CRESCENT FINANCE CO - 10-Q Quarterly Report

Back to GetFilings.com

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 SEPTEMBER 30, 2002
COMMISSION FILE NUMBERS. 333-42293
333-89194-01

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CRESCENT FINANCE COMPANY*
- --------------------------------------------------------------------------------
(Exact names of registrants as specified in their charters)

DELAWARE 75-52-2531304
DELAWARE 42-1536518
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Numbers)
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 Finance Company meets the conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.

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 STATEMENT 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 STATEMENT 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 STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)

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 88%
limited partner interest in the Operating Partnership, with the remaining
approximately 11% 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
September 30, 2002, the Company's approximately 88% limited partner interest has
been treated as equivalent, for purposes of this report, to 51,358,652 units and
the remaining approximately 11% limited partner interest has been treated as
equivalent, for purposes of this report, to 6,541,234 units. In addition, the
Company's 1% general partner interest has been treated as equivalent, for
purposes of this report, to 584,847 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 September 30, 2002.

Operating Partnership Wholly-owned assets - The Avallon IV, Chancellor
Park, 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. Sonoma Mission Inn
(80.1%). This Property is included in the Operating
Partnership's Hotel/Resort Segment.

Equity Investments, unconsolidated - Bank One Center
(50% interest), Bank One Tower (20% interest), Three
Westlake Park (20% interest), Four Westlake Park (20%
interest), Miami Center (40% interest) and 5 Houston
Center (25%). These Properties are included in the
Operating Partnership's Office Segment. 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.

6

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

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

COPI Colorado, L.P. Equity Investments, consolidated - 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), Tahoe
Mountain Resorts (57% - 71.2% 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
Funding I, L.P. & III, Carter Burgess Plaza, The Citadel, The
("Funding I") Crescent Atrium, The Crescent Office Towers, Regency
Plaza One, Waterside 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
Funding II, L.P. Plaza, Briargate Office and Research Center, Las
("Funding II") Colinas Plaza, Liberty Plaza I & II, MacArthur Center
I & 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
Funding III, IV and V, Properties (ten office properties), included in the
L.P. ("Funding III, IV Operating Partnership's Office Segment, and
and V")(1) Renaissance Houston Hotel, included in the Operating
Partnership's Resort/Hotel Segment.

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

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

Crescent Real Estate Wholly-owned assets - The Addison, Addison Tower,
Funding VIII, L.P. Austin Centre, The Avallon V, Frost Bank Plaza,
("Funding VIII") Greenway I & IA (two office properties), Greenway II,
Johns Manville Plaza, Palisades Central I, Palisades
Central II, Stemmons Place, Trammell Crow Center(2),
3333 Lee Parkway, 1800 West Loop South, 5050 Quorum,
44 Cook Street and 55 Madison. These Properties are
included in the Operating Partnership's Office
Segment. Also, Canyon Ranch - Tucson, Omni Austin
Hotel, and Ventana Inn & Spa, which are included in
the Operating Partnership's Resort/Hotel Segment.

Crescent Real Estate Wholly-owned assets - MCI Tower. This Property is
Funding IX, L.P. included in the Operating Partnership's Office
("Funding IX") 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
Funding X, L.P. Central (three Office Properties), all of which are
("Funding X") included in the Operating Partnership's Office
Segment.

Crescent Spectrum Wholly-owned assets - Spectrum Center, included in
Center, L.P.(3) the Operating Partnership's Office 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) The Operating Partnership owns the principal economic interest in Trammell
Crow Center through its ownership of a 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
the building.

(3) 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 10. Investments in Real Estate Mortgages and Equity of
Unconsolidated Companies" for a table that lists the Operating Partnership's
ownership in significant unconsolidated joint ventures and equity investments as
of September 30, 2002.

See "Note 11. Notes Payable and Borrowings under Credit 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.

7

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

On February 14, 2002, the Operating Partnership executed an agreement
with Crescent Operating, Inc. ("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
and, pursuant to a strict foreclosure, COPI's voting common stock in three of
the Operating Partnership's Residential Development Corporations. See "Note 19.
COPI" for additional information related to the Operating Partnership's
agreement with COPI.

SEGMENTS

The assets and operations of the Operating Partnership were divided
into four investment segments at September 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 a
of September 30, 2002 are classified by investment segment as follows:

o OFFICE SEGMENT consisted of 73 office properties, including three
retail properties (collectively referred to as the "Office
Properties"), located in 25 metropolitan submarkets in six
states, with an aggregate of approximately 28.5 million net
rentable square feet. Sixty-one of the Office Properties,
including the three retail properties, are wholly owned and 12
are owned through joint ventures, seven of which are consolidated
and five of which are unconsolidated. In addition, the Operating
Partnership owns a 25% interest in the 5 Houston Center Office
Property which was completed in September 2002.

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"). Eight of the Resort/Hotel Properties are wholly
owned and one of the luxury and destination fitness resorts and
spas is owned through a joint venture that is consolidated.

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 21 upscale residential development properties
(collectively referred to as the "Residential Development
Properties").

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 September 30, 2002, directly or
indirectly owned 88 temperature-controlled logistics properties
(collectively referred to as the "Temperature-Controlled
Logistics Properties") with an aggregate of approximately 441.5
million cubic feet (17.5 million square feet) of warehouse space.

See "Note 9. 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
nine months ended September 30, 2002 and 2001, and identifiable assets for each
of these investment segments at September 30, 2002 and December 31, 2001.

8

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

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 in the United States
("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.

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 12 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 minority interests) 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 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 nine months ended September
30, 2002 to $11,800 related to initial application of SFAS No.142. 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 $1,500.
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 nine months ended September 30, 2002.

In prior periods, the Operating Partnership tested goodwill for
impairment under the provisions of SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets," under which an impairment loss is recognized

9

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

when expected undiscounted future cash flows are less than the carrying value of
the assets. For the year ended December 31, 2001, the expected future operating
cash flows of the Temperature-Controlled Logistics Corporation on an
undiscounted basis exceeded the carrying amounts of the properties and other
long-lived assets, including goodwill. Accordingly, no impairment was recognized
under SFAS No. 121. However, upon the adoption of SFAS No. 142 on January 1,
2002, the Temperature-Controlled Logistics Corporation compared the fair value
of the Temperature-Controlled Logistics Properties based on discounted cash
flows to the carrying value of the Temperature-Controlled Logistics Properties
and the related goodwill. Based on this test, the fair value did not exceed the
carrying value of the Temperature-Controlled Logistics assets and, accordingly,
the goodwill was impaired.

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.
SFAS No. 144 requires that the results of operations, including any gains or
losses recognized, be disclosed separately on the Operating Partnership's
consolidated statements of operations. The Operating Partnership adopted SFAS
No. 144 on January 1, 2002. Subsequent to January 1, 2002, the Operating
Partnership sold five Office Properties. The Operating Partnership also sold
three behavioral healthcare properties subsequent to January 1, 2002 and owned
seven behavioral healthcare properties as of September 30, 2002, which were
classified as held for sale. In accordance with SFAS No. 144, the results of
operations of these assets and any gain or loss on sale have been presented as
"Discontinued Operations - Income and Gain on Assets Sold and Held for Sale" in
the accompanying consolidated statements of operations. The carrying value of
the assets held for sale has been reflected as "Properties Held for Disposition,
net" in the accompanying consolidated balance sheet as of September 30, 2002 and
December 31, 2001. (See "Note 4. Discontinued Operations"). The adoption of this
statement did not materially affect the Operating Partnership's interim
financial statements for the nine months ended September 30, 2002. The Operating
Partnership has reclassified certain amounts in prior period financial
statements to conform with the new presentation requirements.

3. ACQUISITION:

On August 29, 2002, the Operating Partnership acquired Johns Manville
Plaza, a 29-story, 675,000 square foot Class A office building located in
Denver, Colorado. The Operating Partnership acquired the Office Property for
approximately $91,200, funded by a draw on the Operating Partnership's credit
facility. The Office Property is wholly-owned by the Operating Partnership and
included in the Operating Partnership's Office Segment.

4. DISCONTINUED OPERATIONS:

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
primarily to pay down the Operating Partnership's credit facility. This Property
was wholly-owned by the Operating Partnership and was included in the Operating
Partnership's Office Segment.

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 $2,100, of which the Operating
Partnership's portion was approximately $1,900. The proceeds received by the
Operating Partnership were used primarily to pay down the Operating
Partnership's credit facility. These two Properties were consolidated joint
venture properties and were included in the 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 $8,800 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 preferred Class A Units in Funding IX from GMAC Commercial Mortgage
Corporation ("GMACCM"). This Office 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 September 20, 2002, the Operating Partnership completed the sale of
the Reverchon Plaza Office Property in Dallas, Texas. The sale generated net
proceeds of approximately $29,200 and a net gain of approximately $500. The
proceeds from the sale of the Reverchon Plaza Office Property were used to pay
down the Operating Partnership's credit facility. This Office Property was
wholly-owned by the Operating Partnership and was included in the Operating
Partnership's Office Segment.

The operations for these Office Properties, as well as the gains
recognized on the sales of these Office Properties, are included in
"Discontinued Operations - Income and Gain on Assets Sold and Held for Sale."

OTHER

As of September 30, 2002, the Operating Partnership owned seven
behavioral healthcare properties, all off which were classified in the Operating
Partnership's financial statements as "Properties Held for Disposition, Net."
During the nine months ended September 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 September 30, 2002 was
approximately $20,997. Depreciation expense has not been recognized since the
dates the behavioral healthcare properties were classified as held for sale. The
Operating Partnership is actively marketing for sale the remaining seven
behavioral healthcare properties. The sales of these behavioral healthcare
properties are expected to close within the next year. No rental revenues,
operating expenses or depreciation and amortization were recognized during the
nine months ended September 30, 2002 for the seven behavioral healthcare
properties classified as held for sale at September 30, 2002.

11

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

OFFICE SEGMENT

The following table indicates the rental revenue, operating expenses,
depreciation and amortization and net income for the nine months ended September
30, 2002 and 2001 for the Office Properties sold during the nine months ended
September 30, 2002.

OFFICE SEGMENT AND OTHER

The following table indicates the major classes of assets of the
Properties held for sale as of September 30, 2002 and December 31, 2001.

5. OTHER ASSET DISPOSITIONS:

Office Segment

On September 30, 2002, the Operating Partnership completed the sale of
the Washington Harbour Phase II Land located in the Georgetown submarket of
Washington, D.C. The sale generated net proceeds of approximately $15,100 and a
net loss of approximately $900. The proceeds from the sale of the Washington
Harbour Phase II Land were used to pay down the Operating Partnership's credit
facility. This land was wholly-owned by the Operating Partnership and was
included in the Operating Partnership's Office Segment.

Resort/Hotel Segment

On September 30, 2002, the Operating Partnership completed the sale of
land adjacent to the Operating Partnership's Canyon Ranch - Tucson Resort/Hotel
Property, (the "Canyon-Ranch - Tucson Land") located in Tucson, Arizona to an
affiliate of the management company (unrelated to the Operating Partnership) of
the Operating Partnership's Canyon Ranch Resort/Hotel Properties. The sales
price of the land was approximately $9,400, for which the Operating Partnership
received $1,900 of cash net proceeds and a promissory note in the amount of
$7,520 with an interest rate of 6.50%, payable quarterly and maturing on October
1, 2007, and a net gain of approximately $5,500 recorded in the "Gain on
Property Sales, net" caption of the Operating Partnership's Consolidated
Statements of Operations for the three and nine months ended September 30, 2002.
The net proceeds from the sale of the Canyon-Ranch - Tucson Land were used to
pay down the Operating Partnership's credit facility. This land was wholly-owned
by the Operating Partnership and was included in the Operating Partnership's
Resort/Hotel Segment. The Operating Partnership has committed to fund a $3,200
construction loan to the purchaser which will be secured by 20 developed lots
and a $640 letter of credit. The Operating Partnership had not funded any of the
$3,200 commitment as of September 30, 2002.

