee interests in the eight
Resort/Hotel Properties and the voting interests in the three Residential
Development Corporations through three newly organized entities that are wholly
owned taxable REIT subsidiaries of the Operating Partnership. The Operating
Partnership has included these assets in its Resort/Hotel Segment and its
Residential Development Segment, and fully consolidated the operations of the
eight Resort/Hotel Properties and the three Residential Development
Corporations, beginning on the date of the transfers of these assets.

The Agreement provides that COPI and the Operating Partnership will
jointly seek to have a pre-packaged bankruptcy plan for COPI reflecting the
terms of the Agreement approved by the bankruptcy court. Under the Agreement,
the Operating Partnership has agreed to provide approximately $14,000 to COPI in
the form of cash and common shares of the Company to fund costs, claims and
expenses relating to the bankruptcy and related transactions, and to provide for
the distribution of the Company's common shares to the COPI stockholders. The
Operating Partnership estimates that the value of the common shares that will be
issued to the COPI stockholders will be between approximately $5,000 to $8,000.
The actual value of the common shares issued to the COPI stockholders will not
be determined until the confirmation of COPI's bankruptcy plan and could vary
substantially from the estimated amount.

In addition, the Operating Partnership has agreed to use commercially
reasonable efforts to assist COPI in arranging COPI's repayment of its $15,000
obligation to Bank of America, together with any accrued interest. The Operating
Partnership expects to form and capitalize a new entity ("Crescent Spinco"), to
be owned by the shareholders of the Company. Crescent Spinco then would purchase
COPI's interest in AmeriCold Logistics for between $15,000 and $15,500. COPI
has agreed that it will use the proceeds of the sale of the AmeriCold Logistics
interest to repay Bank of America in full.

COPI obtained the loan from Bank of America primarily to participate in
investments with the Operating Partnership. At the time COPI obtained the loan,
Bank of America required, as a condition to making the loan, that Richard E.
Rainwater, the Chairman of the Board of Trust Managers of the Company, and John
C. Goff, Vice-Chairman of the Board of Trust Managers and Chief Executive
Officer of the Company and sole director and Chief Executive Officer of the
General Partner, enter into a support agreement with COPI and Bank of America.
Pursuant to the support agreement, Messrs. Rainwater and Goff agreed to make
additional equity investments in COPI if COPI defaulted on payment obligations
under its line of credit with Bank of America and if the net proceeds of an
offering of COPI securities were insufficient to allow COPI to repay Bank of
America in full. Effective December 31, 2001, the parties executed an amendment
to the line of credit providing that any defaults existing under the line of
credit on or before March 8, 2002 are temporarily cured unless and until a new
default shall occur.

Completion and effectiveness of the pre-packaged bankruptcy for COPI is
contingent upon a number of conditions, including the vote of COPI's
stockholders, the approval of the plan by certain of COPI's creditors and the
approval of the bankruptcy court.

17. SUBSEQUENT EVENTS

OFFICE PROPERTY DISPOSITION

On August 1, 2002, the Operating Partnership completed the sale of the
6225 North 24th Street Office Property in Phoenix, Arizona. The sale generated
net proceeds of approximately $9,000 and a net gain of approximately $1,300. The
proceeds from the sale of the 6225 North 24th Street Office Property were used
to redeem Class A Units from GMACCM. This Office Property was wholly-owned by
the Operating Partnership and was included in the Operating Partnership's Office
Segment.

LOANS TO EMPLOYEES AND TRUST MANAGERS OF THE COMPANY FOR EXERCISE OF STOCK
OPTIONS AND UNIT OPTIONS

41

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

On July 29, 2002, the loans made pursuant to the Company's stock
incentive plans and the Operating Partnership's unit incentive plans were
amended to extend the remaining terms of the loans until July 2012 and to
stipulate that every three years the interest rate on the loans will be
adjusted to the AFR applicable at that time for a three year loan.
Additionally, the employees and trust managers have been given the option to
fix the interest rate for each of the loans at the AFR applicable at that time
for a loan with a term equal to the remaining term of the loan. The Operating
Partnership estimates that the one-time compensation expense related to these
amendments is approximately $1,800. Effective July 29, 2002, the Company and the
Operating Partnership will no longer make available to employees and trust
managers loans pursuant to the Company's stock incentive plan or the Operating
Partnership's unit incentive plan.

42

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

You should read this section in conjunction with the consolidated
interim financial statements and the accompanying notes in "Item 1. Financial
Statements" of this document and the more detailed information contained in the
Operating Partnership's Form 10-K for the year ended December 31, 2001. In
management's opinion, all adjustments (consisting of normal and recurring
adjustments) considered necessary for a fair presentation of the unaudited
interim financial statements are included. Capitalized terms used but not
otherwise defined in this section, have the meanings given to them in the notes
to the financial statements in "Item 1. Financial Statements."

This Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements are generally
characterized by terms such as "believe," "expect" and "may."

Although the Operating Partnership believes that the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, the Operating Partnership's actual results could differ materially
from those described in the forward-looking statements.

The following factors might cause such a difference:

o The Operating Partnership's ability, at its office properties, to timely
lease unoccupied square footage and timely re-lease occupied square footage
upon expiration on favorable terms, which may be adversely affected by
changes in real estate conditions (including rental rates and competition
from other properties and new development of competing properties or a
general downturn in the economy);

o Further deterioration in the resort/business-class hotel markets or in the
market for residential land or luxury residences, including single-family
homes, townhomes and condominiums, or in the economy generally;

o Financing risks, such as the Operating Partnership's ability to generate
revenue sufficient to service and repay existing or additional debt,
increases in debt service associated with increased debt and with
variable-rate debt, the ability to meet financial covenants and the ability
to fund the share repurchase program and the ability to consummate
financings and refinancings on favorable terms and within any applicable
time frames;

o The inability of the Operating Partnership to obtain the confirmation of a
pre-packaged bankruptcy plan of COPI binding all creditors and stockholders;

o The inability of the Operating Partnership to complete the distribution to
its unitholders of the shares of a new entity to purchase the AmeriCold
tenant interest from COPI;

o Further or continued adverse conditions in the temperature-controlled
logistics business (including both industry-specific conditions and a
general downturn in the economy which may further jeopardize the ability of
the Operating Partnership's tenant to pay all current and deferred rent due
to the Operating Partnership);

o Adverse changes in the financial condition of existing tenants;

o The concentration of a significant percentage of the Operating Partnership's
assets in Texas;

o The Operating Partnership's ability to find acquisition and development
opportunities which meet the Operating Partnership's investment strategy;

o The existence of complex regulations relating to the Company's status as a
REIT, the effect of future changes in REIT requirements as a result of new
legislation and the adverse consequences of the failure to qualify as a
REIT; and

o Other risks detailed from time to time in the Operating Partnership's
filings with the SEC.

Given these uncertainties, readers are cautioned not to place undue
reliance on such statements. The Operating Partnership is not obligated to
update these forward-looking statements to reflect any future events or
circumstances.

43

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

RESULTS OF OPERATIONS

The following table shows the Operating Partnership's
financial data as a percentage of total revenues for the three and six
months ended June 30, 2002 and 2001 and the variance in dollars between
the three and six months ended June 30, 2002 and 2001. See "Note 6.
Segment Reporting" included in "Item 1. Financial Statements" for
financial information about the investment segments.

44

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2002 TO THE THREE MONTHS ENDED
JUNE 30, 2001

Revenue

Total revenues increased $90.2 million, or 46.0%, to $287.3 million for
the quarter ended June 30, 2002, as compared to $197.1 million for the quarter
ended June 30, 2001. The components of the increase are:

o an increase in Residential Development Property Revenue of
$85.0 million due to the consolidation of three Residential
Development Corporations beginning on February 14, 2002, as a
result of the COPI transaction (previously the Operating
Partnership recorded its share of earnings under the equity
method); and

o an increase in Resort/Hotel Property revenue of $37.4 million
due to the consolidation of the operations of eight of the
Resort/Hotel Properties beginning on February 14, 2002, as a
result of the COPI transaction (previously the Operating
Partnership recognized lease payments related to these
Properties); partially offset by

o a decrease in interest and other income of $18.3 million
primarily attributable to:

o the collection of $5.0 million from Charter
Behavioral Health Systems ("CBHS") in 2001 on a
working capital loan that was previously expensed in
conjunction with the recapitalization of CBHS;

o gain recognized on marketable securities of $6.0
million; and

o interest income of $2.5 million relating to interest
earned on a loan that originated in March 2000 from
the Operating Partnership to Crescent SH IX ("SH IX")
in connection with the repurchase of 14,468,623 of
the Company's common shares;

o development fee and lease commission revenue from
Five Houston Center Office Property of $1.7 million
received in the second quarter of 2001; and

o a decrease in Office Property revenue of $13.9 million
primarily due to the disposition of five Office Properties in
2001 and the contribution of two Office Properties to joint
ventures in 2001.

Expense

Total expense increased $105.4 million, or 63.3%, to $271.8 million for
the three months ended June 30, 2002, as compared to $166.4 million for the
three months ended June 30, 2001. The primary components of this increase are:

o an increase in Residential Development Property expense of
$77.0 million due to the consolidation of three Residential
Development Corporations beginning February 14, 2002, as a
result of the COPI transaction (previously the Operating
Partnership recorded its share of earnings under the equity
method); and

45

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

o an increase in Resort/Hotel Property expense of $42.2 million
due to the consolidation of the operations of eight of the
Resort/Hotel Properties beginning February 14, 2002, as a
result of the COPI transaction (previously the Operating
Partnership recognized lease payments related to these
Properties); partially offset by

o a decrease due to the recognition in the second quarter of
2001 of $13.2 million due to the impairment charges relating
to the behavioral healthcare properties of $1.2 million and
the impairment of $12.0 million relating to the conversion of
the Operating Partnership's preferred interest in Metropolitan
Partners, LLC into common shares of Reckson Associates Realty
Corp.; and

o a decrease in Office Property Operating expense of $4.0
million primarily due to the disposition of five Office
Properties in 2001 and the contribution of two Office
Properties to joint ventures in 2001.

Other Income and Expense

Other income decreased $4.5 million, or 39.8%, to $6.8 million for the
three months ended June 30, 2002, as compared to $11.3 million for the three
months ended June 30, 2001, as a result of:

o a decrease in equity in net income of unconsolidated companies
of $5.2 million, primarily due to the consolidation of three
Residential Development Corporations beginning February 14,
2002, as a result of the COPI transaction (previously the
Operating Partnership recorded its interests in the
Residential Development Corporations under the equity method);
partially offset by

o an increase due to the recognition in 2001 of a $0.7 million
loss on property sales.

Income Tax Expense

The Operating Partnership recognized consolidated income tax expense of
$0.4 million for the three months ended June 30, 2002, primarily related to
Resort/Hotel and Residential Development operations. Because these operations
were not consolidated for the three months ended June 30, 2001, no consolidated
income tax expense was recognized for that period.

Discontinued Operations

The income from discontinued operations from assets sold and held for
sale increased $0.5 million, or 500.0%, to $0.6 million for the three months
ended June 30, 2002, compared to $0.1 million for the three months ended June
30, 2001. This increase is primarily due to:

o a gain on disposals of $1.7 million, net of minority interest,
primarily due to the sale of two consolidated Office
Properties in the Woodlands in the second quarter of 2002;
partially offset by

o an impairment charge of $1.0 million in the second quarter of
2002 related to the Washington Harbour II land held for sale,
representing the difference between the carrying value and the
estimated sales price less costs of the sale for this land.

Extraordinary Item

In May 2001, $12.2 million of deferred financing costs were written-off
due to the early extinguishment of the Operating Partnership's credit facility
with UBS. The recognition of the write-off

46

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

was treated as an Extraordinary Item for the three months ended June 30, 2001.
No such event or write-off occurred during the three months ended June 30,
2002.

SEGMENT ANALYSIS

Office Segment

The components of the decrease in Office Property revenues are as
follows:

o decreased revenue of $12.3 million due to the
disposition of five Office Properties in 2001 and the
contribution of two Office Properties to joint
ventures in 2001; and

o decreased other revenue of $1.7 million primarily
related to a decrease in lease termination fees.

The primary components of the decrease in Office
Property operating expense are as follows:

o decreased expenses of $4.4 million due to the
disposition of five Office Properties in 2001 and the
contribution of two Office Properties to joint
ventures in 2001; and

o decreased office property utility expense of $3.3
million due to lower rates as a result of a one-year
energy contract effective beginning in the first
quarter of 2002 for certain Texas Properties;
partially offset by

o increased operating expenses of $3.7 million
attributable to security, insurance and the timing of
repairs and maintenance.

Resort/Hotel Segment

On February 14, 2002, the Operating Partnership executed an agreement
with COPI, pursuant to which COPI transferred to subsidiaries of the Operating
Partnership, in lieu of foreclosure, COPI's lessee interests in the eight
Resort/Hotel Properties leased to subsidiaries of COPI. The financial statements
reflect the consolidation of the operations for these eight Resort/Hotel
Properties for the period February 14, 2002 through June 30, 2002. Revenues
prior to February 14, 2002 represent lease payments to the Operating
Partnership.

The decrease in Resort/Hotel Property net operating income is primarily
due to the consolidation of the operations of eight of the Resort/Hotel
Properties in 2002 as compared to the recognition of lease payments from the
Properties in 2001. In addition, net operating income decreased as a result of
the following:

47

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

o decreases in occupancy from 65% to 63% and revenue
per available room from $304 to $280 (7.9% decrease)
at the luxury and destination fitness resorts and
spas.

Residential Development Segment

On February 14, 2002, the Operating Partnership executed an agreement
with COPI, pursuant to which COPI transferred to subsidiaries of the Operating
Partnership, in lieu of foreclosure, substantially all of COPI's voting
interests in three of the Residential Development Corporations: TWLC, DMDC and
CRDI. The Operating Partnership fully consolidated the operations of the three
Residential Development Corporations beginning on the dates of the asset
transfers.

