0001042798-07-000008.txt : 20070320 0001042798-07-000008.hdr.sgml : 20070320 20070319212231 ACCESSION NUMBER: 0001042798-07-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 29 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20070320 DATE AS OF CHANGE: 20070319 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRIME GROUP REALTY TRUST CENTRAL INDEX KEY: 0001042798 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 364173047 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13589 FILM NUMBER: 07704958 BUSINESS ADDRESS: STREET 1: 77 WEST WACKER DR STREET 2: STE 3900 CITY: CHICAGO STATE: IL ZIP: 60601 BUSINESS PHONE: 3129171300 MAIL ADDRESS: STREET 1: 77 WEST WACKER DRIVE STREET 2: SUITE 3900 CITY: CHICAGO STATE: IL ZIP: 60601 10-K 1 form10k-edgar.htm FORM 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-13589

PRIME GROUP REALTY TRUST

(Exact name of registrant as specified in its charter)

Maryland

(State or other jurisdiction of

incorporation or organization)

77 West Wacker Drive, Suite 3900, Chicago, Illinois

(Address of principal executive offices)

36-4173047

(I.R.S. Employer

Identification No.)

60601

(Zip Code)

(312) 917-1300

(Registrant's telephone number, including area code)

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

Title of each class

Series B – Cumulative Redeemable

Preferred Shares of Beneficial Interest,

$0.01 par value per share

Name of each exchange on which registered

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. (See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act).

Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

o Yes x No

The aggregate market value of the registrant's common shares held by non-affiliates as of the last business day of the registrant's most recently completed second fiscal quarter was $0 for such shares on June 30, 2006 as the common shares were de-listed from the New York Stock Exchange as a result of our acquisition by an affiliate of The Lightstone Group, LLC.

The number of the registrant's common shares outstanding was 236,483 as of March 19, 2007.

DOCUMENTS INCORPORATED BY REFERENCE

None.

INDEX

PART I		PAGE

Item 1.	Business	4
Item 1A.	Risk Factors	15
Item 1B.	Unresolved Staff Comments	25
Item 2.	Properties	26
Item 3.	Legal Proceedings	28
Item 4.	Submission of Matters to a Vote of Security Holders	28

PART II

Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	29
Item 6.	Selected Financial Data	32
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	34
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	57
Item 8.	Financial Statements and Supplementary Data	57
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	58
Item 9A.	Controls and Procedures	58
Item 9B.	Other Information	58

PART III

Item 10.	Directors and Executive Officers of the Registrant	59
Item 11.	Executive Compensation	64
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	71
Item 13.	Certain Relationships and Related Transactions	72
Item 14.	Principal Accountant Fees and Services	73

PART IV

Item 15.	Exhibits and Financial Statement Schedules	74

	Signatures	84

Forward-Looking Statements

Forward-Looking Statements contained in this Annual Report on Form 10-K, including the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which reflect management's current view with respect to future events and financial performance. Such forward-looking statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those anticipated, and include but are not limited to, the effects of future events on our financial performance; risks associated with our high level of indebtedness and our ability to refinance our indebtedness as it becomes due; the risk that we or our subsidiaries will not be able to satisfy scheduled debt service obligations or will not remain in compliance with existing loan covenants; the effects of future events, including tenant bankruptcies and defaults; risks associated with conflicts of interest that exist with certain members of our board of trustees ("Board") as a result of such members' affiliation with our sole common shareholder; the risks related to the office and, to a lesser extent, industrial markets in which our properties compete, including the adverse impact of external factors such as inflation, consumer confidence, unemployment rates and consumer tastes and preferences; the risk of potential increase in market interest rates from current rates; and risks associated with real estate ownership, such as the potential adverse impact of changes, in the local, economic climate on the revenues and the value of our properties as well as our tenants and vendors operations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of December 31, 2006.

Among the matters about which we have made assumptions are the following:

•

future economic and market conditions which may impact the demand for office and industrial space either at current or increased levels;

•

the extent of any tenant bankruptcies or defaults that may occur;

•

ability or inability to renew existing tenant leases and lease up vacant space;

•

prevailing interest rates;

•

the effect of inflation and other factors on operating expenses and real estate taxes;

•

our ability to minimize various expenses as a percentage of our revenues; and

•

the availability of financing and capital.

In addition, historical results and percentage relationships set forth in this Annual Report on Form 10-K are not necessarily indicative of future operations.

PART I

ITEM 1. BUSINESS

Background and General

We are a fully-integrated, self-administered and self-managed real estate investment trust ("REIT") which owns, manages, leases, develops and redevelops office and industrial real estate, primarily in the Chicago metropolitan area. Our portfolio of properties consists of 10 office properties, containing an aggregate of 3.9 million net rentable square feet, and one industrial property, containing 0.1 million net rentable square feet (see the "Properties" section for detailed information concerning the individual properties). All of our properties are located in the Chicago metropolitan area in prime business locations within established business communities and account for all of our rental revenue and tenant reimbursements revenue. In addition, we have two joint venture interests in office properties totaling approximately 1.1 million net rentable square feet. One of our joint venture properties is located in Arizona. We lease and manage 5.0 million square feet comprising all of our wholly-owned properties and one joint venture property. In addition, we also manage and lease the 1.5 million square foot Citadel Center office building located at 131 South Dearborn Street in Chicago, Illinois, which we previously owned a joint venture interest in which was sold in November 2006.

Our two joint venture interests are accounted for as investments in unconsolidated joint ventures under the equity method of accounting. These consist of a 50.0% common interest in a joint venture which owns the 959,719 square foot office tower located at 77 West Wacker Drive, Chicago, Illinois, and a 23.1% common interest in a joint venture which owns a 101,006 square foot office building located in Phoenix, Arizona.

We were organized in Maryland on July 21, 1997 as a REIT under the Internal Revenue Code of 1986, as amended ("the Code"), for federal income tax purposes. On November 17, 1997, we completed our initial public offering and contributed the net proceeds to Prime Group Realty, L.P. (our "Operating Partnership") in exchange for common and preferred partnership interests.

Prior to our acquisition (the "Acquisition") by an affiliate of The Lightstone Group, LLC ("Lightstone"), we were the sole general partner of the Operating Partnership and owned all of the preferred units and 88.5% of the common units of the Operating Partnership then issued. Each preferred unit and common unit entitled us to receive distributions from our Operating Partnership. Distributions declared or paid to holders of common shares and preferred shares were based upon such distributions we received with respect to our common units and preferred units.

On June 28, 2005, our common shareholders approved the Acquisition by Lightstone and on July 1, 2005, the Acquisition was completed. The Acquisition closed pursuant to the terms of the previously announced agreement and plan of merger dated as of February 17, 2005, among certain affiliates of Lightstone, the Operating Partnership and us. As a result of the Acquisition, each of our common shares and limited partnership units of the Operating Partnership were cancelled and converted into the right to receive cash in the amount of $7.25 per common share/limited partnership unit, without interest. In connection with the Acquisition, all outstanding options with an exercise price equal to or greater than the sales price of $7.25 per share/unit were cancelled and each outstanding option for a common share with an exercise price less than the sales price were entitled to be exchanged for cash in an amount equal to the difference between $7.25 and the exercise price. Our Series B Cumulative Redeemable Preferred Shares (the "Series B Shares") remain outstanding after the completion of the Acquisition.

As a result of the Acquisition, Prime Office Company LLC ("Prime Office"), a subsidiary of Lightstone, owned 100.0%, or 236,483, of our outstanding common shares and 99.1%, or 26,488,389, of the outstanding common units in the Operating Partnership. Prime Group Realty Trust (the "Company" or "PGRT") owns 0.9%, or 236,483, of the outstanding common units and all of the 4.0 million outstanding preferred units in the Operating Partnership.

Effective on November 16, 2005, Prime Office transferred 5,512,241 common units in the Operating Partnership to Park Avenue Funding, LLC, an affiliate of Lightstone. Subsequent to the transfer, Prime Office owns 78.5%, or 20,976,148, of the outstanding common units in the Operating Partnership, while Park Avenue Funding, LLC owns 20.6% and PGRT owns 0.9% of the outstanding common units in the Operating Partnership.

Each preferred and common unit of the Operating Partnership entitles the owners to receive distributions from the Operating Partnership. Distributions declared or paid to holders of our common shares and preferred shares are based upon the distributions received by us with respect to the common units and preferred units we own in the Operating Partnership.

We conduct substantially all of our business through the Operating Partnership and its subsidiaries. Certain services requested by our tenants, certain management and consulting contracts and certain build-to-suit construction activities are conducted through Prime Group Realty Services, Inc., a Maryland corporation and a wholly-owned subsidiary of the Operating Partnership, and its affiliates (collectively, the "Services Company"). Our executive offices are located at 77 West Wacker Drive, Suite 3900, Chicago, Illinois 60601, and our telephone number is (312) 917-1300.

Tax Status

We have elected to be taxed as a REIT under Sections 856 through 860 of the Code. As a REIT, we will not be subject to federal income tax at the corporate level on our income as long as we distribute 90.0% of our taxable income (excluding any net capital gain) each year to our shareholders. Since our inception, we believe that we have complied with the tax rules and regulations to maintain our REIT status. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. Even if we qualify as a REIT, we are subject to certain state and local taxes on our income and property. In addition, our Services Company's income is subject to state and federal income taxation.

Business Strategy

Our business strategy is to operate our portfolio of properties to create the optimum level of service and value to our tenants, to retain our existing tenant base as their leases expire, to search for and identify prospective tenants for space in our properties which is unoccupied or is subject to expiring leases and to create maximum portfolio value for our shareholder.

Ongoing Operations. Our primary business is to focus on the operation, leasing and management of our existing real estate properties.

We strive to enhance our property-level net operating income and cash flow by:

•	engaging in pro-active leasing programs and effective property management;

•	managing operating expenses through the use of in-house management expertise;

•	maintaining and developing long-term relationships with a diverse tenant group;

•	attracting and retaining motivated employees by providing financial and other incentives; and

•	emphasizing value-added capital improvements to maintain and enhance our properties' competitive advantages in their submarkets.

Liquidity and Capital Requirements. We require cash to pay our operating expenses, make capital expenditures, fund tenant improvements, leasing and redevelopment costs, pay distributions and service our debt and other short-term and long-term liabilities. Cash on hand and net cash provided from operations represent our primary sources of liquidity to fund these expenditures. In assessing our liquidity, key components include our net income, adjusted for non-cash and non-operating items, and current assets and liabilities, in particular accounts receivable, accounts payable and accrued expenses. For the longer term, our debt and long-term liabilities are also considered key to assessing our liquidity.

In order to qualify as a REIT for federal income tax purposes, we must distribute 90.0% of our taxable income (excluding capital gains) annually. See Item 5 – Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities for more information regarding distributions on our common shares and our Series B Shares dividends.

For a discussion of recent transactions which affect our liquidity and capital resources, see Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Recent Developments.

Our anticipated cash flows from operations combined with cash on hand are expected to be sufficient to fund our anticipated short-term capital needs. In 2007, we anticipate the need to fund significant capital expenditures to retenant and/or redevelop space that has been previously vacated, or is anticipated to be vacated, or renew leases which are expiring during the year. In order to fund these and our other short-term and long-term capital needs, we expect to utilize available funds from cash on hand, cash generated from our operations and existing escrows with lenders. In addition, we may enter into capital transactions, which could include asset sales, refinancings and modifications or extensions of existing loans. There can be no assurances that any capital transactions will occur or, if they do occur, that they will yield adequate proceeds to fund our long-term capital needs or will be on terms favorable to us.

The financial covenants contained in some of our loan agreements and guarantee agreements with our lenders include minimum ratios for debt service coverage and other financial covenants. As of December 31, 2006, we are in compliance with the requirements of all of our financial covenants.

Acquisition and Development Activity. We may pursue selective property acquisitions and expend funds to redevelop our existing properties as we determine appropriate.

Recent Developments

Dispositions. During the period from January 1, 2006 through December 31, 2006, we sold the following operating property and parcel of land.

		Net			Mortgage
		Rentable		Sales Price	Debt	Month
Property	Location	Square Feet/Acres		(in millions)	(in millions)	Sold


Office:
Citadel Center (1)	Chicago	1,504,364	$	560.0	–	November
Land:
Libertyville (2)	Libertyville, IL	6.3	$	2.4	–	April

(1)

On November 8, 2006, Dearborn Center, L.L.C. ("Dearborn LLC"), the owner of Citadel Center located at 131 South Dearborn Street, Chicago, Illinois, closed on the sale of Citadel Center to an entity (the "Purchaser") controlled by Robert Gans, a real estate investor based in New York, New York. Our Operating Partnership owned a thirty percent (30%) joint venture interest in Dearborn LLC and was liquidated upon the sale of the property.

The sales price for Citadel Center was $560.0 million, subject to customary pro-rations and adjustments. Certain of our affiliates entered into a management and leasing agreement at closing providing that they will be the manager and leasing agents for Citadel Center through August 31, 2012, subject to the terms of the agreement and extension by agreement of the parties.

At the closing, the Operating Partnership indemnified the Purchaser against any costs or expenses in connection with the Citadel Reimbursement Obligation, as defined below. The Operating Partnership previously indemnified its joint venture partner in Dearborn LLC against the Citadel Reimbursement Obligation. The Citadel Reimbursement Obligation is the obligation of Dearborn LLC under its lease with Citadel Investment Group, LLC ("Citadel") to reimburse Citadel for the financial obligations, consisting of base rent and the pro rata share of operating expenses and real estate taxes, under Citadel's pre-existing lease for 161,488 square feet of space at the One North Wacker Drive office building in downtown Chicago, Illinois. We have executed subleases at One North Wacker Drive for all of the space to partially mitigate our obligation under the Citadel Reimbursement Obligation. The foregoing obligations are partially secured by a total of $7.1 million held in escrow as of closing. See Note 15 – Commitments and Contingencies of our consolidated financial statements included in this report for a more detailed description of the Citadel Reimbursement Obligation.

(2)

On April 19, 2006, we closed on the sale of vacant land for a sales price of $2.4 million. This property was unencumbered. A gain of $0.6 million was recorded as gain on sales of real estate.

Indebtedness. During 2006, we completed the following transactions with respect to our indebtedness:

Collateral	Type of Loan		Loan Principal Amount (in millions)	Interest Rate	Transaction Date	Original Maturity Date

New Indebtedness
Continental Towers	First Mortgage	$	115.0	5.86%	11/06	12/16
Prime Equity	Mezzanine		58.0	LIBOR + 4.25%	1/06	1/08

Indebtedness Retirement
Continental Towers	First Mortgage	$	75.0	LIBOR + 1.75%	11/06	5/08
Citadel Center	Mezzanine		55.0	12.00%	11/06	4/10
Prime Equity	Mezzanine		39.2	LIBOR + 4.25%	11/06	1/08

Principal Payments
Amortization	Various	$	1.7	Various	Various	Various

On December 30, 2005, our subsidiary, Prime Dearborn Equity LLC ("Prime Dearborn"), entered into a $55.0 million mezzanine loan agreement with IPC Investments Holdings Canada Inc. ("IPC Lender") associated with Citadel Center and on January 11, 2006 this loan was funded out of escrow. This loan was collateralized with a pledge by Prime Dearborn of its right to distributions from the joint venture, Dearborn LLC, owning Citadel Center, and a pledge by our Operating Partnership of its rights to management and leasing fees in connection with the management of the property. This loan contained a 2.0% origination fee, an original maturity date of April 5, 2010 and had an annual interest rate of 12.0%. An affiliate of IPC Lender, IPC Prime Equity, LLC ("IPC Equity"), received a membership interest in Prime Dearborn from which IPC Equity was entitled to receive 10.0% of any net sales proceeds in excess of $50.0 million from Prime Dearborn's interest in Dearborn LLC. IPC Equity also received a membership interest in Prime Office. In connection with this membership interest, and subject to Lightstone receiving the return of its equity and certain priority returns, IPC Equity is entitled to receive 12.6% of the cash available for distribution derived from Prime Office's direct ownership of the common units of our Operating Partnership and 10% derived from Prime Office's ownership of our common shares. On November 8, 2006, Dearborn LLC completed the sale of the property for $560.0 million, subject to customary pro-rations and adjustments. In conjunction with the sale of this property, Prime Dearborn repaid this loan and distributed $4.0 million to IPC Equity (recorded as interest expense). Since Prime Dearborn repaid all of the loan before the first anniversary of the loan, IPC Lender had the option to use the proceeds from the repayment to purchase up to 33.3% of the membership interests in Prime Office. This option has since expired unexercised.

On January 11, 2006, our wholly-owned subsidiary, PGRT Equity LLC ("Prime Equity"), obtained a loan in the original principal amount of $58.0 million (the "Citicorp Loan") from Citicorp USA Inc. ("Citicorp") and our Operating Partnership transferred to Prime Equity, (i) its interest in the junior mortgage loan (the "Junior Loan") encumbering the Continental Towers property located at 1701 Golf Road, Rolling Meadows, Illinois ("Continental Towers"), (ii) its 50.0% common membership interest in 77 West Wacker Drive, L.L.C., the owner of 77 West Wacker Drive, Chicago Illinois, (iii) its 100.0% membership interest in 280 Shuman Blvd, L.L.C. ("280 Owner"), the owner of the property known as the Atrium located at 280 Shuman Boulevard in Naperville, Illinois, (iv) its 100.0% membership interest in 800 Jorie Blvd. Mezzanine, L.L.C., the owner of a 49.0% membership interest in 800 Jorie Blvd, L.L.C. and the owner of 800-810 Jorie Blvd., Oak Brook, Illinois, and (v) its 100.0% membership interest in Prime Group Management, L.L.C. ("Prime Management"), the manager of Continental Towers.

As security for the Citicorp Loan, among other things, (a) the Operating Partnership pledged all of its interests in Prime Equity, (b) Prime Equity pledged all of its interests in the Junior Loan, the membership interests referred to in clause (ii), (iv) and (v) above and its right to receive distributions from all of the property referred to in clauses (i) through (v) above and (c) 280 Owner granted a mortgage to Citicorp on the Atrium property.

As contemplated by the Citicorp Loan documents, we have delivered to Citicorp the necessary consents from the senior mortgage lender on our 180 N. LaSalle Street property and, among other things, a pledge and assignment of all of the membership interests in 180 N. LaSalle II, L.L.C., our subsidiary that owns the 180 N. LaSalle Street property (the "180 Pledge"). On September 27, 2006, in connection with the 180 Pledge, the amount of the Citicorp Loan was reduced to $47.0 million and a new loan in the amount of $11.0 million (the "New Citicorp Loan") was made having the same material terms as the Citicorp Loan and secured by, among other things, the 180 Pledge and the other collateral referred to above. In connection with the closing of the New Citicorp Loan, Citicorp did not require any additional repayment of the Citicorp Loan, and the combined principal amount of the Citicorp Loan and New Citicorp Loan equal the $58.0 million principal previously outstanding under the Citicorp Loan prior to the closing of the New Citicorp Loan. On November 21, 2006, $39.2 million of the Citicorp Loan was repaid leaving an outstanding balance of $18.8 million in the aggregate on the Citicorp Loan and New Citicorp Loan.

Mr. David Lichtenstein, the principal of Lightstone, our indirect parent, has guaranteed (i) the payment of 25.0% of the principal amount of the Citicorp Loan (reduced from 50% as of September 27, 2006) and New Citicorp Loan, (ii) the payment of all of the interest on the Citicorp Loan and New Citicorp Loan and (iii) the payment of all operating expenses for our Atrium, 77 West Wacker Drive, and 800-810 Jorie Boulevard properties and, as of September 27, 2006, our 180 N. LaSalle Street property. In addition, Mr. Lichtenstein's guaranty covers the full amount of the Citicorp Loan and New Citicorp Loan in the event of any fraud or misrepresentation in connection with the loan or in the event of any voluntary bankruptcy, assignment for the benefit of creditors or other similar action relating to Prime Equity, us or certain other entities in connection with the Citicorp Loan and New Citicorp Loan.

The Citicorp Loan and the New Citicorp Loan mature on January 10, 2008 and payments of interest only are due monthly. They are pre-payable at any time. The loans bear interest as selected by Prime Equity at either the eurodollar rate (as defined in the loan documents) plus 4.3% per year or the Citicorp base rate (as defined in the loan documents) plus 1.5% per year. Simultaneously with the Citicorp Loan closing, Prime Equity acquired an interest rate cap that capped the eurodollar rate at 4.8%, resulting in a capped maximum interest rate of 9.1% per year. We paid $0.3 million from loan proceeds for the interest rate cap, which is recorded as other assets in our consolidated financial statements. We received $0.1 million in 2006 related to this cap agreement.

In the event Prime Equity makes distributions to the Operating Partnership other than distributions from the proceeds of the Citicorp Loan, Prime Equity shall pay to Citicorp 20.0% of any such distributions and Citicorp may apply such payments to prepay the loan or hold them in reserve as cash collateral.

The Citicorp Loan had an origination fee of 1.0% ($580,000) which was paid from proceeds at closing, and the Citicorp Loan and New Citicorp Loan have an exit fee of 1.0% (for a total of $580,000), if either loan is paid in full within one year of the original closing date. Prime Equity was required to establish a $3.0 million leasing reserve account at the closing and is required to deposit an additional $250,000 per month into leasing reserve accounts, to be used for tenant improvements costs and leasing commissions. In addition, Prime Equity is also required to maintain a minimum cash balance during the term of the loans, including amounts in the leasing reserve accounts, of at least $6.0 million. The leasing reserve account and minimum cash balance as of December 31, 2006 is $7.2 million.

Prime Equity is also required to maintain a minimum 1.10 debt service coverage ratio as defined in the loan documents for the Citicorp Loan and New Citicorp Loan. In addition, after the first anniversary of the Citicorp Loan, Prime Equity is required to maintain a loan-to-value ratio for certain of the collateral pledged as security for the loan of 80.0% or less, as defined in the loan documents.

On November 21, 2006, the owners of Continental Towers refinanced the property with a first mortgage loan (the "Senior Loan") in the principal amount of $115.0 million from CWCapital LLC ("CWCapital"). Proceeds of the loan were utilized to (i) repay the existing first mortgage loan encumbering the Continental Towers property in the principal amount of $75.0 million and (ii) partially repay approximately $36.6 million of the junior mortgage loan ("Junior Loan") encumbering the property. The Junior Loan is held by Prime Equity. After the partial repayment of the Junior Loan, approximately $128.6 million of principal and accrued interest remains outstanding under the Junior Loan. Prime Equity used the funds from the partial prepayment of the Junior Loan, and certain other funds, to make the $39.2 million repayment referred to above to Citicorp.

On December 29, 2006, the owners of Continental Towers divided the property into two separate ownership parcels and the Senior Loan from CWCapital and the Junior Loan were each divided into two cross-defaulted and cross-collateralized loans encumbering the two ownership parcels.

Although the Company does not own fee title to the Continental Towers property, we have a significant economic interest in the property through our ownership of the two Junior Loans secured by the property, and we consolidate the property's operations into our financial statements and account for it as an owned property. In addition, a subsidiary of Prime Equity manages the property.

The Senior Loan from CWCapital has a fixed interest rate of 5.864% per year and matures on December 1, 2016. The loan may not be prepaid except during the last three months of the loan term and except that upon the earlier of (a) 24 months following the securitization of the Senior Loan or (b) 36 months after closing, the Senior Loan may be prepaid based upon a standard defeasance formula. Payments of interest only are due monthly and there is no required principal amortization. The Senior Loan is assumable subject to the lender's reasonable consent and the payment of a 0.50% transfer fee, as well as the satisfaction of certain other requirements as more fully set forth in the loan documents.

In February 2006, we exercised the first extension option on the $195.0 million first mortgage loan secured by our 330 N. Wabash Avenue property and paid a $0.5 million extension fee, which extended the maturity date to March 9, 2007. We exercised the second and final option in February 2007 for an additional $0.5 million payment to extend the maturity date to March 9, 2008, which includes the cost of extending the interest rate cap agreement.

Total interest paid on mortgage notes payable was $40.0 million for the year ended December 31, 2006, $13.4 million for the six months ended December 31, 2005, $14.3 million for the six months ended June 30, 2005, and $32.0 million for the year ended December 31, 2004, respectively. No capitalization of interest occurred in the years ended December 31, 2006, 2005 and 2004.

Shareholders and Board of Trustees Developments. On June 14, 2006, we held our Annual Meeting of Shareholders, at which all of our existing Board Members were re-elected for additional one-year terms. Our Board consists of (i) Messrs. David Lichtenstein, the Chairman and Principal of Lightstone, Jeffrey Patterson, our President and Chief Executive Officer, Michael M. Schurer, the Chief Financial Officer of Lightstone, and Bruno de Vinck, a Senior Vice President of Lightstone, each of whom were re-elected as non-independent trustees, and (ii) Messrs. George R. Whittemore, John M. Sabin, and Shawn R. Tominus, each of whom were re-elected as independent trustees. Mr. Whittemore is the Chairman of our audit committee and Messrs. Whittemore and Sabin were each named as "financial experts" of our audit committee.

Competition

We compete with many other owners and developers of office and industrial real estate, some of which may have greater financial and marketing resources or expertise. In addition, the amount of available space in competitive properties in any particular market or submarket in which our properties are located could have a material adverse effect on both our ability to lease space and on the rents charged at our properties.

Services Company

We provide certain services requested by tenants through our Services Company. As a taxable REIT subsidiary, our Services Company can provide services to tenants of our properties, even if these services are not considered services customarily furnished in connection with the rental of real estate property, without causing the rental income from the properties to be treated as other than rents from real property by the Internal Revenue Service under the Code. Our Services Company, either directly or through its subsidiaries, provides certain management and/or leasing services to the unconsolidated joint venture that owns the 77 West Wacker Drive office property and to the owner of Citadel Center and the properties managed on behalf of affiliates of Lightstone.

Government Regulations

Environmental Matters. Phase I or similar environmental assessments have been performed by independent environmental consultants on all of our properties. Phase I assessments are intended to discover information regarding, and to evaluate the environmental condition of, the surveyed property and surrounding properties. Phase I assessments generally include a historical review, a public records review, an investigation of the surveyed site and surrounding properties and the preparation and issuance of a written report, but do not include soil sampling or subsurface investigations.

During the due diligence process in connection with the sale of certain industrial properties in October 2004, additional environmental contamination, beyond that previously identified by our environmental consultants, was discovered by the purchaser of our Chicago Enterprise Center, East Chicago Enterprise Center and Hammond Enterprise Center facilities. As a result, we agreed to establish a $1.25 million environmental escrow at the closing, in addition to a $3.2 million reserve for the previously identified environmental contamination, for use in remediation of the additional environmental contamination. In connection with the sale, the purchaser of these properties agreed to assume the responsibility for the environmental remediation of the property and any costs which may be incurred in excess of the amounts we placed in escrow at the closing. Any excess funds remaining in the $1.25 million escrow after the remediation of the additional environmental contamination will be returned to us. This escrow is included in our restricted cash with a corresponding liability included in other liabilities. At December 31, 2006, this escrow had a balance of $1.25 million plus interest of $51,463.