12

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

6. JOINT VENTURES

Consolidated

Sonoma Mission Inn & Spa

On September 1, 2002, the Operating Partnership entered into a joint
venture arrangement with a subsidiary of Fairmont Hotels & Resorts, Inc.
("FHR"), pursuant to which the Operating Partnership contributed a Resort/Hotel
Property, the Sonoma Mission Inn & Spa in Sonoma County, California and FHR
purchased a 19.9% equity interest in the limited liability company that owns the
Resort/Hotel Property. The Operating Partnership continues to own the remaining
80.1% interest. The joint venture generated approximately $8,000 in net cash
proceeds to the Operating Partnership that were used to pay down the Operating
Partnership's credit facility. The Operating Partnership has loaned $45,100 to
the limited liability company that owns Sonoma Mission Inn & Spa at an interest
rate of LIBOR plus 300 basis points. The maturity date of the loan is the
earlier of the date on which the limited liability company obtains third-party
financing or one year. The limited liability company has the option to extend
the loan for two successive six-month periods by paying a fee. Under the
agreement with FHR, the Operating Partnership will manage the limited liability
company that owns Sonoma Mission Inn & Spa and FHR will operate and manage the
property under the Fairmont brand. The joint venture transaction was accounted
for as a partial sale of this Resort/Hotel Property, resulting in an
approximately $4,000 loss on the interest sold.

Unconsolidated

Three Westlake Park

On August 21, 2002, the Operating Partnership entered into a joint
venture arrangement with an affiliate of General Electric Pension Fund ("GE") in
connection with which the Operating Partnership contributed an Office Property,
Three Westlake Park in Houston, Texas and GE made a cash contribution. The joint
venture is structured such that GE holds an 80% equity interest in Three
Westlake Park, a 415,000 square foot Office Property located in the Katy Freeway
submarket of Houston, and the Operating Partnership continues to hold the
remaining 20% equity interest in the Office Property, which is accounted for
under the equity method. The joint venture generated approximately $47,100 in
net cash proceeds to the Operating Partnership, including distributions to the
Operating Partnership resulting from the sale of its 80% equity interest and
$6,600 from the Operating Partnership's portion of mortgage financing at the
joint venture level. None of the mortgage financing at the joint venture level
is guaranteed by the Operating Partnership. The Operating Partnership has no
commitment to reinvest the cash proceeds back into the joint venture. The joint
venture was accounted for as a partial sale of this Office Property, resulting
in a gain of $17,000, net of deferred gain of approximately $4,300. In addition,
the Operating Partnership manages and leases the Office Property on a fee basis.
During the nine months ended September 30, 2002, the Operating Partnership
recognized $32 for these services.

Miami Center

On September 25, 2002, the Operating Partnership entered into a joint
venture arrangement with an affiliate of a fund managed by JP Morgan Investment
Management, Inc. ("JPM") in connection with which JPM purchased a 60% interest
in Crescent Miami Center, L.L.C. with a cash contribution. Crescent Miami
Center, L.L.C. owns an Office Property, Miami Center in Miami, Florida. The
joint venture is structured such that JPM holds a 60% equity interest in Miami
Center, and the Operating Partnership holds the remaining 40% equity interest in
the Office Property, which is accounted for under the equity method. The joint
venture generated approximately $117,000 in net cash proceeds to the Operating
Partnership, including distributions to the Operating Partnership resulting from
the sale of its 60% equity interest and $32,400 from the Operating Partnership's
portion of mortgage financing at the joint venture level. None of the mortgage
financing at the joint venture level is guaranteed by the Operating Partnership.
The Operating Partnership has a remaining commitment for deferred maintenance
items of approximately $700. The Operating Partnership otherwise has no
commitment to reinvest the cash proceeds back into the joint venture. The joint
venture was accounted for as a partial sale of this Office Property, resulting
in a gain of approximately $4,600, net of deferred gain of approximately $3,500.
The Operating Partnership will continue to manage Miami Center on a fee basis.

13

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

7. 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.

14

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

15

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

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

8. SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOWS:

16

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

9. 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 operation ("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 Trust ("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 partnership of other
REITs (other than the Company) because these REITs may apply the
definition of FFO in a different manner than the Operating
Partnership.

17

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

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

- ----------
Footnotes start on page 19.

18

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 approximately $5,000 of net insurance proceeds received in
September 2002 as a result of an insurance claim on one of the Operating
Partnership's Office Properties that had been damaged as a result of a
tornado.

(3) Includes interest and other income, behavioral healthcare property income,
preferred return paid to GMACCM, other unconsolidated companies, less
depreciation and amortization of non-real estate assets and amortization of
deferred financing costs, corporate general and administrative expense,
interest expense and preferred dividends.

(4) Reconciliation of Funds From Operations to Net Income

19

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

- ----------

(a) 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
collaterized bond obligation. (See "Note 10. Investments in Real Estate
Mortgages and Equity of Unconsolidated Companies" for further discussion).

SIGNIFICANT LESSEES

See "Note 10. 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.

20

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

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

The Operating Partnership has investments of 20% to 50% in six
unconsolidated joint ventures that own six Office Properties. The Operating
Partnership does not have control of these partnerships, and therefore, these
investments are accounted for using the equity method of accounting.

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.

The following is a summary of the Operating Partnership's ownership in
significant unconsolidated 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 60% interest in Crescent Miami Center, L.L.C. is owned by a
fund advised by JP Morgan Investment Management, Inc. The Operating
Partnership will continue to manage Miami Center on a fee basis.

(3) 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 $1,142 in development, and leasing fees, related to
this investment during the nine months ended September 30, 2002. The 5
Houston Center Office Property was completed on September 16, 2002.

(4) The remaining 80% interest in Austin PT BK One Tower Office Limited
Partnership, Houston PT Three Westlake 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 $473 in management and leasing fees for these Office Properties
during the nine months ended September 30, 2002.

(5) 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.

(6) 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.

(7) On February 14, 2002, the Operating Partnership executed an agreement with
COPI, pursuant to which COPI transferred to subsidiaries of the Operating
Partnership, pursuant to a strict foreclosure, COPI's interests in 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

21

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

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 dates of the
asset transfers. The Woodlands Land Development Company, L.P. is an
unconsolidated equity investment of TWLC. Blue River Land Company, L.L.C.,
and Manalapan Hotel Partners, L.L.C., are unconsolidated equity investments
of CRDI. See "Note 20. Subsequent Event" for a description of the Operating
Partnership's acquisition of the remaining 75% interest in the Manalapan
Hotel Partners, L.L.C.

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

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

(10) 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.

(11) Of the remaining 76.0% interest in Manalapan Hotel Partners, L.L.C., 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. See "Note 2 Subsequent Event" for discussion of
Manalapan Hotel Partners, L.L.C.

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

(13) 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 $381, and
approximately $63 in cash, or total consideration valued at approximately
$444. At September 30, 2002, Mr. Goff's book value in DBL was approximately
$401.

(14) The remaining 70% interest in CR License, L.L.C. is owned by an affiliate
of the management company of two of the Operating Partnership's
Resort/Hotel Properties.

(15) The remaining 35% interest in Canyon Ranch Las Vegas is owned by an
affiliate of the management company of two of the Operating Partnership's
Resort/Hotel Properties.

(16) 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 66.7% 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's projected ownership interest at the closing of the Fund is
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 Operating Partnership's investment
at September 30, 2002 was $7,800.

22

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 nine months ended September 30,
2001 are consolidated in the September 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.

Balance Sheets as of September 30, 2002:

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

o Other Residential Development Corporations - This includes
the Blue River Land Company, L.L.C, an unconsolidated
investment of CRDI, MVDC and HADC;

o Resort/Hotel - This includes Manalapan Hotel Partners,
L.L.C., an unconsolidated investment of CRDI;

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

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

Balance Sheets as of December 31, 2001:

o Crescent Resort Development, Inc. - This Residential
Development Corporation was consolidated beginning February
14, 2002 as a result of the COPI transaction. Its
unconsolidated investments, the Blue River Land Company,
L.L.C. and Manalapan Hotel Partners, L.L.C., are included
under "Other Residential Development Corporations" in the
following Balance Sheets as of September 30, 2002;

o The Woodlands Land Company, Inc. - This Residential
Development Corporation 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 September 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 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.

Summary Statement of Operations for the nine months ended September 30,
2002:

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

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 the Blue River Land Company, L.L.C. for the period
February 15 through September 30, 2002; and the operating
results of MVDC and HADC for the nine months ended September
30, 2002;

o Resort/Hotel - This includes Manalapan Hotel Partners,
L.L.C., an unconsolidated investment of CRDI.

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

23

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

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

Summary Statement of Operations for the nine months ended September 30,
2001:

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

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

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

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

o Office - This includes the operating results for Main Street
Partners, 5 Houston Center, Four Westlake Plaza, Bank One
Tower and Woodlands CPC, for the nine months ended September
30, 2001.

24

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

25

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

- ----------

(1) This column includes information for Three Westlake Park, which was
contributed by the Operating Partnership to a joint venture on August 21,
2002 and Miami Center, which was contributed by the Operating Partnership
to a joint venture on September 25, 2002. Therefore, net income for 2002
includes only 10 days of August and the month of September for Three
Westlake Park and only five days of September for Miami Center.

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

(3) Excludes the goodwill write-off for Temperature-Controlled Logistics
Segment, which is recorded on the accompanying financial statements as a
cumulative change in accounting principle.

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

(5) This column includes information for Four Westlake and Bank One Tower,
which were contributed by the Operating Partnership to a joint venture on
July 30, 2001. Therefore, net income for 2001 includes only the months of
August and September for these properties.

26

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

UNCONSOLIDATED PROPERTY DISPOSITIONS

During the nine months ended September 30, 2002, the Woodlands CPC sold
three office properties located within The Woodlands, Texas. The sales generated
net proceeds, after the repayment of debt, of approximately $10,100, of which
the Operating Partnership's portion was approximately $5,300. The sales
generated a net gain of approximately $11,800, of which the Operating
Partnership's portion was approximately $6,200. The proceeds received by the
Operating Partnership were primarily used to pay down the Operating
Partnership's credit facility.

TEMPERATURE-CONTROLLED LOGISTICS PROPERTIES

As of September 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 88 Temperature-Controlled Logistics Properties, with an aggregate of
approximately 441.5 million cubic feet (17.5 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, 2001 to
waive collection of deferred rent.

AmeriCold Logistics deferred $20,600 of the total $102,400 of rent
payable for the nine months ended September 30, 2002. The Operating
Partnership's share of the deferred rent was $8,200. The Operating Partnership
recognizes rental income when earned and collected and has not recognized the
$8,200 of deferred rent in equity in net income of the Temperature-Controlled
Logistics Properties for the nine months ended September 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 nine months ended September 30, 2002.

27

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

OTHER

DBL-CBO, Inc.

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 privately-placed equity interest of a
collateralized bond obligation. During the nine months ended September 30, 2002,
the Operating Partnership recognized an impairment charge related to this
investment of $5,200. As a result of this impairment charge, at September 30,
2002 this investment was valued at $0.

28

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

UNCONSOLIDATED DEBT ANALYSIS

The significant terms of the Operating Partnership's share of
unconsolidated debt financing arrangements existing as of September 30, 2002 are
shown below.

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

(2) Senior Note - Note A: $83,995 at variable interest rate, LIBOR + 189 basis
points, $4,941 at variable interest rate, LIBOR + 250 basis points with a
LIBOR floor of 2.50% . Note B: $24,704 at variable interest rate, LIBOR +
650 basis points with a LIBOR floor of 2.50%. Mezzanine Note - $19,800 at
variable interest rate, LIBOR + 890 basis points with a LIBOR floor of
3.0%. Interest-rate cap agreement maximum LIBOR of 4.52% on all notes. All
notes are amortized on a 25-year amortization schedule.

(3) This facility has two one-year extension options.

(4) 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.

(5) The Operating Partnership has made a full and unconditional guarantee of
loan from Fleet up to $82,500 for the construction of 5 Houston Center. At
September 30, 2002, $48,654 was outstanding.