The primary components of the decrease in Residential Development
Property net operating income are:

o lower lot and commercial land sales of $5.0 million at the
Woodlands Land Company; and

o a change in presentation of capitalized interest of $2.6
million, due to consolidation of DMDC and CRDI; partially
offset by

o higher lot and unit sales of $6.9 million at CRDI and DMDC.

48

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

Temperature-Controlled Logistics Segment

The decrease in equity in earnings of unconsolidated
Temperature-Controlled Logistics Properties is primarily due to the Operating
Partnership's $2.5 million portion of deferred rent recorded in the second
quarter of 2002 compared with the Operating Partnership's $1.5 million portion
of deferred rent recorded in the second quarter of 2001, and $1.0 million
related to the change in base rent recognition from straight-line to seasonal
for the year.

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2002 TO THE SIX MONTHS ENDED JUNE
30, 2001

Revenues

Total revenues increased $142.2 million, or 37.1%, to $525.0 million
for the six months ended June 30, 2002, as compared to $382.8 million for the
six months ended June 30, 2001. The components of the increase are:

o an increase in Residential Development Property Revenue of
$133.1 million due to the consolidation of three Residential
Development Corporations beginning February 14, 2002, as a
result of the COPI transaction (previously the Operating
Partnership recorded its share of earnings under the equity
method); and

o an increase in Resort/Hotel Property revenue of $59.9 million
due to the consolidation of the operations of eight of the
Resort/Hotel Properties beginning February 14, 2002, as a
result of the COPI transaction (previously the Operating
Partnership recognized lease payments related to these
Properties); partially offset by

o a decrease in Office Property revenue of $23.2 million
primarily due to the disposition of five Office Properties in
2001 and the contribution of two Office Properties to joint
ventures in 2001; and

o a decrease in interest and other income of $27.6 million,
primarily due to:

o the collection of $6.8 million from CBHS in 2001 on a
working capital loan that was previously expensed in
conjunction with the recapitalization of CBHS;

o gain recognized on the sale of marketable securities of
$6.5 million in the second quarter of 2001;

o interest income of $5.1 million relating to interest
earned on a loan that originated in March 2000 from the
Operating Partnership to SH IX in connection with the
repurchase of 14,468,623 of the Company's common
shares;

o the recognition in 2001 of $2.8 million of interest
income on COPI notes;

o the recognition in 2001 of $1.8 million in lease
commission and development fee revenue for Five Houston
Center Office Property; and

o a decrease in interest income of $1.5 million in 2002
related to lower escrow balances due to plaza
renovations at an Office Property.

49

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

Expense

Total expense increased $168.6 million, or 52.7%, to $488.6 million for
the six months ended June 30, 2002, as compared to $320.0 million for the six
months ended June 30, 2001. The primary components of this increase are:

o an increase in Residential Development Property expense of
$119.2 million due to the consolidation of three Residential
Development Corporations beginning February 14, 2002, as a
result of the COPI transaction (previously the Operating
Partnership recorded its share of earnings under the equity
method); and

o an increase in Resort/Hotel Property expense of $66.1 million
due to the consolidation of the operations of eight of the
Resort/Hotel Properties beginning February 14, 2002, as a
result of the COPI transaction (previously the Operating
Partnership recognized lease payments related to these
Properties); partially offset by

o a decrease due to the recognition in 2001 of $15.3 million
primarily due to impairment charges relating to behavioral
healthcare properties of $3.4 million and the impairment of
$12.0 million relating to the conversion of the Operating
Partnership's preferred interest in Metropolitan Partners, LLC
into common shares of Reckson Associates Realty Corp.;

o a decrease in interest expense of $5.6 million primarily
attributable to a decrease in the weighted average interest
rate of 38 basis points (from 8.07% to 7.69%), or $4.5 million
of interest expense, due to the debt refinancing in May of
2001 and lower LIBOR rates, and a decrease of $2.6 million
attributable to a higher capitalized interest amount in 2002,
partially offset by an increase of $1.0 million due to a $21.0
million increase in the average debt balance, from $2,398.0
million to $2,419.0 million; and

o a decrease in Office Property operating expense of $4.4
million primarily due to the disposition of five Office
Properties in 2001 and the contribution of two Office
Properties to joint ventures in 2001.

Other Income and Expense

Other income decreased $11.7 million, or 41.9%, to $16.2 million for
the six months ended June 30, 2002, as compared to $27.9 million for the six
months ended June 30, 2001, primarily as a result of a decrease in equity in net
income of unconsolidated companies of $12.1 million, primarily due to the $5.2
million impairment of an investment in DBL Holdings, Inc., and the Operating
Partnership's $2.1 million portion of Americold Logistics' deferral of rent
payable and the consolidation of three Residential Development Corporations
beginning February 14, 2002, as a result of the COPI transaction (previously
the Operating Partnership recorded its investment in the Residential Development
Corporations under the equity method).

Income Tax Benefit

The Operating Partnership's $3.9 million total consolidated income tax
expense for the six months ended June 30, 2002 includes tax expense related to
the operations of the Resort/Hotel and Residential Development Operations of
$2.8 million, offset by a tax benefit of $6.7 million. The $6.7 million benefit
results from the temporary difference between the financial reporting basis and
the respective tax basis of the hotel leases acquired as part of the Operating
Partnership's agreement with COPI. This temporary difference will be reversed
over an estimated five-year period, which is the remaining lease term of the
hotel leases.

50

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

Discontinued Operations

The income from discontinued operations from assets held for sale
increased $4.1 million, to $4.3 million for the six months ended June 30, 2002,
compared to $0.2 million for the six months ended June 30, 2001. This increase
is primarily due to:

o a gain on disposals of $6.2 million, net of minority interest,
attributable to the sales of the Cedar Springs Plaza Office
Property and two Office Properties in the Woodlands in 2002;
partially offset by

o an impairment charge of $1.0 million in 2002 related to land
held for development in 2002, now classified as held for sale.
This amount represents the difference between the carrying
value and the estimated sales price less costs of the sale for
this property.

Cumulative Effect of a Change in Accounting Principle

In conjunction with the implementation of SFAS No. 142, "Goodwill and
Other Intangible Assets," the Operating Partnership reported a cumulative effect
of a change in accounting principle for the six months ended June 30, 2002,
which resulted in a charge of $11.8 million. This charge is due to an impairment
(net of taxes) of the goodwill of the Temperature-Controlled Logistics
Corporation and one of the Residential Development Corporations.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The statement is effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. The adoption of this statement did not materially affect the Operating
Partnership's interim or annual financial statements; however, for the three and
six months ended June 30, 2002, financial statement presentation was modified to
report the results of operations, including any gains or losses recognized in
accordance with this statement, and the financial position of the Operating
Partnership's real estate assets sold or classified as held for sale, as
discontinued operations. As a result, the Operating Partnership has reclassified
certain amounts in prior period financial statements to conform with the new
presentation requirements.

Extraordinary Item

In May 2001, $12.2 million of deferred financing costs were written off
due to the early extinguishment of the Operating Partnership's credit facility
with UBS. The recognition of the write-off was treated as an Extraordinary Item
for the six months ended June 30, 2001. No such event or write-off occurred
during the six months ended June 30, 2002.

SEGMENT ANALYSIS

Office Segment

51

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

The primary components of the decrease in Office Property revenue are
as follows:

o decreased revenue of $24.5 million due to the disposition of
five Office Properties in 2001 and the contribution of two
Office Properties to joint ventures in 2001; and

o decreased other revenue of $1.2 million primarily related to a
decrease in lease termination fees; partially offset by

o increased revenue of $2.5 million primarily as a result of
increased full-service weighted average rental rates
attributable to renewals at the Houston Center Office
Property.

The primary components of the decrease in Office Property operating
expense are as follows:

o decreased expenses of $8.7 million due to the disposition of
five Office Properties in 2001 and the contribution of two
Office Properties to joint ventures in 2001; and

o decreased office property utility expense of $6.3 million due
to lower rates as a result of a one-year energy contract
effective beginning in first quarter of 2002 for certain Texas
Properties; partially offset by

o increased operating expenses of $5.0 million, attributable to
security and insurance and $5.3 million attributable to the
timing of repairs and maintenance, and increased
administrative expenses.

Resort/Hotel Segment

On February 14, 2002, the Operating Partnership executed an agreement
with COPI, pursuant to which COPI transferred to subsidiaries of the Operating
Partnership, in lieu of foreclosure, COPI's lessee interests in the eight
Resort/Hotel Properties leased to subsidiaries of COPI. The financial statements
reflect the consolidation of the operations for these eight Resort/Hotel
Properties for the period February 14, 2002 through June 30, 2002. Revenues
prior to February 14, 2002 represent lease payments to the Operating
Partnership.

The decrease in Resort/Hotel Property net operating income is
primarily due to the consolidation of the operations of eight of the Resort
Hotel Properties in 2002 as compared to the recognition of lease payments from
these Properties in 2001. In addition net operating income decreased as a result
of the following:

o decreases in occupancy from 72% to 69% and decreases in
revenue per available room/guest night from $349 to $329
(5.7% decrease) at the luxury and destination fitness
resorts and spas; and

o decreases in occupancy from 72% to 70%, and revenue per
available room from $88 to $82 (6.8% decrease) at the
business-class hotels.

52

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

Residential Development Segment

On February 14, 2002, the Operating Partnership executed an agreement
with COPI, pursuant to which COPI transferred to subsidiaries of the Operating
Partnership, in lieu of foreclosure, substantially all of COPI's voting
interests in three of the Residential Development Corporations: TWLC, DMDC and
CRDI. The Operating Partnership fully consolidated the operations of the three
Residential Development Corporations beginning on the dates of the asset
transfers.

The primary components of the increase in Residential Development
Property net operating income are:

o higher lot and unit sales of $6.9 million at CRDI and Desert
Mountain and $0.7 million due to the gain recognized on the
disposition of two properties at the Woodlands; offset by
lower lot and commercial land sales at the Woodlands Land
Company; and

o change in presentation of capitalized interest of $3.9
million, due to the consolidation of DMDC and CRDI.

Temperature-Controlled Logistics Segment

This decrease in equity in earning of unconsolidated
Temperature-Controlled Logistics Properties is primarily due to the Operating
Partnership's $3.7 million portion of the deferred rent in the first half of
2002 compared with the Operating Partnership's $1.5 million portion of deferred
rent in the first half of 2001, and $1.0 million related to the change in base
rent recognition from straight-line to seasonal for the year.

53

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS

Operating Activities

The Operating Partnership's cash provided by operating activities of
$114.4 million is attributable to Property operations.

Investing Activities

The Operating Partnership's cash used in investing activities of $0.6
million is primarily attributable to:

o $25.0 million of additional investment in unconsolidated
companies, consisting primarily of investments in the
upscale Residential Development Properties, particularly
related to CRDI's investment in the Tahoe Mountain
Resorts from January 1 through February 14, 2002;

o $18.0 million for capital expenditures for rental
properties, primarily attributable to non-recoverable
building improvements for the Office Properties and
replacement of furniture, fixtures and equipment for
Resort/Hotel Properties;

o $18.0 million for the incremental and non-incremental
revenue generating tenant improvement and leasing costs
for office properties

o $8.4 million for acquisition of office properties; and

o $1.2 million for development of investment properties.

The use of cash for investing activities is partially offset by:

o $38.2 million in cash resulting from the Operating
Partnership's February 14, 2002 transaction with COPI;

o $20.4 million of net sales proceeds primarily
attributable to the disposition of the Cedar Springs
Office Property and the Woodlands Office Equity-95
Limited's ("WOE") sale of two Office Properties; and

o $8.3 million from return of investment in unconsolidated
Residential Development Properties and Office
Properties.

54

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

Financing Activities

The Operating Partnership's use of cash for financing activities of
$81.7 million is primarily attributable to:

o net payments under the Fleet Facility of $256.5 million;

o purchases from GMACCM of preferred interests in a
subsidiary of the Operating Partnership of $187.0
million;

o distributions to common unitholders of $128.1 million;

o a decrease in notes payable of $99.3 million;

o $10.0 million of deferred financing costs for $375.0
million senior, unsecured notes;

o distributions to the holder of preferred units of $8.6
million; and

o net capital distributions to joint venture partners of
$7.6 million, primarily due to distributions to joint
venture preferred equity partners.

The use of cash for financing activities is partially offset by:

o gross proceeds of $375.0 from issuance of senior,
unsecured notes;

o net proceeds of $81.9 from offering of Series B
Preferred Units;

o net proceeds of $48.2 from offering of Series A
Preferred Units; and

o borrowings under the Fleet Facility of $110.0 million.

55

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

LIQUIDITY REQUIREMENTS

As of June 30, 2002, the Operating Partnership had unfunded capital
expenditures of approximately $42.1 million relating to capital investments. The
table below specifies the Operating Partnership's total capital expenditures
relating to these projects, amounts funded as of June 30, 2002, amounts
remaining to be funded, and short-term and long-term capital requirements.

- ----------

(1) All amounts are approximate.

(2) Reflects the Operating Partnership's estimate of the breakdown between
short-term and long-term capital expenditures.

(3) Includes development at Old Greenwood and Northstar Mountain Properties.

(4) This commitment is related to the Operating Partnership's investment in a
private equity fund.

(5) The Operating Partnership has agreed to form and capitalize a separate
entity to be owned by the Company's shareholders, and to cause the new
entity to commit to acquire COPI's entire membership interest in AmeriCold
Logistics.

The Operating Partnership expects to fund its short-term capital
requirements of approximately $34.9 million through a combination of cash, net
cash flow from operations, construction financing, return of capital
(investment) from the Residential Development Corporations and borrowings under
the Fleet Facility (which has up to $247.4 million of availability as of June
30, 2002). The Operating Partnership plans to meet its maturing debt
obligations during 2002 of approximately $201.2 million, primarily through
additional borrowings under the Fleet Facility.