(ii) the TCE contamination is a regional problem that is not confined to the Atrium and (iii) the DOA has not yet identified the source of the TCE in the groundwater. Our environmental consultants have advised us that the United States Environmental Protection Agency (the "EPA") has issued a Statement of Policy towards owners of property containing contaminated acquifers. According to this policy, it is the EPA's position that where hazardous substances have come to be located on a property solely as a result of subsurface migration in an aquifer from an offsite source, the EPA will not take enforcement actions against the owner of the property. The groundwater underneath this property is relatively deep, and the property obtains its potable water supply from the City of Naperville and not from a groundwater well. Accordingly, we do not anticipate any material liability because of this TCE contamination.

Our 330 N. Wabash Avenue office property currently contains asbestos in the form of non-friable spray-on insulation located on the decking and beams of the building. We have been informed by our environmental consultants that the asbestos in 330 N. Wabash Avenue is not friable and no remediation of the asbestos is necessary. However, we have in the past and we may in the future voluntarily decide to remove or otherwise remediate some or all of this asbestos in connection with the releasing and/or redevelopment of this property. In accordance with the requirements of FASB Interpretation No. 47-Accounting for Conditional Asset Retirement Obligations, a $3.0 million liability has been recorded in our consolidated financial statements for asbestos abatement at our 330 N. Wabash Avenue property.

We believe that our other properties are in compliance in all material respects with all federal, state and local laws, ordinances and regulations regarding hazardous or toxic substances. We have not been notified by any governmental authority, and are not otherwise aware of any material noncompliance, liability or claim relating to hazardous or toxic substances in connection with any of our other properties. None of the environmental assessments of our properties have revealed any environmental liability that we believe would have a material adverse effect on our financial condition or results of operations taken as a whole, nor are we aware of any such material environmental liability. Nonetheless, it is possible that our assessments do not reveal all environmental liabilities or that there are material environmental liabilities of which we are unaware. Moreover, there can be no assurance that (i) future laws, ordinances or regulations will not impose any material environmental liability or (ii) the current environmental condition of our properties will not be affected by tenants, by the condition of land or operations in the vicinity of our properties (such as the presence of underground storage tanks) or by third parties unrelated to us. If compliance with the various laws and regulations, now existing or hereafter adopted, exceeds our budgets for such items, our financial condition could be further adversely affected.

Costs of Compliance with Americans with Disabilities Act of 1990 (the "ADA"). Under the ADA, all public accommodations and commercial facilities are required to meet certain federal requirements related to access and use by disabled persons. These requirements became effective in 1992. Compliance with the ADA requirements could require removal of access barriers, and noncompliance could result in the imposition of fines by the federal government or an award of damages to private litigants. We believe that our properties are substantially in compliance with these requirements, however, we may incur additional costs to fully comply with the ADA. Although we believe that such costs will not have a material adverse effect on our financial position, if required changes involve a greater amount of expenditures than we currently anticipate, our capital and operating resources could be adversely affected.

Other Regulations. Our properties are also subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. We believe that our properties are currently in material compliance with all such regulatory requirements. However, there can be no assurance that these requirements will not be changed or that new requirements will not be imposed which would require us to make significant unanticipated expenditures and could have an adverse effect on our net income and our capital and operating resources.

Insurance

In the regular course of our business, we maintain commercial general liability and all-risk property insurance with respect to our properties provided by reputable companies with commercially reasonable deductibles, limits and policy specifications customarily covered for similar properties. Our management believes that such insurance adequately covers our properties.

On April 1, 2006, we obtained new property insurance policies in combination with Lightstone's overall insurance program for it and its affiliates consisting of (i) a primary property policy in the amount of $10.0 million covering risk of physical damage to the properties in our portfolio and (ii) several layers of excess property insurance in an aggregate amount of $540.0 million covering physical property damages to our properties in excess of our primary policy (the "excess policies"). Our primary policy and excess policies include insurance for acts of terrorism as a covered loss. We are at risk for financial loss, which could be material, relating to losses in excess of our policy limits. In addition, we are at risk under our insurance policies for losses of any amount relating to occurrences which are not covered by our insurance policies, such as occurrences excluded under the standard coverage exclusions such as acts of war, military action, nuclear hazards, governmental action, illegal acts of the insured and pollution, which in the event of such losses could be material.

Our primary policy and excess policies include coverage for flood and earthquake losses. In certain instances our policy sub-limits for these losses may be less than the value of specific properties. Our properties are not located in geographical areas typically subject to flood or earthquake losses. However, we may be at risk of financial losses resulting from losses that exceed these policy sub-limits.

We maintain liability insurance including but not limited to commercial general liability, auto liability, garage liability and commercial umbrella insurance (the "liability policies") in amounts and limits that are similar to other property owners in geographic areas similar to that of our properties. Our liability policies include coverage for acts of terrorism as a covered loss. Additionally, we maintain workers compensation in compliance with statutory limits and requirements as well as employers liability insurance. These policies contain standard exclusions that are typical of liability insurance policies. We may be at financial risk for losses that exceed our limits of liability or which may be excluded from the insurance policies, which could be material.

In connection with the ownership of our properties, certain events may occur that would require us to expend funds for environmental remediation of some of our properties and adjacent properties. Certain environmental exposures are excluded from coverage under our insurance policies. Effective April 30, 2003, we obtained a pollution legal liability policy having a limit of $10.0 million, which we have renewed on an annual basis since then and which includes coverage for liability, third party property damage and remediation costs as a result of pollution conditions. Pre-existing pollution conditions are excluded from the policy and certain property locations may be excluded in the future by our insurers based on their ongoing due diligence as policies are renewed or replaced. Costs not covered under our pollution legal liability policy could be material, which could adversely affect our financial condition. We are unable to predict changes in future environmental laws and the financial impact we may incur as result of these changes.

Employees

As of December 31, 2006, we had 103 full-time employees. We believe that our relations with our employees are satisfactory.

Available Information

We make available, free of charge, on our Internet website, www.pgrt.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after the reports are electronically filed with the United States Securities and Exchange Commission. Copies of our governance guidelines, code of ethics and the charter of our audit committee is also available, free of charge, on our Internet website, and are available in print to any shareholder who requests it from our investor relations representative c/o Prime Group Realty Trust, Investor Relations, 77 West Wacker Drive, Suite 3900, Chicago, Illinois 60601.

ITEM 1A. RISK FACTORS

Investment in us presents risks. If any of the risk events described below actually occurs, our business, financial condition or results of operations could be adversely affected. Some statements in the following risk factors discussion, constitute "forward-looking statements." Please refer to the section above entitled "Forward-Looking Statements."

Our properties depend upon the Chicago metropolitan area economy and its demand for office space.

With the exception of our joint venture interest in a building in Phoenix, Arizona, all of our properties are located in the Chicago metropolitan area, which exposes us to greater economic risks than if we owned properties in several geographic regions. Moreover, because our portfolio of properties consists primarily of office buildings, a decrease in the demand for office space may have a greater adverse effect on our business and financial condition than if we owned a more diversified real estate portfolio. We are susceptible to adverse developments in the Chicago metropolitan area, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics, increased telecommuting, terrorist targeting of high-rise structures, infrastructure quality, increases in real estate and other taxes, costs of complying with government regulations or increased regulation and other factors. We are also subject to adverse developments in the national and Chicago regional office space markets, such as oversupply of or reduced demand for office space. Any adverse economic or real estate developments in the Chicago metropolitan area, or any decrease in demand for office space, including those resulting from Chicago's or Illinois' regulatory environment, business climate or fiscal problems, could adversely impact our financial condition, results of operations, cash flow and our ability to satisfy our debt service obligations.

We may be unable to renew leases, lease vacant space or re-lease space as leases expire.

As of December 31, 2006, leases representing 16.4% of the annual base rent we receive for the properties in our portfolio, excluding joint venture properties, will expire in 2007. Above market rental rates at some of our properties may force us to renew or re-lease some expiring leases at lower rates. There can be no assurance that leases will be renewed or that our properties will be re-leased at net effective rental rates equal to or above their current net effective rental rates. If the rental rates for our properties decrease, our existing tenants do not renew their leases or we do not re-lease a significant portion of our available space and space for which leases will expire, our financial condition, results of operations, cash flow and our ability to satisfy our debt service obligations and to pay distributions to holders of Series B Shares and our common shareholder would be adversely affected.

Our performance and value are subject to risks associated with real estate assets and with the real estate industry.

Our ability to pay distributions to holders of Series B Shares and our common shareholder depends on our ability to generate revenues in excess of expenses, scheduled principal payments on debt and capital expenditure requirements. Events and conditions generally applicable to owners and operators of real property that are beyond our control may decrease cash available for distribution and the value of our properties. These events include:

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local oversupply, increased competition or reduction in demand for office space;

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inability to collect rent from tenants;

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vacancies or our inability to rent space on favorable terms;

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increased operating costs, including insurance premiums, utilities and real estate taxes, due to inflation and other factors which may not necessarily be offset by increased rents;

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costs of complying with changes in governmental regulations;

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the relative illiquidity of real estate investments; and

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changing submarket demographics.

In addition, periods of economic slowdown or recession, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases, which would adversely affect our financial condition, results of operations, cash flow and ability to satisfy our debt service obligations and to pay distributions to holders of Series B Shares and our common shareholder.

We face significant competition, which may decrease or prevent increases of the occupancy and rental rates of our properties.

There are a number of office real estate companies that compete with us in seeking prospective tenants. All of our properties are located in developed areas where there are generally other properties of the same type and quality. Competition from other office properties may affect our ability to attract and retain tenants and maintain or increase rental rates, particularly in light of the higher vacancy rates of many competing properties, which may result in lower-priced space being available in such properties. If our competitors offer space at rental rates below current market rates, or below the rental rates we currently charge our tenants, some of which are significantly above current market rates, we may lose potential tenants and we may be pressured to reduce our rental rates below those we currently charge in order to retain tenants when their leases expire. As a result, our financial condition, results of operations, cash flow and ability to satisfy our debt service obligations and pay distributions to holders of Series B Shares and our common shareholder may be adversely affected.

Our debt level reduces cash available for operations, capital expenditures and distributions to holders of our Series B Shares and our common shareholder, and may expose us to the risk of default under our debt obligations.

As of December 31, 2006, the fair value of our total consolidated indebtedness was approximately $453.7 million. Payments of principal and interest on borrowings may leave us with insufficient cash resources to operate our properties, fund necessary capital expenditures or to pay the distributions necessary to maintain our REIT qualification. Our relatively high level of debt and the limitations imposed on us by our loan agreements could have significant adverse consequences to us, including the following:

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our cash flow may be insufficient to meet our required principal and interest payments;

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we may be unable to borrow additional funds as needed or on favorable terms;

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we may be unable to refinance our existing or future indebtedness at maturity or the refinancing terms may be less favorable than the terms of our existing indebtedness;

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because a portion of our debt bears interest at variable rates, increases in interest rates could increase our interest expense;

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we may be forced to dispose of one or more of our properties, possibly on disadvantageous terms;

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we may default on our obligations and the lenders or mortgagees may foreclose on our properties that secure their loans and receive an assignment of rents and leases;

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we may violate restrictive covenants in our loan agreements, which would entitle the lenders to accelerate our debt obligations; and

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our default under any one of our mortgage loans with cross default provisions could result in a default on other indebtedness.

If any one of these events were to occur, our financial condition, results of operations, cash flow and our ability to satisfy our debt service obligations and to pay distributions to holders of Series B Shares and our common shareholder could be adversely affected. In addition, foreclosures could create taxable income without accompanying cash proceeds, a circumstance which could hinder our ability to meet the REIT distribution requirements imposed by the Code.

Covenants in our debt instruments could adversely affect our financial condition and restrict our range of operating activities.

The loan documents evidencing our loans contain certain covenants with our lenders, which include minimum ratios for debt service coverage and other financial covenants affecting us and certain of our properties. These covenants could limit our flexibility in conducting our operations and create the risk of a default on our indebtedness if we cannot continue to satisfy them. In addition, these covenants could limit our ability, without the prior consent of the appropriate lender, to further mortgage our properties. If we fail to comply with any of these covenants and are not able to get a waiver from the relevant lender, we will be in default under the relevant loan and any other loans, which may be cross-defaulted with such loan. If this occurs, the relevant lenders may foreclose on our properties that secure the loans, pursue us or our affiliates for any portion of the debt which is recourse and could adversely impact our financial condition, results of operations, cash flow and our ability to satisfy our debt service obligations and to pay distributions to holders of Series B Shares and our common shareholder.

There can be no assurance that we will be able to pay or maintain cash distributions to holders of Series B Shares or our common shareholder.

Due to a number of factors, including our capital resources, debt load and requirements in our operating environment, our Board decided not to pay a distribution on our common shares and units beginning with the last quarter 2001 and continuing during 2002, 2003, 2004 and 2005 through to the date of the Acquisition. Further in April 2002, our Board decided to suspend the declaration and payment of dividends on our Series B Shares. We subsequently resumed the payment of dividends on our Series B Shares with dividends of $0.5625 per share in April, July and October of 2004 and January and April 2005. Concurrent with the completion of the Acquisition, all accrued but unpaid distributions on the Series B Shares, plus distributions on our Series B Shares for the third quarter of 2005, were paid to the holders of our Series B Shares. On July 1, 2005, we funded both (i) one quarterly distribution of $0.5625 per share on our Series B Shares to preferred shareholders of record as of June 15, 2005 and (ii) six quarters of distributions totaling an additional $3.3750 per share on our Series B Shares to preferred shareholders of record as of June 21, 2005. Under our charter, these distributions represent the distributions for the first quarter of 2004 through to, and including, the entire third quarter of 2005.

On December 30, 2005, our Board declared a quarterly dividend of $0.5625 per share on our Series B Shares for the shareholders of record on January 16, 2006. This dividend was paid on January 31, 2006. On February 9, 2006, our Board declared (i) a quarterly dividend on our Series B Shares for the first quarter of 2006 of $0.5625 per share with a record date of March 31, 2006 and a payment date of April 28, 2006 and (ii) a common distribution to the holders of the 26,488,389 common units in the Operating Partnership and the 236,483 common shares, in an amount of $2.8438 per unit/share having a record date of February 9, 2006 and a payment date of February 10, 2006. On June 14, 2006, our Board decided not to declare a quarterly distribution on the Series B Shares for the second quarter of 2006, based on the Board's review of our current capital resources and liquidity needs and the timing and uncertainty of certain previously anticipated capital events. On September 22, 2006, our Board declared a quarterly dividend on our Series B Shares for the second quarter 2006 of $0.5625 per share. The quarterly dividend had a record date of October 6, 2006 and a payment date of October 31, 2006. On December 14, 2006, based on the Board's review of our current capital resources and liquidity needs and the completion of certain capital events, our Board decided to bring dividends on the Series B Shares current and declared for payment two quarterly dividends for the third and fourth quarters of 2006 on our Series B Shares of $0.5625 per share, per quarter, for a total dividend of $1.125 per share. The dividend had a record date of January 5, 2007 and a payment date of January 31, 2007.

Our management and Board review our cash position, debt levels and requirements for cash reserves each quarter prior to making any decision with respect to paying distributions/dividends. Any future distributions on our common shares and/or preferred shares will be made at the discretion of our Board. These distributions will depend on the actual cash available for distribution, our financial condition, capital requirements, the completion of capital events, including refinancings and asset sales, the annual distribution requirements under the REIT provisions of the Code and such other factors as our Board deems relevant. Distributions on our common shares and common units in the Operating Partnership are not permitted unless all current and any accumulated dividends on our Series B Shares and the related preferred units in the Operating Partnership have been paid in full or declared and set aside for payment.

The average daily trading volume of our Series B Shares is relatively small, thus making it difficult to buy or sell significant numbers of shares without affecting the market price.

Our common shares are not publicly traded, and our Series B Shares are traded on the New York Stock Exchange ("NYSE"). However, based on the recent historical average daily trading volume of our Series B Shares, the acquisition or sale of a significant number of our Series B Shares on the NYSE will in most cases affect the market price of the Series B Shares, thus making it difficult or impossible to buy or sell large numbers of shares at or near the market price in effect immediately prior to any such purchase or sale. In addition, because the purchase or sale of relatively small numbers of shares may significantly impact the price of the Series B Shares, significant fluctuations in trading volume and price variations may occur, which may be unrelated to our operating performance.

Lightstone controls us, and will continue to control us, as long as one or more of its affiliates own a majority of our common shares.

Lightstone, through its subsidiary, Prime Office, beneficially owns all of our outstanding common shares. Our Board currently consists of seven trustees, of which three qualify as "independent" under NYSE rules. As long as Lightstone beneficially owns a majority of our outstanding common shares, Lightstone will continue to be able to elect all of the members of our Board. As a result, Lightstone will control all matters affecting us, including (i) the composition of our Board and, through it, any determination with respect to our business direction and policies, including the appointment and removal of officers, (ii) any determinations with respect to mergers or other business combinations, (iii) our acquisition or disposition of assets, (iv) our corporate finance activities and (v) the payment of distributions on our common shares and Series B Shares.

Lightstone and its designees on our Board may have interests that conflict with our interests.

Lightstone and its designees on our Board may have interests that conflict with, or are different from, our own and/or holders of our Series B Shares. Conflicts of interest between Lightstone and us may arise, and such conflicts of interest may not be resolved in a manner favorable to us and/or holders of Series B Shares, including potential competitive business activities, corporate opportunities, indemnity arrangements, registration rights, dividends on our common shares and Series B Shares and the exercise by Lightstone of its ability to control our management and affairs. Our organizational documents do not contain any provisions designed to facilitate resolution of actual or potential conflicts of interests, or to ensure that potential business opportunities that may become available to both Lightstone and us will be reserved for or made available to us. Pertinent provisions of law will govern any such matters if they arise.

We may sell or acquire additional assets which could adversely affect our operations and financial results.

We may sell or acquire real estate or acquire other real estate related companies when we believe a sale or acquisition is consistent with our business strategies. However, we may not be successful in completing a desired sale or acquisition in a timely manner or pursuant to terms that are favorable to us. Real estate investments may be, depending on market conditions, relatively difficult to buy and sell quickly. Consequently, we may have limited ability to vary our portfolio in response to changes in economic or other conditions. If we do complete an acquisition, we may not succeed in leasing any newly acquired properties at rental rates or upon other terms sufficient to cover the costs of acquisition and operations. Difficulties in integrating acquisitions may prove costly or time-consuming and could divert management's attention from other important matters. We may also abandon acquisition or sale opportunities prior to completion and consequently fail to recover expenses already incurred and have thus devoted significant amounts of management time to a matter not consummated. Furthermore, future acquisitions may expose us to significant additional liabilities, some of which we may not be aware of at the time of acquisition. If and when we do complete a sale, we may not succeed in selling it for a price or on other terms favorable to us.

The redevelopment of certain of our existing properties and any future development we may undertake could be costly and involve substantial risk.

As part of our operating strategy, (i) we may redevelop certain of our existing properties to upgrade the quality of an asset and/or change its use and (ii) we may acquire land for development or construct improvements on land we may own or control from time to time. Developing and redeveloping real estate contains numerous risks, which may adversely affect our ability to make distributions to holders of Series B Shares and our common shareholder. These risks include the risks that (i) financing and/or equity for development and redevelopment projects may not be available on favorable terms, (ii) long-term financing to refinance any short-term construction financing may not be available upon the completion of a project, (iii) the failure to complete construction of a project on schedule or within budget may increase debt service expenses and construction costs, and (iv) we may be unable to find interested users to acquire or lease space in a project after its completion, thus making it difficult or impossible for us to recoup our investment or refinance our indebtedness on the project. We may also abandon redevelopment or development projects prior to the commencement or completion or construction and (a) consequently fail to recover expenses already incurred and (b) have thus devoted significant amounts of management time to a project which was not completed.

Only our Series B Shares are listed on the NYSE and, therefore, we are entitled to rely on exemptions from certain corporate governance requirements.

Only our Series B Shares are listed on the NYSE. Under the NYSE rules, a company which only lists preferred shares or debt is not required to comply with certain of the NYSE corporate governance requirements, including (1) the requirement that a majority of the board of directors of a listed company consist of independent directors, (2) the requirement that a listed company have a nominating/corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities and (3) the requirement that a listed company have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities. We are currently utilizing these exemptions as they relate to our Board. As a result, we do not have a majority of independent trustees, nor do we have nominating and corporate governance and compensation committees. Accordingly, the holders of Series B Shares and our common shareholder may not have the same protections afforded to shareholders of companies that are subject to all of the NYSE corporate governance requirements.

We depend on significant tenants.

For the year ended December 31, 2006, the five largest tenants in our portfolio represented approximately 36.1% of the total revenue generated by our properties (including joint ventures), of which one tenant, JPMorgan Chase Bank NA, represented approximately 14.2% of our total revenues. Our tenants may experience a downturn in their businesses, which may weaken their financial condition, result in their failure to make timely rental payments or result in their default under their leases. In the event of any tenant default, we may experience delays in enforcing our rights as landlord and may incur substantial costs attempting to protect our investment.

The bankruptcy or insolvency of a major tenant also may adversely affect the income produced by our properties. If any tenant becomes a debtor in a case under the United States Bankruptcy Code, we cannot evict the tenant solely because of the bankruptcy. In addition, the bankruptcy court might authorize the tenant to reject and terminate its lease with us. Our claim against the tenant for unpaid, future rent would be subject to a statutory cap that might be substantially less than the remaining rent actually owned under the lease. Our claim for unpaid rent would likely not be paid in full.

Our financial condition and results of operations could be materially adversely affected if any of our significant tenants were to become bankrupt or insolvent, or suffer a downturn in their business, or fail to renew their leases at all or renew on terms less favorable to us than their current terms.

Our current and future joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on our joint venture partners' financial condition and any disputes that may arise between us and our joint venture partners.

We own two joint venture interests and in the future we may co-invest with, or sell interests in our existing properties to third parties through joint ventures. We may not be in a position to exercise sole decision-making authority regarding the properties owned through joint ventures. Investments in joint ventures may, under certain circumstances, involve risks not present when a third party is not involved, including the possibility that joint venture partners might become bankrupt or fail to fund their share of required capital contributions. Joint venture partners may have business interests or goals that are inconsistent with our business interests or goals and may be in a position to take actions contrary to our policies or objectives. Such investments also may have the potential risk of impasses on decisions, such as a sale, because neither we nor the joint venture partner would have full control over the joint venture. Any disputes that may arise between us and the joint venture partners may result in litigation or arbitration that would increase our expenses and prevent our officers and/or trustees from focusing their time and effort principally on our business. Consequently, actions by or disputes with joint venture partners might result in subjecting properties owned by the joint venture to incur additional risk. In addition, we may in certain circumstances be liable for the actions of our third-party joint venture partners.

Tax indemnification obligations in the event that we sell a certain property could limit our operating flexibility.

We agreed to indemnify the limited partner of the limited partnership that owns a portion of the Continental Towers property, which is encumbered by a mortgage note we hold, against specified adverse tax consequences that may result from the refinancing, sale, foreclosure or certain other actions that may be taken with respect to the property or the related mortgage note. If our tax indemnification obligations were to be triggered under this agreement, we would be required to reimburse the covered party for the effects of, or a portion of the effects of, the resulting tax consequences to this party.

Failure to qualify as a REIT would have significant adverse consequences to us.

We operate our business so as to qualify as a REIT under the Code. Although our management believes that we are organized and operate in such a manner, no assurance can be given that we will continue to be able to operate in a manner so as to qualify or remain so qualified. We have not requested and do not plan to request a ruling from the IRS that we qualify as a REIT, and the statements in this report are not binding on the IRS or any court. If we lose our REIT status, we will face serious tax consequences that would substantially reduce the funds available for operations, capital improvements and distributions to holders of Series B Shares and our common shareholder for each of the years involved because:

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we would not be allowed a deduction for distributions to shareholders in computing our taxable income and would be subject to federal income tax at regular corporate rates;

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we also could be subject to the federal alternative minimum tax and possibly increased state and local taxes; and

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unless we are entitled to relief under applicable statutory provisions, we could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified.

In addition, if we fail to qualify as a REIT, we will not be required to make distributions to holders of Series B Shares and our common shareholder, and all distributions to such shareholders will be subject to tax as regular corporate dividends to the extent of our current and accumulated earnings and profits. As a result of all these factors, our failure to qualify as a REIT also could impair our ability to raise capital, and would adversely affect the value of our common shares.

Qualification as a REIT involves the satisfaction of numerous requirements established under highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The complexity of these provisions and of the applicable Treasury regulations under the Code is greater in the case of a REIT that, like us, holds its assets through a partnership. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT. For example, in order to qualify as a REIT, we must satisfy a number of requirements, including requirements regarding the composition of our assets and a requirement that at least 95% of our gross income in any year must be derived from qualifying sources, such as "rents from real property." Also, we must make distributions to shareholders aggregating annually at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and by excluding net capital gains). In addition, no assurance can be given that new legislation, regulations, administrative interpretations or court decisions will not significantly change the tax laws with respect to our qualification as a REIT or the federal income tax consequences of such qualification.

Even if we qualify as and maintain our status as a REIT, we may be subject to certain federal, state and local taxes on our income and property. For example, if we were to generate net income from a "prohibited transaction," such income will be subject to a 100.0% tax.

We will be required to include in our annual reports, commencing with our annual report relating to calendar year 2007, a report of our management on our internal controls over our financial reporting and, commencing with our annual report relating to calendar year 2008, our auditor's attestation report on our internal controls over financial reporting, in each case under Section 404 of the Sarbanes Oxley Act of 2002 . Though we are a "non-accelerated filer" and are currently not required to do so, we have elected for calendar year 2006 to comply with the requirements applicable to an "accelerated filer", including the management report on our internal controls over our financial reporting and our auditors' attestation report on our internal controls over financial reporting. Any adverse results from future evaluations could result in a loss of investor confidence in our financial reports and have an adverse effect on the stock price of our Series B Shares and the value of our common shares.

We are required to comply with the Sarbanes-Oxley Act of 2002 and related rules and regulations of the Securities Exchange Commission, which include, commencing with our annual report relating to calendar year 2007, the requirement that our annual report include our management's report on internal controls over financial reporting and, commencing with our annual report relating to calendar year 2008, the requirement that we include our auditor's attestation report on our internal controls over financial reporting. We have elected to comply with the requirements applicable to an "accelerated filer" for calendar year 2006 and accordingly to include within this annual report our management's report on our internal controls over financial reporting and our auditor's attestation report on our internal controls over financial reporting. To comply with these requirements the management report must contain an assessment of the effectiveness of our internal controls as of December 31, 2006 and we must disclose any material weakness in our internal controls over financial reporting that were identified by us. Our independent auditors also opined on their assessment of our internal controls. If we are unable in the future to assert that our internal controls

over financial reporting are effective, or if in the future our independent auditors are unable to give us a satisfactory opinion on the effectiveness of our internal controls, we could lose investor confidence in our financial reports, which could have an adverse effect on the value of our Series B Shares and common shares. We have not yet determined whether we will elect to comply with requirements applicable to an "accelerated filer" for calendar year 2007 and file our auditor's attestation report on our internal controls over financial reporting relating to that calendar year.