(6) On February 14, 2002, the Operating Partnership executed an agreement with
COPI to transfer, pursuant to a strict foreclosure, COPI's 5% interest in
TWLC. Therefore, as of February 14, 2002, TWLC is fully consolidated. This
schedule reflects TWLC's 42.5% interest in TWLDC.

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

29

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

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

(9) 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%.

(10) 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%.

(11) The Operating Partnership guarantees $2,970 of this facility.

The following table shows, as of September 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.

- ----------

(1) Based on contractual maturities. The overall weighted average maturity would
be 3.7 assuming the Operating Partnership's election of extension options on the
debt instruments.

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

- ----------

(1) These amounts do not represent the effect of two one-year extension options
on TWLDC's Fleet credit facility and one Fleet National Bank loan, totaling
$95,000, that have maturity dates of November 2002 and October 2003.

30

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

11. NOTES PAYABLE AND BORROWINGS UNDER CREDIT FACILITY:

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

31

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 September 30,
2002, the interest rate was 5.15%), and (ii) 600 basis points for the
Mezzanine note (at September 30, 2002, the interest rate was 9.50%). The
blended rate at September 30, 2002 for the two notes was 5.84%. Both notes
have a LIBOR floor of 3.50%. 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 is
subject to certain borrowing base limitations and bears interest at Prime
(at September 30, 2002, the interest rate was 4.75%). The warehouse
facility bears interest at Prime plus 100 basis points (at September 30,
2002, the interest rate was 5.75%) and is limited to $10,000. The blended
rate at September 30, 2002 for the vertical facility and club loan and the
warehouse facility was 5.00%.

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

32

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

(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) It is the Operating Partnership's intention to repay the note in full in
November 2002.

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

(12) The notes were issued in an offering registered with the Securities and
Exchange Commission ("SEC").

(13) The $400,000 credit facility with Fleet 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 September
30, 2002, the maximum borrowing capacity under the credit facility was
approximately $400,000.

(14) The outstanding balance excludes letters of credit issued under the
Operating Partnership's credit facility of $15,200 which reduces the
Operating Partnership's maximum borrowing capacity.

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) Including the $530,300 of hedged variable rate debt, the percentages for
fixed rate debt and variable rate debt are 91% and 9%, respectively.

(2) Including the effect of hedge arrangements, the overall weighted average
interest rate would have been 7.88%.

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

Listed below are the aggregate principal payments by year required as
of September 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 credit facility and two one-year extension options on the Deutsche Bank
- CMBS Loan, as noted above.

The Operating Partnership has $185,655 of secured and unsecured debt
maturing through December 31, 2003, consisting primarily of the Cigna Note, and
debt related to the Residential Development Segment. Borrowings under the
Operating Partnership's credit facility are expected to be used to repay the
$63,500 Cigna Note maturing in 2002, and the $122,155 of debt maturing in 2002
and 2003 is primarily related to the Residential Development Segment and will be
repaid with cash from operations of the Residential Development Segment.

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

33

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

respect to any indebtedness in excess of $5,000 generally will result in a
default under the credit facility and the Fleet Fund I and II Term Loan after
the notice and cure periods for the other indebtedness have passed. As of
September 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 nine months ended September 30, 2002,
there were no circumstances that required 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), and Crescent Finance Company.

DEBT OFFERING

On April 15, 2002, the Operating Partnership and Crescent Finance
Company completed a private offering of $375,000 in senior, unsecured notes due
2009. On October 15, 2002, the Operating Partnership and Crescent Finance
Company completed an exchange offer pursuant to which it exchanged notes
registered with the Securities and Exchange Commission for $325,000 of the
privately issued notes. In addition, the Operating Partnership and Crescent
Finance Company registered for resale the remaining $50,000 of the privately
issued notes, which were issued to Richard E. Rainwater, the Chairman of the
Board of Trust Managers, and certain of his affiliates and family members. 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 is payable on April
15 and October 15 of each year, beginning October 15, 2002.

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 Operating Partnership's credit facility, and the remaining
proceeds were used to pay down $5,000 of short-term indebtedness and redeem
approximately $52,000 of preferred Class A Units in Funding IX from GMACCM. See
"Note 16. Sale of Preferred Equity Interests in Subsidiary" for a description of
the Class A Units in Funding IX previously held by GMACCM.

12. 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 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.

34

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

13. 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 September 30, 2002, the Operating
Partnership had entered into six 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 September 30, 2002, additional
interest expense and unrealized gains (losses) recorded for the nine months
ended September 30, 2002:

- ----------

(1) During the nine months ended September 30, 2002, the Operating Partnership
entered into agreements for three additional cash flow hedges that will be
issued in 2003, and will replace the three existing cash flow hedges.

The Operating Partnership has designated its six 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 $19,000 to $20,700 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 September 30, 2002, CRDI had entered into three cash
flow hedge agreements, which are accounted for in conformity with SFAS Nos. 133
and 138.

35

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

The following table shows information regarding CRDI's cash flow hedge
agreements as of September 30, 2002 and additional capitalized interest
recognized for the nine months ended September 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.

14. 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 its 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 $6,600
total consolidated income tax benefit at September 30, 2002 includes tax expense
related to the operations of the TRS of $100, 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 $10,200 for the nine months ended September 30, 2002.

The Operating Partnership's total net tax asset of approximately
$37,100 includes $26,000 of net deferred tax assets and a $11,100 net current
tax asset at September 30, 2002. The tax effects of each type of temporary
difference that give rise to a significant portion of the $26,000 deferred tax
asset are as follows:

Deferred recognition of DMDC club membership revenue $ 31,900
Recognition of development land cost of
sales at DMDC and TWLC (10,500)
Recognition of hotel lease buyout
6,700
Other
(2,100)
---------
Total deferred tax asset $ 26,000
=========

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 September 30, 2002, no valuation allowances have been recorded.

The $11,100 net current tax asset results primarily from anticipated
tax refunds related to recognition of a net operating loss carryback and 2001
overpayments of $6,600 for DMDC and cash paid for income taxes of $10,200.

36

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

15. 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 controlling interest in
the real estate partnerships and 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.

16. 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 Property and two Resort/Hotel
Properties to Funding IX. As of September 30, 2002, Funding IX held one 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, GMACCM purchased $275,000
of non-voting, redeemable preferred Class A Units in Funding IX (the "Class A
Units"). The Class A Units were 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.

All of the Class A Units outstanding at December 31, 2001, were
redeemed by Funding IX during the nine months ended September 30, 2002. As a
result of the redemption, GMACCM ceased to be a partner of Funding IX or to have
any rights or obligations as a partner and the Operating Partnership became the
sole partner of Funding IX. In connection with the final redemption of Class A
Units, Crescent SH IX, Inc. ("SH IX"), a subsidiary of the Company, transferred
the 14,468,623 common shares of the Company held by SH IX to the Company which
holds these common shares as treasury shares, and the intracompany loan between
Funding IX and SH IX was repaid.

Following the redemption of all the outstanding Class A Units, Funding
IX distributed two of its Office Properties, 44 Cook Street and 55 Madison, and
all the equity interests in the limited liability companies that own two other
Office Properties, Miami Center and Chancellor Park, to the Operating
Partnership. The Operating Partnership then contributed 44 Cook Street and 55
Madison to another Operating Partnership subsidiary, Funding VIII, and entered
into a joint venture arrangement for Miami Center.

IMPACT ON FINANCIAL STATEMENTS OF INTRACOMPANY LOAN

As of December 31, 2001, 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 SH IX. SH IX
repaid the note in full in August 2002.

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
the Operating Partnership's financial statements in Notes Receivable, Net as of
December 31, 2001 and in Interest and Other Income for the nine months ended
September 30, 2002 and 2001.

37

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (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) the weighted average units used to calculate basic and diluted earnings
per unit in accordance with GAAP include the common shares of the Company
held in SH IX of 14,468,623 (7,234,312 equivalent units) and 3,184,578
(4,092,289 equivalent units) for the year ended December 31, 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.

17. PARTNERS' CAPITAL:

Each Operating Partnership unit may be exchanged for either two common
shares of the Company or, at the election of the Company, cash equal to the
fair market value of two common shares of the Company at the time of the
exchange. When a unitholder exchanges a unit, the Company's percentage
interest in the Operating Partnership increases. During the nine months ended
September 30, 2002, there were 53,287 units exchanged for 106,574 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"). 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. As of September 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.

38

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

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

- ----------

(1) Represents one-half the amount of the distribution per unit because each
unit is exchangeable for two common shares.

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

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

(4) Amount represents distribution for a partial quarter for shares issued May
17, 2002.

40

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

18. RELATED PARTY TRANSACTIONS:

DBL HOLDINGS, INC.

As of September 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 $381, and
approximately $63 in cash, or total consideration valued at approximately $444
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 September 30, 2002, Mr.
Goff's book value in DBL was approximately $401.

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 September 30, 2002, DBL had an approximately $14,407
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-I Class C-I is the privately
placed equity interest of a collateralized bond obligations. During the nine
months ended September 30, 2002, the Operating Partnership recognized an
impairment charge related to this investment of $5,200. As a result of this
impairment charge, at September 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,
pursuant to a strict foreclosure, COPI's 60% general partner interest in COPI
Colorado, L.P. which owns 10% (representing all of the voting stock) of 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 20% general partner interest in COPI
Colorado and, accordingly, a 2.0% interest in CRDI, with a cost basis of $410.
The remaining 20% general partner interest in COPI Colorado, and 2.0% interest
in CRDI, is owned by a third party.

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

As of September 30, 2002, the Operating Partnership had approximately
$37,768 of recourse loans outstanding (including approximately $5,299 loaned
during the nine months ended September 30, 2002) to certain employees and trust
managers of the Company on a full recourse basis under the Company's stock and
unit incentive plans pursuant to 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

41

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

Executive Officer of the General Partner, had a loan representing $26,273 of the
$37,768 total outstanding loans at September 30, 2002. As of September 30, 2002,
approximately $300 of current interest was outstanding related to these loans.
No conditions exist at September 30, 2002 which would cause any of the loans to
be in default.

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 Operating Partnership granted
loans through July 29, 2002, with Applicable Federal Rates of 2.70% and 2.81%,
which reflects a below prevailing market interest rate, therefore, the Operating
Partnership recorded compensation expense. 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
reflecting a below prevailing market interest rate. 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 July 29, 2002 amendment
resulted in $1,900 additional compensation expense for the three and nine months
ended September 30, 2002, recorded in the "Corporate General and Administrative"
caption of the Operating Partnership's Consolidated Statements of Operations.
Effective July 29, 2002, the Company and the Operating Partnership no longer
offer to its employees and trust managers loans pursuant to the Company's stock
incentive plan or the Operating Partnership's unit incentive plan.

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 certain of 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 registered for resale the notes issued to the
Rainwater Group. See "Note 11. Notes Payable and Borrowings under Credit
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.

19. 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
Operating Partnership 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 Operating Partnership, 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 entered into 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
and, pursuant to a strict foreclosure, 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 pre-packaged bankruptcy of
COPI. In connection with the transfer, COPI's rent obligations to

42

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

the Operating Partnership were reduced by $23,600 and its 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 dates 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 also agreed, however, that the Company will issue common
shares of the Company with a minimum dollar value of approximately $2,200 to the
COPI stockholders, even if it would cause the total costs, claims and expenses
that it pays to exceed $14,000. Currently, the Operating Partnership estimates
that the value of the common shares that will be issued to the COPI stockholders
will be between approximately $2,200 and $5,400. 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 from the estimated
amounts, but will have a value of at least $2,200.

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 and unitholders of the Operating
Partnership. 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 Office 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 occurs.

Previously, the Operating Partnership held a first lien security
interest in COPI's entire membership interest in AmeriCold Logistics. REIT rules
prohibit the Operating Partnership from acquiring or owning the membership
interest that COPI owns in AmeriCold Logistics. Under the Agreement, the
Operating Partnership agreed to allow COPI to grant Bank of America a first
priority security interest in the membership interest and to subordinate its own
security interest to that of Bank of America.

If the COPI bankruptcy plan is approved by the required vote of the
shares of COPI common stock and approved by the bankruptcy court, the holders of
COPI's common stock will receive the Company's common shares. As stockholders of
COPI, Mr. Rainwater and Mr. Goff will also receive the Company's common shares.