The Operating Partnership expects to meet its other short-term
liquidity requirements, consisting of normal recurring operating expenses,
regular debt service requirements (including debt service relating to additional
and replacement debt), additional interest expense related to the cash flow
hedge agreements, recurring capital expenditures, non-recurring capital
expenditures, such as tenant improvement and leasing costs, distributions to
shareholders and unitholders, and additional expenses related to the COPI
bankruptcy of approximately $9.9 million, primarily through cash flow provided
by operating activities. To the extent that the Operating Partnership's cash
flow from operating activities is not sufficient to finance such short-term
liquidity requirements, the Operating Partnership expects to finance such
requirements with available cash proceeds received from the sale or joint
venture of Properties and borrowings under the Fleet Facility.

The Operating Partnership expects to redeem the remaining approximately
$31.4 million of Class A Units in Funding IX as of June 30, 2002 with the
proceeds from sale or joint venture of Properties. In August 2002, the Operating
Partnership redeemed approximately $8.9 million of the Class A Units with
proceeds from sale of the 6225 North 24th Street Office Property.

56

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

The Operating Partnership's long-term liquidity requirements as of June
30, 2002 consist primarily of debt maturities after December 31, 2002, which
totaled approximately $2.3 billion as of June 30, 2002. The Operating
Partnership also has $7.2 million of long-term capital requirements. The
Operating Partnership expects to meet these long-term liquidity requirements
primarily through long-term secured and unsecured borrowings and other debt and
equity financing alternatives as well as cash proceeds received from the sale or
joint venture of Properties.

Debt and equity financing alternatives currently available to the
Operating Partnership to satisfy its liquidity requirements and commitments for
material capital expenditures include:

o Additional proceeds from the Fleet Facility, under which the Operating
Partnership had up to $247.4 million of borrowing capacity as of June
30, 2002;

o Additional proceeds from the refinancing of existing secured and
unsecured debt;

o Additional debt secured by existing underleveraged properties;

o Issuance of additional unsecured debt;

o Equity offerings including preferred and/or convertible securities; and

o Proceeds from joint ventures and Property sales.

The following factors could limit the Operating Partnership's ability
to utilize these financing alternatives:

o The reduction in net operating income of the Properties supporting the
Fleet Facility to a level that would reduce availability under the line
of credit;

o The Operating Partnership may be unable to obtain debt or equity
financing on favorable terms, or at all, as a result of the financial
condition of the Operating Partnership or market conditions at the time
the Operating Partnership seeks additional financing;

o Restrictions on the Operating Partnership's debt instruments or
outstanding equity may prohibit it from incurring debt or issuing
equity at all, or on terms available under then-prevailing market
conditions; and

o The Operating Partnership may be unable to service additional or
replacement debt due to increases in interest rates or a decline in the
Operating Partnership's operating performance.

In addition to the Operating Partnership's liquidity requirements
stated above, as of June 30, 2002, the Operating Partnership guaranteed or
provided letters of credit related to approximately $41.0 million of
unconsolidated debt and had obligations to potentially provide an additional
$48.7 million in guarantees, primarily related to construction loans. See
"Investments in Real Estate Mortgages and Equity of Unconsolidated Companies"
and "Debt Financing Arrangements" included in this "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
more information about the Operating Partnership's unconsolidated investments
and the underlying debt related to these investments.

COPI

In April 1997, the Operating Partnership established a new Delaware
corporation, COPI. All of the outstanding common stock of COPI, valued at $0.99
per share, was distributed in a spin-off, effective June 12, 1997, to those
persons who were limited partners of the Operating Partnership or shareholders
of the Company on May 30, 1997.

COPI was formed to become a lessee and operator of various assets to be
acquired by the Operating Partnership and to perform the intercompany agreement
between COPI and the Operating Partnership, pursuant to which each party agreed
to provide the other with rights to participate in certain transactions. The
Company was not permitted to operate or lease these assets under the tax laws in
effect and applicable to REITs at that time. In connection with the formation
and capitalization of COPI, and the

57

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

subsequent operations and investments of COPI since 1997, the Operating
Partnership made loans to COPI under a line of credit and various term loans.

On January 1, 2001, The REIT Modernization Act became effective. This
legislation allows the Company, through its subsidiaries, to operate or lease
certain of its investments that had previously been operated or leased by COPI.

On February 14, 2002, the Operating Partnership executed an agreement
(the "Agreement") with COPI, pursuant to which COPI transferred to subsidiaries
of the Operating Partnership, in lieu of foreclosure, COPI's lessee interests in
the eight Resort/Hotel Properties leased to subsidiaries of COPI, substantially
all of COPI's voting interests in three of the Operating Partnership's
Residential Development Corporations and other assets. The Operating Partnership
agreed to assist and provide funding to COPI for the implementation of a
prepackaged bankruptcy of COPI. In connection with the transfer, COPI's rent
obligations to the Operating Partnership were reduced by $23.6 million and its
debt obligations were reduced by $40.1 million. These amounts include $18.3
million of value attributed to the lessee interests transferred by COPI to the
Operating Partnership; however, in conformity with GAAP, the Operating
Partnership assigned no value to these interests for financial reporting
purposes.

The Operating Partnership holds the lessee interests in the eight
Resort/Hotel Properties and the voting interests in the three Residential
Development Corporations through three newly organized entities that are wholly
owned taxable REIT subsidiaries of the Operating Partnership. The Operating
Partnership has included these assets in its Resort/Hotel Segment and its
Residential Development Segment, and fully consolidated the operations of the
eight Resort/Hotel Properties and the three Residential Development
Corporations, beginning on the date of the transfers of these assets.

The Agreement provides that COPI and the Operating Partnership will
jointly seek to have a pre-packaged bankruptcy plan for COPI, reflecting the
terms of the Agreement, approved by the bankruptcy court. Under the Agreement,
the Operating Partnership has agreed to provide approximately $14.0 million to
COPI in the form of cash and common shares of the Company to fund costs, claims
and expenses relating to the bankruptcy and related transactions, and to provide
for the distribution of the Company's common shares to the COPI stockholders.
The Operating Partnership estimates that the value of the common shares that
will be issued to the COPI stockholders will be between approximately $5.0
million to $8.0 million. The actual value of the common shares issued to the
COPI stockholders will not be determined until the confirmation of COPI's
bankruptcy plan and could vary substantially from the estimated amount.

In addition, the Operating Partnership has agreed to use commercially
reasonable efforts to assist COPI in arranging COPI's repayment of its $15.0
million obligation to Bank of America, together with any accrued interest. The
Operating Partnership expects to form and capitalize a new entity ("Crescent
Spinco"), to be owned by the shareholders of the Company. Crescent Spinco then
would purchase COPI's interest in AmeriCold Logistics for between $15.0 million
and $15.5 million. Crescent Operating has agreed that it will use the proceeds
of the sale of the AmeriCold Logistics interest to repay Bank of America in
full.

COPI obtained the loan from Bank of America primarily to participate in
investments with the Operating Partnership. At the time COPI obtained the loan,
Bank of America required, as a condition to making the loan, that Richard E.
Rainwater, the Chairman of the Board of Trust Managers of the Company, and John
C. Goff, Vice-Chairman of the Board of Trust Managers and Chief Executive
Officer of the Company and sole director and Chief Executive Officer of the
General Partner, enter into a support agreement with COPI and Bank of America.
Pursuant to the support agreement, Messrs. Rainwater and Goff agreed to make
additional equity investments in COPI if COPI defaulted on payment obligations
under its line of credit with Bank of America and if the net proceeds of an
offering of COPI securities were insufficient to allow COPI to repay Bank of
America in full. Effective

58

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

December 31, 2001, the parties executed an amendment to the line of credit
providing that any defaults existing under the line of credit on or before March
8, 2002 are temporarily cured unless and until a new default shall occur.

Completion and effectiveness of the pre-packaged bankruptcy for COPI is
contingent upon a number of conditions, including the vote of COPI's
stockholders, the approval of the plan by certain of COPI's creditors and the
approval of the bankruptcy court.

SHARE REPURCHASE PROGRAM

The Company commenced its Share Repurchase Program in March 2000. On
October 15, 2001, the Company's Board of Trust Managers increased from $500.0
million to $800.0 million the amount of outstanding common shares that can be
repurchased from time to time in the open market or through privately negotiated
transactions (the "Share Repurchase Program"). As of June 30, 2002, the Company
had repurchased 20,256,423 common shares, at an aggregate cost of approximately
$386.6 million, resulting in an average repurchase price of $19.09 per common
share. The repurchase of common shares by the Company will decrease the
Company's limited partner interest, which will result in an increase in net
income per unit.

The following table shows a summary of the Company's common share
repurchases by year, as of June 30, 2002.

- ----------

(1) Additionally, 14,530 of the Company's common shares were repurchased
outside of the Share Repurchase Program as part of an executive incentive
program.

The Operating Partnership expects the Share Repurchase Program to
continue to be funded through a combination of debt, equity, joint venture
capital and selected asset disposition alternatives available to the Operating
Partnership. The amount of common shares that the Company will actually purchase
will be determined from time to time, in its reasonable judgment, based on
market conditions and the availability of funds, among other factors. There can
be no assurance that any number of common shares will actually be purchased
within any particular time period.

PROPERTY DISPOSITIONS

Unconsolidated

During the six months ended June 30, 2002, the Woodlands CPC sold two
office properties located within The Woodlands, Texas. The sales generated net
proceeds, after the repayment of debt, of approximately $8.9 million, of which
the Operating Partnership's portion was approximately $4.7 million. The sales
generated a net gain of approximately $11.7 million, of which the Operating
Partnership's portion was approximately $6.0 million. The proceeds received by
the Operating Partnership were used primarily to pay down the existing line of
credit.

59

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

Consolidated

Office Segment

On January 18, 2002, the Operating Partnership completed the sale of
the Cedar Springs Plaza a wholly-owned Office Property in Dallas, Texas. The
sale generated net proceeds of approximately $12.0 million and a net gain of
approximately $4.5 million. The proceeds from the sale of the Cedar Springs
Plaza a wholly-owned Office Property were used primarily to pay down the
existing line of credit. The operations for this Property, as well as the gain
recognized on the sale of this Property are included in "Discontinued Operations
- - Income and Gain on Assets Sold or Held for Sale".

On May 29, 2002, WOE, owned by the Operating Partnership and the
Woodlands CPC, sold two consolidated Office Properties located within The
Woodlands, Texas. The sale generated net proceeds of approximately $3.6 million
of which the Operating Partnership's portion was approximately $3.2 million. The
sale generated a net gain of approximately $1.9 million, of which the Operating
Partnership's portion was approximately $1.7 million. The proceeds received by
the Operating Partnership were used primarily to pay down the existing line of
credit. These two Properties were consolidated, joint venture properties and
were included in the Operating Partnership's Office Segment.

As of June 30, 2002, Washington Harbour Phase II Land located in the
Georgetown submarket of Washington, D.C. was considered held for sale. The
Operating Partnership recognized an impairment charge of approximately $1.0
million on this land. After the recognition of this impairment, the carrying
value of the land at June 30, 2002 was approximately $15.0 million. The land is
wholly-owned by the Operating Partnership and is included in the Operating
Partnership's Office Segment.

On August 1, 2002, the Operating Partnership completed the sale of the
6225 North 24th Street Office Property in Phoenix, Arizona. The sale generated
net proceeds of approximately $9.0 million and a net gain of approximately $1.3
million. The proceeds from the sale of the 6225 North 24th Street Office
Property were used to redeem Class A Units from GMACCM. This Office Property was
wholly-owned by the Operating Partnership and was included in the Operating
Partnership's Office Segment.

60

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

The significant terms of the Operating Partnership's primary debt
financing arrangement existing as of June 30, 2002 are shown below (dollars in
thousands).

DEBT FINANCING ARRANGEMENTS

(1) For more information regarding the terms of the Operating Partnership's
debt financing arrangements, including the amounts payable at maturity for
non-amortizing loans, properties securing the Operating Partnership's
secured debt and the method of calculation of the interest rate for the
Operating Partnership's variable-rate debt, see "Note 8. Notes Payable and
Borrowings under the Fleet Facility" included in "Item 1. Financial
Statements."

(2) This loan has two one-year extension options.

(3) This facility has a one-year extension option.

(4) This is an uncommitted facility.

(5) The overall weighted average interest rate does not include the effect of
the Operating Partnership's cash flow hedge agreements. Including the
effect of these agreements, the overall weighted average interest rate
would have been 7.89%.

61

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

The following table shows information about the Operating Partnership's
consolidated fixed and variable-rate debt and does not take into account any
extension options, hedging arrangements or the Operating Partnership's
anticipated pay-off dates.

(1) Based on contractual maturities. The overall weighted average maturity is
4.1 years based on the Operating Partnership's expected payoff dates.

(2) Including the $527.0 million of hedged variable-rate debt, the percentages
for fixed-rate debt and variable-rate debt are 92% and 8%, respectively.

(3) Including the effect of the hedge arrangements, the overall weighted
average interest rate would have been 7.89%.

Listed below are the aggregate principal payments by year required as
of June 30, 2002 under indebtedness of the Operating Partnership. Scheduled
principal installments and amounts due at maturity are included.

- ----------

(1) These amounts do not represent the effect of a one-year extension option on
the Fleet Facility and two one-year extension options on the Deutsche Bank
- CMBS Loan as noted above.

The Operating Partnership has $201.2 million of secured and unsecured
debt due during 2002, consisting primarily of the Cigna Note, the Mitchell
Mortgage Note, unsecured short-term borrowings and the 2002 Notes. Borrowings
under the Operating Partnership's revolving line of credit are expected to be
used to repay or repurchase from time to time the remaining $97.9 million of
outstanding 2002 Notes due in September 2002. In addition, borrowings under the
revolving line of credit are expected to be used to repay the $63.5 million
CIGNA Note due in December 2002.