Other regulations could adversely affect our financial condition.

Our properties also are subject to various federal, state and local regulatory requirements, such as state and local fire and safety requirements. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. We believe that our properties are currently in material compliance with all such regulatory requirements. There can be no assurance, however, that these requirements will not be changed or that new requirements will not be imposed which would require significant unanticipated expenditures and could have an adverse effect on our financial condition, results of operations, cash flow and our ability to satisfy our debt service obligations and pay distributions to holders of Series B Shares and our common shareholder.

Failure to hedge effectively against interest rate changes may adversely affect our results of operations.

We seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements that involve risk, such as the risk that counterparties may fail to honor their obligations under these arrangements, and that such arrangements may not be effective in reducing our exposure to interest rate changes. Failure to hedge effectively against interest rate changes may adversely affect our results of operations.

Potential losses may not be covered by insurance.

Our properties are covered by comprehensive liability, fire, flood, extended coverage, rental loss and all-risk insurance provided by various companies and with deductibles, limits and policy specifications customarily covered for similar properties. Certain types of losses, however, may be either uninsurable or not economically insurable, such as losses due to floods, riots or acts of war, or may be insured subject to specified limitations, such as large deductibles or co-payments. See Item 1 – Business – Insurance in this report for further discussion. Should an uninsured loss or a loss in excess of insured limits occur, we could lose our investment in and the anticipated future cash flow from the affected property and may be obligated on any mortgage indebtedness, to the extent it is recourse indebtedness, or other obligations related to such property.

The construction of new developments adjacent to or near certain of our existing properties may adversely affect the leasing, operation and value of those properties.

Two large new developments being built by third parties are currently under construction adjacent to two of our properties, one across the street from our 77 West Wacker Drive property and the other across the street from our property located at 330 North Wabash Avenue. While to our knowledge neither of these projects under development currently contemplate any material office component and thus will not directly compete with the existing use of our properties, the major construction activities underway at these adjacent sites could cause significant disruptions to the operation of our two properties identified above, including those resulting from noise, dust, vibrations, construction traffic and other related activities. These activities could inconvenience our tenants at these properties and make it difficult to renew certain leases as their terms expire or lease vacant space in these properties to new tenants. In addition, the new projects currently under construction may also adversely affect our leasing efforts and the value of our properties affected, by

among other things, blocking certain views from our properties and creating increased traffic and congestion. In addition, two large new office developments are currently underway in the vicinity of our 77 West Wacker Drive, 180 N. LaSalle and 330 N. Wabash Avenue properties. These projects will directly compete with our properties referred to above and could materially adversely affect (i) our ability to retain our existing tenants, and attract new tenants, and (ii) for those existing tenants that we are able to retain and new tenants that we are able to attract, the business terms on which such deals are completed. This could result in us leasing less space at lower rents and with higher costs at our properties than we could have otherwise, which could materially adversely affect our liquidity, revenue and financial results.

We may incur significant costs of complying with the Americans with Disabilities Act and similar laws.

Under the Americans with Disabilities Act of 1990, or the ADA, all public accommodations and commercial facilities are required to meet certain federal requirements related to access and use by disabled persons. Compliance with the ADA requirements could require removal of access barriers, and non-compliance could result in imposition of fines by the federal government or an award of damages to private litigants. Although we believe that our properties are substantially in compliance with these requirements, we may incur additional costs to comply with the ADA. In addition, we are required to operate our properties in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and bodies and become applicable to our properties. If we incur substantial costs to comply with the ADA and any other legislation, our financial condition, results of operations, cash flow and our ability to satisfy our debt service obligations and to pay distributions to holders of Series B Shares and our common shareholder could be adversely affected.

Liabilities for environmental matters could adversely affect our financial condition.

Under various federal, state and local laws, ordinances and regulations relating to the protection of the environment, an owner or operator of real property may be held liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in such property. These laws often impose liability without regard to whether the owner or operator was responsible for, or even knew of, the presence of such hazardous or toxic substances. The costs of investigation, removal or remediation of such substances may be substantial, and the presence of such substances may adversely affect the owner's or operator's ability to rent or sell such property or to borrow funds using such property as collateral and may expose such owner or operator to liability resulting from any release of or exposure to such substances. Persons who arrange for the disposal or treatment of hazardous or toxic substances at another location also may be liable for the costs of removal or remediation of such substances at the disposal or treatment facility, whether or not such facility is owned or operated by such person. Certain environmental laws impose liability for release of asbestos-containing materials into the air, and third parties may also seek recovery from owners or operators of real properties for personal injury associated with asbestos-containing materials and other hazardous or toxic substances. In connection with the ownership (direct or indirect), operation, management and development of real properties, we may be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and therefore potentially liable for removal or remediation costs, as well as certain other related costs, including governmental penalties and injuries to persons and property. See Item 1 – Business – Government Regulations – Environmental Matters of this report for a more detailed discussion of environmental matters affecting us.

Future terrorist attacks in the United States could harm the demand for, and the values of, our properties.

Future terrorist attacks in the United States, such as the attacks that occurred on September 11, 2001, and other acts of terrorism or war could harm the demand for and the value of our properties. Terrorist attacks also could directly impact the value of our properties through damage, destruction, loss or increased security costs, and thereafter the availability of insurance for such acts may be limited or may cost more. To the extent that our tenants are impacted by any future attacks, their ability to continue to honor obligations under their existing leases with us could beadversely affected. In addition, certain tenants have termination rights in respect of certain casualties. If we receive casualty proceeds, we may not be able to reinvest such proceeds profitably or at all, and we may be forced to recognize taxable gain on the affected property.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

General

We own 10 office properties, containing an aggregate of 3.9 million net rentable square feet, and one industrial property, containing 0.1 million net rentable square feet, located in the Chicago metropolitan area. This includes Continental Towers, on which we own a second mortgage note that constitutes a significant financial interest in this property. We therefore consolidate its operations. In addition, we own a 50.0% common interest in a joint venture, which owns the 959,719 square foot office tower located at 77 West Wacker Drive in downtown Chicago and a 23.1% common interest in a joint venture, which owns a 101,006 square foot office building located in Phoenix, Arizona. We lease and manage 5.0 million square feet comprising all of our wholly-owned properties and one joint venture property. In addition, we also manage and lease the 1,504,364 square foot Citadel Center office building located at 131 South Dearborn Street in Chicago, Illinois, which we previously owned a joint venture interest in and was sold in November 2006.

Our management team has developed or redeveloped a significant number of office properties, including the development and construction of the 77 West Wacker Drive and Citadel Center buildings and the redevelopment of the 180 North LaSalle Street building, all located in downtown Chicago, as well as the redevelopment of our Continental Towers property in Rolling Meadows, Illinois. In the course of such activities, we have acquired experience across a broad range of sophisticated development and redevelopment projects.

We do not currently anticipate commencing any new development projects in the near future, although we may undertake the redevelopment of, improvements to, and/or expansion of, certain properties we currently own and/or may acquire in the future.

Our office properties are leased to tenants either (i) on a net basis with tenants obligated to pay their proportionate share of real estate taxes, insurance, utilities and operating expenses (ii) on a gross basis with the landlord responsible for the payment of all such expenses, or (iii) on a gross basis, with the landlord responsible for the payment of these expenses up to the amount incurred during the tenants' first year of occupancy ("Base Year"), or a negotiated amount approximating the tenants' pro rata share of these expenses ("Expense Stop"). In the latter cases, the tenants pay their pro rata share of increases in expenses above the Base Year or Expense Stop. Our industrial property's lease is written on a triple-net lease basis, with the tenant paying all of the real estate taxes, insurance, utilities and other operating expenses for the property.

Properties

The following table sets forth certain information relating to each of our properties. Through the Operating Partnership and other subsidiaries, we own 100.0% fee-simple title in all of the office and industrial properties, except for Continental Towers and the unconsolidated joint venture properties identified below. All of the properties are office properties with the exception of 1051 N. Kirk Road, which is an industrial property.


	Location	Year Built/ Renovated	Net Rentable Square Feet	Percentage Occupied as of 12/31/06
Wholly-Owned Properties:
330 N. Wabash Avenue (1)	Chicago, IL	1971	1,466,023	66.8%
Continental Towers (2)	Rolling Meadows, IL	1977 thru 1981/2001	910,796	90.2%
180 North LaSalle Street	Chicago, IL	1982/1999	770,191	80.6%
800-810 Jorie Boulevard	Oak Brook, IL	1961/1992	193,516	100.0%
4343 Commerce Court	Lisle, IL	1989	167,756	80.2%
740-770 Pasquinelli Drive	Westmont, IL	1986	110,299	99.0%
280 Shuman Blvd.	Naperville, IL	1979	69,077	86.0%
1600-1700 167th Street	Calumet City, IL	1981	65,394	82.9%
Enterprise Center II	Westchester, IL	1999	62,619	49.9%
7100 Madison Avenue	Willowbrook, IL	1999	50,157	100.0%
1051 N. Kirk Road	Batavia, IL	1990	120,004	100.0%
Portfolio total			3,985,832	79.6%

Unconsolidated Joint Venture Properties:
77 West Wacker Drive (3)	Chicago, IL	1992	959,719	81.3%
Thistle Landing (4)	Phoenix, AZ	1999	101,006	29.7%

(1)

The land underlying a portion of this property, related to the parking garage, is leased for a term expiring on April 30, 2019 with options to extend the term for an additional forty years.

(2)

We hold two mortgage notes receivable on this office property and have consolidated the underlying property operations because we derive significant economic benefits from the property's operations.

(3)

We own a 50.0% common ownership interest in a joint venture that owns this office property.

(4)

We own a 23.1% common ownership interest in a joint venture that owns this office property. On August 29, 2005, we were notified by our joint venture partner of the execution of a sale agreement for three of the four buildings at Thistle Landing. The sale took place in early November and we received a distribution relating to our interest of $3.9 million on November 7, 2005, which was recorded as a reduction of our investment in the unconsolidated joint venture. As a result of the sale, the net rentable square feet owned by the joint venture was reduced to 101,006 square feet from 383,509 square feet. In addition, we have no impairment on our investment because the fair value of our investment is greater than the carrying value.

ITEM 3. LEGAL PROCEEDINGS

Except as described below, neither we nor any of our properties are presently subject to any material litigation or legal proceeding, nor, to our knowledge, is any material litigation or legal proceeding threatened against us, other than routine litigation arising in the ordinary course of business, some of which is expected to be covered by liability insurance and all of which collectively is not expected to have a material adverse effect on our consolidated financial statements.

On December 4, 2006, we received a copy of a Class Action Complaint and Demand for Jury Trial (the "Complaint") filed by The Jolly Roger Fund LP and Jolly Roger Offshore Fund Ltd. ("Plaintiffs") against Lightstone and us. The Complaint was filed on November 16, 2006 in the Circuit Court of Baltimore City, Maryland, Civil Division.

In the Complaint, the Plaintiffs asked the Court to certify the case as a class action on behalf of the holders of the Series B Shares. The Complaint seeks compensation for alleged damages resulting from an alleged plan by us to liquidate our assets and wind up our business without the payment to the holders of the Series B Shares of the $25.00 per share liquidation preference provided in our Articles of Amendment and Restatement. The Complaint also requests the disgorgement of dividends that the Plaintiffs claim were improperly paid to Lightstone that should have been paid to the holders of the Series B Shares in the form of the liquidation preference.

We believe that this case is without merit and we have legitimate defenses to this action, and we intend to aggressively defend the case.

On October 26, 2005, Prime/Mansur exercised its option to acquire our membership interest in the Plumcor Thistle, LLC, ("Plumcor/Thistle JV"), and the parties subsequently executed the purchase and sale agreement for the sale. On December 22, 2005, we terminated the purchase and sale agreement relating to the Plumcor/Thistle JV because Prime/Mansur had failed to obtain our joint venture partner's consent to the transaction by the December 15, 2005 deadline contained in the agreement. Prime/Mansur subsequently sent us a letter disputing our right to terminate the agreement, to which we replied with a letter reaffirming our right to terminate the agreement. On January 31, 2006, Prime/Mansur filed a lawsuit in the Circuit Court of Cook County, Illinois claiming that our termination of the purchase and sale agreement was not justified. Prime/Mansur is requesting the Court to grant it either specific performance and order us to convey our joint venture interest in Plumcor Thistle to Prime/Mansur or damages in the amount of $5.0 million. We believe we have legitimate defenses to this action and the ultimate outcome will not have a material adverse affect on our consolidated financial condition or results of operations.

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

No matters were submitted to a vote of our public security holders during the fourth quarter of 2006. On June 14, 2006, we held our Annual Meeting of Shareholders, at which all of our existing Board Members were re-elected for additional one-year terms. Our Board consists of (i) Messrs. David Lichtenstein, the Chairman and Principal of Lightstone, Jeffrey Patterson, our President and Chief Executive Officer, Michael M. Schurer, the Chief Financial Officer of Lightstone, and Bruno de Vinck, a Senior Vice President of Lightstone, each of whom were re-elected as non-independent trustees, and (ii) Messrs. George R. Whittemore, John M. Sabin, and Shawn R. Tominus, each of whom were re-elected as independent trustees. Mr. Whittemore is the Chairman of our audit committee and Messrs. Whittemore and Sabin were each named as "financial experts" of the audit committee.

PART II

ITEM 5.

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED

STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY

SECURITIES

Our common shares traded on the NYSE under the symbol "PGE" from November 12, 1997 through July 1, 2005, the effective date of the Acquisition. We are the sole general partner of the Operating Partnership and own all of the preferred units. Prior to the Acquisition, we owned 88.5% of the common units of the Operating Partnership. After the Acquisition, we own 0.9% of the common units of the Operating Partnership. Each preferred unit and common unit entitled us to receive distributions from our Operating Partnership. Distributions declared or paid to holders of common shares and preferred shares are based upon the distributions we receive with respect to our common units and preferred units.

As a result of the Acquisition, each of our common shares and common units of the Operating Partnership were cancelled and converted into the right to receive cash in the amount of $7.25 per share/unit, without interest, which resulted in the delisting of our common shares from the NYSE effective July 2, 2005. In connection with the Acquisition, all outstanding options with an exercise price greater than the sales price of $7.25 per share/unit were cancelled and each outstanding option for a common share with an exercise price less than the sales price were entitled to be exchanged for cash in an amount equal to the difference between $7.25 and the exercise price. Our Series B Shares remain outstanding after the completion of the Acquisition and continue to be publicly traded on the NYSE.

As a result of the Acquisition, Prime Office owned 100.0%, or 236,483, of our common shares and 99.1%, or 26,488,389, of the outstanding common units in the Operating Partnership. We own 0.9%, or 236,483, of the outstanding common units and all of the 4.0 million outstanding preferred units in the Operating Partnership.

Effective on November 16, 2005, Prime Office transferred 5,512,241 common units to Park Avenue Funding, LLC. Subsequent to the transfer, Prime Office owns 78.5%, or 20,976,148, of the outstanding common units in the Operating Partnership while Park Avenue Funding, LLC owns 20.6% and PGRT owns 0.9% of the outstanding common units.

The following table sets forth the high and low closing sales prices per common share reported on the NYSE prior to the Acquisition and the common share distributions we paid for the years ended December 31, 2005 and December 31, 2006:

						Cash
						Distributions
		High		Low		Paid (1)

Fiscal Year 2005
First quarter	$	7.23	$	6.15	$	–
Second quarter		7.26		7.03		–
Third quarter (2)		–		–		1.1225
Fourth quarter (2)		–		–		–

Fiscal Year 2006
First quarter (2)	$	–	$	–	$	2.8438
Second quarter (2)		–		–		–
Third quarter (2)		–		–		–
Fourth quarter (2)		–		–		–

(1)

No distributions were declared or paid prior to the Acquisition in 2005.

(2)

As a result of the Acquisition, our common shares were delisted from the NYSE effective July 2, 2005.

Due to a number of factors, including our capital resources, debt load and requirements in our operating environment, our Board decided not to pay a distribution on the common shares and units beginning with the last quarter 2001 and continuing during 2002, 2003, 2004 and 2005 through to the date of the Acquisition. Further in April 2002, our Board decided to suspend the declaration and payment of dividends on Series B Shares. We subsequently resumed the payment of dividends on our Series B Shares with dividends of $0.5625 per share in April, July and October of 2004 and January and April 2005. Concurrent with the completion of the Acquisition, all accrued but unpaid distributions on the Series B Shares, plus distributions on our Series B Shares for the third quarter of 2005, were paid to the holders of Series B Shares. On July 1, 2005, we funded both (i) one quarterly distribution of $0.5625 per share on our Series B Shares to preferred shareholders of record as of June 15, 2005 and (ii) six quarters of distributions totaling an additional $3.3750 per share on our Series B Shares to preferred shareholders of record as of June 21, 2005. Under our charter, these distributions represent the distributions for the first quarter of 2004 through to, and including, the entire third quarter of 2005.

After the closing of the Acquisition on July 1, 2005, our newly constituted Board declared a distribution to Prime Office, the holder at that time of the 26,488,389 common units in our Operating Partnership and our 236,483 common shares, in an amount of $1.1225 per unit/share and having a record date and a payment date of July 5, 2005. On December 30, 2005, our Board declared a quarterly dividend of $0.5625 per share on our Series B Shares for the shareholders of record on January 16, 2006. This dividend was paid on January 31, 2006. On February 9, 2006, our Board declared (i) a quarterly dividend on our Series B Shares for the first quarter of 2006 of $0.5625 per share with a record date of March 31, 2006 and a payment date of April 28, 2006 and (ii) a common distribution to the holders of the 26,488,389 common units in the Operating Partnership and our 236,483 common shares, in an amount of $2.8438 per unit/share having a record date of February 9, 2006 and a payment date of February 10, 2006. On June 14, 2006, our Board decided not to declare a quarterly distribution on the Series B Shares for the second quarter of 2006, based on the Board's review of our current capital resources and liquidity needs and the timing and uncertainty of certain previously anticipated capital events. On September 22, 2006, our Board declared a quarterly dividend on our Series B Shares for the second quarter 2006 of $0.5625 per share. The quarterly dividend had a record date of October 6, 2006 and a payment date of

October 31, 2006. On December 14, 2006 based on the Board's review of our current capital resources and liquidity needs and the completion of certain capital events, our Board decided to bring dividends on the Series B Shares current and declared for payment two quarterly dividends for the third and fourth quarters of 2006 on our Series B Shares of $0.5625 per share, per quarter, for a total dividend of $1.125 per share. The dividend had a record date of January 5, 2007 and a payment date of January 31, 2007.

Our management and Board review our cash position, the status of potential capital events, debt levels and requirements for cash reserves each quarter prior to making any decision with respect to paying distributions/dividends. Any future distributions on our common shares and/or dividends on our Series B Shares will be made at the discretion of our Board. These distributions will depend on the actual cash available for distribution, our financial condition, capital requirements, the completion of capital events, including refinancings and asset sales, the annual distribution requirements under the REIT provisions of the Code and such other factors as our Board deems relevant. Distributions on our common shares and common units are not permitted unless all current and any accumulated dividends on our Series B Shares and the related preferred units in the Operating Partnership have been paid in full or declared and set aside for payment.

Equity Compensation Plans. For a discussion of our equity compensation plans see the information contained in Item 12 – Security Ownership of Certain Beneficial Owners and Management – Equity Compensation Plan Information of this report.

Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities by Issuer and Affiliated Purchasers

None.

ITEM 6. SELECTED FINANCIAL DATA

The following tables set forth our selected consolidated financial data and should be read in conjunction with our consolidated financial statements included elsewhere in this Form 10-K.


		Successor Company				Predecessor Company

		Year ended December 31					Year ended December 31
		2006		2005			2004		2003		2002
Balance Sheet Data		(dollars in thousands)					(dollars in thousands)
Real estate assets	$	490,102	$	471,892	$		619,059	$	681,933	$	1,025,271
Total assets		654,098		771,921			767,363		948,781		1,410,181
Mortgage notes and notes payable		453,695		452,965			427,445		435,869		693,910
Total liabilities		524,868		530,668			502,785		663,640		1,064,099
Minority interests		100,147		135,853			19,154		21,803		100,643
Shareholders' equity		29,083		105,400			245,424		263,338		245,439

		Successor Company						Predecessor Company

				Six months		Six months
				ended		ended
				December 31		June 30		Year ended December 31
		2006		2005		2005		2004		2003		2002
Statement of Operations Data (1)		(dollars in thousands, except per share amount)				(dollars in thousands, except per share amount)
Total revenue	$	99,094	$	48,555	$	48,178	$	98,614	$	124,714	$	106,086
Operating income (loss)		5,493		(921)		(3,347)		16,235		28,887		15,603
Income (loss) from continuing operations		8,511		4,294		(18,382)		(19,982)		(16,087)		(1,829)
Net income (loss)		8,683		4,319		(19,571)		(11,383)		(36,217)		(30,621)
Net loss available to common shareholders		(317)		(181)		(24,071)		(20,383)		(45,217)		(41,901)

Basic and diluted earnings available to common shares per weighted-average common share (2)
Loss from continuing operations	$	(2.06)	$	(0.87)	$	(0.97)	$	(1.22)	$	(1.25)	$	(0.84)
Net loss available per weighted-average common share of beneficial interest –basic and diluted		(1.34)		(0.76)		(1.02)		(0.86)		(2.25)		(2.67)
Distributions paid per common share/common unit		2.8438		1.1225		–		–		–		–
Preferred stock dividends paid per share		1.6875		4.50		1.125		1.6875		–		2.25

Cash Flow and Operating Data
Cash flow provided by (used in):
Operating activities	$	4,838	$	1,236	$	(6,659)	$	22,108	$	56,875	$	42,320
Investing activities		66,403		(60,044)		2,258		116,613		296,732		(75,951)
Financing activities		(28,739)		6,773		2,314		(99,598)		(336,799)		42,849
Office Properties:
Square footage		3,865,828		3,772,482		4,636,918		4,632,633		5,536,065		6,281,263
Occupancy (%)		79.0		83.7		82.8		85.1		75.1		91.5
Industrial Properties:
Square footage		120,004		120,004		120,004		120,004		3,874,712		3,874,712
Occupancy (%)		100.0		100.0		100.0		100.0		81.4		84.4
Unconsolidated Joint Venture Properties:
Square footage		1,060,725		2,554,866		2,833,068		2,831,303		2,827,302		2,831,943
Occupancy (%)		76.4		77.6		80.9		79.7		74.1		39.9

(1)

Information for the years ended December 31, 2005 (including the six months ended December 31, 2005 and the six months ended June 30, 2005), 2004, 2003 and 2002 has been restated for the reclassification of the operations of properties, to reflect the impact of SFAS 144, from continuing operations to discontinued operations.

(2)

Net loss available per weighted-average common share of beneficial interest-basic equals net income divided by 236,483; 236,483; 23,658,579; 23,671,412; 20,105,183 and 15,673,544 common shares for the year ended December 31, 2006, for the six months ended December 31, 2005, for the six months ended June 30, 2005 and for the years ended December 31, 2004, 2003 and 2002, respectively. Net loss available per weighted-average share of beneficial interest-diluted equals net income divided by 236,483; 236,483; 23,658,579; 23,671,412; 20,105,183 and 15,673,544, common shares for the year ended December 31, 2006, for the six months ended December 31, 2005, for the six months ended June 30, 2005 and for the years ended December 31, 2004, 2003 and 2002, respectively. The change in number of weighted-average common shares is principally due to the Acquisition by Lightstone and common unitholders in our Operating Partnership exchanging common units for common shares and the issuance of new common units in our Operating Partnership in connection with property acquisitions.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Overview

The following discussion should be read in conjunction with our historical consolidated financial statements and related notes thereto included elsewhere in this Form 10-K.

We are a fully-integrated, self-administered and self-managed REIT which owns, manages, leases, develops and redevelops office and industrial real estate, primarily in the Chicago metropolitan area. Our portfolio of properties consists of 10 office properties, containing an aggregate of 3.9 million net rentable square feet and one industrial property, containing 0.1 million net rentable square feet. In addition, we have two joint venture interests in office properties containing an aggregate of 1.1 million rentable square feet. We lease and manage 5.0 million square feet comprising all of our wholly-owned properties and one joint venture property. In addition, we are also the managing and leasing agent for the 1.5 million square foot Citadel Center office building located at 131 South Dearborn Street in Chicago, Illinois, in which we previously owned a joint venture interest which was sold in November 2006.

All of our properties, except one joint venture property, are located in the Chicago metropolitan area in prime business locations within established business communities and account for all of our rental revenue and tenant reimbursements revenue. One of our joint venture properties is located in Arizona.

Our results reflect the general weakness in the office leasing market in the Chicago metropolitan area over the past several years. Because of this weakness in the leasing market, we have been challenged to retain existing tenants and locate new tenants for our vacant and non-renewing space at acceptable economic rental rates. In addition, the supply of downtown Chicago office space continues to grow, principally as a result of the construction of new office buildings. As these buildings continue to come on line in the next few years, the additional supply may add to the challenge.

Our management is addressing this challenge by increasing our marketing efforts both through working with the office brokerage community and in direct marketing campaigns to prospective users of office space in our market, as well as investing in targeted capital expenditures to improve our properties in order to enhance our position in our market.

Our income and cash flow is derived primarily from rental revenue (including tenant reimbursements) from our properties. We expect that any revenue growth over the next several years will come from revenue generated through increased occupancy rates in our portfolio. The following summarizes our portfolio occupancy at the end of 2005 and at the end of each quarter of 2006, excluding properties sold in subsequent periods:

	Portfolio Occupancy
	December 31,	September 30,	June 30,	March 31,	December 31,
	2006	2006	2006	2006	2005

Portfolio Total	79.6%	79.9%	87.9%	85.6%	84.2%

Unconsolidated Joint Venture Properties	76.4%	89.0%	81.1%	79.1%	77.6%

2006 Business Summary

For 2006, our focus was on:

•	retiring, extending or refinancing debt;

•	reducing operating costs; and

•	aggressively pursuing leasing transactions.

Below is a summary of several of the activities we undertook in 2006 in keeping with these objectives.

•	We refinanced our Continental Towers property with a first mortgage loan in the principal amount of $115.0 million.

•	We reduced our outstanding indebtedness on two Citicorp mezzanine loans from an aggregate of $58.0 million to $18.8 million.

•	Through December 31, 2006, we commenced 42 new and expansion office leases totaling 741,214 square feet, and renewed or extended 41 office leases totaling 169,374 square feet including our joint venture properties.

•	We completed the sale of our joint venture interest in the Citadel Center property, used a portion of the proceeds to retire the $55.0 million mezzanine loan on the property and repay a portion of the Citicorp mezzanine loans referred to above, and recognized a gain of approximately $18.8 million.