Pursuant to the COPI bankruptcy plan, the current and former directors
and officers of COPI and the current and former directors and officers of the
Company also have received a release from COPI of liability for any actions
taken prior to February 14, 2002, and, depending on various factors, will
receive certain liability releases from COPI and its stockholders.

43

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

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.

20. SUBSEQUENT EVENT:

RESORT/HOTEL SEGMENT

In October 2002, in a series of transactions, the Operating Partnership
acquired the remaining 75% interest in Manalapan Hotel Partners, L.L.C., which
owns the Ritz Carlton Palm Beach in Florida. The Operating Partnership acquired
the additional interests in this partnership for $6,500, which was funded under
the Operating Partnership's credit facility. Subsequently, the Operating
Partnership entered into a joint venture arrangement with Westbrook Real Estate
Fund IV ("Westbrook"), pursuant to which Westbrook purchased a 50% equity
interest in Manalapan Hotel Partners, L.L.C. The Operating Partnership continues
to hold the remaining 50% equity interest in the Ritz Carlton Palm Beach.
Simultaneously with admission of Westbrook into the partnership, the Dresdner
Bank AG loan of $65,220 was repaid with proceeds from a new, secured financing
agreement with Corus Bank for $56,000 and additional equity contributions. The
Corus Bank loan has an interest rate of LIBOR plus 400 basis points with an
initial three year term and containing two one-year extension options. The
Operating Partnership has guaranteed $3,000 of the Corus Bank loan.

44

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, as
amended. 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, which reflect the Operating
Partnership's results of operations and financial condition. The words
"anticipates," "believes," "expects," "intends," "future," "may," "will,"
"should," "plans," "estimates," "potential," or "continue," or the negative of
these terms, or other similar expressions, identify forward-looking statements.

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 Company and the Operating Partnership to complete the
distribution to shareholders and 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.

45

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

RESULTS OF OPERATIONS

The following table shows the Operating Partnership's financial data as
a percentage of total revenues for the three and nine months ended September 30,
2002 and 2001 and the variance in dollars between the three and nine months
ended September 30, 2002 and 2001. See "Note 9. Segment Reporting" included in
"Item 1. Financial Statements" for financial information about the investment
segments.

46

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

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

Revenue

Total revenues increased $69.0 million, or 38.0%, to $250.3 million for
the quarter ended September 30, 2002, as compared to $181.3 million for the
quarter ended September 30, 2001. The components of the increase are:

o an increase in Residential Development Property revenue of
$43.8 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 $43.7 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 $14.0 million
primarily attributable to the $5.1 million of income and gain
on sale of marketable securities and other income recognized
in the third quarter of 2001 and a decrease in interest income
of $6.1 million as a result of the repayment in full in August
2002 of a loan that was originated in March 2000 from the
Operating Partnership to Crescent SH IX, Inc. ("SH IX") in
connection with the repurchase of 14,468,623 common shares of
the Company; and

o a decrease in Office Property revenue of $4.5 million
primarily due to a decrease of $7.9 million from the
disposition of five Office Properties in 2001, the
contribution of two Office Properties to joint ventures in
2001 and the contribution of two Office Properties to joint
ventures in 2002, decreased expense recovery revenue of $1.6
million and decreased rental revenues of $0.8 million,
partially offset by net insurance proceeds of approximately
$5.0 million received in September 2002 as a result of an
insurance claim on one of the Operating Partnership's Office
Properties that had been damaged as a result of a tornado and
$1.3 million of rental revenue from the Office Property
acquired in the third quarter of 2002.

Expenses

Total expense increased $92.0 million, or 60.1%, to $245.0 million for
the three months ended September 30, 2002, as compared to $153.0 million for the
three months ended September 30, 2001. The primary components of this increase
are:

o an increase in Resort/Hotel Property expense of $44.6 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); and

o an increase in Residential Development Property expense of
$42.1 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);

o an increase in depreciation and amortization expense of $7.3
million primarily due to the consolidation of the operations
of three Residential Development Corporations beginning
February 14, 2002 as a result of the COPI transaction;
partially offset by

47

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

o a decrease due to the recognition in the third quarter of 2001
of $3.6 million due to impairment charges relating to the
behavioral healthcare properties; and

o a decrease in Office Property operating expense of $2.8
million primarily due to the disposition of five Office
Properties in 2001, the contribution of two Office Properties
to joint ventures in 2001 and the contribution of two Office
Properties to joint ventures in 2002.

Other Income and Expense

Other income increased $14.9 million, or 156.8%, to $24.4 million for
the three months ended September 30, 2002, as compared to $9.5 million for the
three months ended September 30, 2001, as a result of:

o an increase due to the recognition in the third quarter of
2002 of a $23.2 million gain on two properties that were
contributed to joint ventures and the sale of Canyon Ranch -
Tucson Land compared with the recognition of a $1.1 million
gain on property sales in the third quarter of 2001; partially
offset by

o a decrease in equity in net income of unconsolidated companies
of $7.2 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).

Income Tax Benefit

The Operating Partnership recognized consolidated income tax benefit of
$2.7 million for the three months ended September 30, 2002, primarily related to
Resort/Hotel and Residential Development operations. These operations were not
consolidated for the three months ended September 30, 2001, therefore, 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 $1.1 million, or 183.3%, to $1.7 million for the three months
ended September 30, 2002, compared to $0.6 million for the three months ended
September 30, 2001. This increase is primarily due to the gains on disposals,
net of minority interest, of two Office Properties sold during the three months
ended September 30, 2002.

48

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

SEGMENT ANALYSIS

Office Segment

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

o decreased revenue of $7.9 million due to the disposition of
five Office Properties in 2001, the contribution of two Office
Properties to joint ventures in 2001 and the contribution of
two Office Properties to joint ventures in 2002;

o decreased recovery revenue of $1.6 million primarily due to
lease turnover; and

o decreased rental revenues of $0.8 million; partially offset by

o net insurance proceeds of $5.0 million received in September
2002 as a result of an insurance claim on one of the Operating
Partnership's Office Properties that had been damaged as a
result of a tornado; and

o $1.3 million of rental revenue from the Office Property
acquired in the third quarter in 2002.

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

o decreased expenses of $3.1 million due to the disposition of
five Office Properties in 2001, the contribution of two Office
Properties to joint ventures in 2001 and the contribution of
two Office Properties to joint ventures in 2002;

o decreased office property utility expense of $2.4 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; and

o decreased real estate taxes of $1.6 million; partially offset
by

o increased operating expenses of $4.4 million attributable to
$2.1 million of security and insurance expense primarily
related to the events of September 11, 2001 and administration
expense of $2.3 million including legal fees, bad debt expense
and payroll costs.

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 September 30, 2002. Revenues
prior to February 14, 2002 represent lease payments to the Operating
Partnership.

49

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

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.

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, pursuant to a strict foreclosure, 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 components of the decrease in Residential Development Property net
operating income are:

o lower lot sales of $2.2 million at TWLC;

o lower gain recognized on disposition of properties of $1.7
million at TWLC

o a change in presentation of capitalized interest of $2.4
million, due to consolidation of DMDC and CRDI in 2002;
partially offset by

o higher unit sales and other operating revenues of $1.7 million
at CRDI; and

o higher average price per lot of $1.1 million at DMDC.

50

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

Temperature-Controlled Logistics Segment

The decrease in equity in earnings of unconsolidated
Temperature-Controlled Logistics Properties is primarily due to the Operating
Partnership's $4.5 million portion of deferred rent recorded in the third
quarter of 2002 compared with the Operating Partnership's $3.5 million portion
of deferred rent recorded in the third quarter of 2001.

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2002 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2001

Revenues

Total revenues increased $211.9 million, or 37.8%, to $772.8 million
for the nine months ended September 30, 2002, as compared to $561.0 million for
the nine months ended September 30, 2001. The components of the increase are:

o an increase in Residential Development Property revenue of
$176.9 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 $103.7 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 interest and other income of $41.7 million,
primarily due to:

o the collection of $6.5 million from Charter
Behavioral Health Systems in 2001 on a working
capital loan that was previously expensed in
conjunction with the recapitalization of CBHS;

o the income on marketable securities and the gain
recognized on the sale of marketable securities
aggregating $11.9 million in the first nine months of
2001;

o a decrease in interest income of $11.2 million as a
result of the repayment in full in August 2002 of a
loan that was originated in March 2000 from the
Operating Partnership to SH IX in connection with the
repurchase of 14,468,623 common shares of the
Company; and

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

o the recognition in 2001 of $2.3 million in lease
commission and development fee revenue for the 5
Houston Center Office Property which was under
construction;

o a decrease in interest income of $1.8 million in 2002
related to lower escrow balances for a plaza
renovation at an Office Property that has been
completed; and

o a decrease in interest income of $2.6 million on cash
and certain notes receivable as a result of reduced
interest rates.

51

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

o a decrease in Office Property revenue of $27.0 million
primarily due to the disposition of five Office Properties in
2001, the contribution of two Office Properties to joint
ventures in 2001 and the contribution of two Office Properties
to joint ventures in 2002 ($29.7 million), and decreased lease
termination fees of $2.5 million, partially offset by net
insurance proceeds of approximately $5.0 million received in
September 2002 as a result of an insurance claim on one of the
Operating Partnership's Office Properties that had been
damaged as a result of a tornado.

Expense

Total expense increased $260.6 million, or 55.3%, to $731.5 million for
the nine months ended September 30, 2002, as compared to $470.9 million for the
nine months ended September 30, 2001. The primary components of this increase
are:

o an increase in Residential Development Property expense of
$161.3 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 $110.7 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); and

o an increase in depreciation and amortization expense of $16.0
million primarily due to the consolidation of the operations
of three Residential Development Corporation beginning
February 14, 2002 as a result of the COPI transaction;
partially offset by

o a decrease due to the recognition in 2001 of $18.9 million in
impairment charges primarily relating to behavioral healthcare
properties of $7.0 million and the impairment of $11.9 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 Office Property operating expense of $7.2
million primarily due to a decrease of $11.0 million from the
disposition of five Office Properties in 2001, the
contribution of two Office Properties to joint ventures in
2001 and the contribution of two Office Properties to joint
ventures in 2002, partially offset by increases in repairs and
maintenance of $3.6 million due to timing of expenses; and

o a decrease in interest expense of $3.3 million primarily
attributable to capitalizing $5.7 million of interest expense
in 2002, a decrease in the weighted average interest rate of
19 basis points (from 7.93% to 7.74%), or $4.2 million of
interest expense, due to the debt refinancing in May of 2001
and lower LIBOR rates, partially offset by an increase of $6.6
million due to a $70.6 million increase in the average debt
balance, from $2,293 million to $2,408 million.

Other Income and Expense

Other income increased $2.2 million, or 5.9%, to $39.6 million for the
nine months ended September 30, 2002, as compared to $37.5 million for the nine
months ended September 30, 2001, primarily as a result of:

o an increase in gain on property sales, net of $21.5 million,
primarily due to a gain of $17.0 million on the partial sale
of the Three Westlake Office Property, a gain of $5.5 million,
primarily due to the sale of Canyon Ranch - Tucson Land and a
gain of $4.6 million on the partial sale of Miami Center, net
of a loss of $4.9 million on the partial sale of Sonoma
Mission Inn & Spa and the sale of Washington Harbour Land;
partially offset by

52

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

o a decrease in equity in net income of unconsolidated companies
of $19.3 million, primarily due to the $5.2 million impairment
of an investment in DBL Holdings, Inc. during 2002, and the
Operating Partnership's additional $3.1 million portion of
Americold Logistics' deferral of rent payable, $2.9 million
due to the change in the base rent recognition method for the
Temperature-Controlled Logistics Segment from straight-line to
cash basis and $4.8 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 investment in the
Residential Development Corporations under the equity method).

Income Tax Benefit

The Operating Partnership's $6.6 million total consolidated income tax
benefit for the nine months ended September 30, 2002 includes tax expense
related to the operations of the Resort/Hotel and Residential Development
Operations of $0.1 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.