The Operating Partnership's policy with regard to the incurrence and
maintenance of debt is based on a review and analysis of the following:

o investment opportunities for which capital is required and the
cost of debt in relation to such investment opportunities;

o the type of debt available (secured or unsecured);

o the effect of additional debt on existing coverage ratios;

o the maturity of the proposed debt in relation to maturities of
existing debt; and

o exposure to variable-rate debt and alternatives such as
interest-rate swaps and cash flow hedges to reduce this
exposure.

Debt service coverage ratios for a particular period are generally
calculated as net income plus depreciation and amortization, plus interest
expense, plus extraordinary or non-recurring losses, minus extraordinary or
non-recurring gains, divided by debt service (including principal and interest
payable during the period of calculation). The calculation of the debt service
coverage ratio for the Fleet Facility is calculated using the method described
above, including certain pro forma adjustments.

Some of the Operating Partnership's debt restricts its activities,
including its ability to pledge assets, create liens, incur additional debt,
enter into transactions with affiliates and make some types of payments,
issuances of equity and distributions on equity.

Any uncured or unwaived events of default on the Operating
Partnership's loans can trigger an acceleration of payment on the loan in
default. In addition, a default by the Operating Partnership or any of its
subsidiaries with respect to any indebtedness in excess of $5.0 million
generally will result in a default under the Fleet Facility and the Fleet Fund I
and II Term Loan after the notice and cure periods for the other indebtedness
have passed. As of June 30, 2002, the Operating Partnership was in compliance
with all of its debt service coverage ratios and other covenants related to its
outstanding debt. The Operating Partnership's debt facilities generally prohibit
loan pre-payment for an initial period, allow pre-payment with a penalty during
a following specified period and allow pre-payment without penalty after the
expiration of that period. During the six months ended June 30, 2002, there were
no circumstances that required pre-payment penalties or increased collateral
related to the Operating Partnership's existing debt.

DEBT OFFERING

On April 15, 2002, the Operating Partnership completed a private
offering of $375.0 million in senior, unsecured notes due 2009. The notes bear
interest at an annual rate of 9.25% and were issued at 100% of issue price. The
notes are callable after April 15, 2006. Interest will be payable in cash on
April 15 and October 15 of each year, beginning October 15, 2002. The Operating
Partnership has filed a registration statement with the SEC to register a
similar series of notes with the SEC and to effect an exchange offer of the
registered notes for the privately placed notes. In addition the Operating
Partnership has agreed too register certain of the notes for resale by their
holders. In the event that the exchange offer or resale registration is not
completed on or before October 15, 2002, the interest rate on the notes will
increase to 9.75% and increase to 10.25% after 90 days until the exchange offer
or resale registration is completed.

The net proceeds from the offering of notes were approximately $366.5
million. Approximately $309.5 million of the proceeds were used to pay down
amounts outstanding under the Fleet Facility, and the remaining proceeds were
used to pay down $5.0 million of short-term indebtedness and redeem
approximately $52.0 million of Class A Units in Funding IX from GMACCM. See
"Equity Financing -- Sale Preferred Equity Interests in Subsidiary" for a
description of the Class A Units in Funding IX held by GMACCM.

CASH FLOW HEDGES

The Operating Partnership uses derivative financial instruments to
convert a portion of its variable-rate debt to fixed-rate debt and to manage its
fixed to variable-rate debt ratio. As of June 30, 2002, the Operating
Partnership had entered into three cash flow hedge agreements, which are
accounted for in conformity with SFAS No. 133, as amended by SFAS No. 138.

The following table shows information regarding the Operating
Partnership's cash flow hedge agreements as of June 30, 2002, and additional
interest expense and unrealized gains for the six months ended June 30, 2002:

The Operating Partnership has designated its three cash flow hedge
agreements as cash flow hedges of LIBOR-based monthly interest payments on a
designated pool of variable-rate LIBOR indexed debt that reprices closest to
the reset dates of each cash flow hedge agreement. For retrospective
effectiveness testing, the Operating Partnership uses the cumulative dollar
offset approach as described in DIG Issue E8. The DIG is a task force designed
to assist the FASB in answering questions that companies have resulting from
implementation of SFAS No. 133 and SFAS 138. The Operating Partnership uses the
change in variable cash flows method as described in DIG Issue G7 for
prospective testing as well as for the actual recording of ineffectiveness, if
any. Under this method, the Operating Partnership will compare the changes in
the floating rate portion of each cash flow hedge to the floating rate of the
hedged items. The cash flow hedges have been and are expected to remain highly
effective. Changes in the fair value of these highly effective hedging
instruments are recorded in accumulated other comprehensive income. The
effective portion that has been deferred in accumulated other comprehensive
income will be reclassified to earnings as interest expense when the hedged
items impact earnings. If a cash flow hedge falls outside 80%-125%
effectiveness for a quarter, all changes in the fair value of the cash flow
hedge for the quarter will be recognized in earnings during the current period.
If it is determined based on prospective testing that it is no longer likely a
hedge will be highly effective on a prospective basis, the hedge will no longer
be designated as a cash flow hedge and no longer qualify for accounting in
conformity with SFAS Nos. 133 and 138.

Over the next twelve months, an estimated $18.0 million to $19.0
million will be reclassified from accumulated other comprehensive income to
interest expense and charged against earnings related to the effective portions
of the cash flow hedge agreements.

Additionally, CRDI, a consolidated subsidiary of the Operating
Partnership, also uses derivative financial instruments to convert a portion of
its variable-rate debt to fixed-rate debt. As of June 30, 2002, CRDI had entered
into three cash flow hedge agreements, which are accounted for in conformity
with SFAS Nos. 133 and 138.

The following table shows information regarding CRDI's cash flow hedge
agreements as of June 30, 2002 and additional capitalized interest for the six
months ended June 30, 2002. Unlike the additional interest on the Operating
Partnership's cash flow hedges which was expensed, the additional interest on
CRDI's cash flow hedges was capitalized as it related to debt for projects that
are currently under development.

CRDI uses the shortcut method described in SFAS No. 133, which
eliminates the need to consider ineffectiveness of the hedges, and instead
assumes the hedges are highly effective.

62

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

INTEREST RATE CAPS

In connection with the closing of the Deutsche Bank-CMBS Loan in May
2001, the Operating Partnership entered into a LIBOR interest rate cap struck at
7.16% for a notional amount of $220.0 million, and simultaneously sold a LIBOR
interest rate cap with the same terms. Since these instruments do not reduce the
Operating Partnership's net interest rate risk exposure, they do not qualify as
hedges and changes to their respective fair values are charged to earnings. As
the significant terms of these arrangements are substantially the same, the
effects of a revaluation of these instruments are expected to substantially
offset each other.

63

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

EQUITY FINANCING

SERIES A PREFERRED OFFERING

On April 26, 2002, the Company completed an institutional placement
(the "April 2002 Series A Preferred Offering") of an additional 2,800,000 shares
of 6 3/4% Series A Convertible Cumulative Preferred Shares (the "Series A
Preferred Shares") at an $18.00 per share price and with a liquidation
preference of $25.00 per share for aggregate total offering proceeds of
approximately $50.4 million. The Series A Preferred Shares are convertible at
any time, in whole or in part, at the option of the holders thereof into common
shares of the Company at a conversion price of $40.86 per common share
(equivalent to a conversion rate of 0.6119 common shares per Series A Preferred
Share), subject to adjustment in certain circumstances. The Series A Preferred
Shares have no stated maturity, are not subject to sinking fund or mandatory
redemption and may not be redeemed before February 18, 2003, except in order to
preserve the Company's status as a REIT. On or after February 13, 2003, the
Series A Preferred Shares may be redeemed, at the Company's option, by paying
$25.00 per share plus any accumulated accrued and unpaid distribution. Dividends
on the Series A Preferred Shares are cumulative from the date of original
issuance and are payable quarterly in arrears on the fifteenth of February, May,
August and November, commencing May 15, 2002. The annual fixed dividend is
$1.6875 per share. In connection with the April 2002 Series A Preferred
Offering, the Operating Partnership issued additional Series A Preferred Units
to the Company in exchange for the contribution of the net proceeds, after
underwriting discounts and other offering costs of approximately $2.2 million,
of approximately $48.2 million. The net proceeds from the April 2002 Series A
Preferred Offering were used by the Operating Partnership to redeem Class A
Units from GMACCM.

SERIES B PREFERRED OFFERING

On May 17, 2002, the Company completed an offering (the "May 2002
Series B Preferred Offering") of 3,000,000 shares of 9.50% Series B Cumulative
Redeemable Preferred Shares (the "Series B Preferred Shares") with a liquidation
preference of $25.00 per share for aggregate total offering proceeds of
approximately $75.0 million. The Series B Preferred Shares have no stated
maturity, are not subject to sinking fund or mandatory redemption, are not
convertible into any other securities of the Company and may not be redeemed
before May 17, 2007, except in order to preserve the Company's status as a REIT.
On or after May 17, 2007, the Series B Preferred Shares may be redeemed, at the
Company's option, by paying $25.00 per share plus any accumulated, accrued and
unpaid distributions. Dividends on the Series B Preferred Shares are cumulative
from the date of original issuance and are payable quarterly in arrears on the
fifteenth of February, May, August and November, commencing August 15, 2002. The
annual fixed dividend is $2.375 per share. In connection with the May 2002
Series B Preferred Offering, the Operating Partnership issued Series B Preferred
Units to the Company in exchange for the contribution of the net proceeds, after
underwriting discounts and other offering costs of approximately $2.7 million,
of approximately $72.3 million. The net proceeds from the May 2002 Series B
Preferred Offering were used by the Operating Partnership to redeem Class A
Units from GMACCM.

On June 6, 2002, an additional 400,000 Series B Preferred Shares were
sold (the "June 2002 Series B Preferred Offering") resulting in gross proceeds
to the Company of approximately $10.0 million. In connection with the June 2002
Series B Preferred Offering, the Operating Partnership issued additional Series
B Preferred Units to the Company in exchange for the contribution of the net
proceeds, after underwriting discounts and other offering costs of approximately
$0.4 million, of approximately $9.6 million. The net proceeds from the June 2002
Series B Preferred Offering were used by the Operating Partnership to redeem
Class A Units from GMACCM.

64

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

SALE OF PREFERRED EQUITY INTERESTS IN SUBSIDIARY AND INTRACOMPANY LOAN

Sale of Class A Units in Funding IX

During the year ended December 31, 2000, the Operating Partnership
formed Funding IX and contributed seven Office Properties and two Resort/Hotel
Properties to Funding IX. As of June 30 2002, Funding IX held seven Office
Properties and one Resort/Hotel Property. The Operating Partnership owns 100% of
the common voting interests in Funding IX, 0.1% in the form of a general partner
interest and 99.9% in the form of a limited partner interest.

Also during the year ended December 31, 2000, GMAC Commercial Mortgage
Corporation (GMACCM") purchased $275.0 million of non-voting, redeemable
preferred Class A Units in Funding IX (the "Class A Units"). The Class A Units
are redeemable at the option of the Operating Partnership at the original price.
As of December 31, 2000, approximately $56.6 million of the Class A Units had
been redeemed from GMACCM by the Operating Partnership. No redemptions occurred
during the year ended December 31, 2001. During the six months ended June 30,
2002, the Operating Partnership redeemed approximately $187.0 million of the
Class A Units, reducing to $31.4 million the amount of Class A Units held by
GMACCM. The Class A Units initially received a preferred variable-rate dividend
calculated at LIBOR plus 450 basis points. Beginning March 16, 2002, the
preferred variable-rate dividend increased to LIBOR plus 550 basis points, which
resulted in a dividend rate of approximately 7.34% per annum as of June 30,
2002.

Impact on Financial Statements of Intracompany Loan

As of March 31, 2002, Funding IX had loaned a total of $281.1 million
from the net proceeds from the sale of the Class A Units and a portion of the
net proceeds of the sale of one of the Properties held by Funding IX to Crescent
SH IX, Inc. ("SH IX"), for the purchase of common shares of the Company. The
note, which is included in Notes Receivable, Net, bears interest based on the
dividends paid on the common shares held by SH IX, a wholly-owned subsidiary of
the General Partner, and matures on March 15, 2003. SH IX is required to repay
the loan, plus any accrued and unpaid interest, at that time. SH IX will receive
the funds to repay the loan from the Company, pursuant to an agreement that
requires the Company to repurchase, on or before March 15, 2003, the common
shares of the Company held by SH IX. The Company will receive the funds to
repurchase the common shares from SH IX from the Operating Partnership, pursuant
to the limited partnership agreement of the Operating Partnership, which
requires the Operating Partnership to repurchase from the Company a
corresponding portion of the Company's limited partnership interest at such time
as the Company repurchases shares. A portion of the proceeds received by Funding
IX for the repayment of the principal amount of the note will be used to redeem
Class A Units.

As of June 30, 2002, the annual interest rate on the note was
approximately 7.72%. For the six months ended June 30, 2002, the Operating
Partnership recognized interest income of $10.8 million on the note. The
repurchased common shares will be held in SH IX until all the Class A Units are
redeemed. The Company, as a partner of the Operating Partnership, receives
quarterly distributions from the Operating Partnership, which it then uses to
make distributions to it shareholders. Distributions on these repurchased
common shares will continue to be paid by the Company to SH IX, as a
shareholder of the Company, and will be used by SH IX to make payments of
interest due to Funding IX on the loan. Funding IX in turn will use these funds
to pay dividends on the Class A Units.

The operations, assets and liabilities of Funding IX and SH IX are
consolidated with those of the Company in the Company's consolidated financial
statements. The operations, assets and liabilities of Funding IX (but not those
of SH IX) are consolidated with those of the Operating Partnership in the
consolidated financial statements of the Operating Partnership. As a result, the
note and the payments on the note by SH IX to Funding IX are eliminated in the
Company's financial statements but are not eliminated in the financial
statements of the Operating Partnership. These items, therefore, are included in
Notes Receivable, Net and in Interest and Other Income in the Operating
Partnership's financial statements.