Key Performance Indicators

We evaluate the performance of our operations based on the occupancy percentages and operating profit of each of our properties, including their rental revenue, tenant reimbursement revenue, property operations expense and administrative expenses, as well as tenant retention and the results of tenant satisfaction surveys. We also use other metrics such as gross rent, occupancy, percent of property operating expenses recovered and net effective rent in analyzing individual tenant lease agreements.

In addition to net income under Generally Accepted Accounting Principles ("GAAP"), prior to the Acquisition we used Funds From Operations ("FFO"), which is a measurement tool common among real estate investment trusts for measuring profitability. We no longer use FFO as management believes FFO is not a useful measurement of our profitability.

We used the purchase method of accounting to record the assets and liabilities in connection with the Acquisition. Accordingly the financial statements as of and for the period ended subsequent to the Acquisition are not comparable in all material respects to our financial statements as of and for periods ended prior to the Acquisition.

Results of Operations

Comparison of the Year ended December 31, 2006 to the Year ended December 31, 2005

The table below represents selected operating information for our portfolio. Property revenues include rental revenues, tenant reimbursements and other property operating revenues. Property operating expenses include real estate taxes, utilities and other property operating expenses.


		2006		2005		$ Change	% Change
		(dollars in thousands)
Property revenues	$	94,580	$	92,559	$	2,021	2.2%
Services Company revenues		4,514		4,174		340	8.1
Total revenues		99,094		96,733		2,361	2.4

Property operating expenses		48,066		48,497		(431)	(0.9)
Depreciation and amortization		35,170		30,052		5,118	17.0
General and administrative		6,393		7,708		(1,315)	(17.1)
Services Company operations		3,972		4,062		(90)	(2.2)
Severance costs		–		394		(394)	(100.0)
Strategic alternative costs		–		10,288		(10,288)	(100.0)
Total expenses		93,601		101,001		(7,400)	(7.3)
Operating income (loss)		5,493		(4,268)		9,761	228.7
Loss from investments in unconsolidated joint ventures		(9,145)		(13,022)		3,877	29.8
Interest and other income		2,850		2,596		254	9.8
Interest:
Expense		(42,637)		(24,441)		(18,196)	(74.4)
Amortization of deferred financing costs		(3,146)		(1,288)		(1,858)	(144.3)
Loss from continuing operations before minority interests		(46,585)		(40,423)		(6,162)	(15.2)
Minority interests		55,096		26,335		28,761	109.2
Income (loss) from continuing operations		8,511		(14,088)		22,599	160.4
Discontinued operations, net of minority interests		1		(10,235)		10,236	100.0
Income (loss) before gain on sales of real estate and joint venture interests		8,512		(24,323)		32,835	135.0
Gain on sales of real estate and joint venture interests, net of minority interest		171		9,071		(8,900)	(156.9)
Net income (loss)	$	8,683	$	(15,252)	$	23,935	156.9%

Property Revenues. The increase of $2.0 million in property revenues was primarily attributable to increased straight-line rent as a result of the Acquisition ($1.8 million), other income associated with the sale of Citadel Center ($0.6 million), increased other property revenues due to higher parking revenues at 330 N. Wabash Avenue ($0.5 million) and management fee income from 77 West Wacker and Citadel Center ($0.4 million). The increase was partially offset by the amortization of the above-market and below-market lease values as a result of the Acquisition, recorded as a reduction of rental revenue ($1.2 million), and lower tenant reimbursements due to reduced property operating expenses ($0.1 million).

Services Company Revenues. The increase of $0.3 million in our Services Company revenues during 2006 was primarily due to increased leasing commission income from the joint ventures due to increased leasing activity.

Property Operating Expenses. The decrease of $0.4 million in property operating expenses was primarily attributable to reduced real estate tax projections primarily at our 330 N. Wabash Avenue property ($1.6 million) and lower bad debt expense ($0.2 million), partially offset by increased utilities due to higher rates ($1.1 million) and increased repairs and maintenance occurring at our 330 N. Wabash Avenue, 180 North LaSalle Street and Continental Towers properties ($0.3 million).

Depreciation and Amortization. The increase of $5.1 million in depreciation and amortization was primarily attributable to the increase in depreciable basis of the tangible and intangible assets as a result of the Acquisition.

General and Administrative. The decrease of $1.3 million in general and administrative expenses was primarily due to lower directors and officers insurance expense ($1.2 million).

Strategic Alternative Costs. The $10.3 million decrease in strategic alternative costs is primarily due to the settlement payment made in 2005 to settle certain litigation ($7.0 million) and a reduction in legal, consulting and professional fees which were higher in 2005 as a result of the Acquisition.

Loss From Investments in Unconsolidated Joint Ventures. The decrease of $3.9 million in loss from investments in unconsolidated joint ventures was primarily due to increased straight-line rent revenue ($3.7 million), a reduction of distributions paid to our joint venture partner ($1.7 million) and a reduction of real estate taxes net of associated recovery revenue ($0.7 million) all at our Citadel Center property. This decrease was partially offset by an increase in depreciation and amortization for the tangible and intangible basis of the joint venture properties as a result of the Acquisition ($2.3 million).

Interest and Other Income. The increase of $0.3 million in interest and other income was primarily due to an increase in interest income related to our short-term investments and restricted escrow accounts, which was the result of an increase in average interest rates on investment from 3.0% in 2005 to 4.9% in 2006, while the average balance was unchanged.

Interest Expense. The increase in interest expense of $18.2 million was primarily the result of $9.7 million, $4.6 million and $1.1 million of additional interest expense in 2006 compared to 2005 for the IPC Loan, Citicorp Loan (including the New Citicorp Loan) and the Continental Towers refinancing, respectively. Additionally, the increase in the average LIBOR from 3.5% in 2005 to 5.0% in 2006 led to a $3.6 million increase in interest expense related to our variable rate debt collateralized by our 330 N. Wabash Avenue property.

Amortization of Deferred Financing Costs. The increase of $1.9 million in amortization of deferred financing costs was primarily attributable to the write-off of unamortized deferred financing fees related to the repayments of the IPC Loan and a portion of the Citicorp Loan.

Minority Interests. The increase of $28.8 million in minority interests was primarily due to the Acquisition. As a result of the Acquisition, minority interest percentage ownership increased from 11.5% to 99.1%.

Discontinued Operations. Discontinued operations reflect net income (loss) (including provision for asset impairment and lease termination revenue) and gain (loss) on sales of real estate for operating properties which have been sold. Discontinued operations include the results of operations of our 208 South LaSalle Street property, which was sold in December 2005, and the residual effects related to properties sold in prior years. The decrease in the loss from discontinued operations of $10.2 million was primarily attributable to a provision for asset impairment associated with our 208 South LaSalle Street property ($15.1 million), partially offset by a gain from operations associated with our 208 South LaSalle Street property in 2005 ($2.3 million), a gain on sale of a portfolio of our industrial properties upon finalization of our related obligation under a tax indemnity in 2005 ($0.7 million), a decrease in projected real estate taxes associated with our former 33 West Monroe Street property in 2005 ($0.3 million) and a change in minority interests ($1.6 million).

Gain on Sales of Real Estate and Joint Venture Interests. The decrease of $8.9 million in gain on sales of real estate and joint venture interests was primarily due to a recognized gain of $9.8 million in 2005, net of minority interest, from the Citadel Center joint venture as a result of the receipt of a contingent purchase price resulting from a leasing earn-out we met under the joint venture agreement. Partially offsetting this decrease was a recognized gain of $0.6 million, net of minority interest, as a result of the sale of a land parcel located in Libertyville, Illinois during the second quarter of 2006.

Comparison of the Year ended December 31, 2005 to the Year ended December 31, 2004

		2005		2004		$ Change	% Change
		(dollars in thousands)
Property revenues	$	92,559	$	94,240	$	(1,681)	(1.8)%
Services Company revenues		4,174		4,374		(200)	(4.6)
Total revenues		96,733		98,614		(1,881)	(1.9)

Property operating expenses		48,497		45,955		2,542	5.5
Depreciation and amortization		30,052		19,534		10,518	53.8
General and administrative		7,708		10,426		(2,718)	(26.1)
Services Company operations		4,062		3,768		294	7.8
Severance costs		394		322		72	22.4
Strategic alternative costs		10,288		2,374		7,914	333.4
Total expenses		101,001		82,379		18,622	22.6
Operating (loss) income		(4,268)		16,235		(20,503)	(126.3)
Income (loss) from investments in unconsolidated joint ventures		(13,022)		(14,878)		1,856	12.5
Interest and other income		2,596		1,617		979	60.5
Interest:
Expense		(24,441)		(25,106)		665	2.6
Amortization of deferred financing costs		(1,288)		(1,616)		328	20.3
Loss from continuing operations before minority interests		(40,423)		(23,748)		(16,675)	(70.2)
Minority interests		26,335		3,766		22,569	599.3
Loss from continuing operations		(14,088)		(19,982)		5,894	29.5
Discontinued operations, net of minority interests		(10,235)		9,092		(19,327)	(212.6)
Loss before gain (loss) on sales of real estate		(24,323)		(10,890)		(13,433)	(123.4)
Gain (loss) on sales of real estate, net of minority interest		9,071		(493)		9,564	1,940.0
Net loss	$	(15,252)	$	(11,383)	$	(3,869)	(34.0)%

Property Revenues. The decrease of $1.7 million in property revenues was primarily attributable to the amortization of the above-market and below-market lease values resulting from the Acquisition ($1.8 million).

Services Company Revenues. The decrease of $0.2 million in our Services Company revenues during 2005 was primarily due to decreased leasing commission income from the joint ventures due to decreased leasing activity.

Property Operating Expenses. The increase of $2.5 million in property operating expenses was primarily attributable to increases in real estate taxes due to increased tax rates ($1.1 million), landscaping and parking lot repairs ($0.7 million), general and administrative expenses ($0.4 million) and repairs and maintenance costs ($0.4 million).

Depreciation and Amortization. The increase of $10.5 million in depreciation and amortization was primarily attributable to the revaluation to fair value of our tangible and intangible assets as a result of the Acquisition. Of the total increase, $2.2 million was attributable to tenant improvements and leasing costs associated with the commencement of new leases.

General and Administrative. The decrease of $2.7 million in general and administrative expenses was primarily due to a decrease in salaries and benefits ($0.7 million) as a result of a reduction in employees, lower legal costs ($0.9 million) and lower compliance fees ($0.5 million) which was the result of management's cost containment strategies.

Strategic Alternative Costs. The $7.9 million increase in strategic alternative costs is primarily due to the settlement payment ($7.0 million) and legal fees ($0.7 million) associated with previously settled litigation.

Loss From Investments in Unconsolidated Joint Ventures. The decrease of $1.9 million in loss from investments in unconsolidated joint ventures was primarily due to a $1.4 million decrease in loss as compared to 2004 associated with our equity investment in the Citadel Center joint venture related to additional leasing activity during 2004. In addition, our equity investment in the 77 West Wacker joint venture experienced a decrease of $0.5 million as compared to 2004, primarily due to the expiration of the interest rate collar in September 2004.

Interest and Other Income. The increase of $1.0 million in interest and other income was primarily due to an increase in interest income related to our short-term investments and restricted escrow accounts, which was the result of an increase in average interest rates on investment from 1.3% in 2004 to 3.0% in 2005, while the average balance was unchanged.

Interest Expense. The decrease in interest expense of $0.7 million was primarily due to $1.7 million in interest expense savings related to the mezzanine loan payoffs at Fleet Bank related to a mezzanine loan collateralized by our 180 North LaSalle ($0.9 million) property and a mezzanine loan collateralized by our 800-810 Jorie Boulevard and our former 208 South LaSalle ($0.8 million) properties. Additionally, we refinanced the fixed rate debt associated with our Continental Towers property with a variable rate loan that accounted for $0.6 million in interest expense savings. These gains were partially offset by unfavorable changes in LIBOR rates that led to a $2.1 million increase in interest expense on the variable rate debt associated with our 330 N. Wabash Avenue property.

Amortization of Deferred Financing Costs. The decrease of $0.3 million in amortization of deferred financing costs was primarily attributable to the revaluation of our intangible assets as a result of the Acquisition and the write-off and accelerated amortization of financing costs for indebtedness retired or refinanced in 2004 and 2005.

Minority Interests. The increase of $22.6 million in minority interests was primarily due to the Acquisition. As a result of the Acquisition, minority interest percentage ownership increased from 11.5% to 99.1%.

Discontinued Operations. Discontinued operations reflect net income (loss) (including provision for asset impairment and lease termination revenue) and gain (loss) on sales of real estate for operating properties, which have been sold. Discontinued operations include the results of operations of our 208 South LaSalle Street property, which was sold in December 2005, and the residual effects related to properties sold in prior years. The decrease of $19.3 million was primarily attributable to a provision for asset impairment on our 208 South LaSalle Street property in 2005 ($15.1 million), a gain on sale on our industrial properties in 2004 ($8.2 million), a gain from operations associated with our industrial properties in 2004 ($1.7 million) and a change in minority interests ($0.7 million), offset by a reduction in loss from operations on our 33 West Monroe Street property from 2004 ($2.9 million), a reduction in depreciation and amortization related to our 208 South LaSalle Street property from 2004 ($1.7 million), an increase in the gain on sale of our industrial properties upon finalization of our related obligation under the tax indemnity agreement with certain principals affiliated with the former Chairman of our Board, Mr. Stephen J. Nardi (the "NAC Contributors") in 2005 ($0.7 million), lease termination fees received in 2005 related to our 208 South LaSalle Street property ($0.6 million) and the accretion of the mortgage note payable associated with our 208 South LaSalle Street property in 2005 ($0.2 million).

Gain (Loss) on Sales of Real Estate. The increase of $9.2 million in gain on sales of real estate is primarily due to a recognized gain from the Citadel Center joint venture as we achieved a leasing condition under the Citadel Center joint venture agreement and qualified for the receipt of a contingent purchase price of $9.8 million.

Liquidity and Capital Resources

Recent Developments.

Preferred Shareholder Litigation. On December 4, 2006 we received a copy of a Class Action Complaint and Demand for Jury Trail that was filed by two of our alleged Series B Shareholders against Lightstone and us. See Item 3—Legal Proceedings for a more detailed description of this litigation.

Continental Towers Refinancing. On November 21, 2006, the owners of the Continental Towers property refinanced the property with a first mortgage loan in the principal amount of $115.0 million from CWCapital LLC (the "Senior Loan"). Proceeds of the loan were utilized to (i) repay the existing first mortgage loan encumbering Continental Towers in the principal amount of $75.0 million and (ii) partially repay approximately $36.6 million of the junior mortgage loan ("Junior Loan") encumbering the property. The Junior Loan is held by Prime Equity, a wholly owned subsidiary of our Operating Partnership. After the partial repayment of the Junior Loan, approximately $128.6 million of principal and accrued interest remains outstanding under the Junior Loan. Prime Equity used the funds from the partial prepayment of the Junior Loan, and certain other funds, to make a repayment of $39.2 million to Citicorp.

Although the Company does not own fee title to the Continental Towers property, we have a significant economic interest in the Property through our ownership of the Junior Loan secured by the property, and we consolidate the property's operations into our financial statements and account for it as an owned property. In addition, a subsidiary of the Company manages the property.

The CWCapital loan has a fixed interest rate of 5.864% per year and matures on December 1, 2016. The loan may not be prepaid except during the last three months of the loan term and except that upon the earlier of (a) 24 months following the securitization of the Senior Loan or (b) 36 months after closing, the Senior Loan may be prepaid based upon a standard defeasance formula. Payments of interest only are due monthly and there is no required principal amortization. The loan is assumable subject to the Senior Lender's reasonable consent and the payment of a 0.50% transfer fee, as well as the satisfaction of certain other requirements as more fully set forth in the loan documents.

Citadel Center Sale. On November 8, 2006, Dearborn LLC, the owner of Citadel Center, completed the sale of Citadel Center to a subsidiary of CARI, LLC, an entity controlled by Robert Gans, a real estate investor based in New York, New York. A subsidiary of our Operating Partnership owned a thirty percent (30%) joint venture interest in Dearborn Center, L.L.C.

The sales price for the entire Citadel Center property was $560.0 million, subject to customary pro-rations and adjustments. Two of the Company's subsidiaries entered into a management and leasing agreement at closing providing that they will be the manager and leasing agents for Citadel Center through August 31, 2012, subject to the terms of the agreement and extension by agreement of the parties.

to partially mitigate our obligation under the Citadel Reimbursement Obligation. The foregoing obligations are partially secured by a total of $7.1 million held in escrow at closing. The Citadel Reimbursement Obligation is described in more detail in Note 15 – Commitments and Contingencies to our consolidated financial statements included in this report.

At the closing, the Operating Partnership received its annual distribution of income from Dearborn LLC of $4.2 million. The Operating Partnership share of the net proceeds from the sale was $92.4 million, and the Operating Partnership used approximately $57.1 million of the net proceeds to pay off the mezzanine loan from IPC Lender. The Operating Partnership had a book gain according to generally accepted accounting principles of approximately $18.8 million from the transaction (included in gain on sales of real estate and joint venture interests).

Liquidity. We require cash to pay our operating expenses, make capital expenditures, fund tenant improvements and leasing costs, pay distributions and service our debt and other short-term and long-term liabilities. Cash on hand and net cash provided from operations represent our primary sources of liquidity to fund these expenditures. In assessing our liquidity, key components include our net income adjusted for non-cash and non-operating items, and current assets and liabilities, in particular accounts receivable, accounts payable and accrued expenses. For the longer term, our debt and long-term liabilities are also considered key to assessing our liquidity.

In order to qualify as a REIT for federal income tax purposes, we must distribute 90.0% of our taxable income (excluding capital gains) annually. At this time, we are current on the payment of dividends on our Series B Shares. There can be no assurances as to the timing and amounts of any future dividends on our Series B Shares and the fact that we are current on dividends on our Series B Shares at this time should not be construed to convey any degree of certainty with respect to future preferred dividend payments. Our management and Board review our cash position, the status of potential capital events, debt levels and requirements for cash reserves each quarter prior to making any decision with respect to paying distributions/dividends. Distributions on our common shares may not be made until all accrued dividends on our Series B Shares are declared and paid or set apart for payment. Future distributions will depend on the actual cash available for distribution, our financial condition, current and future capital requirements, the completion or status of any capital transactions, including refinancings and asset sales, the annual distribution requirements under the REIT provisions of the Code and such other factors as our Board deems relevant.

Our anticipated cash flows from operations combined with cash on hand are expected to be sufficient to fund our anticipated short-term capital needs. In 2007, we anticipate the need to fund significant capital expenditures to retenant space that has been previously vacated, or is anticipated to be vacated during the year. In order to fund these and our other short-term and long-term capital needs, we expect to utilize available funds from cash on hand, cash generated from our operations and existing escrows with lenders. In addition, we may enter into capital transactions, which could include asset sales, joint venture transactions, debt or equity financings and modifications or extensions of existing loans. There can be no assurance that any capital transactions will occur or, if they do occur, that they will yield adequate proceeds to fund our long-term capital needs or be on terms favorable to us.

As a requirement of our lenders, we maintain escrow accounts and restricted cash balances for particular uses. At December 31, 2006, these accounts totaled $44.0 million. These escrows relate to $19.0 million in escrow for capital and tenant improvements, $7.1 million in escrow representing lease obligations, $8.5 million in escrow for real estate taxes and insurance, $2.5 million in escrow for depository accounts, $1.5 million in escrow related to environmental remediation and a remaining $5.4 million in escrow for various other purposes.

Given our current level of debt, limited availability of unencumbered collateral and our current financing arrangements, we may not be able to obtain additional debt financing, refinance or extend our existing financings or, if we are able to do the foregoing, negotiate terms that are fair and reasonable. The following tables disclose our contractual obligations and commercial commitments as of December 31, 2006:

	Payments Due by Period
	(dollars in thousands)
Contractual Obligations (A)		Total		2007		2008/ 2009		2010/ 2011		2012 and Thereafter
Mortgage notes payable (B)	$	453,695	$	198,162	$	41,311	$	99,222	$	115,000
Operating lease obligations		2,779		245		473		443		1,618
Tenant improvement allowances (C)		8,849		8,849		–		–		–
Liabilities for leases assumed and lease reimbursement obligations (D)		52,915		9,795		18,100		18,563		6,457
Total contractual cash obligations	$	518,238	$	217,051	$	59,884	$	118,228	$	123,075

(A)	We anticipate funding these obligations from operations, cash on hand, escrowed funds and the proceeds of equity, debt or asset sale(s) transaction(s) as discussed above.

(B)

These totals represent the fair value of our mortgage notes payable as adjusted in conjunction with the application of purchase accounting related to the Acquisition. Also, as a result of the Acquisition, we are amortizing the fair value adjustment for our debt over the remaining life of the debt, which is recorded in the accretion of mortgage note payable. For the twelve months ended December 31, 2006, amortization totaled $1.4 million. The actual amount owed to lenders for mortgage notes payable at December 31, 2006, is $449.4 million.

(C)	We have escrows of $7.9 million that may be utilized to fund these obligations.

(D)

These obligations would be offset by any receipts from subleasing of the related space. We currently have executed subleases that we estimate will provide subleasing receipts of $44.1 million consisting of base rent and the pro-rata share of operating expenses and real estate taxes. In addition, we have escrowed reserves totaling $7.1 million to fund a portion of this contractual amount at December 31, 2006.

				Amount of Commitment Expiration Per Period
				(dollars in thousands)
Other Commercial Commitments		Total Amounts Committed		2007		2008-2009		2010-2011		2012 and Thereafter
Guarantees (A)	$	3,356	$	600	$	1,200	$	1,200	$	356
Unconsolidated joint ventures (B)		81,897		1,076		2,334		2,633		75,854
Tax indemnifications (C)		14,018		(C)		(C)		(C)		(C)
Environmental remediation (D)		3,031		(D)		(D)		(D)		(D)
Series B Shares (E)		(E)		11,250		18,000		18,000		(E)
Total commercial commitments	$	102,302	$	12,926	$	21,534	$	21,833	$	76,210

(A)	This represents a guarantee for $3.4 million to ensure certain tenant improvement and lease commission payments are made with respect to the joint venture that owns the office building located at 77 West Wacker Drive.

(B)	We have a 50.0% common interest in an unconsolidated real estate joint venture that owns an office building located at 77 West Wacker Drive. The amount shown includes 50.0% of the balance of the $163.8 million mortgage note payable secured by the property.

In addition, we have a 23.1% interest in an unconsolidated real estate venture, which owns a 0.1 million square foot office property in Phoenix, Arizona and subsequent to the sale of three of the four buildings owned by the venture in August 2005, is unencumbered.

(C)

We estimate our maximum possible exposure on tax indemnifications to be $14.0 million if the remaining indemnity property had been sold as of December 31, 2006. See Note 15 – Commitments and Contingencies – Tax Indemnities to our consolidated financial statements included in this report for further information.

(D)	This represents a liability for asbestos abatement at our 330 N. Wabash Avenue property. See Note 15 – Commitments and Contingencies – Environmental to our consolidated financial statements included in this report for further information.

(E)

Dividends are cumulative and payable at a 9.0% annual rate each quarter that our Series B Shares remain outstanding. In January 2006, our Board declared a quarterly dividend for the fourth quarter of 2005 of $0.5625 per share. This quarterly dividend had a record date of January 16, 2006, and was paid on January 31, 2006. On February 9, 2006, our Board declared a quarterly dividend on our Series B Shares for the first quarter of 2006 of $0.5625 per share. The quarterly dividend had a record date of March 31, 2006, and was paid on April 28, 2006. On September 22, 2006, our Board declared a quarterly dividend on our Series B Shares for the second quarter 2006 of $0.5625 per share. The quarterly dividend had a record date of October 6, 2006 and a payment date of October 31, 2006. On December 14, 2006 our Board declared and set apart for payment two quarterly dividends on our Series B Preferred Shares of $0.5625 per share, per quarter, for a total dividend of $1.125 per share. These dividends had a record date of January 5, 2007 and a payment date of January 31, 2007. These dividends are deemed to be the quarterly dividends that relate to the third quarter and fourth quarter 2006 dividend periods, respectively.

With respect to the payment of the dividends referred to above, there can be no assurance as to the timing and amounts of any future dividends, and the payment of dividends at this time should not be construed to convey any degree of certainty with respect to future dividend payments. Management and the Company's Board review the Company's cash position, the status of potential capital events, debt levels and the Company's requirements for cash reserves each quarter prior to making any decision with respect to paying dividends.

The holders of our Series B Shares have the right to elect two additional members to our Board if six consecutive quarterly distributions on our Series B Shares are not made. The term of any trustees elected by the Series B shareholders will expire whenever all arrears in dividends on the Series B Shares have been paid and current dividends declared and set apart for payment.

Tenant Concentration. The following represents our five largest tenants in 2006 based on gross revenue recognized during 2006:

Tenant		Gross Tenant Revenue	% Of Our Total Revenue	Lease Expiration
		(dollars in thousands)
JPMorgan Chase Bank NA (1)	$	24,465	14.2%	December 2017
Citadel Investment Group, LLC (1)		13,760	8.0	December 2013
Jenner & Block (2)		12,112	7.0	April 2010
Seyfarth Shaw LLP (1)		6,353	3.7	June 2022
ST Holdings, Inc. (2)		5,515	3.2	May 2007
	$	62,205	36.1%

(1)

These are tenants of the Citadel Center building in which we had an ownership interest in the joint venture that owned the office property until its sale in November 2006.

(2)

We have received indication that Jenner & Block and ST Holdings, Inc. will not be renewing their leases at expiration. We have partially mitigated this exposure by entering into new leases for approximately 97% of the ST Holdings, Inc. space at current market rates, which are lower than the rent ST Holdings, Inc. is paying.

If one or more of the tenants listed above (other than the tenants at Citadel Center which has been sold) were to experience financial difficulties and cease paying rent or fail to renew their lease at the expiration of its term, our cash flow and earnings would likely be negatively impacted in the near term and possibly the long term. The extent and length of this would be impacted by several factors, including:

•

the nature of the financial difficulties;

•

our ability to obtain control of the space for re-leasing;

•

market conditions;

•

the length of time it would require for us to re-lease the tenant's space; and

•

whether the tenant's rent was above or below market.

Property Sales. On November 8, 2006, Dearborn LLC, the owner of Citadel Center, completed the sale of Citadel Center to a subsidiary of CARI, LLC, an entity controlled by Robert Gans, a real estate investor based in New York, New York. A subsidiary of our Operating Partnership owned a thirty percent (30%) joint venture interest in Dearborn LLC.