Discontinued Operations

The income from discontinued operations from assets held for sale
increased $5.3 million, or 278.9%, to $7.2 million for the nine months ended
September 30, 2002, compared to $1.9 million for the nine months ended September
30, 2001. This increase is primarily due to:

o a gain on dispositions of $6.9 million, net of minority
interest, attributable to the sales of the five Office
Properties in 2002; partially offset by

o an impairment charge of $0.6 million in 2002, related to a
behavioral healthcare property. This amount represents the
difference between the carrying value and the estimated sales
price less costs of the sale for this property; and

o a decline in operating income of $1.8 million for the five
Office Properties sold in 2002 that contributed a full year of
operating income in 2001 and a partial year of operating
income in 2002.

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 nine months ended September 30,
2002, which resulted in a charge of $11.8 million. This charge is due to an
impairment (net of minority interests and taxes) of the goodwill of the
Temperature-Controlled Logistics Corporation and CRDI. No such impairment charge
was recognized for the nine months ended September 30, 2001.

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 nine months ended September 30, 2001. No such event or write-off
occurred during the nine months ended September 30, 2002.

53

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

SEGMENT ANALYSIS

Office Segment

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

o decreased revenue of $29.7 million due to the disposition of
five Office Properties in 2001, the contribution of two
Office Properties to joint ventures in 2001 and the
contribution of two Office Properties to joint ventures in
2002; and

o decreased lease termination fees of $2.5 million; partially
offset by

o net insurance proceeds of $5.0 million received in September
2002 as a result of an insurance claim on one of the
Operating Partnership's Office Properties that had been
damaged as a result of a tornado.

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

o decreased expenses of $11.0 million due to the disposition
of five Office Properties in 2001, the contribution of two
Office Properties to joint ventures in 2001 and the
contribution of two Office Properties to joint ventures in
2002; and

o decreased Office Property utility expense of $8.5 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 $6.7 million attributable to
security and insurance expense primarily related to the
events of September 11, 2001 and $5.6 million primarily
attributable to the timing of repairs and maintenance and
increased administrative expenses, including legal fees, bad
debt expense, and payroll costs.

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 September 30, 2002. Revenues
prior to February 14, 2002 represent lease payments to the Operating
Partnership.

54

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

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 beginning 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 71% and decreases in revenue per
available room/guest night from $331 to $319 (3.6% decrease) at the luxury
and destination fitness resorts and spas; and

o decreases in occupancy from 72% to 71%, and revenue per available room from
$85 to $81 (4.7% decrease) at the business-class hotels.

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, pursuant to a strict foreclosure, 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 a decrease of $5.2 million resulting from a change in
presentation of capitalized interest, due to the consolidation
of DMDC and CRDI in 2002; and

o a decrease of $1.4 million resulting from the cumulative
effect of a change in accounting principle due to net goodwill
impairment at CRDI resulting from the adoption of SFAS No. 142
on January 1, 2002; partially offset by

o higher lot and unit sales of $8.8 million at CRDI and DMDC and
$4.3 million due to the gain recognized on the disposition of
two properties at The Woodlands; offset by lower lot sales of
$8.1 million at TWLC and MVDC.

55

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

Temperature-Controlled Logistics Segment

This decrease in equity in earnings of unconsolidated
Temperature-Controlled Logistics Properties is primarily due to the Operating
Partnership's $8.2 million portion of the deferred rent for the nine months of
2002 compared with the Operating Partnership's $5.1 million portion of deferred
rent for the first nine months of 2001, and $2.9 million related to the change
in base rent recognition from straight-line to cash basis for the year,
partially offset by a decrease in interest expense of $0.8 million.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS

Operating Activities

The Operating Partnership's cash provided by operating activities of
$165.0 million is attributable to Property operations.

Investing Activities

The Operating Partnership's cash provided by investing activities of
$109.6 million is attributable to:

o $164.1 million of proceeds from joint venture partners;

o $76.6 million of net sales proceeds primarily attributable
to the sale of five Office Properties, the sale of three
behavioral healthcare properties, and the sale of two other
assets;

o $11.7 million from return of investment in unconsolidated
Residential Development Properties and Office Properties;

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

o $12.7 million decrease in restricted cash.

The cash provided by investing activities is partially offset by:

o $97.4 million primarily for acquisition of one Office
Property;

o $36.6 million for incremental and non-incremental revenue
generating tenant improvement and leasing costs for Office
Properties;

56

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

o $28.4 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 $25.3 million for property improvements for rental
properties, primarily attributable to non-recoverable
building improvements for the Office Properties and
replacement of furniture, fixtures and equipment for the
Resort/Hotel Properties;

o $4.2 million increase in notes receivable due to a $7.5
million promissory note received in the sale of the Canyon
Ranch - Tucson Land; and

o $1.7 million for development of investment properties.

Financing Activities

The Operating Partnership's use of cash in financing activities of
$226.7 million is primarily attributable to:

o net payments under the Operating Partnership's credit
facility of $476.0 million;

o redemptions from GMACCM of preferred interests in a
subsidiary of the Operating Partnership of $218.4 million;

o a decrease in notes payable of $171.5 million;

o distributions to common unitholders of $177.2 million;

o residential development properties notes payments of $84.9
million;

o distributions to preferred unitholders of $15.2 million;

o $8.9 million of deferred financing costs for $375 million
senior, unsecured notes; and

o net capital distributions to joint venture partners of $8.5
million, primarily due to distributions to joint venture
preferred equity partners.

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

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

o borrowings under the credit facility of $372.0 million;

o net proceeds of $81.9 from offering of Series B preferred
units;

o residential development properties notes borrowings of $54.7
million;

o net proceeds of $48.2 from offering of Series A preferred
units; and

o capital contributions of $2.1 million from the Company.

57

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

LIQUIDITY REQUIREMENTS

As of September 30, 2002, the Operating Partnership had unfunded
capital expenditures of approximately $40.9 million relating to capital
investments. The table below specifies the Operating Partnership's total capital
expenditures relating to these projects, amounts funded as of September 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) This commitment is related to the Operating Partnership's investment in a
private equity fund.

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

(5) The Operating Partnership committed to a construction loan to the purchaser
of the land which will be secured by 20 developed lots and a $.6 million
letter of credit.

The Operating Partnership expects to fund its short-term capital
requirements of approximately $32.1 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 Operating Partnership's credit facility. The Operating Partnership plans to
meet its maturing debt obligations through December 31, 2003 of approximately
$185.7 million, primarily through additional borrowings under the Operating
Partnership's credit facility and cash from operations of the Residential
Development Segment.

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 unfunded expenses related to the COPI
bankruptcy of approximately $3.2 million to $6.4 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 borrowings under the Operating Partnership's
credit facility.

The Operating Partnership's long-term liquidity requirements as of
September 30, 2002 consist primarily of debt maturities after December 31, 2003,
which totaled approximately $2.2 billion as of September 30, 2002. The Operating
Partnership also has $8.8 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.

58

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

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 Operating Partnership's credit facility,
under which the Operating Partnership had up to $205.8 million of
borrowing capacity as of September 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
Operating Partnership's credit facility to a level that would further
reduce the 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 September 30, 2002, the Operating Partnership guaranteed or
provided letters of credit related to approximately $55.9 million of
unconsolidated debt and had obligations to potentially provide an additional
$33.8 million in unconsolidated debt guarantees, primarily related to
construction loans. The Company also guaranteed $15.2 million in letters of
credit under its credit facility at September 30, 2002. See "Investments in Real
Estate Mortgages and Equity of Unconsolidated Companies" and "Unconsolidated
Debt Analysis" 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 Operating Partnership 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
Operating Partnership 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 Operating Partnership, 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 entered into 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,
and, pursuant to a

59

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

strict foreclosure, 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 dates 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 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 also agreed, however, that the Company will issue common
shares with a minimum dollar value of approximately $2.2 million to the COPI
stockholders, even if it would cause the total costs, claims and expenses that
is pays to exceed $14.0 million. Currently, the Operating Partnership estimates
that the value of the common shares that will be issued to the COPI
stockholders. will be between approximately $2.2 million and $5.4 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 from
the estimated amounts, but will have a value of at least $2.2 million.

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 accrued interest. The
Operating Partnership expects to form and capitalize a new entity ("Crescent
Spinco"), to be owned by the shareholders of the Company and unitholders of the
Operating Partnership. 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 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.

Previously, the Operating Partnership held a first lien security
interest in COPI's entire membership interest in AmeriCold Logistics. REIT rules
prohibit the Operating Partnership from acquiring or owning the membership
interest that COPI owns in AmeriCold Logistics. Under the Agreement, the
Operating Partnership agreed to allow COPI to grant Bank of America a first
priority security interest in the membership interest and to subordinate its own
security interest to that of Bank of America.

If the COPI bankruptcy plan is approved by the required vote of the
shares of COPI common stock and approved by the bankruptcy court, the holders of
COPI's common stock will receive the Company's common shares. As stockholders of
COPI, Mr. Rainwater and Mr. Goff will also receive the Company's common shares.

60

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

Pursuant to the COPI bankruptcy plan, the current and former directors
and officers of COPI and the current and former directors and officers of the
Company also have received a release from COPI of liability for any actions
taken prior to February 14, 2002, and, depending on various factors, will
receive liability releases from COPI and its stockholders.

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
million to $800 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 September 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 September 30, 2002.

- ----------

(1) Additionally, 15,230 of the Company's common shares were repurchased
outside of the Share Repurchase Program as part of an executive incentive
program, and the Company contributed 11,354 treasury shares to the
Company's scholarship fund during the three months ended September 30,
2002.

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.

OFFICE PROPERTY ACQUISITION

On August 29, 2002, the Operating Partnership acquired Johns Manville
Plaza, a 29-story, 675,000 square foot class A office building located in
Denver, Colorado. The Operating Partnership acquired the Office Property for
approximately $91.2 million funded by a draw on the Operating Partnership's
credit facility. The Office Property is wholly-owned by the Operating
Partnership and included in the Operating Partnership's Office Segment.

OFFICE PROPERTY DISPOSITIONS

Unconsolidated

During the nine months ended September 30, 2002, the Woodlands CPC sold
three office properties located within The Woodlands, Texas. The sales generated
net proceeds, after the repayment of debt, of

61

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

approximately $10.1 million, of which the Operating Partnership's portion was
approximately $5.3 million. The sales generated a net gain of approximately
$11.8 million, of which the Operating Partnership's portion was approximately
$6.2 million. The proceeds received by the Operating Partnership were used
primarily to pay down the Operating Partnership's credit facility.

Consolidated

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 $12.0 million and a net gain of approximately $4.5
million. The proceeds from the sale of the Cedar Springs Plaza Office Property
were used primarily to pay down the Operating Partnership's credit facility.
This property was wholly-owned by the Operating Partnership and was included in
the Operating Partnership's Office Segment.

On May 29, 2002, WOE, owned by the Operating Partnership and the
Woodlands CPC, sold two 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 $2.1 million, of which the Operating
Partnership's portion was approximately $1.9 million. The proceeds received by
the Operating Partnership were used primarily to pay down the Operating
Partnership's credit facility. These two Properties were consolidated joint
venture properties and were 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 $8.8 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 preferred Class A Units in Funding IX from GMACCM.
This Office Property was wholly-owned by the Operating Partnership and was
included in the Operating Partnership's Office Segment.

On September 20, 2002, the Operating Partnership completed the sale of
the Reverchon Plaza Office Property in Dallas, Texas. The sale generated net
proceeds of approximately $29.2 million and a net gain of approximately $0.5
million. The proceeds from the sale of the Reverchon Plaza Office Property were
used to pay down the Operating Partnership's credit facility. This Office
Property was wholly-owned by the Operating Partnership and was included in the
Operating Partnership's Office Segment.

The operations for these Office Properties, as well as the gains
recognized on the sales of these Office Properties, are included in
"Discontinued Operations - Income and Gain on Assets Sold and Held for Sale."