65

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

The following table compares the current financial statements of the
Operating Partnership prepared in accordance with GAAP and the adjusted
Operating Partnership financial statements, adjusted for the elimination of the
intracompany loan and associated interest income. This table provides certain
components of the financial statements, which would be affected by the
elimination of the intracompany loan, accrued interest related to the loan and
associated interest income.

(1) Consists of several notes. Maturity date is based on largest debt
instrument representing 94% of debt balance. All interest rates are
fixed.

(2) Consists of two notes: Senior Note - variable interest rate at LIBOR +
189 basis points with no LIBOR floor. Mezzanine Note - variable
interest rate at LIBOR + 890 basis points with a LIBOR floor of 3.0%.
Interest-rate cap agreement maximum LIBOR of 4.52% on both notes.

(3) The Operating Partnership obtained a Letter of Credit to guarantee the
repayment of up to $4.2 million of principal of the Main Street
Partners, L.P. loan.

(4) A full and unconditional guarantee of loan from Fleet for the
construction of 5 Houston Center is held by the Company. At June 30,
2002 and December 31, 2001, $38.2 million and $10.4 million was
outstanding, respectively.

(5) On February 14, 2002, the Operating Partnership executed an agreement
with COPI to transfer, in lieu of foreclosure, COPI's 5% interest in
Woodlands Land Development Company.

(6) There was an interest rate cap agreement executed with this credit
facility which limits interest rate exposure on the notional amount of
$145,000 to a maximum LIBOR rate of 9.0%.

(7) To mitigate interest rate exposure, WLDC has entered into an interest
rate swap against $50.0 million notional amount to effectively fix the
interest rate at 5.28%. WLDC has also entered into an interest rate
swap against $50.0 million notional amount to effectively fix the
interest rate at 4.855%.

(8) There was an interest rate cap agreement executed with this agreement
which limits interest rate exposure on the notional amount of $33.7
million to a maximum LIBOR rate of 9.0%.

(9) There was an interest rate cap agreement executed with this agreement
which limits interest rate exposure on the notional amount of $19.5
million to a maximum LIBOR rate of 8.5%.

(10) The Operating Partnership guarantees $3.0 million of this facility.

The following table shows, as of June 30, 2002, information about the
Operating Partnership 's share of unconsolidated fixed and variable-rate debt
and does not take into account any extension options, hedge arrangements or the
entities' anticipated pay-off dates.

(in thousands)

- ----------

(1) Based on contractual maturities.

Listed below are the Operating Partnership's share of aggregate
principal payments, by year, required as of June 30, 2002 related to the
Operating Partnership's share of unconsolidated debt. Scheduled principal
installments and amounts due at maturity are included.

(in thousands)

(1) These amounts do not represent the effect of two one-year extension options
on two of The Woodlands Fleet National Bank loans, totaling $99.2 million
that have initial maturity dates of November 2002 and October 2003.

RELATED PARTY DISCLOSURES

DBL Holdings, Inc.

As of June 30, 2002, the Operating Partnership owned 97.44% of DBL with
the remaining 2.56% economic interest in DBL (including 100% of the voting
interest in DBL) held by John Goff, Vice-Chairman of the Board of Trust Managers
and Chief Executive Officer of the Company and sole director and Chief Executive
Officer of the General Partner. Originally, Mr. Goff contributed his voting
interests in MVDC and HADC, originally valued at approximately $380, and
approximately $63 in cash, or total consideration valued at approximately $443
for his interest in DBL.

DBL has two wholly owned subsidiaries, DBL-ABC, Inc. and DBL-CBO, Inc.,
the assets of which are described in the following paragraphs, and DBL directly
holds 66% of the voting stock in MVDC and HADC. At June 30, 2002, Mr. Goff's
book value in DBL was approximately $.4 million.

Since June 1999, the Operating Partnership has contributed
approximately $23.8 million to DBL, in the form of cash and loans. These funds
were used by DBL to make an equity contribution to DBL-ABC, Inc., which
committed to purchase a limited partnership interest representing a 12.5%
interest in G2 Opportunity Fund, LP ("G2"). G2 was formed for the purpose of
investing in commercial mortgage

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RESULTS OF OPERATIONS - (CONTINUED)

backed securities and other commercial real estate investments and is managed
and controlled by an entity that is owned equally by Goff-Moore Strategic
Partners, LP ("GMSP") and GMACCM. The day-to-day operations of G2 are managed
jointly by an affiliate of GMACCM and a division of GMSP headquartered in
Greenwich, Connecticut and overseen by Hugh Bulloch, a principal of GMSP who is
unrelated to the Operating Partnership. The ownership structure of the entity
that ultimately controls GMSP consists of 50% ownership by Darla Moore, who is
married to Richard Rainwater, Chairman of the Board of Trust Managers of the
Company, and 50% by John Goff. Mr. Rainwater is also a limited partner of GMSP.
At June 30, 2002, DBL had an approximately $14.5 million investment in G2 and
had repaid in full the loans from the Operating Partnership.

In March 1999, DBL-CBO, Inc. acquired $6.0 million aggregate principal
amount of Class C-1 Notes issued by Juniper CBO 1999-1 Ltd., a Cayman Island
limited liability company. Juniper 1999-1 Class C-1 is the privately placed
equity interest of a collateralized bond obligation. During the six months ended
June 30, 2002, the Operating Partnership recognized an impairment charge related
to this investment of $5.2 million. As a result of this impairment charge, at
June 30, 2002 this investment was valued at $0.

COPI Colorado, L. P.

On February 14, 2002, the Operating Partnership executed an agreement
with COPI, pursuant to which COPI transferred to the Operating Partnership, in
lieu of foreclosure, COPI's 60% general partner interest in COPI Colorado which
owns 10% of the voting stock in CRDI. As a result, the Operating Partnership
increased its ownership interest in CRDI from 90% to 96%. John Goff,
Vice-Chairman of the Board of Trust Managers and Chief Executive Officer of the
Company and sole director and Chief Executive Officer of the General Partner,
owns a 2.0% voting interest in CRDI with a cost basis of $0.4 million and the
remaining 2.0% voting interest is owned by a third as party.

Loans to Employees and Trust Managers of the Company for Exercise of Stock
Options and Unit Options

As of June 30, 2002, the Operating Partnership had approximately $36.6
million of loans outstanding (including approximately $4.1 million loaned during
the six months ended June 30, 2002) to certain employees and trust managers of
the Company on a recourse basis pursuant to the Company's stock incentive plans
and unit incentive plans pursuant to agreements approved by the Board of
Directors and the Executive Compensation Committee of the Company. The proceeds
of these loans were used by the employees and the trust managers to acquire
common shares of the Company pursuant to the exercise of vested stock and unit
options. According to the loan agreements, these loans may be repaid in full or
in part at any time without premium or penalty. John Goff, Vice-Chairman of the
Board of Trust Managers and Chief Executive Officer of the Company and sole
director and Chief Executive Officer of the General Partner, had a loan
representing $26.3 million of the $36.6 million total outstanding loans at June
30, 2002.

Every month, Federal short-term, mid-term and long-term rates
(Applicable Federal Rates) are determined and published by the IRS based upon
average market yields of specified maturities. The loans granted during the six
months ended June 30, 2002 were granted at the Applicable Federal Rate of 2.7%,
which reflects a below prevailing market interest rate; therefore, the Operating
Partnership recorded $0.1 million of compensation expense for the six months
ended June 30, 2002. Approximately $0.2 million of current interest was
outstanding related to these loans as of June 30, 2002. No conditions exist at
June 30, 2002 which would cause any of loans to be in default.

On July 29, 2002, the loans made pursuant to the Company's stock
incentive plans and unit incentive plans were amended to extend the remaining
terms of the loans until July 2012 and to stipulate that every three years the
interest rate on the loans will be adjusted to the AFR applicable at that time
for a three year loan. Additionally, the employees and trust managers have been
given the option, at any time, to fix the interest rate for each of the loans to
the AFR applicable at that time for a loan with a term equal to the remaining
term of the loan. The Company estimates that the one-time compensation expense
related to these amendments to the loans is approximately $1.8 million.
Effective July 29, 2002, the Company will no longer make available to its
employees and trust managers loans pursuant to the Company's stock and unit
incentive plans.

Debt Offering

On April 15, 2002, the Company completed a private offering of $375.0
million in senior, unsecured notes due 2009, $50.0 million of which were
purchased by Richard E. Rainwater, Chairman of the Board of Trust Managers of
the Company, and his affiliates and family members (the "Rainwater Group"). The
notes gear interest at 9.25% and were issued at 100% of issue price. The Company
has agreed to register the notes issued to the Rainwater Group for resale. See
"Debt Offering" section above for additional information regarding the offering
and the notes.

Other

On June 28, 2002, the Operating Partnership purchased and is holding
for sale, the home of an executive officer of the Company for approximately $2.6
million which approximates fair market value of the home. This purchase was part
of the officer's relocation agreement with the Operating Partnership.

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RESULTS OF OPERATIONS - (CONTINUED)

CHANGE IN OPERATING PARTNERSHIP'S CERTIFYING ACCOUNTANT

On June 24, 2002, the Company terminated the engagement of Arthur
Andersen LLP as the Operating Partnership's independent public accountants. The
Company has engaged Ernst & Young LLP to serve as the Company's and the
Operating Partnership's independent public accountants for the fiscal year
ending December 31, 2002. Ernst & Young L.L.P. is currently conducting a
re-audit of the Operating Partnership's financial statements for the years ended
December 31, 2001, 2000, and 1999.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of financial condition and results of
operations is based on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
and contingencies as of the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. We evaluate our
assumptions and estimates on an on-going basis. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. We believe the following
critical accounting policies affect our more significant judgements and
estimates used in the preparation of our consolidated financial statements.

Net Investments in Real Estate

Real estate and leasehold improvements are classified as long-lived
assets to be held and used or held for sale. Properties to be held and used are
carried at cost, net of accumulated depreciation. Properties held for sale are
recorded at the lower cost or fair value less cost to sell. In accordance with
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
the Properties are periodically evaluated on an individual basis to determine if
any value impairment has occurred. With regard to Properties to be held and
used, an impairment charge is recognized to the extent the sum of undiscounted
future operating cash flows is less than the carrying value of the Property. For
Properties held for sale an impairment charge is recognized when the fair value
of the Property less the estimated cost to sell is less than the carrying value
of the Property as of the date the Company has a commitment to sell the Property
or is actively marketing the Property for sale. See "Adoption of New Accounting
Standards" for a discussion of impairment losses recognized for the six months
ended June 30, 2002.

Depreciation on buildings and improvements is computed using the
straight-line method over the estimated useful life of the asset, as follows:

Buildings and Improvements 5 to 40 years
Tenant Improvements Terms of leases
Furniture, Fixture and Equipment 3 to 5 years

Depreciation is not computed on Land and Land held for Investment or
Development, nor is depreciation computed on Property held for sale subsequent
to the date the Property is classified as held for sale.

Expenditures for ordinary repairs and maintenance are charged to
operations as incurred. Significant renovations and improvements, which improve
or extend the useful life of the Property are capitalized and subject to the
depreciation guidelines discussed above. When a Property is sold, its cost and
related accumulated depreciation are removed from the books and any resulting
gain or loss reflected in net income for the appropriate period.

Developments in process are carried at cost, which includes land
acquisition cost, architectural fees, general contractor fees, construction
interest, internal costs related directly to the development and other costs
related directly to the construction of the Property. Depreciation expense is
not recognized until the property is placed in service, which occurs shortly
after the building receives a certificate of occupancy.

Derivative Financial Instruments

The Company uses derivative financial debt instruments to convert a
portion of its variable-rate debt to fixed-rate debt and to manage its fixed to
variable-rate ratio. As of June 30, 2002, the Company has entered into three
cash flow hedge agreements which are accounted for under SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended, by SFAS No. 138, "Accounting for Certain Hedging Activities,"
establishes accounting and reporting standards for derivative instruments.
Specifically, it requires an entity to recognize all derivatives as either
assets or liabilities in the statement of financial position and to measure
these instruments at fair value. Changes in fair value will effect either
shareholders' equity or net income depending on whether the derivative
instrument qualifies as a hedge for accounting purposes. Derivatives that do not
qualify as hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the particular nature of the hedge, changes
in fair value will either be offset against the change in fair value of the
hedged assets or liabilities through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings.

The Company uses cash flow hedges to mitigate the variability of cash
flows by effectively converting or capping floating rate debt to a fixed rate
basis. On a monthly basis, the cash flow hedge is market to fair value through
comprehensive income and the cash flow hedge's gain or loss is reported in
earnings when the interest on the underlying debt affects earnings. Any
ineffective portion of the hedges is immediately reported in the Company's
earnings.

In connection with the debt refinancing in May 2001, the Company
entered into a LIBOR interest rate cap, and simultaneously sold a LIBOR interest
rate cap with the same terms. These instruments do not qualify as hedges and
changes to their respective fair values, which offset each other, are charged to
earnings monthly.

Revenue Recognition

Office Properties The Company, as a lessor, has retained
substantially all of the risks and benefits of ownership of the Office
Properties and accounts for its leases as operating leases. The Company
recognizes income on leases on a straight-line basis over the term of the lease.
Certain leases provide for abated rent periods and/or scheduled rental rate
increases during the term of the lease. Accordingly, a receivable from tenants,
deferred rent receivable, is recorded for the excess of rental revenue
recognized on a straight-line basis over the rent that is contractually due from
the tenant under the terms of the lease.