The sales price for Citadel Center was $560.0 million, subject to customary pro-rations and adjustments. Two of the Company's subsidiaries entered into a management and leasing agreement at closing providing that they will be the manager and leasing agents for Citadel Center through August 31, 2012, subject to the terms of the agreement and extension by agreement of the parties.

of space at the One North Wacker Drive office building in downtown Chicago, Illinois. We have executed subleases at One North Wacker Drive for all of the space to partially mitigate our obligation under the Citadel Reimbursement Obligation. The foregoing obligations are partially secured by a total of $7.1 million held in escrow at closing. The Citadel Reimbursement Obligation is described in more detail in Note 15 – Commitments and Contingencies to our consolidated financial statements included in this report.

At the closing, the Operating Partnership received its annual distribution of income from Dearborn LLC of $4.2 million. The Operating Partnership share of the net proceeds from the sale was $92.4 million, and the Operating Partnership used approximately $57.1 million of the net proceeds to pay down corporate level debt. The Operating Partnership had a book gain according to generally accepted accounting principles of approximately $18.8 million from the transaction (included in gain on sales of real estate and joint venture interests).

Preferred Shares. Our Series B Shares rank senior to our common shares as to the payment of dividends. Our Series B Shares may be redeemed at our option at a redemption price of $25.00 per share plus accrued and unpaid dividends. The redemption price is payable solely out of the proceeds from our sale of other capital shares of beneficial interest.

Our Board had previously suspended the payment of distributions and dividends for certain prior periods in anticipation of our need for liquidity for dealing with our maturing indebtedness and our capital needs for property level expenditures in retenanting our vacant office and industrial space. We subsequently resumed the payment of dividends on our Series B Shares with dividends of $0.5625 per share in April, July and October 2004 and January and April 2005. In conjunction with the Acquisition which was completed on July 1, 2005, we paid both (i) one quarterly distribution of $0.5625 per share on our Series B Shares to preferred shareholders of record as of June 15, 2005 and (ii) six quarters of distributions totaling an additional $3.3750 per share on our Series B Shares to preferred shareholders of record as of June 21, 2005. Under our charter, these distributions represent the distributions for the first quarter of 2004 through, to and including the entire third quarter of 2005. After the closing of the Acquisition on July 1, 2005, our newly constituted Board declared a distribution to Prime Office, the holder at that time of the 26,488,389 common limited partnership interests in our Operating Partnership and our 236,483 common shares, in an amount of $1.1225 per unit/share and having a record date and a payment date of July 5, 2005. On December 30, 2005, our Board declared a quarterly dividend of $0.5625 per share on our Series B Shares for the fourth quarter of 2005 for the shareholders of record on January 16, 2006. This dividend was paid on January 31, 2006. On February 9, 2006, our Board declared (i) a quarterly dividend on our Series B Shares for the first quarter of 2006 of $0.5625 per share with a record date of March 31, 2006 and a payment date of April 28, 2006 and (ii) a common distribution to the holders of the 26,488,389 common limited partnership interests in the Operating Partnership and our 236,483 common shares, in an amount of $2.8438 per unit/share having a record date of February 9, 2006 and a payment date of February 10, 2006. On June 14, 2006, our Board decided not to declare a quarterly distribution on the Series B Shares for the second quarter of 2006, based on the Board's review of our current capital resources and liquidity needs and the timing and uncertainty of certain previously anticipated capital events. On September 22, 2006, our Board declared a quarterly dividend on our Series B Shares for the second quarter 2006 of $0.5625 per share. The quarterly dividend had a record date of October 6, 2006 and a payment date of October 31, 2006. On December 14, 2006, based on the Board's review of our current capital resources and liquidity needs and the completion of certain capital events, our Board decided to bring dividends on the Series B Shares current and declared for payment two quarterly dividends for the third and fourth quarters of 2006 on our Series B Preferred Shares of $0.5625 per share, per quarter, for a total dividend of $1.125 per share. The dividend had a record date of January 5, 2007 and a payment date of January 31, 2007.

Dividends paid in the amount of $1.6875 per share in 2006 on our Series B Shares have been determined to be ordinary dividends of $0.8438 per share, capital gains of $0.6159 per share and unrecaptured Section 1250 gain of $0.2278 per share. There can be no assurances as to the timing and amounts of any future dividends on our Series B Shares and the payment of preferred dividends at this time should not be construed to convey any degree of certainty with respect to future preferred dividend payments. The holders of Series B Shares have the right to elect two additional members to our Board if six consecutive quarterly dividends on our Series B Shares are outstanding. The term of any trustees elected by the holders of the Series B Shares will expire whenever the total dividend arrearage on our Series B Shares has been paid and current dividends have been declared and set apart for payment.

Tax Indemnity Agreements. In connection with the contribution of certain properties during our initial public offering, we entered into tax indemnification agreements with certain principals affiliated with Mr. Edward S. Hadesman, a former executive officer, and certain principals affiliated with Mr. Nardi, the former Chairman of our Board. These agreements expired upon the closing of the Acquisition.

In addition, on December 12, 1997, we purchased and amended the mortgage note encumbering the property known as Continental Towers located in Rolling Meadows, Illinois. As part of this transaction (the "Continental Transaction"), we entered into a Tax Indemnity Agreement pursuant to which we agreed to indemnify the two limited partners of the limited partnership which then owned the property, Mr. Casati and Mr. Heise, for, among other things, the federal and applicable state income tax liabilities that result from the income or gain which they recognize upon refinancing, sale, foreclosure or other action taken by us with respect to the property or the mortgage note.

On January 10, 2006, we and Casati and Heise, amended the foregoing Tax Indemnity Agreement to among other things, terminate the Tax Indemnity Agreement as it related to Mr. Casati; which had the effect of reducing the Operating Partnership's estimated maximum liability in the event of the consummation of a taxable transaction relating to Continental Towers, calculated at current tax rates, from approximately $53.2 million to $14.0 million.

In connection with the foregoing amendment, we made a payment to Mr. Casati of $4.2 million and Mr. Casati released us from all obligations under the Amended Tax Indemnity Agreement relating to Mr. Casati. The tax indemnity obligation referred to above to Mr. Heise is the sole remaining tax indemnity agreement relating to the Company.

The terms of these agreements are discussed in Note 15 – Commitments and Contingencies to our consolidated financial statements included in this report.

Indebtedness. Our aggregate indebtedness had a fair value of $453.7 million and carrying value of $449.4 million at December 31, 2006. This indebtedness had a weighted average maturity of 3.6 years and bore interest at a weighted average interest rate of 7.2% per annum. At December 31, 2006, $239.9 million, or 52.9% of such indebtedness, bore interest at fixed rates, and $213.8 million, or 47.1% of such indebtedness, bore interest at variable rates. The $213.8 million of variable rate debt is subject to interest rate cap agreements.

Interest Rate Protection Agreement. We have entered into the following interest rate cap agreements:

Loan Associated with		Notional Amount as of December 31 2006	Capped LIBOR/ Eurodollar Rate	Effective Date	Expiration Date

330 N. Wabash Avenue
First Mortgage/Mezzanine Loans	$	195,000,000	6.6%	3/15/07	3/15/08
Continental Towers
First Mortgage	$	75,000,000	6.5%	5/02/05	5/01/08
Prime Equity
Mezzanine Loan	$	47,000,000	4.8%	1/03/06	1/03/08
Prime Equity II
Mezzanine Loan	$	11,000,000	4.8%	1/03/06	1/03/08

Debt Activity. Scheduled 2006 principal payments were made totaling $1.7 million. A $75.0 million first mortgage on Continental Towers was refinanced with a $115.0 million fixed rate loan, enabling us to retire $39.2 million of mezzanine debt secured with five of our properties. This $115.0 million loan was later bifurcated into loans equaling 64% and 36% of the total loan value. In conjunction with the previously discussed sale of Citadel Center, we retired a $55.0 million mezzanine loan that was related to our joint venture interest in the property. Altogether these actions increased the carrying value of our total debt in 2006 by $2.1 million. See Note 4 –Mortgage Notes Payable to our consolidated financial statements included in this report for further explanation.

Capital Improvements. In order to secure new and renewal leases, our properties require an infusion of capital for tenant improvements and leasing commissions. For the years ended December 31, 2006, 2005 and 2004, our tenant improvements and leasing commissions averaged $27.60, $32.74 and $37.98, respectively, per square foot of newly-leased office space totaling 260,598, 241,642 and 457,928 square feet, respectively, and $9.13, $16.18 and $12.61, respectively, per square foot of office leases renewed by existing tenants totaling 155,110, 285,957 and 290,885 square feet, respectively. Our total cost of general capital improvements to our properties historically averages $2.5 million annually based upon an estimate of $0.69 per square foot. For 2006, we incurred $2.1 million of capital improvement expenditures, excluding discontinued operations, and we expect to incur approximately $8.2 million for 2007.

Off-Balance Sheet Arrangements

As listed above, our share of mortgage debt of unconsolidated joint ventures is $81.9 million. We do not have any other off-balance sheet arrangements with any unconsolidated investments or joint ventures that we believe have or are reasonably likely to have a material effect on our financial condition, results of operations, liquidity or capital resources.

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, often referred to as structured finance or special purpose entities ("SPEs"), which would have been established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. As of December 31, 2006, we are not involved in any unconsolidated SPE transactions.

Historical Cash Flows

		Year ended December 31

		2006		2005		$ Change	% Change
		(dollars in thousands)

Net cash provided by (used in) operating activities	$	4,838	$	(5,423)	$	10,261		189.2%
Net cash provided by (used in) investing activities	$	66,403	$	(57,786)	$	124,189		214.9%
Net cash (used in) provided by financing activities	$	(28,739)	$	9,087	$	(37,826)		(416.3)%

Cash Flows from Operating Activities. Net cash provided by (used in) operating activities was $4.8 million for the year ended December 31, 2006 compared to ($5.4) million for the year ended December 31, 2005 – an increase of $10.3 million. This increase is mainly attributable to a reduction in strategic alternative expenses of $10.3 million, a return on investment of $4.2 million, an increase in total revenues of $2.4 million and a decrease in general, administrative and severance expenses of $1.7 million in 2006 compared to 2005. This increase was partially offset by a $6.4 million reduction of income from operations earned from our 208 South LaSalle Street property, which was sold in December 2005, and a $1.1 million tax refund received in 2005 related to our former 33 West Monroe Street property for taxes paid in 2004.

Cash Flows from Investing Activities. Net cash provided by (used in) investing activities was $66.4 million for the year ended December 31, 2006 compared to ($57.8) million for the year ended December 31, 2005 – an increase of $124.2 million. This increase was due to an increase of $88.6 million in distributions from the sale of our joint venture interest in Citadel Center and the sale of a land parcel located in Libertyville, Illinois, partially offset by a distribution of $4.0 million to IPC Equity. This compares to a $9.8 million receipt from the Citadel Center joint venture, a $3.9 million distribution received from the Plumcor/Thistle joint venture and $0.6 million in proceeds from the sale of a different Libertyville land parcel during 2005. In January 2006, loan proceeds of $55.0 million that were in a restricted escrow account in the fourth quarter of 2005 were funded to us and available for operations. Also in January 2006, we paid $4.2 million in connection with an amended tax indemnity agreement related to our Continental Towers property. Additionally, we funded $1.2 million into the escrows associated with the Citicorp Loan and New Citicorp Loan, and an additional $2.5 million for leasing costs and tenant improvements at our 330 N. Wabash Avenue property in 2006 compared to 2005.

Cash Flows from Financing Activities. Net cash (used in) provided by financing activities was ($28.7) million for the year ended December 31, 2006 compared to $9.1 million for the year ended December 31, 2005 – a decrease of $37.8 million. This decrease was primarily a result of loan activity and dividends paid. Specifically, loan proceeds received of $55.0 million that were in a restricted escrow account in the fourth quarter of 2005 became unrestricted and available for operations in January 2006. This $55.0 million loan was fully retired in conjunction with the previously discussed sale of Citadel Center. We received net proceeds of $37.9 million and $9.6 million from the refinancing of our Continental Towers property in 2006 and 2005, respectively. Proceeds from the 2006 Continental Towers refinancing were used to pay $39.2 million of principal on the $58.0 million Citicorp Loan that was funded in January 2006. Also, dividends totaling $82.8 million and $50.3 million were paid in 2006 and 2005, respectively.

		Year ended December 31

		2005		2004		$ Change		% Change
	(dollars in thousands)
Net cash (used in) provided by operating activities	$	(5,423)	$	22,108	$		(27,531)	(124.5)%
Net cash (used in) provided by investing activities	$	(57,786)	$	116,613	$		(174,399)	(149.5)%
Net cash provided by (used in) financing activities	$	9,087	$	(99,598)	$		108,685	109.1%

Operating Activities. The $27.5 million decrease in net cash (used in) provided by operating activities from 2004 was primarily due to:

•

the loss of $7.8 million of net income from operations in 2004 from our former industrial properties which were sold in the fourth quarter of 2004;

•

a $7.7 million increase in strategic alternative costs;

•

a $5.3 million increase in payments made related to other liabilities;

•

a $2.7 million payment of tax indemnities to the NAC Contributors in 2005, recorded in discontinued operations.

•

a $1.1 million increase in property operating expense payments as compared to 2004; and

•

a $1.1 million decrease in receipts related to prepaid rent.

This decrease was partially offset by:

•

a $2.5 million decrease in general and administrative expenses as a result of a reduction of employees;

•

a $1.8 million net loss from operations in 2004 from our former 33 West Monroe Street property, which was sold in April 2004;

•

a $1.1 million refund for real estate taxes paid in 2004 related to our former 33 West Monroe Street property; and

•

a $0.3 million decrease in interest paid from 2004 due to the repayment of debt by utilizing the proceeds from property sales in 2004.

Investing Activities. The $174.4 million decrease in net cash (used in) provided by investing activities from 2004 was primarily due to:

•

proceeds from the sale of real estate decreased by $120.7 million in 2005 which included a $9.8 million distribution received from the Citadel Center joint venture, $2.6 million in proceeds from the sale of an option to purchase a parking garage, $0.6 million in proceeds from the sale of our Libertyville land parcel in 2005 and $0.5 million in net proceeds from the sale of our 208 South LaSalle Street property;

•

as compared to sales activity in 2004 which included the $68.0 million sale of our former 33 West Monroe Street property and the $66.2 million received from the sale of our industrial properties;

•

a $60.7 million net change in restricted cash management escrow accounts associated with increases of $55.0 million in proceeds from the mezzanine loan on Citadel Center, an additional $10.1 million in monthly escrow payments, $0.5 million in increased interest income and a $0.3 million increase in net tax escrow payments; these increases were partially offset by a $5.1 million decrease in tenant improvement escrow releases; and

•

$3.1 million in proceeds from environmental indemnities which were received in 2004 related to our previously owned Chicago, East Chicago and Hammond Enterprise Centers.

This decrease was partially offset by:

•

a decrease of $5.8 million in expenditures for real estate and equipment primarily as the result of the sale of our former 33 West Monroe Street property in 2004;

•

a $3.9 million distribution received from our Plumcor/Thistle joint venture in 2005;

•

a decrease of $1.3 million of leasing costs, primarily as a result of lesser leasing activities resulting in decreased leasing commissions in 2005, mainly attributable to property sales in 2004 and 2005; and

•

a $0.6 million loan to our Citadel Center joint venture partner in 2004.

Financing Activities. The $108.7 million increase in net cash provided by (used in) financing activities compared to 2004 was primarily due to:

•

proceeds from mortgage notes payable increased by $63.0 million in 2005 which included a $75.0 million variable rate first mortgage on our Continental Towers property, which was used in part to retire our existing fixed rate position; and a $55.0 million fixed rate mezzanine loan secured by Citadel Center, as compared to proceeds from mortgages and notes payable in 2004, including $67.0 million in refinancing proceeds from our 180 North LaSalle Street property;

•

repayments of mortgages and loans payable were lower by $90.9 million in 2005, which included the retirement of $65.4 million of mortgage notes payable using the net proceeds from the conversion of our fixed rate debt to a variable rate position on our Continental Towers property in May 2005; and principal amortization payments of $2.8 million; compared to repayments of indebtedness in 2004: including the refinancing of maturing indebtedness at our 180 North LaSalle Street property totaling $60.0 million; the repayment of the mortgage note payable secured by our former 33 West Monroe Street property upon its sale totaling $59.3 million; the repayment of the mortgage notes payable secured by our former industrial properties upon their sale totaling $11.8 million and the repayment of two mezzanine loans totaling $22.8 million and principal amortization payments of $5.2 million.

This increase was partially offset by:

•

a $29.7 million distribution to our operating partnership unitholder was made in 2005 related to the Acquisition;

•

a dividend of $0.3 million was paid to our common shareholder in 2005 related to the Acquisition.

•

additional payments totaling $15.8 million of dividends to our Series B preferred shareholders were made in 2005 versus 2004;

•

additional payments totaling $1.7 million in financing costs associated with new debt were made in 2005 versus 2004; and

Critical Accounting Policies

General. The previous discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and judgments about the effects of matters or future events that are inherently uncertain. These estimates and judgments may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including contingencies and litigation. We base these estimates on historical experience and on various other assumptions that we believe to be reasonable in the circumstances. These estimates 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.

To assist in understanding our results of operations and financial position, we have identified our critical accounting policies and discussed them below. These accounting policies are most important to the portrayal of our results and financial position, either because of the significance of the financial statement items to which they relate or because they require our management's most difficult, subjective or complex judgments.

Consolidation. Our consolidated financial statements include our accounts, variable interest entities ("VIEs") in which we are the primary beneficiary and other subsidiaries over which we have control. Our determination of the appropriate accounting method with respect to our variable interests is based on Financial Accounting Standards Board ("FASB") Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities ("FIN 46R"). We consolidate any VIE of which we are the primary beneficiary and disclose significant variable interests in VIEs of which we are not the primary beneficiary. We determine if an entity is a VIE under FIN 46R based on several factors, including whether the entity's total equity investment at risk upon inception is sufficient to finance the entity's activities without additional subordinated financial support provided by any parties, including equity holders. We make judgments regarding the sufficiency of the equity at risk based first on qualitative analysis, then quantitative analysis if necessary. In a quantitative analysis, we incorporate various estimates, including estimated future cash flows, asset hold periods and discount rates, as well as estimates of the probabilities of various scenarios occurring. If the entity is a VIE, we then determine whether we will absorb the majority of expected losses and/or receive the majority of expected returns, and if so, consolidate the entity as the primary beneficiary. This determination of whether we will absorb the majority of expected losses and/or receive the majority of expected returns includes any impact of an "upside economic interest" in the form of a "promote" that we may have. A promote is a disproportionate interest built into the distribution structure of the entity based on the entity's achievement of certain return hurdles. We determine whether an entity is a VIE and, if so, whether it should be consolidated by utilizing judgments and estimates that are inherently subjective. If we made different judgments or utilized different estimates in these evaluations, it could result in differing conclusions as to whether or not an entity is a VIE and whether or not to consolidate such entity. We are not required to reconsider the entity's VIE status if the entity incurs losses that exceed expectations, but are required to reconsider the status if the structure of the entity changes.

Our determination of the appropriate accounting method for all other investments in subsidiaries, including those that are not primary beneficiary interests in VIEs, is based on the amount of control or influence we have (considering our ownership interest) in the underlying entity. We consolidate those other subsidiaries over which we exercise control. Those other investments in subsidiaries where we have the ability to exercise significant influence (but not control) over operating and financial policies of such subsidiaries (including certain subsidiaries where we have less than 20% ownership) are accounted for using the equity method.

Tenant Reimbursements. Estimates are used to record cost reimbursements from tenants for real estate taxes and operating expenses. We recognize revenue based upon the amounts to be reimbursed from our tenants in the same period these reimbursable expenses are incurred. Differences between estimated recoveries and final amounts billed are recognized in the subsequent year. Leases are not uniform in dealing with such cost reimbursements and variations exist in computations between properties and tenants. Adjustments are also made throughout the year to these receivables and the related cost recovery income based upon our best estimate of the final amounts to be billed and collected. We analyze the balance of the estimated accounts receivable for real estate taxes and operating expenses for each of our properties by comparing actual recoveries versus actual expenses.

Accounts Receivable and Allowance for Doubtful Accounts. We monitor the liquidity and creditworthiness of our tenants on an ongoing basis. We maintain allowances for doubtful accounts using the specific identification method for estimated losses resulting from the inability of certain of our tenants to make payments required by the terms of their respective leases. If the financial condition of our tenants were to deteriorate, additional allowances may be required.

Assumed Lease Liabilities. As a result of the negotiation of certain leases, we assumed the liability for the tenants' obligation or agreed to reimburse the tenants for their obligation under leases with their prior landlords. In addition, in connection with the sale of certain industrial properties in 1999, we agreed to a master lease agreement for certain properties for a defined period. Our policy is to record the estimated net obligation we may be subject to as a liability. The net obligation is derived by calculating our total contractual obligation and reducing the amount by existing subleases and an estimate of subleases we anticipate signing in the future based on the nature of the space, the property and market conditions. We periodically review these estimates for reasonableness based on changes in market conditions and executed subleases. Failure to achieve forecasted results could lead to a future increase in the liabilities associated with these transactions. The liability for leases assumed at December 31, 2006 as compared to 2005 reflects payments under these leases, in addition to a decrease in the liability during 2006 of $0.3 million due to assumption changes.

Depreciation and Amortization. Depreciation expense for real estate assets is computed using the straight-line method over the estimated useful lives of the assets: forty years for the composite life of buildings and improvements and five to ten years for equipment and fixtures. Expenditures for leasehold improvements and construction allowances paid to tenants are capitalized and amortized over the initial term of each lease.

Interest Rate Protection Agreements. We recognize all derivative financial instruments in the consolidated financial statements at fair value regardless of the purpose or intent for holding the instrument. Changes in the fair value of derivative financial instruments that qualify for hedge accounting are recorded in stockholder's equity as a component of comprehensive income or as an adjustment to the carrying value of the hedged item. Changes in fair values of derivatives not qualifying for hedge accounting are reported in earnings.

Interest rate hedges that are designated as cash flow hedges, hedge the future cash outflows on debt. Interest rate swaps that convert variable payments to fixed payments, interest rate caps, floors, collars and forwards are cash flow hedges. The unrealized gains/losses in the fair value of these hedges are reported on the balance sheet with a corresponding adjustment to either accumulated other comprehensive income or in earnings, depending on the type of hedging relationship. If the hedging transaction is a cash flow hedge, then the offsetting gains and losses are reported in accumulated other comprehensive income. Over time, the unrealized gains and losses held in accumulated other comprehensive income will be reclassified to earnings. This reclassification is consistent when the hedged items are also recognized in earnings. Since the time of the Acquisition all of our derivative instruments have been marked to their fair value. We do not foresee any material accumulated other comprehensive income being reclassified to earnings during the next twelve months. If a derivative instrument is terminated or the hedging transaction is no

longer determined to be effective, amounts held in accumulated other comprehensive income are reclassified into earnings over the term of the future cash outflows on the related debt.

Impairment of Long-Lived Assets. In evaluating our assets for impairment in accordance with SFAS 144, we record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired. Under SFAS 144, assets that display indicators of possible impairment are reviewed to see if their net book value will be recovered from estimated cash flows over an anticipated hold period. If these cash flows, plus the proceeds from a sale at the end of the anticipated hold period, are less than the net book value of the related asset, our policy is to record an impairment reserve related to the asset in the amount of the difference between its net book value and our estimate of its fair market value, less costs of sale. For assets held for sale, impairment is measured as the difference between carrying value and fair value, less cost to dispose. Fair value is based on estimated cash flows discounted at a risk-adjusted rate of interest. Property held for development is also evaluated for impairment.

At December 31, 2006, we determined that no reserves were warranted. In evaluating our other long-lived assets used in operations for impairment at December 31, 2006, we assumed anticipated hold periods of three to five years for our operating properties. In evaluating our property held for development, we concluded that development expenditures, including capitalized interest, were recoverable and no reserves were warranted at this time. However, as discussed under "Liquidity and Capital Resources", if we determine that a capital transaction is desired, our anticipated hold periods for certain assets would be shortened and impairment reserves could be required. These reserves could have significant impacts on our operating results.

Capitalization of Interest and Other Costs on Development Projects. Development costs, which include land acquisition costs, fees and other costs incurred in developing new properties, are capitalized as incurred. Interest, financing costs, real estate taxes, other direct costs and indirect costs (including certain employee compensation costs and related general and administrative expenses) incurred during development periods are capitalized as a component of the building costs. These costs continue to be capitalized, to the extent they relate to vacant space, for one year following the date the development is placed in service. During this one-year period, the amount of capitalized costs could be materially affected by the timing and changes in occupancy levels. Subsequent to the one-year period, these costs are fully expensed as incurred. During 2006, we did not capitalize any development costs.

Accounting for the Acquisition. As a result of the closing of the Acquisition on July 1, 2005, we were required to revalue our balance sheet to reflect the fair market value of each of our assets and liabilities in accordance with Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations."

Impact of Recently Issued Accounting Standards

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("Statement 123(R)"), which is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation" ("Statement 123"). Statement 123(R) supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," and amends SFAS No. 95, "Statement of Cash Flows." Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) required all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.

Statement 123(R) became effective for us beginning January 1, 2006.

Statement 123(R) permits public companies to adopt its requirements using one of two methods:

A "modified prospective" method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of Statement 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of Statement 123 for all awards granted to employees prior to the effective date of Statement 123(R) that remain unvested on the effective date.

A "modified retrospective" method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under Statement 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

We adopted Statement 123(R) on January 1, 2006 using the modified prospective method. As permitted by Statement 123, we currently account for share-based payments to employees using APB 25's intrinsic value method and, as such, generally recognize no compensation cost for employee stock options granted prior to January 1, 2006. Accordingly, the adoption of Statement 123(R)'s fair value method did not have an impact on our results of operations and had no impact on our overall financial position because no options have been granted by the Company to our employees. We currently do not anticipate that the Company itself will grant stock options in the future.

Prime Office has granted certain of our employees options to acquire interests in Prime Office in the past and may grant options in the future. Options granted by Prime Office may result in the recognition of compensation cost although they will have no material impact on our overall financial position.

We have applied EITF 04-5 when required for new or amended limited partnerships in our December 31, 2006 financial statements. The adopting of the provisions of EITF 04-5 for our joint venture interests did not impact net income, earnings per share or shareholder's equity.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109. Interpretation 48 clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements in accordance with Statement 109 and prescribes a recognition threshold and measurement attribute for financial statements disclosure of tax positions taken or expected to be taken on a tax return. Additionally, Interpretation 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Interpretation 48 is effective for fiscal years beginning after December 15, 2006, with early adoption permitted. We are currently evaluating and have not yet completed an evaluation on whether the adoption on Interpretation 48 will have a material effect on our consolidated financial position, results of operations or cash flows, including our ability to comply with current debt covenants.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS 157"), which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. This statement is effective beginning in October 2008. We are currently evaluating whether adoption of this statement will result in a change in its fair value measurements.