OTHER ASSET DISPOSITIONS

On September 30, 2002, the Operating Partnership completed the sale of
the Washington Harbour Phase II Land located in the Georgetown submarket of
Washington, D.C. The sale generated net proceeds of approximately $15.1 million
and a net loss of approximately $0.9 million. The proceeds from the sale of the
Washington Harbour Phase II Land were used to pay down the Operating
Partnership's credit facility. This land was wholly-owned by the Operating
Partnership and was included in the Operating Partnership's Office Segment.

On September 30, 2002, the Operating Partnership completed the sale of
the Canyon Ranch - Tucson Land located in Tucson, Arizona to an affiliate of the
management company (unrelated to the Operating Partnership) of the Operating
Partnership's Canyon Ranch Resort/Hotel Property. The sales price of the land
was approximately $9.4 million, for which the Operating Partnership received
$1.9 million of net cash proceeds and a promissory note in the amount of $7.5
million with an interest rate of 6.50%, payable quarterly and maturing on
October 1, 2007, and a net gain of approximately $5.5 million recorded in the
"Gain on Property Sales, net" caption of the Operating Partnership's
Consolidated Statements of Operations for the three and nine months ended
September 30, 2002. The net cash proceeds from the sale of the Canyon Ranch -
Tucson Land were used to pay down the Operating Partnership's credit facility.
This land was wholly-owned by the Operating Partnership and was included in the
Operating Partnership's Resort/Hotel Segment. The Operating Partnership has
committed to fund a $3.2 million construction loan to the purchaser which will
be secured by 20 developed

62

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

lots and a $0.6 million letter of credit. The Operating Partnership had not
funded any of the $3.2 million commitment as of September 30, 2002.

JOINT VENTURES

RESORT/HOTEL SEGMENT

Consolidated

Sonoma Mission Inn & Spa

On September 1, 2002, the Operating Partnership entered into a joint
venture arrangement with a subsidiary of Fairmont Hotels & Resorts, Inc.
("FHR"), pursuant to which the Operating Partnership contributed a Resort/Hotel
Property, the Sonoma Mission Inn & Spa in Sonoma County, California and FHR
purchased a 19.9% equity interest in the limited liability company that owns the
Resort/Hotel Property. The Operating Partnership continues to own the remaining
80.1% interest. The joint venture generated approximately $8.0 million in net
cash proceeds to the Operating Partnership that were used to pay down the
Operating Partnership's credit facility. The Operating Partnership has loaned
$45.1 million to the limited liability company that owns Sonoma Mission Inn &
Spa at an interest rate of LIBOR plus 300 basis points. The maturity date of the
loan is the earlier of the date on which the limited liability company obtains
third-party financing or one year. The limited liability company has the option
to extend the loan for two successive six-month periods by paying a fee. Under
the agreement with FHR, the Operating Partnership will manage the limited
liability company that owns Sonoma Mission Inn & Spa and FHR will operate and
manage the property under the Fairmont brand. The joint venture transaction was
accounted for as a partial sale of this Resort/Hotel Property, resulting in an
approximately $4.0 million loss on the interest sold.

In October 2002, in a series of transactions, the Operating Partnership
acquired the remaining 75% interest in Manalapan Hotel Partners, L.L.C., which
owns the Ritz Carlton Palm Beach in Florida. The Operating Partnership acquired
the additional interests in this partnership for $6.5 million, which was funded
under the Operating Partnership's credit facility. Subsequently, the Operating
Partnership entered into a joint venture arrangement with Westbrook Real Estate
Fund IV ("Westbrook"), pursuant to which Westbrook purchased a 50% equity
interest in Manalapan Hotel Partners, L.L.C. The Operating Partnership continues
to hold the remaining 50% equity interest in the Ritz Carlton Palm Beach.
Simultaneously with admission of Westbrook into the partnership, the Dresdner
Bank AG loan of $65.2 million was repaid with proceeds from a new, secured
financing agreement with Corus Bank for $56.0 million and additional equity
contributions. The Corus Bank loan has an interest rate of LIBOR plus 400 basis
points with an initial three year term and containing two one-year extension
options. The Operating Partnership has guaranteed $3.0 million of the Corus Bank
loan.

OFFICE SEGMENT

Unconsolidated

Three Westlake Park

On August 21, 2002, the Operating Partnership entered into a joint
venture arrangement with an affiliate of General Electric Pension Fund, ("GE")
in connection with which the Operating Partnership contributed an Office
Property, Three Westlake Park in Houston, Texas and GE made a cash contribution.
The joint venture is structured such that GE holds an 80% equity interest in
Three Westlake Park, a 415,000 square foot Office Property located in the Katy
Freeway submarket of Houston, and the Operating Partnership continues to hold
the remaining 20% equity interest in the Office Property which is accounted for
under the equity method. The joint venture generated approximately $47.1 million
in net cash proceeds to the Operating Partnership, including distributions to
the Operating Partnership resulting from the sale of its 80% equity interest and
$6.6 million from the Operating Partnership's portion of mortgage financing at
the joint venture level. None of the mortgage financing at the joint venture
level is guaranteed by the Operating Partnership. The Operating Partnership has
no commitment to reinvest the cash proceeds back into the joint venture. The
joint venture was accounted for as a partial sale of this Office Property,
resulting in a gain of $17.0 million, net of deferred gain of approximately

63

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

$4.3 million. In addition, the Operating Partnership manages and leases the
Office Property on a fee basis. During the nine months ended September 30, 2002,
the Operating Partnership recognized $0.03 million for these services.

Miami Center

On September 25, 2002, the Operating Partnership entered into a joint
venture arrangement with an affiliate of a fund managed by JP Morgan Investment
Management, Inc. ("JPM") in connection with which JPM purchased a 60% interest
in Crescent Miami Center, L.L.C. with a cash contribution. Crescent Miami
Center, L.L.C. owns an Office Property, Miami Center in Miami, Florida. The
joint venture is structured such that JPM holds a 60% equity interest in Miami
Center, and the Operating Partnership holds the remaining 40% equity interest in
the Office Property, which is accounted for under the equity method. The joint
venture generated approximately $117.0 million in net cash proceeds to the
Operating Partnership, including distributions of the Operating Partnership
resulting from the sale of its 60% equity interest and $32.4 million from the
Operating Partnership's portion of mortgage financing at the joint venture
level. None of the mortgage financing at the joint venture level is guaranteed
by the Operating Partnership. The Operating Partnership has a remaining
commitment for deferred maintenance items of approximately $0.7 million. The
Operating Partnership, otherwise, has no commitment to reinvest the cash
proceeds back into the joint venture. The joint venture was accounted for as a
partial sale of this Office Property and resulted in a gain of approximately
$4.6 million, net of deferred gain of approximately $3.5 million. The Operating
Partnership will continue to manage Miami Center on a fee basis.

64

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

DEBT FINANCING ARRANGEMENTS

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

- ----------

(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 11. Notes Payable and
Borrowings under the Credit 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 outstanding balance excludes Letters of Credit issued under the
facility of $15.2 million.

(6) 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 7.88%.

65

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

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.

(in thousands)

- ----------

(1) Including the $530.3 million of hedged variable rate debt, the percentages
for fixed-rate debt and variable rate debt are 91% and 9% respectively.

(2) Including the effect of hedge arrangements the overall weighted average
interest rate would have been 7.88%.

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

Listed below are the aggregate principal payments by year required as
of September 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 credit facility and two one-year extension options on the Deutsche Bank
- CMBS Loan, as noted above.

The Operating Partnership has $185.7 million of secured and unsecured debt
maturing through December 31, 2003 consisting primarily of the Cigna Note, and
debt related to the Residential Development Segment. Borrowings under the
Operating Partnership's credit facility are expected to be used to repay the
$63.5 million Cigna Note maturing in 2002 and the $122.2 million of debt
maturing in 2002 and 2003 is primarily related to the Residential Development
Segment and will be repaid with cash from operations of the Residential
Development Segment.

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.

66

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

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 credit 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 Credit facility and the Fleet Fund
I and II Term Loan after the notice and cure periods for the other indebtedness
have passed. As of September 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 nine months ended
September 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. On October 15,
2002, the Operating Partnership completed an exchange offer pursuant to which it
exchanged notes registered with the Securities and Exchange Commission for
$325.0 million of the privately issued notes. In addition, the Operating
Partnership registered for resale the remaining $50.0 million of privately
issued notes, which were issued to Richard E. Rainwater, the Chairman of the
Board of Trust Managers, and certain of his affiliates and family members. 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 is payable on April
15 and October 15 of each year, beginning October 15, 2002.

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 Operating Partnership's credit 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 of Preferred Equity Interests in
Subsidiary" for a description of the Class A Units in Funding IX previously 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 September 30, 2002, the Operating
Partnership had entered into six 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 Hedging Activities - an Amendment of FASB Statement
No. 133."

67

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

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

(in millions)

- ----------

(1) During the nine months ended September 30, 2002, the Operating Partnership
entered into agreements for three additional cash flow hedges that will be
issued in 2003, and will replace the three existing cash flow hedges.

The Operating Partnership has designated its six 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 $19.0 million to $20.7
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.

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 September 30, 2002, CRDI had entered into three cash
flow hedge agreements, which are accounted for in conformity with SFAS Nos. 133
and 138.

68

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

The following table shows information regarding CRDI's cash flow hedge
agreements as of September 30, 2002 and additional capitalized interest for the
nine months ended September 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
for projects that are currently under development.

(in thousands)

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.

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 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.

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 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 issued by its subsidiary, Funding IX, to GMACCM.

69

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

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 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 issued by its subsidiary, Funding IX, to 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 the by the Operating Partnership to redeem
Class A Units issued by its subsidiary, Funding IX, to GMACCM.

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 Property and two Resort/Hotel
Properties to Funding IX. As of September 30, 2002, Funding IX held one 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, GMACCM purchased $275,000
of non-voting, redeemable preferred Class A Units in Funding IX (the "Class A
Units"). The Class A Units were redeemable at the option of the Operating
Partnership at the original purchase 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.

All of the Class A Units outstanding at December 31, 2001, were
redeemed by Funding IX during the nine months ended September 30, 2002. As a
result of the redemption, GMACCM ceased to be a partner of Funding IX or to have
any rights or obligations as a partner and the Operating Partnership became the
sole partner of Funding IX. In connection with the final redemption of Class A
Units, Crescent SH IX, Inc. ("SH IX") transferred the 14,468,623 common shares
of the Company held by SH IX to the Company which holds these common shares as
treasury shares, and the intracompany loan between Funding IX and SH IX was
repaid.

Following the redemption of all the outstanding Class A Units, Funding
IX distributed two of its Office Properties, 44 Cook Street and 55 Madison, and
all the equity interests in the limited liability companies that own two other
Office Properties, Miami Center and Chancellor Park, to the Operating
Partnership. The Operating Partnership then contributed 44 Cook Street and 55
Madison to another Operating Partnership subsidiary, Funding VIII, and entered
into a joint venture arrangement for Miami Center.

70

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

Impact on Financial Statements of Intracompany Loan

As of December 31, 2001, 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
SH IX. SH IX repaid the note in full in August 2002.

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.

71

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

INVESTMENTS IN REAL ESTATE MORTGAGES AND EQUITY OF UNCONSOLIDATED COMPANIES

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) Consists of several notes. Maturity date is based on largest debt
instrument. All interest rates are fixed.

(2) Senior Note - Note A: $84.0 million at variable interest rate, LIBOR +
189 basis points, $4.9 million at variable interest rate; LIBOR + 250
basis points with a LIBOR floor of 2.50%. Note B: $24.7 million at
variable interest rate, LIBOR + 650 basis points with a LIBOR floor of
2.50%. Mezzanine Note - $19.8 million at variable interest rate, LIBOR +
890 basis points with a LIBOR floor of 3.0%. Interest-rate cap agreement
maximum LIBOR of 4.52% on all notes. All notes are amortized on a 25-year
amortization schedule.

(3) This facility has two one-year extension options.

(4) The Operating Partnership obtained a letter of credit to guarantee the
repayment of up to $4.3 million of principal of the Main Street Partners,
L.P. loan.

(5) The Operating Partnership has made a full and unconditional guarantee of
loan from Fleet up to $82.5 million for the construction of 5 Houston
Center. At September 30, 2002, $48.7 million was outstanding.