Resort/Hotel Properties Prior to the February 14, 2002 transaction
with COPI, the Company had leased all of the Resort/Hotel Properties, except the
Omni Austin Hotel, to subsidiaries of COPI pursuant to eight separate leases.
The Omni Austin hotel had been leased under a separate lease to HCD Austin
Corporation. The leases provided for the payment by the lessee of the
Resort/Hotel Property of (i) base rent, with periodic rent increases if
applicable, (ii) percentage rent based on a percentage of gross receipts or
gross room revenues, as applicable, above a specified amount, and (iii) a
percentage of gross food and beverage revenues above a specified amount for
certain Resort/Hotel Properties. Base rental income under these leases was
recognized on a straight-line basis over the terms of the respective leases.
Contingent revenue was recognized when the thresholds upon which it is based had
been met. On February 14, 2002, the Company executed an agreement with COPI,
pursuant to which COPI transferred to subsidiaries of the Company, in lieu of
foreclosure, COPI's lessee interests in the eight Resort/Hotel Properties
previously leased to COPI. Revenue from operations of the Resort/Hotel
Properties subsequent to the COPI transaction is recognized when the services
are provided.

Residential Development Properties Revenue from real estate sales is
recognized after closing has taken place, title has been transferred, sufficient
cash is received to demonstrate the buyer's commitment to pay for the property
and collection of the balance of the sales price, if any, is reasonably assured.
Substantially, all of the real estate sales through June 30, 2002 have been in
cash. The cost of real estate sold is determined using the relative sales value
method.

Revenue from real estate is recognized using the percentage of
completion method. Under the percentage of completion method, the percentage of
revenue applicable to costs incurred to date, as compared to the total estimated
development costs, is recognized in the period of sale. Deferred income related
to future development activity at June 30, 2002 is included in accrued
liabilities. If real estate is sold prior to completion of all related
infrastructure construction, and such uncompleted costs are not significant in
relation to total costs, the full accrual method is utilized whereby 100% of the
associated revenue is recognized and a commitment liability is established to
reflect the allocated estimated future costs to complete the development of such
real estate.

Club initiation fees and membership conversion fees are recorded, when
sold, as deferred revenue and recognized as membership fee revenue on a
straight-line basis over the number of months remaining until the estimated
turnover date, 2010. The partnership is required to sell the club assets to the
members no later than the turnover date. Upon formation of Desert Mountain
Properties, L.P., the partnership allocated a portion of the fair value of the
assets of Desert Mountain to the remaining club memberships and recorded the
amount as an intangible asset. Direct costs and an applicable portion of the
intangible associated with deferred membership revenue are also deferred and
recognized under the same method as the related revenue. These deferred club
initiation and membership conversion fees, net of the related deferred costs,
are presented on the balance sheets as deferred income. Membership fees included
in revenues are net of the related costs. Monthly club dues and transfer fees
are recorded as club revenue when earned.

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RESULTS OF OPERATIONS - (CONTINUED)

ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 142, "Goodwill and Other Intangible Assets" (effective January 1,
2002). SFAS No. 142 specifies that goodwill and certain other types of
intangible assets may no longer be amortized, but instead are subject to
periodic impairment testing. If an impairment charge is required, the charge is
reported as a change in accounting principle and is included in operating
results as a Cumulative Effect of a Change in Accounting Principle. SFAS No. 142
provides for a transitional period of up to twelve months. Any need for
impairment must be assessed within the first six months and the amount of
impairment must be determined within the next six months. Any additional
impairment taken in subsequent interim periods during 2002 related to the
initial adoption of this statement will require the first quarter financial
statements to be restated. During the three months ended March 31, 2002 the
Operating Partnership recognized a goodwill impairment charge of approximately
$10.3 million due to the initial application of this statement. This charge was
due to an impairment (net of taxes) of the goodwill at the
Temperature-Controlled Logistics Corporation. This charge was reported as a
change in accounting principle and was included in the Operating Partnership's
consolidated statements of Operations as a "Cumulative Effect of a Change in
Accounting Principle" for the three months ended March 31, 2002. Subsequent to
March 31, 2002 the Operating Partnership determined that an additional
impairment charge of $1.5 million, net of minority interest and taxes, was
required for the goodwill of one of the Residential Development Corporations,
bringing to $11.8 million the total impairment charge to be recognized for the
six months ended June 30, 2002. In accordance with SFAS No. 142, the financial
statements for the quarter ended March 31, 2002 were restated to include the
additional impairment charge of $1.5 million. Accordingly, the entire $11.8
million impairment charge against the goodwill of the Temperature-Controlled
Logistics Corporation and one of the Residential Development Corporations has
been included in the Operating Partnership's consolidated statements of
operations as a "Cumulative Effect of a Change in Accounting Principle" for the
six months ended June 30, 2002.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The statement is effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. The adoption of this statement did not materially affect the Operating
Partnership's interim or annual financial statements; however, for the three and
six months ended June 30, 2002, financial statement presentation was modified to
report the results of operations including any gains or losses recognized in
accordance with this statement, and the financial position of the Operating
Partnership's real estate assets sold or classified as held for sale, as
discontinued operations. As a result, the Operating Partnership has reclassified
certain amounts in prior period financial statements to conform with the new
presentation requirements.

REIT QUALIFICATION

The Company intends to maintain its qualification as a REIT under
Section 856 of the Code. As a REIT, the Company generally will not be subject to
corporate federal income taxes as long as it satisfies certain technical
requirements of the Code, including the requirement to distribute 90% of its
REIT taxable income to its shareholders.

FUNDS FROM OPERATIONS

FFO, as used in this document, means:

o Net Income (Loss) - determined in conformity with GAAP;

o excluding gains (or losses) from sales of depreciable
operating property;

o excluding extraordinary items (as defined by GAAP);

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RESULTS OF OPERATIONS - (CONTINUED)

o plus depreciation and amortization of real estate
assets; and

o after adjustments for unconsolidated partnerships and
joint ventures.

The National Association of Real Estate Investment Trusts ("NAREIT")
developed FFO as a relative measure of performance and liquidity of an equity
REIT to recognize that income-producing real estate historically has not
depreciated on the basis determined under GAAP. The Operating Partnership
considers FFO an appropriate measure of performance for an equity REIT, and for
its investment segments. However, FFO:

o does not represent cash generated from operating activities
determined in accordance with GAAP (which, unlike FFO,
generally reflects all cash effects of transactions and other
events that enter into the determination of net income);

o is not necessarily indicative of cash flow available to fund
cash needs; and

o should not be considered as an alternative to net income
determined in accordance with GAAP as an indication of the
Operating Partnership's operating performance, or to cash flow
from operating activities determined in accordance with GAAP
as a measure of either liquidity or the Operating
Partnership's ability to make distributions.

The Operating Partnership has historically distributed an amount less
than FFO, primarily due to reserves required for capital expenditures, including
leasing costs. The aggregate cash distributions paid to shareholders and
unitholders for the six months ended June 30, 2002 and 2001 were $128.1 and
$149.7 million, respectively.

An increase or decrease in FFO does not necessarily result in an
increase or decrease in aggregate distributions because the Company's Board of
Trust Managers is not required to increase distributions on a quarterly basis
unless necessary for the Company to maintain REIT status. However, the Company
must distribute 90% of its REIT taxable income (as defined in the Code).
Therefore, a significant increase in FFO will generally require an increase in
distributions to shareholders and unitholders although not necessarily on a
proportionate basis.

Accordingly, the Operating Partnership believes that to facilitate a
clear understanding of the consolidated historical operating results of the
Operating Partnership, FFO should be considered in conjunction with the
Operating Partnership's net income and cash flows reported in the consolidated
financial statements and notes to the financial statements. However, the
Operating Partnership's measure of FFO may not be comparable to similarly titled
measures of operating partnerships of other REITs (other than the Company)
because these REITs may apply the definition of FFO in a different manner than
the Operating Partnership.

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RESULTS OF OPERATIONS - (CONTINUED)

STATEMENTS OF FUNDS FROM OPERATIONS
(DOLLARS AND UNITS IN THOUSANDS)

- ----------

(1) To calculate basic funds from operations, deduct Unitholder minority
interest.

(2) Includes interest and other income, preferred return paid to GMACCM, other
unconsolidated companies, less depreciation and amortization of non-real
estate assets and amortization of deferred financing costs.

(3) For purposes of this schedule, the Behavioral Healthcare Properties'
financial information has been included in this line item.

(4) See calculations for the amounts presented in the reconciliation following
this table.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

The following schedule reconciles the Operating Partnership's basic
weighted average shares to the diluted weighted average units presented above:

RECONCILIATION OF FUNDS FROM OPERATIONS TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
(DOLLARS IN THOUSANDS)

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RESULTS OF OPERATIONS - (CONTINUED)

SEGMENT INFORMATION

The following sections include information for each of the Operating
Partnership's investment segments for the three and six months ended June 30,
2002.

OFFICE SEGMENT

Same-Store Analysis

The following table shows the same-store net operating income growth
for the three and six month periods ended June 30, 2002 and 2001, for the
approximately 25.7 million square feet of Office Property space owned as of June
30, 2002. This table excludes the following:

o Approximately 1.5 million square feet of space at Bank One Center, in which
the Operating Partnership owns a 50% equity interest;

o Approximately 1.0 million square feet of space at Four Westlake Park and
Bank One Tower, in each of which the Operating Partnership has a 20% equity
interest;

o Approximately 0.1 million square feet of space at Avallon IV, which was
completed during the year ended December 31, 2001; and

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RESULTS OF OPERATIONS - (CONTINUED)

Leasing

(1) All of which have commenced or will commence during the next twelve
months.

(2) Including free rent, scheduled rent increases taken into account under
GAAP and including adjustments for expenses payable by or reimbursable
from customers based on current expense levels.

(3) Calculated as weighted average rental rate minus operating expenses.

Properties

As of June 30, 2002, the Operating Partnership owned or had an interest
in 74 Office Properties located in 26 metropolitan submarkets in six states with
an aggregate of approximately 28.3 million net rentable square feet. The Office
Properties were, on a weighted average basis, 89%, occupied at June 30, 2002,
and are located approximately 41% in central business districts ("CBD") and
approximately 59% in suburban markets. The Operating Partnership's Office
Properties are located primarily in the Dallas/Fort Worth and Houston, Texas
metropolitan areas. As of June 30, 2002, the Operating Partnership's Office
Properties in Dallas and Houston represented an aggregate of approximately 74%
of its office portfolio based on total net rentable square feet (37% for Dallas
and 37% for Houston).

In pursuit of management's objective to dispose of non-strategic and
non-core assets, one of the Operating Partnership's fully consolidated Office
Properties, Cedar Springs Plaza in Dallas, Texas, was disposed of on January 18,
2002.

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CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
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RESULTS OF OPERATIONS - (CONTINUED)

The following table shows, as of June 30, 2002, certain information
about the Operating Partnership's Office Properties.

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(1) Calculated based on base rent payable as of June 30, 2002, without giving
effect to free rent or scheduled rent increases that would be taken into
account under GAAP and including adjustments for expenses payable by or
reimbursable from customers.

(2) The Operating Partnership has a 49.5% limited partner interest and a 0.5%
general partner interest in the partnership that owns Bank One Center.

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(3) The Operating Partnership owns the principal economic interest in Trammell
Crow Center through its ownership of fee simple title to the Property
(subject to a ground lease and a leasehold estate regarding the building)
and two mortgage notes encumbering the leasehold interests in the land and
building.

(4) The Operating Partnership owns the principal economic interest in Spectrum
Center through an interest in Crescent Spectrum Center, L.P. which owns
both the mortgage notes secured by Spectrum Center and the ground lessor's
interest in the land underlying the office building.

(5) Leases have been executed at certain Office Properties but had not
commenced as of June 30, 2002. If such leases had commenced as of June 30,
2002, the percent leased for all Office Properties would have been 90%.
The total percent leased for these Properties would have been as follows:
MacArthur Center I and II - 94%, Palisades Central II - 89%, Carter
Burgess Plaza - 99%, The Avallon - 100%, Ptarmigan Place - 100%, 44 Cook -
100%, Miami Center - 95%, Datran Center - 97% and Chancellor Park - 81%.

(6) The Operating Partnership has a 75% limited partner interest and an
approximate 10% indirect general partner interest in the partnership that
owns the six Office Properties that comprise The Woodlands Office
Properties.

(7) The Operating Partnership has a 0.1% general partner interest and a 19.9%
limited partner interest in the partnerships that own Four Westlake Park
and Bank One Tower.

(8) The Operating Partnership has a 1% general partner interest and a 49%
limited partner interest in the partnership that owns 301 Congress Avenue.

(9) This Office Property was sold subsequent to June 30, 2002.

(10) The Operating Partnership owns Chancellor Park through its ownership of a
mortgage note secured by the building and through its direct and indirect
interests in the partnership, which owns the building.

(11) The weighted average full-service rental rate per square foot calculated
based on base rent payable for Operating Partnership Office Properties as
of June 30, 2002, giving effect to free rent and scheduled rent increases
that are taken into consideration under GAAP and also including
adjustments for expenses payable by or reimbursed from customers is
$22.96.

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RESULTS OF OPERATIONS - (CONTINUED)

The following table provides information, as of June 30, 2002, for the
Operating Partnership's Office Properties by state, city and submarket.

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(1) NRA means net rentable area in square feet.

(2) Market information is for Class A office space under the caption "Class A
Office Properties" and market information is for Class B office space under
the caption "Class B Office Properties." Sources are CoStar Group (for the
Dallas CBD, Uptown/Turtle Creek, Far North Dallas, Las Colinas,
Richardson/Plano, Stemmons Freeway, LBJ Freeway, Fort Worth CBD, Houston
Richmond-Buffalo Speedway, Houston CBD, West Loop/Galleria, and Katy
Freeway submarkets), The Woodlands Operating Company, L.P. (for The
Woodlands submarket), CoStar Group (for the Austin CBD, Northwest and
Southwest submarkets), Turner Commercial Research (for the Colorado Springs
market), Grubb and Ellis Company (for the Phoenix Downtown/CBD and
Camelback Corridor submarkets), Building Interests, Inc. (for the
Albuquerque CBD submarket), RealData Information Systems, Inc. (for the
Miami CBD and South Dade/Kendall submarkets) and John Burnham & Company
(for the San Diego University Town Centre submarket). This table includes
market information as of March 31, 2002, except for the Dallas, Houston,
and Austin markets, for which market information is as of June 30, 2002.