In September 2006, the Securities and Exchange Commission released Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements ("SAB 108"). SAB 108 provides interpretive guidance on the SEC's views regarding quantifying the materiality of financial statement misstatements, including misstatements that were not material to prior years' financial statements. SAB 108 is effective for annual financial statements for the first fiscal year after November 15, 2006. This guidance did not have a material effect on our financial position, results of operations, or cash flows.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities–Including an Amendment of FASB Statement No. 115." This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of this Statement is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is effective as of the beginning of an entity’s fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS No. 157, "Fair Value Measurements." The Company has not yet determined the impact of adopting SFAS No. 159 on its consolidated financial statement.

Inflation

Substantially all of our office and industrial leases require tenants to pay, as additional rent, a portion of real estate taxes and operating expenses. In addition, many of our leases provide for fixed increases in base rent or indexed escalations (based on the Consumer Price Index or other measures). We believe that inflationary increases in expenses will be offset, in part, by the expense reimbursements and contractual rent increases described above.

As of December 31, 2006, approximately $213.8 million of our outstanding indebtedness was subject to interest at floating rates. Future indebtedness may also be subject to floating rate interest. Inflation, and its impact on floating interest rates, could affect the amount of interest payments due on such indebtedness. Our floating rate debt is subject to interest rate cap agreements that are designed to mitigate some of this risk.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT

MARKET RISK

The following table provides information about our derivative financial instruments and other financial instruments that are sensitive to changes in interest rates. For our mortgage notes payable, the table presents principal cash flows, including principal amortization, and related weighted-average interest rates by expected maturity dates as of December 31, 2006. For the interest rate protection agreement, the table presents the notional amount entered into and the cap rate.

		Interest Rate Sensitivity
		Principal (Notional) Amount by Expected Maturity
		Average Interest Rate
		2007		2008		2009		2010		2011		Thereafter		Total
		(dollars in millions)
Liabilities
Mortgage notes payable (1):
Fixed rate amount – Carrying Value	$	1.8	$	16.2	$	4.0	$	33.2	$	65.4	$	115.0	$	235.6
Weighted-average interest rate – Carrying Value		6.5%		7.1%		7.7%		8.3%		5.6%		5.9%		–

Fixed rate amount – Fair Value	$	3.2	$	17.4	$	5.1	$	33.8	$	65.4	$	115.0	$	239.9
Weighted-average interest rate – Fair Value		7.3%		7.2%		7.9%		8.3%		5.6%		5.9%		–

Variable rate amount (2)	$	195.0	$	18.8	$	–	$	–	$	–	$	–	$	213.8
Weighted-average interest rate		8.2%		9.1%		–		–		–		–		–

Interest rate cap agreements (3):
Notional amount	$	195.0	$	18.8	$	–	$	–	$	–	$	–	$	213.8
Cap rate		6.6%		9.1%		–		–		–		–		–

(1)

Based upon the rates in effect at December 31, 2006, the weighted-average interest rates on our mortgage notes payable at December 31, 2006 was 7.2%. If interest rates on our variable rate debt increased by one percentage point, our annual interest incurred (excluding the effects of the interest rate protection agreements) would increase by $2.1 million.

(2)

In February 2006, the first extension option on the $195.0 million 330 N. Wabash Avenue loan was purchased for $0.5 million, which extended the maturity date to March 9, 2007. The final option was purchased in February 2007 for an additional $0.5 million, which extended the maturity date to March 9, 2008 and included the costs of extending the interest rate cap agreement.

(3)	In conjunction with the 330 N. Wabash Avenue loan extension we obtained an interest rate cap of LIBOR at 6.6% with a notional amount of $195.0 million for the term of the outstanding debt collateralized by our 330 N. Wabash Avenue property.

In January 2006, a mezzanine loan for $58.0 million was obtained and collateralized by the holdings of Prime Equity. In addition, we purchased an interest rate protection agreement which caps the total interest rate at 9.1%. On November 21, 2006, $39.2 million of principal was repaid, leaving an outstanding balance of $18.8 million.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data required by Regulation S-X are included in this Report on Form 10-K commencing on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a)	Evaluation of Disclosure Controls and Procedures

Based on our management's evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this annual report on Form 10-K, which was conducted with the participation of our Chief Executive Officer and our Executive Vice President —Capital Markets, the officer currently performing the function of our principal financial officer, our Chief Executive Officer and Executive Vice President —Capital Markets have concluded that our disclosure and controls and procedures were effective as of the end of the period covered by this annual report on Form 10-K.

(b)	Management's Report on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. Our system of internal control over financial reporting is designed to provide reasonable assurance to our management and our Board regarding the preparation and fair presentation of published financial statements.

Because of its inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2006. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. Based on our assessment, we believe that, as of December 31, 2006, our system of internal control over financial reporting is effective based on those criteria.

Management's assessment of the effectiveness of internal control over financial reporting as of December 31, 2006, has been audited by Grant Thornton, the independent registered public accounting firm who also audited our consolidated financial statements. Grant Thornton's attestation report on management's assessment of our internal control over financial reporting appears on page F-3 hereof.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Trustees

The following table presents certain information as of March 1, 2007 concerning each of our trustees serving in such capacity:

		Principal Occupation and Positions Held	Year Term of Office Will Expire	Served as a Trustee Since

Name	Age
David Lichtenstein	46	Chairman of the Board	2007	2005
Jeffrey A. Patterson	47	President and Chief Executive Officer, Trustee	2007	2005
John M. Sabin	52	Independent Trustee	2007	2005
Michael M. Schurer	45	Trustee	2007	2005
Shawn R. Tominus	47	Independent Trustee	2007	2005
Bruno de Vinck	61	Trustee	2007	2005
George R. Whittemore	57	Independent Trustee	2007	2005

David Lichtenstein. Mr. Lichtenstein has served as our Chairman of the Board since July 2005. Mr. Lichtenstein founded both American Shelter Corporation and The Lightstone Group and directs all aspects of the acquisition, financing and management of a diverse portfolio of multi-family, retail, office and industrial properties located in 27 states plus the District of Columbia and Puerto Rico that is owned by these companies and their affiliates. He is a member of the International Council of Shopping Centers. Mr. Lichtenstein is the Chairman of the board of directors of Prime Retail, Inc. and Park Avenue Bank, New York City, both private companies, and is Chief Executive Officer, President and Chairman of the board of trustees of Lightstone Value Plus Real Estate Investment Trust, Inc., a public company.

Jeffrey A. Patterson. Mr. Patterson has served as our President and Chief Executive Officer since August 2004 and has served on our Board since February 2005. From October 2003 until August 2004, Mr. Patterson served as our President and Chief Investment Officer. From June 2000 to October 2003, Mr. Patterson served as our Co-President and Chief Investment Officer. From November 1997 to June 2000, Mr. Patterson served as our Executive Vice President and Chief Investment Officer. In his current capacity, Mr. Patterson oversees our strategic direction and performance, including acquisitions, dispositions, joint ventures and development oversight. Mr. Patterson is also responsible for the asset management, operations, leasing and marketing activities for our properties. From 1989 to November 1997, Mr. Patterson was Executive Vice President of The Prime Group, Inc., with primary responsibility for the acquisition, financing and redevelopment of office and mixed-use properties. Mr. Patterson was also in charge of the overall operations of The Prime Group, Inc.'s office properties, and has provided real estate advisory services for several major institutional investors. Prior to joining The Prime Group, Inc., Mr. Patterson served as Director of Development in Tishman Speyer Properties' Chicago office and as a Senior Financial Analyst at Metropolitan Life Insurance Company's Real Estate Investment Group. Mr. Patterson is an associate member of the Urban Land Institute and is an advisory board member of the Metropolitan Planning Council.

John M. Sabin. Mr. Sabin has served on our Board since July 2005. Mr. Sabin is currently the Chief Financial Officer and General Counsel of Phoenix Health Systems, Inc. He also serves on the boards of North American Scientific, Inc. since 2005 and Hersha Hospitality Trust since 2003, all publicly traded companies. From January 2000 to October 2004, Mr. Sabin was the Chief Financial Officer, General

Counsel and Secretary of NovaScreen Biosciences Corporation, a private bioinformatics and contract research biotech company. Prior to joining NovaScreen, Mr. Sabin served as a finance executive with Hudson Hotels Corporation, Vistana, Inc., Choice Hotels International, Inc., Manor Care, Inc. and Marriott International, Inc. Mr. Sabin received Bachelor of Science degrees in Accounting and University Studies, Masters of Accountancy and Business Administration from Brigham Young University, and also received a Juris Doctor from the J. Reuben Clark Law School at Brigham Young University. Mr. Sabin is a licensed CPA and is admitted to the bar in several states.

Michael M. Schurer. Mr. Schurer has served on our Board since July 2005. Mr. Schurer is the Chief Financial Officer and Treasurer of both Lightstone Value Plus Real Estate Investment Trust, Inc. and The Lightstone Group. From August 2004 until April 2005, Mr. Schurer was the Chief Financial Officer of Northwest Hotel Group (formally Grand Heritage Hotel Group) and from January 2001 until August 2004 was Chief Financial Officer, Treasurer and Secretary of Humphrey Hospitality Trust, Inc. From March 1997 to September 2000, Mr. Schurer was Chief Financial Officer and Executive Vice President of Crown Golf Properties, LP. Mr. Schurer also served as Division Controller, Senior Manager and Audit Manager with Marriott International, and as an independent auditor with Pannell Kerr Forster and Ernst & Young. Mr. Schurer received a Bachelor of Arts in Accounting from Rutgers University and earned his CPA designation in 1987.

Shawn R. Tominus. Mr. Tominus has served on our Board since July 2005. Mr. Tominus is the founder and has served as the President of Metro Management, a real estate investment and management company, which specializes in the acquisition, financing, construction and redevelopment of residential, commercial and industrial properties, since 1994. Mr. Tominus is also a director of the Lightstone Value Plus Real Estate Investment Trust, Inc., a public company. Mr. Tominus is currently responsible at Metro Management for the ownership, management and development of assets in excess of $100,000,000. Mr. Tominus has over 25 years experience in real estate and also acts as a national consultant primarily focusing on market and feasibility analysis. Prior to Metro Management, Mr. Tominus held the position of Senior Vice President at Kamson Corporation, where he managed a portfolio of over 5,000 residential units as well as commercial and industrial properties.

Bruno de Vinck. Mr. de Vinck has served on our Board since July 2005. Mr. de Vinck is the Chief Operating Officer, Senior Vice President, Secretary and a director of the Lightstone Value Plus Real Estate Investment Trust, Inc., a public company, and a director of the Park Avenue Bank, New York City, a private company. Mr. de Vinck is also involved in the management and renovation of various multi-family, retail and industrial properties for The Lightstone Group and has served as its Senior Vice President since April 1994. Prior to that time, Mr. de Vinck was a Manager with numerous real estate management companies, and was the founding president and prior Chairman of the Ramsey Homestead Corp., a not-for-profit senior citizen residential health care facility. Mr. de Vinck is a past New Jersey chapter president for the Institute of Real Estate Management (IREM), as well as a past Director of the New Jersey Association of Realtors.

George R. Whittemore. Mr. Whittemore has served on our Board since July 2005. Mr. Whittemore currently serves as a director of the Lightstone Value Plus Real Estate Investment Trust, Inc., Village Bank & Trust in Richmond, Virginia, and Supertel Hospitality, Inc. in Norfolk, Nebraska, all publicly traded companies. Mr. Whittemore previously served as President and CEO of Supertel Hospitality Trust, Inc. from November 2001 until August 2004 and as Senior Vice President and director of both Anderson & Strudwick, Incorporated, a brokerage firm based in Richmond, Virginia, and Anderson & Strudwick Investment Corporation, from October 1996 until October 2001. Mr. Whittemore has also served as a director, President and Managing Officer of Pioneer Federal Savings Bank and its parent, Pioneer Financial Corporation from September 1982 until August 1994, when these institutions were acquired by a merger with Signet Banking Corporation (now Wachovia Corporation), and as President of Mills Value Adviser, Inc., a registered investment advisor. Mr. Whittemore is a graduate of the University of Richmond.

Executive Officers

The following table presents certain information as of March 1, 2007 concerning each of our executive officers and key employees serving in such capacities:

Name	Age	Position
David Lichtenstein	46	Chairman of the Board
Jeffrey A. Patterson	47	President and Chief Executive Officer, Trustee
James F. Hoffman	44	Senior Executive Vice President—General Counsel and Secretary
Paul G. Del Vecchio	42	Executive Vice President—Capital Markets
Nancy J. Fendley	38	Executive Vice President—Leasing
Randel S. Waites	46	Executive Vice President—Asset Management
Victoria A. Cory	42	Senior Vice President—Loan Administration, Real Estate Tax and Due Diligence
Anita T. Pallardy	48	Senior Vice President—Leasing

David Lichtenstein. Mr. Lichtenstein has served as our Chairman of the Board since July 2005. Mr. Lichtenstein founded both American Shelter Corporation and The Lightstone Group and directs all aspects of the acquisition, financing and management of a diverse portfolio of multi-family, retail, office and industrial properties located in 27 states and Puerto Rico that is owned by these companies. He is a member of the International Council of Shopping Centers. Mr. Lichtenstein is the Chairman of the board of directors of Prime Retail, Inc. and Park Avenue Bank, New York City, both private companies, and is Chief Executive Officer, President and Chairman of the board of trustees of Lightstone Value Plus Real Estate Investment Trust, Inc., a public company.

James F. Hoffman. Mr. Hoffman serves as our Senior Executive Vice President—General Counsel and Secretary. From October 2000 to February 2007, Mr. Hoffman served as our Executive Vice President—General Counsel and Secretary. Mr. Hoffman obtained his law degree in 1987 from Harvard Law School where he graduated cum laude and obtained his finance degree in 1984 from the University of Illinois where he graduated with Highest Honors. From March 1998 to October 2000, Mr. Hoffman served as our Senior Vice President—General Counsel and Secretary. From November 1997 to March 1998, Mr. Hoffman served as our Vice President and Associate General Counsel. Prior to working for us,

Mr. Hoffman served as Assistant General Counsel of our predecessor company, The Prime Group, Inc., from January 1991 to November 1997. Prior to his employment with The Prime Group, Inc., Mr. Hoffman was an associate with the law firm of Mayer, Brown & Platt from September 1987 to January 1991.

Paul G. Del Vecchio. Mr. Del Vecchio serves as our Executive Vice President—Capital Markets. From April 2003 to February 2007, Mr. Del Vecchio served as our Senior Vice President—Capital Markets. From February 2000 to April 2003, Mr. Del Vecchio served as our Vice President—Capital Markets and from November 1998 to February 2000, Mr. Del Vecchio served as our Assistant Vice President—Capital Markets. Prior to joining us, Mr. Del Vecchio was an Assistant Vice President for Prime Capital Funding LLC from October 1997 to August 1998. Mr. Del Vecchio is a licensed real estate broker and a certified public accountant.

Nancy J. Fendley. Ms. Fendley serves as our Executive Vice President—Leasing, overseeing all elements of leasing for the Company. Ms. Fendley joined us in November of 2006 after nearly eight years with Trizec Properties, Inc. and upon the acquisition of Trizec Properties, Inc. by a joint venture between Brookfield Properties and Blackstone Group. Ms. Fendley holds a MBA in Real Estate, Finance and Marketing from Northwestern University's Kellogg Graduate School of Management and a Bachelor's Degree in Arts, magna cum laude, from the University of Illinois. Ms. Fendley serves on the Children's Service Board of Children's Memorial Hospital.

Randel S. Waites. Mr. Waites serves as our Executive Vice President-Office Asset Management with overall asset management responsibilities for our office assets. From August 2004 to February 2007, Mr. Waites served as our Senior Vice President—Office Asset Management. Mr. Waites joined us in October 2000 as our Assistant Controller—CBD and then served as our Portfolio Controller—CBD. From October 2002 to August 2004, Mr. Waites served as our Vice President—Asset Management, Office Properties. Prior to joining us, Mr. Waites held the position of Asset Manager, Financial Analysis at East Lake Management and Development Corporation from December 1999 to October 2000, where he also served as Commercial Property Manager from May 1998 to December 1999. Mr. Waites started his career as an internal auditor and then went into financial analysis with large US corporations. He then developed his own business in Taos Ski Valley, New Mexico where he built and operated a ski lodge and other multiple small businesses in New Mexico and Colorado. Upon returning to Chicago, Mr. Waites took a position as controller for a privately held restaurant franchisee having 15 franchises. Mr. Waites is a certified public accountant.

Victoria A. Cory. Ms. Cory serves as our Senior Vice President—Loan Administration, Real Estate Tax and Due Diligence. From April 2000 to February 2006, Ms. Cory served as our Vice President—Loan Administration, Real Estate Tax and Due Diligence. Prior to joining us, Ms. Cory was the Senior Vice President—Loan Administration for Prime Capital Funding LLC from January 1998 until March 2000.

Anita T. Pallardy. Ms. Pallardy serves as our Senior Vice President—Leasing, CBD, overseeing the leasing and marketing of our 180 North LaSalle Street and 330 North Wabash Avenue properties. From March 2001 to November 2006, Ms. Pallardy served as our Vice President—Leasing, CBD, and from May 1998 to February 2001 served as Portfolio Leasing Manager, CBD. Prior to joining us, Ms. Pallardy served as Vice President, Leasing for The John Buck Company, in Chicago, Illinois.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our officers and trustees, and persons who own more than ten percent of a registered class of our equity securities, to file reports of the ownership and changes in the ownership (Forms 3, 4 and 5) with the SEC and the NYSE. Officers, trustees and beneficial owners of more than ten percent of our equity securities are required by SEC regulations to furnish us with copies of all such forms which they file.

Based solely on our review of the copies of Forms 3, 4 and 5 and the amendments thereto received by it for the year ended December 31, 2006, or written representations from certain reporting persons that no Forms 3, 4 or 5 were required to be filed by those persons, to our knowledge, no transactions were reported late during the year ended December 31, 2006.

Code of Ethics

We have adopted a code of ethics that applies to all employees, including but not limited to our President and Chief Executive Officer (our principal executive officer), Executive Vice President—Capital Markets (our principal financial officer) and Vice President—Corporate Accounting (our principal accounting officer), and other persons that may perform similar functions from time to time. Our code of ethics is published on our website at www.pgrt.com. In addition our code of ethics is available in print to any shareholder who requests it from our investor relations representative c/o Prime Group Realty Trust, Investor Relations Representative, 77 West Wacker Drive, Suite 3900, Chicago, Illinois 60601. In the event that any future amendment to, or waiver from, a provision of our code of ethics would otherwise require disclosure under Item 5.05 of Form 8-K, we intend to satisfy that disclosure requirement by posting such amendment or waiver on our website.

Information Regarding Audit Committee

Our Board has established an audit committee. The charter of our audit committee is available on our website at www.pgrt.com. Since July 1, 2005 the audit committee has consisted of Messrs. Sabin, Tominus and Whittemore, each of whom is "independent" within the meaning of the NYSE listing standards. Mr. Whittemore was named chairman of the audit committee on July 1, 2005. The Board determined that Messrs. Whittemore and Sabin are qualified as audit committee financial experts as defined in Item 407(d) of Regulation S-K. For more information regarding Messrs. Whittemore and Sabin's relevant professional experience, see "–Trustees".

Information Regarding Compensation Committee (or equivalent)

Because only our Series B Shares are listed on the NYSE, we are not required to have a separate compensation committee of the Board under applicable NYSE listing requirements. Likewise, we are not required to have and do not operate under a compensation charter. We believe it is appropriate for us not to have a compensation committee or compensation charter because our common shares are not publicly traded and we are wholly owned and controlled by a subsidiary of Lightstone, a private company.

Mr. Lichtenstein, as our Chairman of the Board and the principal of Lightstone, and Mr. Patterson, as our President and Chief Executive Officer and a member of the Board, meet periodically to review our compensation practices. Our compensation program consists of a base salary and opportunity to receive a cash bonus for our executive officers, and fees for our trustees. Messrs Lichtenstein and Patterson met in January 2007 to review the compensation of our executive officers and determine the cash bonuses for 2006 to be paid to our executive officers based on the performance of each executive officer and the company during 2006. Fees for our trustees are unchanged for calendar years 2006 and 2007. Mr. Patterson’s bonus for 2006 and base salary for 2007 were set pursuant to the terms of his employment agreement, which was previously approved by our Board.

Although we have in the past and may again in the future engage compensation consultants to review our compensation program, we did not engage a compensation consultant to assist us in determining compensation for calendar year 2006.

ITEM 11. EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Our compensation philosophy is based on aligning management's business objectives with those of our shareholder in order to provide compensation that will enable us to attract and retain talented executives, and link the interests of our executive officers to those of our shareholder. Accordingly, the employment agreements for (i) Jeffrey A. Patterson, our CEO, (ii) Nancy J. Fendley, our Executive Vice President of Leasing who was hired in November 2006, and (iii) Daniel J. Nikitas, our Executive Vice President of Leasing through October 18, 2006, provide that annual bonuses may be earned by each of them based on increases in the net operating income of our properties, and, in the case of our CEO, subject to a minimum annual bonus of $500,000 per year in calendar years 2005 through 2007. In addition, these officers' employment agreements allow (and in the case of Mr. Nikitas, allowed) them to acquire membership interests in Prime Office on substantially the same terms as our existing shareholder's other initial equity investors. Finally, a significant portion of Ms. Fendley's compensation and the compensation of our other leasing personnel is (and Mr. Nikitas’ was), directly tied to the execution of leases at our properties. Annual salary increases and bonuses for our other officers and employees are determined based upon a review of their individual performance and the performance of their relevant departments during the year.

We believe that, through the foregoing employment agreements and arrangements, the financial interests of our CEO and key executives are as a whole aligned with the interests of our shareholder. Throughout 2006, we had employment agreements with certain of our senior executives. See " – Employment Agreements" for more information regarding these employment agreements.

Mr. Patterson was named the Company's President and Chief Executive Officer in August, 2004 prior to the Acquisition. Mr. Patterson's annual base salary was $424,000 for calendar year 2006 and pursuant to the terms of his employment agreement was increased by 3% to $436,720 for calendar year 2007. Pursuant to the terms of his employment agreement, Mr. Patterson received an annual bonus of $500,000 for 2006.

In general, executive officers, including our CEO, are eligible for, and participate in, our compensation and benefits programs according to the same general terms as those available to all of our employees. For example, the health and welfare benefit programs are the same for all of our employees, including our executive officers; executive officers participate in the same 401(k) Plan, according to the same terms, as all of our employees.

Each element of the compensation program is intended to target compensation levels at rates that take into account current market practices. Offering market-comparable pay opportunities is designed to allow us to maintain a stable, successful management team. Our market for compensation comparison purposes is comprised of a group of companies that own, manage, lease, develop and redevelop office and industrial real estate primarily in the Chicago metropolitan area. In evaluating this comparison group for compensation purposes, discretion is exercised and judgments made after considering relevant factors.

The key elements of our executive compensation program for executive officers are base salary and annual cash bonuses. Each of these is addressed separately below. In determining initial compensation for executive officers, the company’s management considers all elements of an executive officer’s total compensation package in comparison to current market practices, ability to participate in savings plans and other benefits. On at least an annual basis, Messrs. Lichtenstein and Patterson consider of each

executive officer’s overall compensation, and determine if such executive officer is entitled to receive a year-end cash bonus and if so, the amount of the cash bonus

Base Salaries. Base salaries for executive officers are initially determined by evaluating the executive’s levels of responsibility, prior experience, breadth of knowledge, internal equity issues and external pay practices, with particular reference to the market in the Chicago metropolitan area. Increases to base salaries are driven by performance and market conditions, and evaluated based on sustained levels of contribution to the company by the relevant executive.

Annual Cash Bonuses. All of the company’s employees are eligible to participate in the company’s cash bonus program, with executive officer bonuses determined as described above. The cash bonus program allows us to communicate specific goals that are of primary importance during each year and motivates executives to achieve these goals.

Summary Compensation Table

The following table sets forth the compensation earned for the year ended December 31, 2006, with respect to Mr. Patterson (our President and Chief Executive Officer), Mr. Del Vecchio (our Senior Vice President—Capital Markets and our principal financial officer) and the four other persons who were our most highly compensated executive officers during 2006 (including Mr. Nikitas who served as our Executive Vice President—Leasing until his departure in October 2006) (the "Named Executives").



Name and Principal Position	Year		Salary ($) (1)		Bonus ($) (1)(2)		Option Awards ($)(3)		All Other Compen-sation ($) (4)		Total ($)

Jeffrey A. Patterson	2006	$	424,360	$	500,000	$	153,400	$	5,500	$	1,083,260
President and Chief
Executive Officer

James F. Hoffman	2006		233,400		215,000		0		5,500		453,900
Executive Vice President—
General Counsel and
Secretary

Paul G. Del Vecchio	2006		159,650		110,000		0		5,500		275,150
Senior Vice President—
Capital Markets

Anita T. Pallardy	2006		120,000		191,053		0		3,000		314,053
Senior Vice President—
Leasing

Randel S. Waites	2006		153,830		110,000		0		3,813		267,643
Senior Vice President—
Office Asset Management

Daniel J. Nikitas	2006		219,824		429,708		0		55,824		705,356
Former Executive Vice
President— Leasing

_______________

(1)	Amounts shown include cash and non-cash compensation or bonuses, as applicable, as reported in the year in which the service was performed, even if such compensation or bonuses, as applicable, were paid or vested in a subsequent year.

(2)

Bonus amounts for 2006 include cash bonuses paid in the ordinary course for services performed in 2006. Further, Ms. Pallardy and Mr. Nikitas received leasing bonuses of $191,053 and $304,708, respectively, and Mr. Nikitas received an additional bonus pursuant to his employment agreement of $125,000.

(3)	Consisting of grants of options to acquire membership interests in Prime Office on substantially the same economic terms as Prime Office's other initial equity investors.

(4)

Includes employer matching to the operating partnership's 401(k) Plan. The amount shown in 2006 for Mr. Nikitas includes amounts applicable to 2006 paid to Mr. Nikitas pursuant to the Employment Termination Agreement entered into with us. In addition to these amounts, pursuant to the terms of this agreement, Mr. Nikitas received an aggregate of $25,000 in termination compensation in January through March 2007, and additional compensation of installments for the period January 7, 2007 through February 28, 2007 of four equal installments of $11,458.33.

Employment Agreements

On June 1, 2005, Prime Office entered into employment agreements dated as of May 31, 2005 with Jeffrey A. Patterson, our President and Chief Executive Officer, and James F. Hoffman, our Executive Vice President, General Counsel and Secretary. On July 1, 2005, in connection with the completion of the Acquisition, we and the Operating Partnership adopted and assumed the two employment agreements.

The employment agreements provide for initial base salaries of $412,000 and $226,600, respectively, with the base salary of Mr. Patterson increasing to $424,000 in 2006 and increasing each year thereafter by no less than three percent. Mr. Hoffman's employment agreement provides that his base salary will increase by no less than three percent each year beginning in 2006. Further, the employment agreements of both Messrs. Patterson and Hoffman provide for the opportunity for the executives to earn annual bonus compensation as set forth in the respective employment agreement. Mr. Patterson's agreement provides for an annual bonus based on increases in the net operating income for our properties, subject to a minimum annual bonus of $500,000 for calendar years 2005, 2006 and 2007. The employment agreements each have a thirty month term and automatically renew for successive one year terms, unless either party gives written notice of termination to the other party. The employment agreements required us to pay to the executives at the closing of the Acquisition, certain "change of control" payments in accordance with the prior employment agreements between us and the executives.