74

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

(6) On February 14, 2002, the Operating Partnership executed an agreement
with COPI to transfer, pursuant to a strict foreclosure, COPI's 5%
interest in TWLC. Therefore, as of February 14, 2002, TWLC is fully
consolidated. This schedule reflects TWLC's 42.5% interest in TWLDC.

(7) There was an interest rate cap agreement executed with this agreement
which limits interest rate exposure on the notional amount of $145.0
million to a maximum LIBOR rate of 9.0%.

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

(9) There was an interest rate cap agreement executed with this agreement
which limits interest rate exposure on the notional amount of $33.8
million to a maximum LIBOR rate of 9.0%.

(10) 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%.

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

The following table shows, as of September 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. The overall weighted maturity would be
3.7 years based assuming the Operating Partnership's election of
extension options on its debt instruments

Listed below are the Operating Partnership's share of aggregate
principal payments, by year, required as of September 30, 2002 related to the
Operating Partnership's 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 WLDC's Fleet credit facility and one Fleet National Bank loan, totaling
$95,000 that have initial maturity dates of November 2002 and October 2003.

RELATED PARTY DISCLOSURES

DBL Holdings, Inc.

As of September 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 $0.4 million, and
approximately $0.06 million in cash, or total consideration valued at
approximately $0.4 million for his interest in DBL.

75

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

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 September 30, 2002, Mr.
Goff's book value in DBL was approximately $0.4 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 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 September 30, 2002, DBL had an approximately $14.4
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 nine months
ended September 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 September 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,
pursuant to a strict foreclosure, COPI's 60% general partner interest in COPI
Colorado, L.P. which owns 10% (representing all of the voting stock) of 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 20% general partner interest in COPI
Colorado and, accordingly, a 2.0% interest in CRDI, with a cost basis of $0.4
million. The remaining 20% general partner interest in COPI Colorado, and 2.0%
interest in CRDI, is owned by a third party.

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

As of September 30, 2002, the Operating Partnership had approximately
$37.8 million of recourse loans outstanding (including approximately $5.3
million loaned during the nine months ended September 30, 2002) to certain
employees and trust managers of the Company on a full recourse basis under the
Company's stock incentive and unit incentive plans pursuant to 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 $26.3 million of the $37.8 million total
outstanding loans at September 30, 2002. As of September 30, 2002, approximately
$0.3 million of current interest was outstanding related to these loans. No
conditions exist at September 30, 2002 which would cause any of the loans to be
in default.

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 Operating Partnership granted
loans through July 29, 2002, with Applicable Federal Rate of 2.70% and 2.81%,
which reflects a below prevailing market interest rate, therefore, the Operating
Partnership recorded compensation expense. 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

76

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

for a three-year loan reflecting a below prevailing market interest rate.
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
July 29, 2002 amendment resulted in $1.9 million of additional compensation
expense for the three months ended September 30, 2002, recorded in the
"Corporate General and Administrative" caption of the Operating Partnership's
Consolidated Statements of Operations. Effective July 29, 2002, the Operating
Partnership no longer offers to its employees and trust managers loans pursuant
to the Company's stock and the Operating Partnership's unit incentive plans.

Debt Offering

On April 15, 2002, the Operating Partnership 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 certain of his affiliates and family members (the
"Rainwater Group"). The notes bear interest at 9.25% and were issued at 100% of
issue price. The Company registered for resale the notes issued to the Rainwater
Group. 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 $2.7
million which approximates fair market value of the home. This purchase was part
of the officer's relocation agreement with the Operating Partnership.

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 Operating Partnership's
independent public accountants for the fiscal year ending December 31, 2002.

CRITICAL ACCOUNTING POLICIES

The Operating Partnership's 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 the Operating Partnership 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. The Operating Partnership evaluates its
assumptions and estimates on an on-going basis. The Operating Partnership bases
its 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. The Operating
Partnership believes the following critical accounting policies affects the more
significant judgments 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 of 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 Operating Partnership has a
commitment to sell the Property or is actively marketing the Property as

77

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

of the date the Operating Partnership 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 nine months
ended September 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 Operating Partnership 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 September 30, 2002, the Operating
Partnership has entered into six 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 affect 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 Operating Partnership 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
Operating Partnership's earnings.

In connection with the debt refinancing in May 2001, the Operating
Partnership 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.

Stock Option and Unit Plans

The Operating Partnership applies APB No. 25 in accounting for options
granted pursuant to the 1994 Crescent Real Estate Equities, Inc. Stock Incentive
Plan, the 1995 Crescent Real Estate Equities, Inc. Stock Incentive Plan and the
1996 Crescent Real Estate Equities Limited Partnership Unit Incentive Plan
(collectively,

78

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

the "Plans"). Accordingly, no compensation costs are recognized for the Plans.
All options granted subsequent to December 31, 2002, will be accounted for under
SFAS No. 123.

Revenue Recognition

Office Properties The Operating Partnership, 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 Operating
Partnership 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 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 Operating Partnership 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 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 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.
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 September 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 assets 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.

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 Company does not

79

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

believe that it will be liable for current income taxes on its 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.

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 12 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 minority interests) 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 impairment charge of $1.5 million, 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 nine months ended
September 30, 2002 to $11.8 million related to initial application of SFAS No.
142. 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 nine months ended September 30, 2002.

In prior periods, the Operating Partnership tested goodwill for
impairment under the provisions of SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets," under which an impairment loss is recognized when
expected undiscounted future cash flows are less than the carrying value of the
assets. For the year ended December 31, 2001, the expected future operating cash
flows of the Temperature-Controlled Logistics Corporation on an undiscounted
basis exceeded the carrying amounts of the properties and other long-lived
assets, including goodwill. Accordingly, no impairment was recognized under SFAS
No. 121. However, upon the adoption of SFAS No. 142, on January 1, 2002, the
Temperature-Controlled Logistics Corporation compared the fair value of the
Temperature-Controlled Logistics Properties based on discounted cash flows to
the carrying value of the Temperature-Controlled Logistics Properties and the
related goodwill. Based on this test, the fair value did not exceed the carrying
value of the Temperature-Controlled Logistics assets and, accordingly, the
goodwill was impaired.

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.
SFAS No. 144 requires that the results of operations, including any gains or
losses recognized, be disclosed separately on the Operating Partnership's
consolidated statements of operations. The Operating Partnership adopted SFAS
No. 144 on January 1, 2002. Subsequent to January 1, 2002, the Operating
Partnership sold five Office Properties. The Operating Partnership also sold
three behavioral healthcare properties subsequent to January 1, 2002 and owned
seven behavioral healthcare properties as of September 30, 2002, which were
classified as held for sale. In accordance with SFAS No. 144, the results of
operations of these assets and any gain or loss on sale have been presented as
"Discontinued Operations - Income and Gain on Assets Sold and Held for Sale" in
the accompanying consolidated statements of operations. The carrying value of
the assets held for sale have been reflected as "Properties Held for
Disposition, net" in the accompanying

80

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

consolidated balance sheet as of September 30, 2002 and December 31, 2001. The
adoption of this statement did not materially affect the Operating Partnership's
interim financial statements for the nine months ended September 30, 2002. 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);

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 nine months ended September 30, 2002 and 2001 were $177.2
million and $224.8 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.

81

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

STATEMENTS OF FUNDS FROM OPERATIONS
(DOLLARS AND SHARES/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.

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

82

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

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

83

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

SEGMENT INFORMATION

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

OFFICE SEGMENT

Same-Store Analysis

The following table shows the same-store net operating income growth
for the three and nine month periods ended September 30, 2002 and 2001, for the
approximately 24.1 million square feet of Office Property space owned as of
September 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 1.5 million square feet of space at Four Westlake Park, Bank
One Tower and Three Westlake Park, in each of which the Operating
Partnership has a 20% equity interest;

o Approximately 0.8 million square feet of space at Miami Center, which the
Operating Partnership has 40% equity interest;

o Approximately 0.6 million square feet of space at Five Houston Center that
was completed on September 16, 2002, which the Operating Partnership has a
25% equity interest;

o Approximately 0.7 million square feet of space at Johns Manville Plaza
which the Operating Partnership acquired on August 29, 2002; and

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

- ----------

(1) Excludes lease termination fees.

84

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

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. The Operating Partnership
discloses 100% of the rental rate related to each tenant regardless of the
Operating Partnership's ownership in the building.

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

(4) Funds from operations, or FFO, based on the revised definition adopted by
the Board of Governors of the National Association of Real Estate
Investment Trusts, or NAREIT, effective January 1, 2000, and as used
herein, means net income (loss), determined in accordance with GAAP,
excluding gains (losses) from sales of depreciable operating property,
excluding extraordinary items, as defined by GAAP, plus depreciation and
amortization of real estate assets and after adjustment for unconsolidated
partnerships and joint ventures. FFO is a non-GAAP measure and should not
be considered an alternative to GAAP measures, including net income and
cash generated from operating activities. For a more detailed definition
and description of FFO and comparisons to GAAP measures, see "Funds from
Operations" above.

Properties

As of September 30, 2002, the Operating Partnership owned or had an
interest in 73 Office Properties located in 25 metropolitan submarkets in six
states with an aggregate of approximately 28.5 million net rentable square feet.
The Office Properties were, on a weighted average basis, 89% occupied at
September 30, 2002, and are located approximately 43% in central business
districts ("CBD") and approximately 57% in suburban markets. The Operating
Partnership's Office Properties are located primarily in the Dallas and Houston,
Texas metropolitan areas. As of September 30, 2002, the Operating Partnership's
Office Properties in Dallas and Houston represented an aggregate of
approximately 73% of its office portfolio based on total net rentable square
feet (36% for Dallas and 37% for Houston). In addition, the Operating
Partnership owns a 25% interest in the 5 Houston Center office property which
was completed in September 2002.

In pursuit of managements objective to dispose of non-strategic and
non-core assets, five of the Operating Partnership's fully consolidated Office
Properties were disposed during the nine months ended September 30, 2002.

85

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

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

86

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

- ----------

(1) Calculated based on base rent payable as of September 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.

(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 September 30, 2002. If such leases had commenced as of
September 30, 2002, the percent leased for all Office Properties would
have been 91%. The total percent leased for these Properties would have
been as follows: Carter Burgess Plaza - 98%, Three Westlake - 100%, 1800
West Loop - 73%, The Avallon - 100%, and MCI Tower - 60%.

(6) 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,
Three Westlake Park and Bank One Tower.

(7) 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.

87

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

(8) Excludes the 5 Houston Center Office Property, which was placed in
service on September 16, 2002. This Office Property will be included when
it becomes stabilized. At September 30, 2002, it was 34% leased. If
executed leases at September 30, 2002 had commenced, it would have been
88% leased.

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

(10) Johns Manville Plaza was acquired by the Operating Partnership on August
29, 2002.

(11) The Operating Partnership has a 40% member interest in the limited
liability company that owns Miami Center.

(12) 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.

(13) The weighted average full-service rental rate per square foot calculated
based on base rent payable for Operating Partnership Office Properties as
of September 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
$22.71.

88

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

The following tables show schedules of lease expirations for
leases in place as of September 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 tenants based on
current expense levels.

(2) Expirations by quarter are as follows: Q4: 1,667,335 sf.

(3) As of September 30, 2002 leases have been signed for 746,219 net rentable
square feet (representing approximately 45% of expiring square footage
and including renewed leases and leasing of previously vacant space)
commencing in 2002.

(4) Expirations by quarter are as follows: Q1: 1,124,696 sf Q2: 986,832 sf
Q3: 701,764 sf Q4: 766,628 sf.

(5) As of September 30, 2002 leases have been signed for 1,388,127 net
rentable square feet (representing approximately 39% of expiring square
footage and rent leases and leasing of previously vacant space)
commencing in 2003.

(6) Reconciliation of Occupied Square Footage to Total Office NRA:

89

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

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 tenants based on
current expense levels.

(2) Expirations by quarter are as follows: Q4 508,984 sf.

(3) As of September 30, 2002 leases have been signed for 189,931 net rentable
square feet (representing approximately 37% of expiring square footage
and including renewed leases and leasing of previously vacant space)
commencing in 2002.