(3) Represents full-service quoted market rental rates. These rates do not
necessarily represent the amounts at which available space at the Office
Properties will be leased. The weighted average subtotals and total are
based on total net rentable square feet of the Operating Partnership's
Office Properties in the submarket.

(4) Represents weighted average rental rates per square foot quoted by the
Operating Partnership, based on total net rentable square feet of Operating
Partnership Office Properties in the submarket, adjusted, if necessary,
based on management estimates, to equivalent full-service quoted rental
rates to facilitate comparison to weighted average Class A or Class B, as
the case may be, quoted submarket full-service rental rates per square
foot. These rates do not necessarily represent the amounts at which
available space at the Operating Partnership's Office Properties will be
leased.

(5) Calculated based on base rent payable as of June 30, 2002 for Operating
Partnership Office Properties in the submarket, without giving effect to
free rent or scheduled rent increases that would be taken into account
under GAAP and including adjustments for expenses payable by or reimbursed
from customers, divided by total net rentable square feet of Operating
Partnership Office Properties in the submarket.

(6) Leases have been executed at certain Office Properties in these submarkets
but had not commenced as of June 30, 2002. If such leases had commenced as
of June 30, 2002, the percent leased for all Office Properties in the
Operating Partnership's submarkets would have been 90%. The total percent
leased for these Class A Operating Partnership submarkets would have been
as follows: Dallas - (Las Colinas) - 93%, (Richardson/ Plano) - 95%, Fort
Worth - (CBD) - 99%, Austin - (Northwest) - 100%, Denver - (Cherry Creek) -
99%, Miami - (CBD) - 95%, Miami - (South Dade/Kendall) - 97%, San Diego -
(University Town Center) - 81%.

(7) This information is not publicly available for the Denver submarkets as of
June 30, 2002.

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CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

(8) Includes weighted average amounts for the Denver submarket. These amounts
were calculated by management based on information from third-party
sources.

(9) The weighted average full-service rental rate per square foot calculated
based on base rent payable for Operating Partnership Office Properties,
giving effect to free rent and scheduled rent increases that are taken into
consideration under GAAP and also including adjustments for expenses
payable by or reimbursed from customers is $22.96.

(10) Includes the 6225 N. 24th Office Property sold August 1, 2002.

The following tables show schedules of lease expirations for leases in
place as of June 30, 2002, for the Operating Partnership's total Office
Properties and for Dallas, Houston and Austin, Texas, and Denver, Colorado,
individually, for each of the 10 years beginning with 2002, assuming that none
of the customers exercises or has exercised renewal options.

Total Office Properties

(1) Calculated based on base rent payable under the lease for net rentable
square feet expiring, without giving effect to free rent or scheduled rent
increases that would be taken into account under GAAP and including
adjustments for expenses payable by or reimbursable from customers based on
current expense levels.

(2) Expirations by quarter are as follows:
Q3: 1,495,459 sf; Q4: 706,453 sf.

(3) Expirations by quarter are as follows:
Q1: 1,635,101 sf; Q2: 617,848 sf; Q3: 670,329 sf; Q4: 700,386 sf.

(4) Reconciliation of the Operating Partnership's total Office Property net
rentable area is as follows:

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CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

Dallas Office Properties

(1) Calculated based on base rent payable under the lease for net rentable
square feet expiring, without giving effect to free rent or scheduled rent
increases that would be taken into account under GAAP and including
adjustments for expenses payable by or reimbursable from customers based on
current expense levels.

(2) Expirations by quarter are as follows:
Q3: 651,983 sf; Q4: 170,716 sf.

(3) Expirations by quarter are as follows:
Q1: 825,044 sf; Q2: 234,769 sf; Q3: 106,148 sf; Q4: 202,755 sf.

Houston Office Properties

(1) Calculated based on base rent payable under the lease for net rentable
square feet expiring, without giving effect to free rent or scheduled rent
increases that would be taken into account under GAAP and including
adjustments for expenses payable by or reimbursable from customers based on
current expense levels

(2) Expirations by quarter are as follows:
Q3: 569,303 sf; Q4: 447,884 sf.

(3) Expirations by quarter are as follows:
Q1: 461,738 sf; Q2: 231,876 sf; Q3: 368,539 sf; Q4: 153,140 sf.

83

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

Austin Office Properties

(1) Calculated based on base rent payable under the lease for net rentable
square feet expiring, without giving effect to free rent or scheduled rent
increases that would be taken into account under GAAP and including
adjustments for expenses payable by or reimbursable from customers based on
current expense levels.

(2) Expirations by quarter are as follows: Q3: 52,907sf; Q4: 17,804 sf.

(3) Expirations by quarter are as follows: Q1: 110,144sf; Q2: 65,399 sf;
Q3: 62,357sf; Q4: 13,105 sf.

Denver Office Properties

(1) Calculated based on base rent payable under the lease for net rentable
square feet expiring, without giving effect to free rent or scheduled rent
increases that would be taken into account under GAAP and including
adjustments for expenses payable by or reimbursable from customers based on
current expense levels

(2) Expirations by quarter are as follows: Q3: 60,985sf; Q4: 17,809 sf.

(3) Expirations by quarter are as follows: Q1: 85,107sf; Q2: 18,781 sf;
Q3: 75,164sf; Q4: 289,364 sf.

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CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

Other Office Properties

(1) Calculated based on base rent payable under the lease for net rentable
square feet expiring, without giving effect to free rent or scheduled rent
increases that would be taken into account under GAAP and including
adjustments for expenses payable by or reimbursable from tenants based on
current expense levels.

(2) Expirations by quarter are as follows: Q3: 160,281sf; Q4: 52,240 sf.

(3) Expirations by quarter are as follows: Q1: 153,428sf; Q2: 67,203 sf;
Q3: 58,121sf; Q4: 42,022 sf.

The following table shows, as of June 30, 2002, the principal businesses
conducted by the customers at the Operating Partnership's Office Properties,
based on information supplied to the Operating Partnership from the customers.

- ----------

(1) Includes legal, accounting, engineering, architectural and advertising
services.

(2) Includes oil and gas and utility companies.

(3) Includes banking, title and insurance and investment services.

(4) Includes construction, real estate, transportation and other industries.

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CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

HISTORICAL RECURRING OFFICE PROPERTY CAPITAL EXPENDITURES, TENANT IMPROVEMENT
AND LEASING COSTS

The following table sets forth non-incremental revenue generating and
incremental revenue generating capital expenditures and tenant improvement and
leasing costs for the six months ended June 30, 2002 and the year ended December
31, 2001. Tenant improvement and leasing costs for signed leases during a
particular period do not necessarily equal the cash paid for the tenant
improvement and leasing costs during such period due to timing of payments.

- ----------

(1) Capital expenditures may fluctuate in any given period subject to the
nature, extent and timing of improvements required to be made in the
Operating Partnership's Office Property portfolio. The Operating
Partnership maintains an active preventive maintenance program in order to
minimize required capital improvements. In addition, certain improvement
costs are recoverable from tenants.

(2) Non-incremental revenue generating tenant improvements and leasing costs
exclude temporary leases whose commencement dates are more than 12 months
from the current quarter and Incremental revenue generating tenant
improvements and leasing costs are related to signed leases that have not
contributed to office earnings in the preceding quarter.

(3) Tenant improvement and leasing costs also may fluctuate in any given year
depending upon factors such as the property, the term of the lease, the
type of lease (new, renewal, or replacement tenant), the involvement of
external leasing agents and overall competitive market conditions.
Management believes that future recurring tenant improvements and leasing
costs for the

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CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

Operating Partnership's existing Office Properties will approximate on
average for "renewal tenants," $6.00 to $8.00 per square foot, or $1.20 to
$1.60 per square foot per year based on average five-year lease term, and,
on average for "replacement tenants," $12.00 to $14.00 per square foot, or
$2.40 to $2.80 per square foot per year based on an average five-year lease
term, and, on average for "new and expansion tenants," $16.00 to $20.00 per
square foot, or $3.20 to $4.00 per square foot per year based on an average
five-year lease term.

(4) Incremental Revenue Generating Tenant Improvements and Leasing Costs are
related to signed leases that have not contributed to office earnings in
the preceding two quarters.

RESORT/HOTEL SEGMENT

On February 14, 2002, the Operating Partnership executed an agreement
with COPI, pursuant to which COPI transferred to subsidiaries of the Operating
Partnership, in lieu of foreclosure, COPI's lessee interests in the eight
Resort/Hotel Properties leased to subsidiaries of COPI. As a result, the
subsidiaries of the Operating Partnership became the lessees of these
Resort/Hotel Properties. The Operating Partnership fully consolidated the
operations of the eight Resort/Hotel Properties beginning on the date of the
asset transfers.

Same-Store Analysis

As of June 30, 2002, the Operating Partnership owned nine Resort/Hotel
Properties. The following table shows same-store net operating income, weighted
average occupancy, average daily rate and revenue per available room/guest night
for the nine Resort/Hotel Properties for the three and six months ended June 30,
2002 and 2001.

Resorts

Business-Class Hotels

87

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

Properties

The following table shows certain information for the six months ended
June 30, 2002, and 2001, with respect to the Operating Partnership's
Resort/Hotel Properties. The information for the Resort/Hotel properties is
based on available rooms, except for Canyon Ranch - Tucson and Canyon Ranch -
Lenox, which measure their performance based on available guest nights.

(1) As of December 31, 2001, the Operating Partnership had leased all of the
Resort/Hotel Properties, except the Omni Austin Hotel, to subsidiaries of
COPI. The Omni Austin Hotel is leased pursuant to a separate lease to HCD
Austin Corporation. On February 14, 2002, the Operating Partnership
executed an agreement with COPI, pursuant to which COPI transferred to
subsidiaries of the Operating Partnership, in lieu of foreclosure, COPI's
lessee interests in those Resort/Hotel Properties.

(2) Represents available guest nights, which is the maximum number of guests
that the resort can accommodate per night.

RESIDENTIAL DEVELOPMENT SEGMENT

Operating Information

On February 14, 2002, the Operating Partnership executed an agreement
with COPI, pursuant to which COPI transferred to subsidiaries of the Operating
Partnership, in lieu of foreclosure, substantially all of COPI's voting
interests in three of the Residential Development Corporations: The Woodlands
Land Company, Inc. ("TWLC"), Desert Mountain Development Corporation ("DMDC")
and Crescent Resort Development, Inc. ("CRDI"). The Operating Partnership fully
consolidated the operations of the three Residential Development Corporations
beginning on the date of the asset transfers. Management plans to reinvest
returned capital from the Residential Development Segment primarily into the
Office Segment where the Operating Partnership expects to achieve favorable
rates of return.

As of June 30, 2002, the Operating Partnership owned or had economic
interests in five Residential Development Corporations. The Residential
Development Corporations in turn, through joint ventures or partnership
arrangements, currently own interests in 22 Residential Development Properties.
The Residential Development Corporations are responsible for the continued
development and the day-to-day operations of the Residential Development
Properties.

88

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

The Woodlands Land Development Company, L.P. and The Woodlands Commercial
Properties Company, L.P. (collectively "The Woodlands"), The Woodlands, Texas:

The following table shows residential lot sales at an average price per
lot and commercial land sales at an average price per acre.

o Average sales price per lot decreased by $15,000, or 19%, due to fewer
higher priced lots sold primarily from the Carlton Woods development in the
six months ended June 30, 2002, compared to the same period in 2001.

o Carlton Woods is The Woodlands' new upscale residential development. It is
a gated community consisting of 491 lots located around a Jack Nicklaus
signature golf course. As of June 30, 2002, 230 lots had been sold at
prices ranging from $0.1 million to $2.2 million per lot, or an average
price of $348,000 per lot. Additional phases within Carlton Woods are
expected to be marketed to the public during the next two years.

o Future buildout of The Woodlands is estimated at approximately 12,570
residential lots and approximately 1,607 acres of commercial land, of which
approximately 1,671 residential lots and 980 acres are currently in
inventory.

89

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

Desert Mountain Properties Limited Partnership ("Desert Mountain"), Scottsdale,
Arizona:

The following table shows residential lot sales at an average price per
lot.

(1) Includes equity golf membership.

(1) Includes equity golf membership.

o Approved future buildout of Desert Mountain is estimated to be
approximately 210 to 434 residential lots, of which approximately 123 are
currently in inventory.

90

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

Crescent Resort Development, Inc., Beaver Creek, Colorado:

The following table shows total active projects, residential lot and
residential unit sales and average sales price per lot and unit.

o Average sales price per unit decreased $0.9 million, or 60%, due to lower
priced product mix sold in the six months ended June 30, 2002, as compared to
the same period in 2001.

91

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

Properties

The following table shows certain information as of June 30, 2002,
relating to the Residential Development Properties.

(1) As of December 31, 2001, the Operating Partnership had an approximately
95%, 95%, 90%, 94% and 94% ownership interest in Desert Mountain
Development Corporation, The Woodlands Land Company, Inc., Crescent Resort
Development, Inc., Mira Vista Development Corp. and Houston Area
Development Corp., respectively, through ownership of non-voting common
stock in each of these Residential Development Corporations. On February
14, 2002, the Operating Partnership executed an agreement with COPI,
pursuant to which COPI transferred to subsidiaries of the Operating
Partnership, in lieu of foreclosure, COPI's ownership interests,
representing substantially all of the voting stock, in Desert Mountain
Development Corporation, The Woodlands Land Company, Inc. and Crescent
Resort Development, Inc.