The employment agreements provide that if either agreement is terminated by (i) us "without cause" (as defined in the agreements), (ii) us in the event of the executive's "disability" (as defined in the agreements), (iii) the respective executive within specified time periods following the occurrence of a "change of control" and (a) a resulting "diminution event" (as each term is defined in the agreements) or (b) a resulting relocation of the respective executive's office to a location more than twenty-five miles from its current location, (iv) by the respective executive for "good reason" (as defined in the agreements) or (v) automatically upon the respective executive's death, the applicable executive shall be entitled to a pro rata portion of any bonus compensation otherwise payable to executive for or with respect to the calendar year in which the termination occurs and a lump sum termination payment equal to the aggregate base compensation payable to the executive over the remainder of the employment term as in effect immediately prior to the effective date of the termination.

Assuming on December 31, 2006 Mr. Patterson's employment with us was terminated pursuant to any of clause (i) through (v) above, the estimated value of Mr. Patterson's severance pursuant to his employment agreement would be $937,091, which is the bonus compensation payable to Mr. Patterson with respect to the calendar year 2006 and the aggregate base compensation payable to Mr. Patterson through December 31, 2007. Assuming on December 31, 2006 Mr. Hoffman's employment with us was terminated pursuant to any of clause (i) through (v) above, the estimated value of Mr. Hoffman's severance pursuant to his employment agreement would be $448,400, which is based on and includes the bonus compensation payable to Mr. Hoffman with respect to the calendar year 2006 and the aggregate base compensation payable to Mr. Hoffman through December 31, 2007. There are no material conditions to receipt by the executives of these termination benefits. The amount and terms of these severance arrangements was determined by Prime Office, and included consideration of market practices for other similar officers of comparable companies.

The employment agreements also subject the executives to certain confidentiality obligations and non-solicitation restrictions, and in the case of Mr. Patterson certain non-competition restrictions, all as more fully set forth in the agreements. Mr. Patterson's agreement also granted him an option for eighteen

months after the closing date of the Acquisition to acquire membership interests in Prime Office equivalent to a 3.5% ownership interest in the Operating Partnership and us. Pursuant to a letter agreement dated March 15, 2007, between Mr. Patterson and Prime Office Mr. Patterson and the Prime Office agreed to extend the exercise period for the options to the earlier of the occurrence of a change of control involving the Company or December 31, 2007.

On August 31, 2005, we and the Operating Partnership entered into an employment agreement effective as of September 26, 2005 with Daniel J. Nikitas, our former Executive Vice President – Leasing. The employment agreement provided for an initial base salary of $275,000. Further, the employment agreement provided for payment of a sign-on bonus of $125,000 to Mr. Nikitas and an additional bonus of $125,000 payable April 30, 2006 provided Mr. Nikitas remained continually employed with us through such date, as well as the opportunity for Mr. Nikitas to earn both leasing bonuses upon the execution of leases and annual bonus compensation as set forth in employment agreement. Mr. Nikitas' agreement also granted him an option until December 31, 2006 to acquire up to 1.0 % of the membership interests in Prime Office on substantially the same economic terms as Prime Office's other initial equity investors.

Mr. Nikitas' employment with us terminated effective on October 18, 2006 pursuant to the terms of an Employee Termination Agreement entered into on December 6, 2006. Pursuant to the terms of the Employment Termination Agreement, Mr. Nikitas was entitled to receive his base salary through February 28, 2007, certain leasing bonuses earned by him under his employment agreement totaling $174,877 and an additional payment of $25,000.

Pursuant to the Employee Termination Agreement, Mr. Nikitas is prohibited until October 18, 2007 from soliciting, attempting to hire or hiring any of our employees. Finally, the option granted to Mr. Nikitas to acquire up to 1.0% of the membership interests in Prime Office terminated upon Mr. Nikitas' departure.

None of our other Named Executives is currently entitled to termination benefits upon termination of their employment that are not generally available to our other employees.

Option Grants, Exercises and Holdings

We did not grant any options to purchase our common shares to the Named Executives during 2006. Further, as of December 31, 2006, the Named Executives did not hold any options to purchase our common shares. There were no exercises of options or vesting of stock during 2006. As part of the terms of his employment agreement, Mr. Patterson was granted an option to acquire up to 3.5% of the membership interests in Prime Office on substantially the same economic terms as Prime Office's other initial equity investors. See " – Employment Agreements" for more information regarding Mr. Patterson's employment agreement. As part of the terms of her employment, Ms. Fendley was granted an option to purchase a membership interest in Prime Office equivalent to a 1.0% ownership interest in the Operating Partnership and us.

Compensation of Trustees

The following table sets forth the compensation earned for the year ended December 31, 2006 with respect to our trustees other than Mr. Patterson who is also a Named Executive Officer and whose compensation as a trustee is fully reflected in the Summary Compensation Table and other portions of this Form 10-K. In addition to trustees' fees, our trustees receive reimbursement of all travel and lodging expenses related to their attendance at both Board and committee meetings. As of December 31, 2006, our trustees did not hold any options to purchase our common shares or hold any of our common shares.


Name		Fees Earned or Paid in Cash ($) (1)

David Lichtenstein	$	0
John M. Sabin		42,500
Michael M. Schurer		30,000
Shawn R. Tominus		42,500
Bruno de Vinck		30,000
George R. Whittemore		47,500

(1)

We pay our trustees who are not our employees or affiliated with us a fee for their services as trustees. Such persons receive annual compensation of $26,000 plus a fee of $1,000 for attendance at each meeting of the Board and $500 for attendance at each committee meeting. Members of the audit committee receive an additional $10,000 per year (which is currently being paid to Messrs. Whittemore, Sabin and Tominus), plus an additional $5,000 per year for the chairman of the audit committee (Mr. Whittemore).

Compensation Committee Interlocks and Insider Participation

Our Board is charged with determining compensation for our President and Chief Executive Officer. Mr. Patterson is a member of our Board and our President and Chief Executive Officer. No executive officer of ours served as a (i) member of the compensation committee of another entity in which one of the executive officers of such entity served on our Board or (ii) director of another entity in which one of the executive officers of such entity served on our Board, during the year ended December 31, 2006.

Compensation Report

The members of the Board have reviewed and discussed with management the Company's Compensation Discussion and Analysis presented in this Form 10-K Report. Members of management with whom members of the Board discussed the Compensation Discussion and Analysis include the President and Chief Executive Officer, the Senior Executive Vice President, General Counsel and Secretary, the Executive Vice President-Capital Markets and the Vice President-Corporate Accounting.

Based on its review and discussions noted above, the Board determined that the Compensation Discussion and Analysis be included in this Form 10-K Report.

BOARD OF TRUSTEES

David Lichtenstein

Jeffrey A. Patterson

John M. Sabin

Michael M. Schurer

Shawn R. Tominus

Bruno de Vinck

George R. Whittemore

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Principal Security Holders Of The Company

As more fully described in "Item 1—Business—Background and General", on July 1, 2005, in connection with the Acquisition, all of our common shares outstanding prior to the transaction were acquired by Prime Office whose principal business address is 326 third Street, Lakewood, New Jersey 08701 and all options to acquire our common shares were cancelled. Prime Office is owned indirectly by David Lichtenstein, the Chairman of our Board.

The following table furnishes information, as of March 19, 2007, as to common units of our Operating Partnership, in each case which are beneficially owned by each trustee, each Named Executive and trustees and executive officers as a group. Unless otherwise indicated in the footnotes to the tables, all of such interests are owned directly, and the indicated person or entity has sole voting and investment power.

	Number of Common Units of Prime Group
Name and Address of Beneficial Owner	Realty L.P. Beneficially Owned(1)	Percent of All Common Units of Prime Group Realty, L.P.

David Lichtenstein (2)	26,724,872	100%
Jeffrey A. Patterson	(3)	(3)
James F. Hoffman	–	–
Paul G. Del Vecchio	–	–
Anita T. Pallardy	–	–
Randel S. Waites	–	–
Daniel Nikitas	–	–
John M. Sabin	–	–
Michael M. Schurer	–	–
Shawn R. Tominus	–	–
Bruno de Vinck	–	–
George R. Whittemore	–	–
Our trustees and executive officers as a group ([13] persons)	26,724,872	100

(1)	The ownership of common units of our Operating Partnership presented in this table is derived from the transfer records maintained by the Operating Partnership based on information provided by the limited partners.

(2)	Mr. Lichtenstein controls (i) Prime Office which owns 78.49% of the common units of limited partner interest in the Operating Partnership and 100% of our common shares and (ii) Park Avenue Funding, LLC, which owns 20.63% of the common units of limited partner interest in the Operating Partnership.

(3)	Mr. Patterson has been granted an option to purchase through Prime Office a membership interest in Prime Office equivalent to a 3.5% ownership interest in the Operating Partnership and us.

Except as described above and except for the option to purchase a membership interest in Prime Office equivalent to a 1.0% ownership interest in the Operating Partnership and us held by Ms. Nancy J. Fendley, our Executive Vice President—Leasing, none of our trustees or executive officers own any shares of any other class of our equity securities or equity securities of any of our parent or our subsidiaries.

Equity Compensation Plan Information

As of December 31, 2006, we do not have any equity securities that may be issued upon the exercise of options, warrants and rights under a share incentive plan because our share incentive plan was terminated as a part of the Acquisition on July 1, 2005. The Company has no other compensation plans pursuant to which equity securities may be issued.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions with Related Persons

On February 1, 2007, our Board approved of us, through one or more of our subsidiaries, entering into an asset and development agreement with an affiliate of Lightstone, which provides that one of our subsidiaries will perform certain asset management, development management and accounting services for an office and retail building located at 1407 Broadway Avenue in New York, New York. The agreement is terminable by either party upon thirty-days notice and provides for us to receive an asset management fee of $500,000 per year and a development fee of 2.5% of any development costs, plus the reimbursement of out-of-pocket costs such as travel expenses.

In addition, on February 1, 2007, our Board approved of us, through one of more of our subsidiaries, entering into agreements with other affiliates of Lightstone to perform certain asset management services for several portfolios of properties owned by affiliates of Lightstone, including (i) a four property portfolio of office buildings located in Pennsylvania, (ii) a thirty-two industrial building portfolio located in Ohio, Texas and Louisiana and (iii) a mixed-use industrial and office complex located in Puerto Rico. The terms of our agreement with Lightstone approved by our Board provides that we receive an asset management fee of 25 basis points of the gross income from these properties for asset management services in connection with these properties (approximately $65,000 per year).

Review, Approval or Ratification of Transaction with Related Persons

It is our policy that any material related party transactions involving us and any of our Board members or shareholder be approved by a majority of the disinterested independent members of the Board after their review and consideration of the fairness of the transaction. The material terms of transactions with related persons referred to above are reviewed and discussed by senior management with the Board and approved by the relevant disinterested independent members of the Board. The foregoing related party transactions were approved consistent with the requirements of this policy.

Director Independence

Since July 1, 2005 our board has included, and our audit committee has consisted of, Messrs. Sabin, Tominus and Whittemore, each of whom is "independent" within the meaning of the NYSE listing standards. Further, since July 1, 2005 and as a result of the Acquisition, only our Series B Shares are listed on a national securities exchange and therefore, pursuant to Section 303A Corporate Governance Rules of the NYSE, we are not required to maintain a compensation committee or a nominating committee with independent members. Since July 1, 2005, the functions of such committees have been performed by our board as a whole.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Audit And Non-Audit Fees

Fees for professional services provided by our independent registered public accounting firm in each of the last two fiscal years, in each of the following categories were:

		Grant Thornton LLP				Ernst & Young LLP				Total
		2006		2005		2006		2005		2006		2005

Audit Fees	$	484,709	$	479,750	$	17,000	$	58,500	$	501,709	$	538,250
Audit-Related
Fees		122,225		113,750		49,000		98,000		171,225		211,750
Tax Fees		288,185		25,225		8,000		334,392		296,185		359,617
	$	895,119	$	618,725	$	74,000	$	490,892	$	969,119	$	1,109,617

Neither Ernst & Young LLP, our independent registered public accounting firm until October 2005, nor Grant Thornton LLP, our independent registered accounting firm from October 2005, provided any financial information systems design and implementation services during 2006 or 2005. Audit-related services generally include fees for 401(k) plan and individual property audits, due diligence, technical consulting and transaction structuring. Tax services generally relate to a review of tax returns prior to filing, tax consultation and transaction structuring.

The audit committee has adopted policies and procedures for pre-approving all non-audit work performed by our independent registered public accounting firm. Specifically, the audit committee has pre-approved the use of Grant Thornton LLP, and had pre-approved prior to October 5, 2005, Ernst & Young LLP, for detailed, specific types of services within the following categories of non-audit services: certain tax related services (including tax compliance matters, REIT compliance, federal state and local tax audits, private letter rulings, technical tax guidance and corporate acquisition, disposition and partnership tax matters); registration statements and related matters; debt covenant compliance letters; technical accounting guidance; internal control documentation; and SEC comment letters. Further, the audit committee has required management to report to it on an annual basis (or as more frequently as the audit committee may request) the specific engagements of our independent registered public accounting firm pursuant to the pre-approval policies and procedures. All engagements of either Grant Thornton LLP or Ernst & Young LLP related to the audit-related fees and tax fees disclosed in the table above for 2005 and 2006 were eligible to be approved pursuant to our pre-approval policies, though some engagements were specifically approved by the audit committee prior to the commencement of the engagement.

PRIME GROUP REALTY TRUST

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1) Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firms	F–2

Consolidated Balance Sheets as of December 31, 2006 and 2005	F–5

Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended December 31, 2006, for the six months ended December 31, 2005 (successor company), for the six months ended June 30, 2005 (predecessor company) and for the year ended December 31, 2004	F–6

Consolidated Statements of Changes in Shareholders' Equity for the year ended December 31, 2006, for the six months ended December 31, 2005 (successor company), for the six months ended June 30, 2005 (predecessor company) and for the year ended December 31, 2004	F–7

Consolidated Statements of Cash Flows for the year ended December 31, 2006, for the six months ended December 31, 2005 (successor company), for the six months ended June 30, 2005 (predecessor company) and for the year ended December 31, 2004	F–8

Notes to Consolidated Financial Statements	F–10

Financial Statement Schedule

The following financial statement schedule is included in Item 15(c)

Schedule III – Real Estate and Accumulated Depreciation as of December 31, 2006	F–50

Financial Statements of Significant Subsidiary	F–55

All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.

(3) Exhibits

Exhibit Number	Description

2.1	Purchase Agreement dated as of August 2, 2004 by and between CenterPoint Properties Trust and Prime Group Realty, L.P., as filed as exhibit 99.2 to our Current Report on Form 8-K (filed August 6, 2004, File No. 001-13589) and incorporated herein by reference.
2.2	First Amendment to Purchase Agreement dated as of October 8, 2004 by and between Prime Group Realty, L.P. and CenterPoint Properties Trust, as filed as exhibit 99.3 to our Current Report on Form 8-K (filed October 15, 2004, File No. 001-13589) and incorporated herein by reference.
3.1	Articles of Amendment and Restatement of Declaration of Trust of Prime Group Realty Trust, as amended by Articles Supplementary to the Articles of Amendment and Restatement of Declaration of Trust and the First Amendment to Amended and Restated Declaration of Trust as filed as exhibit 3.1 to our Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference.
3.2	Amended and Restated Bylaws of Prime Group Realty Trust, as amended by the First Amendment to Amended and Restated Bylaws and the Second Amendment to Amended and Restated Bylaws as filed as exhibit 3.2 to our Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference.
3.3	Second Amended and Restated Agreement of Limited Partnership of Prime Group Realty, L.P. dated as of July 1, 2005, as filed as exhibit 3.9 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference.
10.1	Loan Agreement dated as of March 10, 2003 between Lehman Brothers Bank FSB and 330 N. Wabash Avenue, L.L.C., as filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 and incorporated herein by reference.
10.2	Promissory Note dated as of March 10, 2003 from 330 N. Wabash Avenue, L.L.C. in favor of Lehman Brothers Bank FSB, as filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 and incorporated herein by reference.
10.3	Guaranty dated as of March 10, 2003 by Prime Group Realty, L.P. for the benefit of Lehman Brothers Bank FSB, as filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 and incorporated herein by reference.
10.4	Guaranty dated as of March 10, 2003 by Prime Group Realty, L.P. for the benefit of Lehman Brothers Bank FSB, as filed as Exhibit 10.4 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 and incorporated herein by reference.
10.5	Guaranty dated as of March 10, 2003 by Prime Group Realty, L.P. for the benefit of Lehman Brothers Bank FSB, as filed as Exhibit 10.5 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 and incorporated herein by reference.
10.6	Mezzanine Loan Agreement dated as of May 28, 2003 between Lehman Brothers Holdings Inc. and 330 N. Wabash Mezzanine, L.L.C., as filed as Exhibit 10.15 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and incorporated herein by reference.

10.7	Promissory Note dated as of May 28, 2003 from 330 N. Wabash Mezzanine, L.L.C. in favor of Lehman Brothers Holdings Inc., as filed as Exhibit 10.16 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and incorporated herein by reference.
10.8	Guaranty dated as of May 28, 2003 by Prime Group Realty, L.P. for the benefit of Lehman Brothers Holdings Inc., as filed as Exhibit 10.17 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and incorporated herein by reference.
10.9	Guaranty dated as of May 28, 2003 by Prime Group Realty, L.P. for the benefit of Lehman Brothers Holdings Inc., as filed as Exhibit 10.18 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and incorporated herein by reference.
10.10	Guaranty dated as of May 28, 2003 by Prime Group Realty, L.P. for the benefit of Lehman Brothers Holdings Inc., as filed as Exhibit 10.19 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and incorporated herein by reference.
10.11	Amendment to Loan Agreement dated as of May 28, 2003 between 330 N. Wabash Avenue, L.L.C. and Lehman Brothers Bank FSB, as filed as Exhibit 10.20 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and incorporated herein by reference.
10.12	Omnibus Amendment to Loan Documents dated as of May 28, 2003 between 330 N. Wabash Avenue, L.L.C. and Lehman Brothers Bank FSB, as filed as Exhibit 10.21 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and incorporated herein by reference.
10.13	Amendment to Guaranty dated as of May 28, 2003 between Prime Group Realty, L.P. and Lehman Brothers Bank FSB, as filed as Exhibit 10.22 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and incorporated herein by reference.
10.14	Termination of $4,000,000 Mortgage Guaranty Note dated as of May 28, 2003 between Prime Group Realty, L.P. and Lehman Brothers Bank FSB, as filed as Exhibit 10.23 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and incorporated herein by reference.
10.15	Environmental Escrow Agreement dated as of October 8, 2004 by and among Prime Group Realty, L.P., CenterPoint Properties Trust and Chicago Title and Trust Company, as filed as exhibit 99.4 to our Current Report on Form 8-K (filed October 15, 2004, File No. 001-13589) and incorporated herein by reference
10.16	Escrow Agreement dated as of October 8, 2004 by and among CenterPoint Properties Trust and Prime Group Realty, L.P. and Chicago Title and Trust Company, as filed as exhibit 99.5 to our Current Report on Form 8-K (filed October 15, 2004, File No. 001-13589) and incorporated herein by reference.

Exhibit Number		Description
10.17	Agreement and Plan of Merger dated as of February 17, 2005 by and among Prime Office Company, LLC, Prime Office Merger Sub LLC, Prime Office Merger Sub I, LLC, Prime Group Realty Trust and Prime Group Realty, L.P., as filed as exhibit 10.1 to our Current Report on Form 8-K (filed February 17, 2005, File No. 001-13589) and incorporated herein by reference.
10.18	Loan Agreement dated as of May 5, 2005 among LaSalle Bank National Association and Continental Towers Associates-I, L.P. and SunAmerica Life Insurance Company, as filed as exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference.
10.19	Subordination and Intercreditor Agreement dated as of May 5, 2005 between SunAmerica Life Insurance Company and Prime Group Realty, L.P., as filed as exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference.
10.20	Environmental Indemnity Agreement dated as of May 5, 2005 by LaSalle Bank National Association, Continental Towers Associates-I, L.P. and Prime Group Realty, L.P. for the benefit of SunAmerica Life Insurance Company, as filed as exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference.
10.21	Guaranty of Recourse Obligations dated as of May 5, 2005 by Prime Group Realty, L.P. in favor of SunAmerica Life Insurance Company, as filed as exhibit 10.4 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference.
10.22	Promissory Note dated as of May 5, 2005 from LaSalle Bank National Association and Continental Towers Associates-I, L.P. to SunAmerica Life Insurance Company, as filed as exhibit 10.5 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference.
10.23	Settlement and Release dated as of May 18, 2005 by and among Prime/Mansur Investment Partners, LLC, Cumberland Blues Merger Sub, LLC, Cumberland Blues, LLC, The Prime Group, Inc. Prime Partners, LLC, Prime Group Realty Trust, and Prime Group Realty, L.P., as filed as exhibit 10.6 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference.
10.24	Sale and Purchase Agreement dated as of May 18, 2005 by and between LaSalle-Adams, L.L.C. and Prime/Mansur Investment Partners, LLC, as filed as exhibit 10.7 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference.
10.25	Thistle Interest Option Agreement dated as of by and between Phoenix Office, L.L.C. and Prime/Mansur Investment Partners, LLC, as filed as exhibit 10.8 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference.

Exhibit Number	Description
10.26*		Amended and Restated Employment Agreement dated as of May 31, 2005 by and between Prime Office Company, LLC and Jeffrey A. Patterson, as filed as exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 and incorporated herein by reference.
10.27*		Employment Agreement dated as of May 31, 2005 by and between Prime Office Company, LLC and James F. Hoffman, as filed as exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, and incorporated herein by reference.
10.28*		Employment Agreement dated as of August 31, 2005 by and between Prime Group Realty Trust, Prime Group Realty, L.P., Prime Office Company, LLC and Daniel J. Nikitas, as filed as exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 and incorporated herein by reference.
10.29		Loan Agreement dated as of December 30, 2005 between Prime Dearborn Equities LLC and IPC Investments Holdings Canada Inc. as filed as exhibit 10.1 to our Current Report on Form 8-K (filed January 11, 2006, File No. 001-13589) and incorporated herein by reference.
10.30		Investment Agreement dated December 30, 2005 among The Lightstone Group, LLC and IPC Prime Equity, LLC, as filed as exhibit 10.2 to our Current Report on Form 8-K (filed January 11, 2006, File No. 001-13589) and incorporated herein by reference.
10.31		First Amendment to Investment Agreement dated as of December 30, 2005 among The Lightstone Group, LLC and IPC Prime Equity, LLC, as filed as exhibit 10.3 to our Current Report on Form 8-K (filed January 11, 2006, File No. 001-13589) and incorporated herein by reference.
10.32		Note dated as of December 30, 2005 from Prime Dearborn Equities LLC to IPC Investments Holdings Canada Inc., as filed as exhibit 10.4 to our Current Report on Form 8-K (filed January 11, 2006, File No. 001-13589) and incorporated herein by reference.
10.33		Guarantee of Interest and Recourse Obligations dated as of December 30, 2005 between Prime Group Realty, L.P. and IPC Investments Holdings Canada, Inc., as filed as exhibit 10.5 to our Current Report on Form 8-K (filed January 11, 2006, File No. 001-13589) and incorporated herein by reference.
10.34		Loan Agreement dated as of January 10, 2006 between PGRT Equity LLC and Citicorp USA, Inc., as filed as filed as exhibit 10.1 to our Current Report on Form 8-K (filed January 18, 2006, File No. 001-13589) and incorporated herein by reference.
10.35		Guaranty dated as of January 10, 2006 by David Lichtenstein in favor of Citicorp USA, Inc., as filed as exhibit 10.2 to our Current Report on Form 8-K (filed January 18, 2006, File No. 001-13589) and incorporated herein by reference.

Exhibit Number	Description
10.36	Promissory Note dated as of January 10, 2006 from PGRT Equity LLC in favor of Citicorp USA, Inc., as filed as exhibit 10.3 to our Current Report on Form 8-K (filed January 18, 2006, File No. 001-13589) and incorporated herein by reference.
10.37	Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of January 10, 2006 by 280 Shuman Blvd., L.L.C. to and for the benefit of Citicorp USA, Inc., as filed as exhibit 10.4 to our Current Report on Form 8-K (filed January 18, 2006, File No. 001-13589) and incorporated herein by reference.
10.38	Amended and Restated Tax Indemnity Agreement dated as of January 10, 2006 by and among Prime Group Realty, L.P., Roland E. Casati, Richard A. Heise, CTA General Partner, LLC and Continental Towers, L.L.C., as filed as exhibit 10.5 to our Current Report on Form 8-K (filed January 18, 2006, File No. 001-13589) and incorporated herein by reference.
10.39	Assumption, Consent and Modification Agreement dated as of January 10, 2006 by and among Chicago Title Land Trust Company, as trustee under Land Trust Numbers 40935 and 5602, Continental Towers Associates-I, L.P., Continental Towers, L.L.C., SunAmerica Life Insurance Company, Prime Group Realty, L.P. and Prime Group Management, LLC, as filed as exhibit 10.6 to our Current Report on Form 8-K (filed January 18, 2006, File No. 001-13589) and incorporated herein by reference.
10.40	Assumption Agreement dated as of January 10, 2006 among Prime Group Realty, L.P. Chicago Title Land Trust Company, as trustee under Land Trust Numbers 40935 and 5602, Continental Towers Associates-I, L.P., Continental Towers, L.L.C., Richard A. Heise and Roland E. Casati, as filed as exhibit 10.7 to our Current Report on Form 8-K (filed January 18, 2006, File No. 001-13589) and incorporated herein by reference.
10.41	Co-Ownership Agreement dated as of January 10, 2006 by and among Continental Towers Associates-I, L.P. and Continental Towers, L.L.C., as filed as exhibit 10.8 to our Current Report on Form 8-K (filed January 18, 2006, File No. 001-13589) and incorporated herein by reference.
10.42	Amended and Restated Loan Agreement dated as of September 27, 2006 between PGRT Equity LLC and Citicorp USA, Inc., as filed as exhibit 10.1 to our Current Report on Form 8-K (filed October 3, 2006, File No. 001-13589) and incorporated herein by reference.
10.43	Amended and Restated Promissory Note dated September 27, 2006 from PGRT Equity LLC in favor of Citicorp USA, Inc., as filed as exhibit 10.2 to our Current Report on Form 8-K (filed October 3, 2006, File No. 001-13589) and incorporated herein by reference.
10.44	Amended and Restated Guaranty dated as of September 27, 2006 by David Lichtenstein in favor of Citicorp USA, Inc., as filed as exhibit 10.3 to our Current Report on Form 8-K (filed October 3, 2006, File No. 001-13589) and incorporated herein by reference.