(4) Expirations by quarter are as follows: Q1: 592,840 sf Q2: 405,184 sf Q3:
136,951 sf Q4: 209,506 sf.

(5) As of September 30, 2002 leases have been signed for 492,560 net rentable
square feet (representing approximately 37% of expiring square footage
and including renewed leases and leasing of previously vacant space)
commencing in 2003.

90

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

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 tenants based on
current expense levels.

(2) Expirations by quarter are as follows: Q4: 829,555 sf.

(3) As of September 30, 2002 leases have been signed for 360,784 net rentable
square feet (representing approximately 43% of expiring square footage
and including renewed leases and leasing of previously vacant space)
commencing in 2002.

(4) Expirations by quarter are as follows: Q1: 178,720 sf Q2: 443,970 sf Q3:
372,719 sf Q4: 171,050 sf.

(5) As of September 30, 2002 leases have been signed for 766,894 net rentable
square feet (representing approximately 66% of expiring square footage
and including renewed leases and leasing of previously vacant space)
commencing in 2003.

91

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

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 tenants based on
current expense levels.

(2) Expirations by quarter are as follows: Q4: 98,070 sf.

(3) As of September 30, 2002 leases have been signed for 93,768 net rentable
square feet (representing approximately 96% of expiring square footage
and including renewed leases and leasing of previously vacant space)
commencing in 2002.

(4) Expirations by quarter are as follows: Q1: 76,494 sf Q2: 25,845 sf Q3:
57,113 Q4: 284,103 sf.

(5) As of September 30, 2002 leases have been signed for 37,031 net rentable
square feet (representing approximately 8% of expiring square footage and
including renewed leases and leasing of previously vacant space)
commencing in 2003.

92

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

(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: Q4: 53,797 sf.

(3) As of September 30, 2002 leases have been signed for 5,057 net rentable
square feet (representing approximately 9% of expiring square footage and
including renewed leases and leasing of previously vacant space) commencing
in 2002.

(4) Expirations by quarter are as follows: Q1: 93,914 sf Q2: 59,276 sf Q3:
76,759 sf Q4: 19,511 sf.

(5) As of September 30, 2002 leases have been signed for 31,762 net rentable
square feet (representing approximately 13% of expiring square footage and
including renewed leases and leasing of previously vacant space) commencing
in 2003.

93

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

(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: Q4: 176,929 sf.

(3) As of September 30, 2002 leases have been signed for 96,679 net rentable
square feet (representing approximately 55% of expiring square footage and
including renewed leases and leasing of previously vacant space) commencing
in 2002.

(4) Expirations by quarter are as follows: Q1: 182,728 sf Q2: 52,557 sf Q3:
58,222 sf Q4: 82,458 sf.

(5) As of September 30, 2002 leases have been signed for 59,880 net rentable
square feet (representing approximately 16% of expiring square footage and
including renewed leases and leasing of previously vacant space) commencing
in 2003.

The following table shows, as of September 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.

94

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

HISTORICAL OFFICE PROPERTY CAPITAL EXPENDITURES, TENANT IMPROVEMENT AND LEASING
COSTS

The following table sets forth non-incremental revenue generating and
incremental revenue generating capital expenditures (excluding those
expenditures which are recoverable from tenants) and tenant improvement and
leasing costs for the nine months ended September 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) Enhancements/Additions to building infrastructure.

(3) Represents 100% of committed Tenant Improvements and Leasing Costs related
to each tenant without regard to the Operating Partnership's ownership in
the building.

(4) Non-Incremental Revenue Generating Tenant Improvements and Leasing Costs
exclude temporary leases and leases whose commencement dates are more than
12 months from the current quarter end.

(5) Incremental Revenue Generating Tenant Improvements and Leasing Costs are
comprised of signed leases on Office Property square footage that has not
contributed to Office Property in the preceding two quarters.

(6) 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 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.

95

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

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 September 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 nine
months ended September 30, 2002 and 2001.

Resorts

Business-Class Hotels

96

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

Properties

The following table shows certain information for the nine months ended
September 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, pursuant to a strict 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.

As of September 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 21 Development Properties. The
Residential Development Corporations are responsible for the continued
development and the day-to-day operations of the Residential Development
Properties.

97

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

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 $8,000, or 10%, due to fewer
higher priced lots sold primarily from the Carlton Woods development in the
nine months ended September 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 September 30, 2002, 233 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 12,264
residential lots and approximately 1,599 acres of commercial land, of which
approximately 1,482 residential lots and 972 acres are currently in
inventory.

98

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

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 205 residential lots, of which approximately 120 are
currently in inventory.

99

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

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 56%, due to lower
priced product mix sold in the nine months ended September 30, 2002, as
compared to the same period in 2001.

100

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

Properties

The following table shows certain information as of September 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 close 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 September 30, 2002, is $0.2 million.

(6) As of September 30, 2002, 65 golf course lots were under contract at Eagle
Ranch representing $4.6 million in sales; one unit was under contract at
Park Place at Riverfront representing $0.2 million in sales; three units
were under contract at Park Tower at Riverfront representing $2.4 million
in sales; two units were under contract at Promenade Lofts representing
$0.8 million in sales; one unit was under contract at Cresta representing
$2.6 million in sales; four lots were under contract at Three Peaks
representing $1.2 million in sales and 45 units were under contract at One
Vendue Range representing $53.9 million in sales.

(7) This project is in the early stages of development; and this information is
not available as of September 30, 2002.

101

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

TEMPERATURE-CONTROLLED LOGISTICS SEGMENT

Operating Information

As of September 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 88 Temperature-Controlled Logistics Properties, with an aggregate of
approximately 441.5 million cubic feet (17.5 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 $146.0 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 $20.6 million of the total $102.4 million
of rent payable for the nine months ended September 30, 2002. The Operating
Partnership's share of the deferred rent was $8.2 million. The Operating
Partnership recognizes rental income when earned and collected and has not
recognized the $8.2 million of deferred rent in equity in net income of the
Temperature-Controlled Logistics Properties for the nine months ended September
30, 2002.

102

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

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 nine months ended September 30, 2002.

Properties

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

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

(1) As of September 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 88 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 September 30, 2002, AmeriCold Logistics operated 101
temperature-controlled logistics properties with an aggregate of
approximately 537.9 million cubic feet (20.6 million square feet).

103

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 $2.4 billion
at September 30, 2002, of which approximately $225.8 million, or approximately
9.4%, was unhedged variable rate debt. The weighted average interest rate on
such variable rate debt was 4.00% as of September 30, 2002. A 10% (40.0 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
$0.9 million based on the unhedged variable rate debt outstanding as of
September 30, 2002, as a result of the increased interest expense associated
with the change in rate. Conversely, a 10% (40.0 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 $0.9 million
based on the unhedged variable rate debt outstanding as of September 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.

ITEM 4. CONTROLS AND PROCEDURES

The Operating Partnership and Crescent Finance Company disclosure
controls and procedures that are designed to ensure that information required to
be disclosed in their respective reports under the Exchange Act of 1934, as
amended (the "Exchange Act") is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms, and that such information is accumulated and communicated to
the Operating Partnership's and Crescent Finance Company's management, including
their Chief Executive Officers and Chief Financial and Accounting Officers, as
appropriate, to allow timely decisions regarding required disclosure based
closely on the definition of "disclosure controls and procedures" in Rule
13a-14(c) promulgated under the Exchange Act. In designing and evaluating the
disclosure controls and procedures, management of the Operating Partnership and
Crescent Finance Company recognized that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.

Within 90 days prior to the date of this report, the Operating
Partnership and Crescent Finance Company carried out evaluations, under the
supervision and with the participation of the Operating Partnership's and
Crescent Finance Company's management, including their Chief Executive Officers
and Chief Financial and Accounting

104

Officers, of the effectiveness of the design and operation of the Operating
Partnership's disclosure controls and procedures. Based on the foregoing, the
Operating Partnership's and Crescent Finance Company's Chief Executive Officers
and Chief Financial and Accounting Officers concluded that their disclosure
controls and procedures were effective.

There have been no significant changes in the internal controls or in
other factors that could significantly affect the internal controls subsequent
to the date the Operating Partnership and Crescent Finance Company completed
their evaluation.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not Applicable.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

During the nine months ended September 30, 2002, Crescent
Equities issued an aggregate of 106,574 common shares to holders of
Operating Partnership units in exchange for 53,287 units. The
issuances of common shares were exempt from registration as private
placements under Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"). Crescent Equities has registered the
resale of such common shares under the Securities Act.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

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

Not Applicable

ITEM 5. OTHER INFORMATION

Not Applicable.

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

Not Applicable

105

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: November 14, 2002 Sole Director and Chief Executive Officer

By /s/ Jerry R. Crenshaw, Jr
------------------------------------------
Jerry R. Crenshaw, Jr.
Executive Vice President and Chief
Financial Officer
Date: November 14, 2002 (Principal Financial and Accounting
Officer)

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 FINANCE COMPANY
(Registrant)

By /s/ John C. Goff
-------------------------------------------
John C. Goff
Date: November 14, 2002 Sole Director and Chief Executive Officer

By /s/ Jerry R. Crenshaw, Jr
-------------------------------------------
Jerry R. Crenshaw, Jr.
Executive Vice President and Chief
Date: November 14, 2002 Financial Officer
(Principal Financial and Accounting Officer)

106

CERTIFICATIONS

I, John C. Goff, the Chief Executive Officer of Crescent Real Estate
Equities, Ltd., the general partner of Crescent Real Estate Equities Limited
Partnership, and the Chief Executive Officer of Crescent Finance Company hereby
certify that:

1. I have reviewed this quarterly report on Form 10-Q of Crescent
Real Estate Equities Limited Partnership and Crescent Finance
Company;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;

4. The registrants' other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:

a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrants, including their consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;

b) evaluated the effectiveness of the registrants'
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;

5. The registrants' other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants' auditors
and the audit committee of the registrants' boards of directors
(or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and

6. The registrants' other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

/s/ John C. Goff
------------------------------
Name: John C. Goff
Title: Chief Executive Officer

107

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 Equities, Ltd., the general partnership of Crescent Real Estate Equities
Limited Partnership, and the Chief Executive Officer of Crescent Finance Company
has executed this certification in connection with the filing with the
Securities and Exchange Commission of the registrants' Quarterly Report on Form
10-Q for the period ended September 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 registrants.

Date: November 14, 2002 /s/ John C. Goff
----------------------------------
John C. Goff
Chief Executive Officer

108

CERTIFICATIONS

I, Jerry R. Crenshaw, Jr., the Executive Vice President and Chief
Financial and Accounting Officer of Crescent Real Estate Equities Ltd., the
general partner of Crescent Real Estate Equities Limited Partnership and the
Executive Vice President and Chief Financial and Accounting Officer of Crescent
Finance Company hereby certify that:

1. I have reviewed this quarterly report on Form 10-Q of Crescent
Real Estate Equities Limited Partnership and Crescent Finance
Company;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;

4. The registrants' other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:

a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrants, including their consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;

b) evaluated the effectiveness of the registrants'
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;

5. The registrants' other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants' auditors
and the audit committee of the registrants' boards of directors
(or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and

6. The registrants' other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: November 14, 2002 /s/ Jerry R. Crenshaw, Jr.
------------------------------------------------
Jerry R. Crenshaw, Jr.
Executive Vice President and Chief Financial and
Accounting Officer

109

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 Executive Vice President and Chief
Financial and Accounting Officer of Crescent Real Estate Equities Ltd., the
general partner of Crescent Real Estate Equities Limited Partnership, and the
Executive Vice President and Chief Financial and Accounting Officer of Crescent
Finance Company, has executed this certification in connection with the filing
with the Securities and Exchange Commission of the registrants' Quarterly Report
on Form 10-Q for the period ended September 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 registrants.

Date: November 14, 2002 /s/ Jerry R. Crenshaw, Jr.
------------------------------------------------
Jerry R. Crenshaw, Jr.
Executive Vice President and Chief Financial and
Accounting Officer

110

Exhibit List