(2) SF (Single-Family Lots); CO (Condominium); TH (Townhome); SFH (Single-
Family Homes) and TS (Timeshare Equivalent Units).

(3) Based on lots/units closed during the Operating Partnership's ownership
period.

(4) Based on existing inventory of developed lots and lots to be developed.

(5) Includes golf membership, which as of June 30, 2002, is $225,000.

(6) Distributions are made to partners based on specified payout percentages.
During the six months ended June 30, 2002, the payout percentage to the
Operating Partnership was 52.5%.

(7) As of June 30, 2002, 24 golf course lots were under contract at Eagle Ranch
representing $2.1 million in sales; two units were under contract at Main
Street Station representing $0.8 million in sales; two units were under
contract at Park Place at Riverfront representing $.7 million in sales; one
unit was under contract at Park Tower at Riverfront representing $0.8
million in sales; one unit was under contract at Cresta representing $1.8
million in sales; six units were under contract at Snow Cloud representing
$10.7 million in sales and 44 units were under contract at One Vendue Range
representing $52.4 million in sales.

92

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)

TEMPERATURE-CONTROLLED LOGISTICS SEGMENT

Operating Information

As of June 30, 2002, the Operating Partnership held a 40% interest in
the Temperature-Controlled Logistics Partnership, which owns the
Temperature-Controlled Logistics Corporation, which directly or indirectly owns
the 89 Temperature-Controlled Logistics Properties, with an aggregate of
approximately 445.2 million cubic feet (17.7 million square feet) of warehouse
space.

The Temperature-Controlled Logistics Corporation leases the
Temperature-Controlled Logistics Properties to a partnership ("AmeriCold
Logistics") owned 60% by Vornado Operating L.P. and 40% by a subsidiary of COPI.
The Company has no interest in AmeriCold Logistics.

AmeriCold Logistics, as sole lessee of the Temperature-Controlled
Logistics Properties, leases the Temperature-Controlled Logistics Properties
from the Temperature-Controlled Logistics Corporation under three triple-net
master leases, as amended. On February 22, 2001, the Temperature-Controlled
Logistics Corporation and AmeriCold Logistics agreed to restructure certain
financial terms of the leases, including the adjustment of the rental obligation
for 2001 to $146.0 million, the adjustment of the rental obligation for 2002 to
$150.0 million (plus contingent rent in certain circumstances), the increase of
the Temperature-Controlled Logistics Corporation's share of capital expenditures
for the maintenance of the properties from $5.0 million to $9.5 million
(effective January 1, 2000) and the extension of the date on which deferred rent
is required to be paid to December 31, 2003.

In December 2001, the Temperature Controlled Logistics Corporation
waived its right to collect $39.8 million (the Operating Partnership's share of
which was $15.9 million) of the total $49.9 million of deferred rent. The
Temperature-Controlled Logistics Corporation and the Operating Partnership
began to recognize rental income when earned and collected during the year
ended December 31, 2000 and continued this accounting treatment for the year
ended December 31, 2001; therefore, there was no financial statement impact to
the Temperature-Controlled Logistics Corporation or to the Operating
Partnership related to the Temperature-Controlled Logistics Corporation's
decision in December 31, 2001 to waive collection of deferred rent.

AmeriCold Logistics deferred $9.3 million of the total $68.9 million of
rent payable for the six months ended June 30, 2002. The Operating Partnership's
share of the deferred rent was $3.7 million. The Operating Partnership
recognizes rental income when earned and collected and has not recognized the
$3.7 million of deferred rent in equity in net income of the
Temperature-Controlled Logistics Properties for the six months ended June 30,
2002.

The following table shows the total, and the Operating Partnership's
portion of, deferred rent and valuation allowance at December 31, 2001 and for
the six months ended June 30, 2002.

Properties

The following table shows the number and aggregate size of
Temperature-Controlled Logistics Properties by state as of June 30, 2002:

- ----------
(1) As of June 30, 2002, the Operating Partnership held a 40% interest in the
Temperature-Controlled Logistics Partnership, which owns the
Temperature-Controlled Logistics Corporation, which directly or indirectly
owns the 89 Temperature-Controlled Logistics Properties. The business
operations associated with the Temperature-Controlled Logistics Properties
are owned by AmeriCold Logistics, in which the Operating Partnership has no
interest. The Temperature-Controlled Logistics Corporation is entitled to
receive lease payments from AmeriCold Logistics.

(2) Includes an underground storage facility, with approximately 33.1 million
cubic feet.

(3) As of June 30, 2002, AmeriCold Logistics operated 100
temperature-controlled logistics properties with an aggregate of
approximately 524.6 million cubic feet (20.2 million square feet).

93

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Operating Partnership's use of financial instruments, such as debt
instruments, subject the Operating Partnership to market risk which may affect
the Operating Partnership's future earnings and cash flows as well as the fair
value of its assets. Market risk generally refers to the risk of loss from
changes in interest rates and market prices. The Operating Partnership manages
its market risk by attempting to match anticipated inflow of cash from its
operating, investing and financing activities with anticipated outflow of cash
to fund debt payments, distributions to shareholders, investments, capital
expenditures and other cash requirements. The Operating Partnership also enters
into derivative financial instruments such as interest rate swaps to mitigate
its interest rate risk on a related financial instrument or to effectively lock
the interest rate on a portion of its variable-rate debt.

The following discussion of market risk is based solely on hypothetical
changes in interest rates related to the Operating Partnership's variable-rate
debt. This discussion does not purport to take into account all of the factors
that may affect the financial instruments discussed in this section.

INTEREST RATE RISK

The Operating Partnership's interest rate risk is most sensitive to
fluctuations in interest rates on its short-term variable-rate debt. The
Operating Partnership had total outstanding debt of approximately $2.5 billion
at June 30, 2002, of which approximately $196.4 million, or approximately 7.95%,
was unhedged variable-rate debt. The weighted average interest rate on such
variable-rate debt was 4.09% as of June 30, 2002. A 10% (40.9 basis point)
increase in the weighted average interest rate on such variable-rate debt would
result in an annual decrease in net income and cash flows of approximately $0.8
million based on the unhedged variable-rate debt outstanding as of June 30,
2002, as a result of the increased interest expense associated with the change
in rate. Conversely, a 10% (40.9 basis point) decrease in the weighted average
interest rate on such unhedged variable-rate debt would result in an annual
increase in net income and cash flows of approximately $0.8 million based on the
unhedged variable-rate debt outstanding as of June 30, 2002, as a result of the
decreased interest expense associated with the change in rate.

CASH FLOW HEDGES

The Operating Partnership uses derivative financial instruments to
convert a portion of its variable-rate debt to fixed-rate debt and to manage its
fixed to variable-rate debt ratio. A description of these derivative financial
instruments is contained in "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Cash Flow Hedges" and is
incorporated by reference into this Item 3.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not applicable.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On April 15, 2002, the Operating Partnership issued $375.0 million in
senior, unsecured notes due 2009. The issuance was exempt from
registration under Rule 144A promulgated under the Securities Act of
1933, as amended.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not applicable.

94

ITEM 5. OTHER INFORMATION

On June 24, 2002, the Company terminated the engagement of Arthur
Andersen LLP ("Arthur Andersen") as the Company's independent public
accountants, and engaged Ernst & Young LLP ("Ernst & Young") to serve
as the Company's independent public accountants for the fiscal year
ending December 31, 2002, effective immediately.

Arthur Andersen's reports on the Company's Consolidated Financial
Statements for each of the fiscal years ended December 31, 2001 and
December 31, 2000 did not contain an adverse opinion or disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit
scope or accounting principles.

During the fiscal years ended December 31, 2001 and December 31, 2000,
and through June 24, 2002, there were no disagreements with Arthur
Andersen on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which, if not
resolved to Arthur Andersen's satisfaction, would have caused Arthur
Andersen to make reference to the subject matter in connection with its
report on the Company's Consolidated Financial Statements for such
years. There were no reportable events as defined in Item 304(a)(1)(v)
of Regulation S-K.

The Company's Consolidated Financial Statements for each of the fiscal
years ended December 31, 2001 and December 31, 2000 include the
consolidated financial statements of the Operating Partnership for
those years. The Company's termination of the engagement of Arthur
Andersen, and its engagement of Ernst & Young, also terminated the
Operating Partnership's engagement of Arthur Andersen and effected the
engagement of Ernst & Young as the Operating Partnership's independent
public accountants.

The Company provided Arthur Andersen with a copy of the text of the
first, second and third paragraphs of this Item. Exhibit 16 is a copy
of Arthur Andersen's letter, dated June 25, 2002, stating it has found
no basis for disagreement with those statements.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits

The exhibits required by this item are set forth on the Exhibit Index
attached hereto.

(b) Reports on Form 8-K

Form 8-K dated March 28, 2002, filed April 1, 2002
for the purpose of reporting, under Item 5 - Other Events, the
Operating Partnership's intent to offer $375 million aggregate
principal amount of senior notes due 2009.

Form 8-K dated April 10, 2002, filed April 16, 2002
for the purpose of reporting, under Item 5 - Other Events,
that the Operating Partnership had priced its private offering
of $375 million in senior, unsecured notes due 2009 at 9.25%,
with an issue price of the notes of 100%.

Form 8-K dated April 22, 2002, filed April 25, 2002
for the purpose of (i) reporting under Item 5 - Other Events,
that the Company had entered into (1) a placement agency
agreement with Merrill Lynch & Co. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated for the placement of 2,800,000
6 3/4% Series A Convertible Cumulative Preferred Shares (the
"Series A Preferred Shares"), $.01 par value per share, at a
price of $18.00 per share, with Cohen & Steers Capital
Management, Inc. and (2) a purchase agreement with Cohen &
Steers Capital Management, Inc. for the purchase of such
shares for an aggregate price of $50,400,000, and (ii) filing
under Item 7 - Financial Statements, Pro Forma Financial
Information and Exhibits, certain exhibits relating to the
offering of the Series A Preferred Shares pursuant to a
prospectus supplement dated April 22, 2002 to the prospectus
dated April 22, 2002, which forms a part of the

95

Company's Registration Statement on Form S-3 (No. 333-38071),
such exhibits to be incorporated by reference into the
Registration Statement.

Form 8-K/A dated April 22, 2002, filed April 29, 2002
for the purpose of filing under Item 7 - Financial Statements,
Pro Forma Financial Information and Exhibits, an additional
exhibit relating to the offering of the Series A Preferred
Shares pursuant to a prospectus supplement dated April 22,
2002 to the prospectus dated April 22, 2002, which forms a
part of the Company's Registration Statement on Form S-3 (No.
333-38071), such exhibit to be incorporated by reference into
the Registration Statement.

Form 8-K dated May 10, 2002, filed May 14, 2002 for
the purpose of (i) reporting under Item 5 - Other Events, that
the Company had entered into an underwriting agreement with
Bear, Stearns & Co. Inc., BB&T Capital Markets, a division of
Scott & Stringfellow, Inc., and Stifel, Nicolaus & Company,
Incorporated (together, the "Underwriter"), pursuant to which
the underwriter agreed to purchase up to 3,450,000 9.50%
Series B Cumulative Redeemable Preferred Shares (the "Series B
Preferred Shares"), $.01 par value per share, at a price of
$25.00 per share, less Underwriting discounts and commissions
of $.7875 per share, and (ii) filing under Item 7 - Financial
Statements, Pro Forma Financial Information and Exhibits,
certain exhibits relating to the offering of the Series B
Preferred Shares pursuant to a prospectus supplement dated May
10, 2002 to the prospectus dated April 22, 2002, which forms a
part of the Company's Registration Statement on Form S-3 (No.
333-38071), such exhibits to be incorporated by reference into
the Registration Statement.

Form 8-K dated June 24, 2002, filed June 26, 2002 for
the purpose of reporting under Item 4 - Changes in
Registrant's Certifying Accountant, that the Company had ended
the engagement of Arthur Andersen LLP as the Company's
independent public accountants, and had engaged Ernst & Young
LLP to serve as the Company's independent public accountants
for the fiscal year ending December 31, 2002.

96

SIGNATURES

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

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
(Registrant)

By: Crescent Real Estate Equities, Ltd.,
Its General Partner

By /s/ John C. Goff
-----------------------------------------------------
John C. Goff
Date: August 19, 2002 Sole Director and Chief Executive Officer

By /s/ Jerry R. Crenshaw, Jr.
-----------------------------------------------------
Jerry R. Crenshaw, Jr.
Senior Vice President and Chief Financial Officer
Date: August 19, 2002 (Principal Financial and Accounting Officer)

97

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, John C. Goff, the Chief Executive Officer of Crescent Real
Estate, Ltd., the general partner of Crescent Real Estate Equities Limited
Partnership (the "Operating Partnership"), has executed this certification in
connection with the filing with the Securities and Exchange Commission of the
Operating Partnership's Quarterly Report on Form 10-Q for the period ended June
30, 2002 (the "Report"). The undersigned hereby certifies that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and

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

Date: August 19, 2002 /s/ John C. Goff
---------------- ----------------------------------------
John C. Goff
Chief Executive Officer

98

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Jerry R. Crenshaw, Jr., the Senior Vice President and Chief
Financial and Accounting Officer of Crescent Real Estate Equities Ltd., the
general partner of Crescent Real Estate Equities Limited Partnership (the
"Operating Partnership"), has executed this certification in connection with the
filing with the Securities and Exchange Commission of the Operating
Partnership's Quarterly Report on Form 10-Q for the period ended June 30, 2002
(the "Report"). The undersigned hereby certifies that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and

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

Date: August 19, 2002 /s/ Jerry R. Crenshaw, Jr.
---------------- -------------------------------------------------
Jerry R. Crenshaw, Jr.
Senior Vice President and Chief Financial and
Accounting Officer

99

INDEX TO EXHIBITS