Exhibit Number	Description
10.45	Loan Agreement dated as of September 27, 2006 between PGRT Equity II LLC and Citicorp USA, Inc., as filed as exhibit 10.4 to our Current Report on Form 8-K (filed October 3, 2006, File No. 001-13589) and incorporated herein by reference.
10.46	Promissory Note dated September 27, 2006 from PGRT Equity II LLC in favor of Citicorp, USA Inc., as filed as exhibit 10.5 to our Current Report on Form 8-K (filed October 3, 2006, File No. 001-13589) and incorporated herein by reference.
10.47	Guaranty dated as of September 27, 2006 by David Lichtenstein in favor or Citicorp USA, Inc., as filed as exhibit 10.6 to our Current Report on Form 8-K (filed October 3, 2006, File No. 001-13589) and incorporated herein by reference.
10.48	Guaranty dated as of September 27, 2006 by PGRT Equity LLC in favor of Citicorp USA, Inc., as filed as exhibit 10.7 to our Current Report on Form 8-K (filed October 3, 2006, File No. 001-13589) and incorporated herein by reference.
10.49	Amendment to Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of September 27, 2006 by and between 280 Shuman Blvd., L.L.C., and Citicorp USA, Inc., as filed as exhibit 10.8 to our Current Report on Form 8-K (filed October 3, 2006, File No. 001-13589) and incorporated herein by reference.
10.50	Promissory Note dated as of November 21, 2006 from Continental Towers Associates III, LLC, and Continental Towers, L.L.C, jointly and severally, payable to the order of CWCapital LLC in the original principal amount of $115.0 million., as filed as exhibit 10.1 to our Current Report on Form 8-K (filed November 28, 2006, File No. 001-13589) and incorporated herein by reference.
10.51	Mortgage, Security Agreement and Fixture Financing Statement dated as of November 21, 2006 by Continental Towers Associates III, LLC and Continental Towers, L.L.C., jointly and severally, in favor of CWCapital LLC., as filed as exhibit 10.2 to our Current Report on Form 8-K (filed November 28, 2006, File No. 001-13589) and incorporated herein by reference.
10.52	Guaranty dated as of November 21, 2006 by Prime Group Realty, L.P. for the benefit of CWCapital LLC., as filed as exhibit 10.3 to our Current Report on Form 8-K (filed November 28, 2006, File No. 001-13589) and incorporated herein by reference.
10.53	Subordination and Standstill Agreement dated as of November 21, 2006 by PGRT Equity LLC for the benefit of CWCapital LLC., as filed as exhibit 10.4 to our Current Report on Form 8-K (filed November 28, 2006, File No. 001-13589) and incorporated herein by reference.
10.54	First Amendment to Co-Ownership Agreement dated as of November 21, 2006 by and among Continental Towers Associates III, LLC and Continental Towers, L.L.C., as filed as exhibit 10.5 to our Current Report on Form 8-K (filed November 28, 2006, File No. 001-13589) and incorporated herein by reference.

Exhibit Number	Description
10.55	First Amendment to Amended and Restated Tax Indemnity Agreement dated November 21, 2006 by and among Prime Group Realty, L.P., Richard A. Heise, CTA General Partner, LLC and Continental Towers, L.L.C., as filed as exhibit 10.6 to our Current Report on Form 8-K (filed November 28, 2006, File No. 001-13589) and incorporated herein by reference.
10.56	Amended and Restated Promissory Note dated as of November 21, 2006 from Continental Towers, L.L.C. and Continental Towers Associates III, LLC payable to the order of PGRT Equity, L.L.C., as filed as exhibit 10.7 to our Current Report on Form 8-K (filed November 28, 2006, File No. 001-13589) and incorporated herein by reference.
10.57	Second Amended and Restated Loan Agreement dated as of November 21, 2006 by and between PGRT Equity, LLC, and Continental Towers Associates III, LLC and Continental Towers, L.L.C., as filed as exhibit 10.8 to our Current Report on Form 8-K (filed November 28, 2006, File No. 001-13589) and incorporated herein by reference.
10.58	Amended and Restated Mortgage and Security Agreement dated November 21, 2006 by Continental Towers, L.L.C. and Continental Towers Associates III, LLC, in favor of and for the benefit of PGRT Equity, L.L.C., as filed as exhibit 10.9 to our Current Report on Form 8-K (filed November 28, 2006, File No. 001-13589) and incorporated herein by reference.
10.59	Indemnification Agreement dated as of November 8, 2006 between Prime Group Realty, L.P. and 131 South Dearborn LLC
10.60*	Employment Agreement, made and entered into as of November 30, 2006 by and between Prime Group Realty Trust, Prime Group Realty, L.P., Prime Office Company LLC and Nancy Fendley.
10.61	Termination of Co-Ownership Agreement dated as of December 29, 2006, by and between Continental Towers Associates III, LLC and Continental Towers, L.L.C.
10.62	Reciprocal Easement Agreement dated as of December 29, 2006, by and between Continental Towers, L.L.C. and Continental Towers Associates III, LLC.
10.63	Management Agreement dated as of December 29, 2006, by and between Continental Towers, L.L.C. and Prime Group Management, L.L.C.
10.64	Management Agreement dated as of December 29, 2006, by and between Continental Towers Associates III, LLC and Prime Group Management, L.L.C.
10.65	Amended and Restated Promissory Note dated as of December 29, 2006, from Continental Towers Associates III, LLC to Wells Fargo Bank, N.A., as trustee for the registered holders of Cobalt CMBS Commercial Mortgage Trust 2006-C1, Commercial Mortgage Pass-through Certificates, Series 2006-C1.

Exhibit Number	Description
10.66	Amended and Restated Mortgage, Security Agreement and Fixture Financing Statement dated as of December 29, 2006, from Continental Towers Associates III, LLC to Wells Fargo Bank, N.A., as trustee for the registered holders of Cobalt CMBS Commercial Mortgage Trust 2006-C1, Commercial Mortgage Pass-through Certificates, Series 2006-C1, c/o CWCapital LLC.
10.67	Amended and Restated Guaranty dated as of December 29, 2006, by Prime Group Realty, L.P. to Wells Fargo Bank, N.A., as trustee for the registered holders of Cobalt CMBS Commercial Mortgage Trust 2006-C1, Commercial Mortgage Pass-through Certificates, Series 2006-C1, regarding the loan to Continental Towers Associates III, LLC.
10.68	Amended and Restated Environmental and Hazardous Substance Indemnification Agreement dated as of December 29, 2006, from Continental Towers Associates III, LLC to Wells Fargo Bank, N.A., as trustee for the registered holders of Cobalt CMBS Commercial Mortgage Trust 2006-C1, Commercial Mortgage Pass-through Certificates, Series 2006-C1.
10.69	Amended and Restated Promissory Note dated as of December 29, 2006, from Continental Towers, L.L.C. to Wells Fargo Bank, N.A., as trustee for the registered holders of Cobalt CMBS Commercial Mortgage Trust 2006-C1, Commercial Mortgage Pass-through Certificates, Series 2006-C1.
10.70	Amended and Restated Mortgage, Security Agreement and Fixture Financing Statement dated as of December 29, 2006, from Continental Towers, L.L.C. to Wells Fargo Bank, N.A., as trustee for the registered holders of Cobalt CMBS Commercial Mortgage Trust 2006-C1, Commercial Mortgage-Pass through Certificates, Series 2006-C1, c/o CWCapital LLC.
10.71	Amended and Restated Guaranty dated as of December 29, 2006, by Prime Group Realty, L.P. to Wells Fargo Bank, N.A., as trustee for the registered holders of Cobalt CMBS Commercial Mortgage Trust 2006-C1, Commercial Mortgage Pass-through Certificates, Series 2006-C1, regarding the loan to Continental Towers, L.L.C.
10.72	Amended and Restated Environmental and Hazardous Substance Indemnification Agreement dated as of December 29, 2006, from Continental Towers, L.L.C. to Wells Fargo Bank, N.A., as trustee for the registered holders of Cobalt CMBS Commercial Mortgage Trust 2006-C1, Commercial Mortgage Pass-through Certificates, Series 2006-C1
10.73	Second Amended and Restated Promissory Note dated as of December 29, 2006, from Continental Towers Associates III, LLC to PGRT Equity, L.L.C.
10.74	Second Amended and Restated Environmental Indemnification Agreement dated as of December 29, 2006, from Continental Towers Associates III, LLC to PGRT Equity, L.L.C.
10.75	Third Amended and Restated Loan Agreement dated as of December 29, 2006, between Continental Towers Associates III, LLC and PGRT Equity, L.L.C.

Exhibit Number	Description
10.76	Second Amended and Restated Mortgage and Security Agreement dated as of December 29, 2006, from Continental Towers, L.L.C. to PGRT Equity, L.L.C.
10.77	Second Amended and Restated Promissory Note dated as of December 29, 2006, from Continental Towers, L.L.C. to PGRT Equity, L.L.C.
10.78	Third Amended and Restated Loan Agreement dated as of December 29, 2006, by and between Continental Towers, L.L.C. and PGRT Equity, L.L.C.
10.79	Second Amended and Restated Mortgage and Security Agreement dated as of December 29, 2006, from Continental Towers Associates III, LLC to PGRT Equity, L.L.C.
10.80	Second Amended and Restated Environmental Indemnification Agreement dated as of December 29, 2006, from Continental Towers, L.L.C. to PGRT Equity, L.L.C.
10.81	Amended and Restated Subordination and Standstill Agreement dated as of December 29, 2006, by PGRT Equity LLC to Wells Fargo Bank, N.A., as trustee for the registered holders of Cobalt CMBS Commercial Mortgage Trust 2006-C1, Commercial Mortgage Pass-through Certificates, Series 2006-C1, regarding the loan to Continental Towers, L.L.C.
10.82	Amended and Restated Subordination and Standstill Agreement dated as of December 29, 2006, by PGRT Equity LLC to Wells Fargo Bank, N.A., as trustee for the registered holders of Cobalt CMBS Commercial Mortgage Trust 2006-C1, Commercial Mortgage Pass-through Certificates, Series 2006-C1, regarding the loan to Continental Towers Associates III, LLC
16.1	Letter dated as of October 6, 2005 from Ernst & Young LLP to the Securities and Exchange, as filed as exhibit 16.1 to our Current Report on Form 8-K (filed October 7, 2005, File No. 001-13589) and incorporated herein by reference.
21.1	Subsidiaries of Registrant.
23.1	Consent of Independent Auditors.
31.1	Rule 13a-14(a) Certification of Jeffrey A. Patterson, President and Chief Executive Officer of Registrant.
31.2	Rule 13a-14(a) Certification of Paul G. Del Vecchio, Executive Vice President —Capital Markets of Registrant.
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Jeffrey A. Patterson, President and Chief Executive Officer of the Board of Registrant.
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Paul G. Del Vecchio, Executive Vice President —Capital Markets of Registrant.

_____________________

* Management contracts or compensatory plan or arrangement required to be filed as an exhibit to this Report on Form 10-K pursuant to Item 14(b) of the Report on Form 10-K.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 19, 2007.

	PRIME GROUP REALTY TRUST


	By: /s/ Jeffrey A. Patterson
	Jeffrey A. Patterson

Pursuant to the requirements of the Securities Act of 1933, this report has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Jeffrey A. Patterson	President, Chief Executive Officer and Trustee	March 19, 2007
Jeffrey A. Patterson


/s/ Paul G. Del Vecchio	Executive Vice President —Capital Markets	March 19, 2007
Paul G. Del Vecchio	(Principal Financial Officer)


/s/ Robert M. O'Connor	Vice President –Corporate Accounting	March 19, 2007
Robert M O'Connor


/s/ Bruno de Vinck	Trustee	March 19, 2007
Bruno de Vinck


/s/ David Lichtenstein	Chairman of the Board of Trustees	March 19, 2007
David Lichtenstein


/s/ John M. Sabin	Trustee	March 19, 2007
John M. Sabin

/s/ Michael M. Schurer	Trustee	March 19, 2007
Michael M. Schurer

/s/ Shawn R. Tominus
Shawn R. Tominus	Trustee	March 19, 2007

/s/ George R. Whittemore
George R. Whittemore	Trustee	March 19, 2007

PRIME GROUP REALTY TRUST

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1) Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firms	F–2

Consolidated Balance Sheets as of December 31, 2006 and 2005	F–5

Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended December 31, 2006, for the six months ended December 31, 2005 (successor company), for the six months ended June 30, 2005 (predecessor company) and for the year ended December 31, 2004	F–6

Consolidated Statements of Changes in Shareholders' Equity for the year ended December 31, 2006, for the six months ended December 31, 2005 (successor company), for the six months ended June 30, 2005 (predecessor company) and for the year ended December 31, 2004	F–7

Consolidated Statements of Cash Flows for the year ended December 31, 2006, for the six months ended December 31, 2005 (successor company), for the six months ended June 30, 2005 (predecessor company) and for the year ended December 31, 2004	F–8

Notes to Consolidated Financial Statements	F–10

Financial Statement Schedule

The following financial statement schedule is included in Item 15(c)

Schedule III – Real Estate and Accumulated Depreciation as of December 31, 2006	F–50

Financial Statements of Significant Subsidiary	F–55

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Trustees

Prime Group Realty Trust

We have audited the accompanying consolidated balance sheets of Prime Group Realty Trust (the "Company") as of December 31, 2006 and 2005, and the related consolidated statements of operations and comprehensive income, shareholders' equity and cash flows for the year ended December 31, 2006 and the period from January 1, 2005 to June 30, 2005 (predecessor company) and the period from July 1, 2005 to December 31, 2005 (successor company). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Prime Group Realty Trust as of December 31, 2006 and 2005 and the results of its operations and its cash flows for the year ended December 31, 2006 and the period from January 1, 2005 to June 30, 2005 (predecessor company) and the period from July 1, 2005 to December 31, 2005 (successor company) in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 12 to the consolidated financial statements, the Company adopted Financial Accounting Standards Board Statement No. 123(R), Share-Based Payments (SFAS 123R) in 2006.

Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index of financial statements is presented for additional analysis and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Prime Group Realty Trust's internal control over financial reporting as of December 31, 2006 based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 16, 2007 expressed an unqualified opinion thereon.

/s/GRANT THORNTON LLP

Chicago, Illinois

March 16, 2007

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Trustees and

Shareholders of Prime Group Realty Trust

We have audited management's assessment, included in the accompanying "Management's Report on Internal Control Over Financial Reporting", that Prime Group Realty Trust maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Prime Group Realty Trust's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that Prime Group Realty Trust maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also in our opinion, Prime Group Realty Trust maintained, in all material respects effective internal control over financial reporting as of December 31, 2006 based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2006 and 2005 and the related consolidated statements of operations and comprehensive income, shareholders' equity and cash flows for the year ended December 31, 2006 and the period from January 1, 2005 to June 30, 2005 (predecessor company) and the period from July 1, 2005 to December 31, 2005 (successor company) of Prime Group Realty Trust and our report dated March 16, 2007 expressed an unqualified opinion on those financial statements.

/s/GRANT THORNTON LLP

Chicago, Illinois

March 16, 2007

F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Trustees

Prime Group Realty Trust

We have audited the accompanying consolidated statements of operations, shareholders’ equity, and cash flows of Prime Group Realty Trust for the year ended December 31, 2004. These financial statements are the responsibility of Prime Group Realty Trust’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

In our opinion the financial statements referred to above present fairly, in all material respects, the consolidated results of operations, changes in shareholders equity, and cash flows of Prime Group Realty Trust for the year ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Chicago, Illinois

February 21, 2005,

Except Notes 9 and 10, as to which the date is

February 24, 2006

F-4

PRIME GROUP REALTY TRUST

CONSOLIDATED BALANCE SHEETS

		December 31		December 31
		2006		2005
	(dollars in thousands, except share and
Assets	per share amounts)
Real estate:
Land	$	91,760	$	92,220
Building and improvements		348,019		335,951
Tenant improvements		49,737		43,200
Furniture, fixtures and equipment		586		521
		490,102		471,892
Accumulated depreciation		(31,676)		(11,142)
		458,426		460,750
In–place lease value, net		25,760		39,912
Above–market lease value, net		23,404		30,638
Property under development		–		1,501
		507,590		532,801

Investments in unconsolidated entities		23,658		111,197
Cash and cash equivalents		60,111		17,609
Receivables, net of allowance for doubtful accounts of $402 and $1,086 at December 31, 2006 and 2005, respectively:
Tenant		1,031		1,915
Deferred rent		6,261		2,184
Other		2,202		2,013
Restricted cash escrows		43,998		96,654
Deferred costs, net		7,837		5,220
Other		1,410		2,328
Total assets	$	654,098	$	771,921

Liabilities and Shareholders' Equity
Mortgage notes payable	$	453,695	$	452,965
Accrued interest payable		2,173		1,796
Accrued real estate taxes		21,406		22,389
Accrued tenant improvement allowances		8,849		11,792
Accounts payable and accrued expenses		9,824		6,527
Liabilities for leases assumed		4,962		7,618
Below–market lease value, net		11,868		16,195
Dividends payable		4,500		2,250
Other		7,591		9,136
Total liabilities		524,868		530,668
Minority interests:
Operating Partnership		100,147		135,853
Shareholders' equity:
Preferred Shares, $0.01 par value; 30,000,000 shares authorized:
Series B – Cumulative Redeemable Preferred Shares, 4,000,000 shares designated, issued and outstanding		40		40
Common Shares, $0.01 par value; 100,000,000 shares authorized; 236,483 shares issued and outstanding		2		2
Additional paid–in capital		107,639		106,239
Distributions in excess of earnings		(78,598)		(881)
Total shareholders' equity		29,083		105,400
Total liabilities and shareholders' equity	$	654,098	$	771,921

See accompanying notes.

F-5

PRIME GROUP REALTY TRUST

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)


		Successor Company				Predecessor Company

		Year		Six months		Six months		Year
		ended		ended		ended		ended
		December 31		December 31		June 30		December 31
		2006		2005		2005		2004
	(dollars in thousands, except per					(dollars in thousands, except
		share amounts)			per share amounts)
Revenue:
Rental	$	54,181	$	26,982	$	26,676	$	55,163
Tenant reimbursements		35,065		17,624		17,580		35,564
Other property revenues		5,334		1,768		1,929		3,513
Services Company revenue		4,514		2,181		1,993		4,374
Total revenue		99,094		48,555		48,178		98,614

Expenses:
Property operations		27,328		13,535		12,769		25,028
Real estate taxes		20,738		11,056		11,137		20,927
Depreciation and amortization		35,170		20,133		9,919		19,534
General and administrative		6,393		2,941		4,767		10,426
Services Company operations		3,972		1,593		2,469		3,768
Severance costs		–		218		176		322
Strategic alternative costs		–		–		10,288		2,374
Total expenses		93,601		49,476		51,525		82,379
Operating income (loss)		5,493		(921)		(3,347)		16,235
Loss from investments in unconsolidated joint ventures		(9,145)		(6,998)		(6,024)		(14,878)
Interest and other income		2,850		1,271		1,325		1,617
Interest:
Expense		(42,637)		(12,395)		(12,046)		(25,106)
Amortization of deferred financing costs		(3,146)		(25)		(1,263)		(1,616)
Loss from continuing operations before minority interests		(46,585)		(19,068)		(21,355)		(23,748)
Minority interests		55,096		23,362		2,973		3,766
Income (loss) from continuing operations		8,511		4,294		(18,382)		(19,982)
Discontinued operations, net of minority interests of $(107) for the year ended December 31, 2006, $(3,229), $1,334 and $(1,181) for the six months ended December 31, 2005, for the six months ended June 30, 2005 and in 2004, respectively		1		28		(10,263)		9,092
Income (loss) before gain (loss) on sales of real estate		8,512		4,322		(28,645)		(10,890)
Gain (loss) on sales of real estate and joint venture interests, net of minority interests of $(19,289) for the year ended December 31, 2006, $225, $(1,179) and $64 for the six months ended December 31, 2005, for the six months ended June 30, 2005 and in 2004, respectively		171		(3)		9,074		(493)
Net income (loss)		8,683		4,319		(19,571)		(11,383)
Net income allocated to preferred shareholders		(9,000)		(4,500)		(4,500)		(9,000)
Net loss available to common shareholders	$	(317)	$	(181)	$	(24,071)	$	(20,383)

Basic and diluted earnings available to common shares per weighted–average common share:
Loss from continuing operations after minority interests and allocation to preferred shareholders	$	(2.06)	$	(0.87)	$	(0.97)	$	(1.22)
Discontinued operations, net of minority interests		–		0.12		(0.43)		0.38
Gain (loss) on sales of real estate and joint venture interests, net of minority interests		0.72		(0.01)		0.38		(0.02)
Net loss available per weighted–average common share of beneficial interest – basic and diluted	$	(1.34)	$	(0.76)	$	(1.02)	$	(0.86)

Comprehensive income (loss):
Net income (loss)	$	8,683	$	4,319	$	(19,571)	$	(11,383)
Other comprehensive income (loss) – interest rate protection agreements
Net unrealized gains (losses) arising during the year		–		2		39		(145)
Losses reclassified into earnings from other comprehensive income – unconsolidated entities		–		–		–		2,594
Comprehensive income (loss)	$	8,683	$	4,321	$	(19,532)	$	(8,934)

See accompanying notes.

F-6

PRIME GROUP REALTY TRUST

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2006,

FOR THE SIX MONTHS ENDED DECEMBER 31, 2005,

FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND

FOR THE YEAR ENDED DECEMBER 31, 2004

								Accumulated		(Distributions
		Series B				Additional		Other		in Excess of)
		Preferred		Common		Paid–In		Comprehensive		Retained
		Shares		Shares		Capital		Loss		Earnings		Total
		(dollars in thousands, except for share/unit and per share amounts)

Balance at January 1, 2004	$	40	$	236	$	381,273	$	(2,917)	$	(115,294)	$	263,338
Amortization of restricted stock awards		–		–		20		–		–		20
Net loss		–		–		–		–		(11,383)		(11,383)
Series B – preferred share dividends declared ($2.25 per share)		–		–		–		–		(9,000)		(9,000)
Net unrealized gain on derivative instruments		–		–		–		2,449		–		2,449
Balance at December 31, 2004	$	40	$	236	$	381,293	$	(468)	$	(135,677)	$	245,424
Net loss Predecessor Company		–		–		–		–		(19,571)		(19,571)
Series B – preferred share dividends declared ($1.125 per share)		–		–		–		–		(4,500)		(4,500)
Net unrealized gain on derivative instruments		–		–		–		39		–		39
Balance at June 30, 2005	$	40	$	236	$	381,293	$	(429)	$	(159,748)	$	221,392
Impact of applying push down accounting		(40)		(236)		(381,293)		429		159,748		(221,392)
Opening balance at date of Acquisition – July 1, 2005		40		2		105,539		–		–		105,581
Accretion of fair value of preferred stock		–		–		700		–		(700)		–
Net income Successor Company		–		–		–		–		4,319		4,319
Series B – preferred share dividends declared ($1.125 per share)		–		–		–		–		(4,500)		(4,500)
Balance at December 31, 2005	$	40	$	2	$	106,239	$	–	$	(881)	$	105,400
Accretion of fair value of preferred stock		–		–		1,400		–		(1,400)		–
Net income		–		–		–		–		8,683		8,683
Series B – preferred share dividends declared ($2.25 per share)		–		–		–		–		(9,000)		(9,000)
Common unit/common share distributions declared ($2.8438 per common unit/share)		–		–		–		–		(76,000)		(76,000)
Balance at December 31, 2006	$	40	$	2	$	107,639	$	–	$	(78,598)	$	29,083

See accompanying notes.

F-7

PRIME GROUP REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Successor Company				Predecessor Company

		Year		Six months		Six months		Year
		ended		ended		ended		ended
		December 31		December 31		June 30		December 31
		2006		2005		2005		2004
Operating activities	(dollars in thousands)					(dollars in thousands)
Net income (loss)	$	8,683	$	4,319	$	(19,571)	$	(11,383)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Accretion of mortgage notes payable		(1,373)		(927)		–		–
Amortization of costs for leases assumed (included in rental revenue)		–		52		138		288
Amortization of above/below–market lease value (included in rental revenue)		2,987		1,762		–		–
Amortization of in–place lease value		14,141		8,956		–		–
Provision for doubtful accounts		96		(713)		(186)		1,726
Gain on sales of real estate and joint venture interests (loss (gain) of $6, $(709) and $(10,287) for the six months ended December 31, 2005, for the six months ended June 30, 2005 and for the year ended 2004, respectively, included in discontinued operations)		(19,460)		(170)		(10,558)		(5,382)
Depreciation and amortization (including discontinued operations)		24,175		11,193		12,075		29,558
Provision for asset impairment (asset impairments of $15,074 in 2005 included in discontinued operations)		–		–		15,074		–
Net equity in loss from investments in unconsolidated joint ventures		9,145		6,998		6,024		14,878
Minority interests (including discontinued operations and gain on sales of real estate and joint venture interests)		(35,700)		(35,318)		(3,173)		(2,649)
Net changes in other operating assets and liabilities (including discontinued operations):
Accounts receivable		(3,478)		(2,807)		545		(4,462)
Other assets		1,173		238		224		727
Accrued interest payable		377		137		178		(65)
Accrued real estate taxes		(983)		(1,102)		685		(595)
Accounts payable and accrued expenses		257		245		(153)		(4,575)
Other liabilities		555		8,373		(7,961)		4,042
Preferential return on investments in joint ventures		4,243		–		–		–
Net cash provided by (used in) operating activities		4,838		1,236		(6,659)		22,108
Investing activities
Expenditures for real estate and equipment		(14,478)		(4,612)		(5,457)		(15,950)
Proceeds received under environmental indemnification		–		–		–		3,100
Proceeds from sales of real estate		2,136		3,063		10,397		134,169
Payments for tax indemnity agreement		(4,200)		–		–		–
(Increase) decrease in restricted cash escrows (including discontinued operations)		(4,062)		(59,355)		378		3,424
Leasing costs		(5,799)		(3,073)		(3,360)		(7,761)
Loan to unconsolidated joint venture		–		–		–		(588)
Distributions from unconsolidated joint ventures		92,806		3,933		300		219
Net cash provided by (used in) investing activities		66,403		(60,044)		2,258		116,613

F-8

PRIME GROUP REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)


		Successor Company				Predecessor Company

		Year		Six Months		Six Months		Year
		ended		ended		ended		ended
		December 31		December 31		June 30		December 31
		2006		2005		2005		2004
Financing activities		(dollars in thousands)				(dollars in thousands)
Financing costs		(3,092)		(1,367)		(1,090)		(755)
Change in restricted cash escrows		55,000		–		–		–
Proceeds from mortgage notes payable		173,000		55,000		75,000		67,000
Repayment of mortgage notes payable		(170,897)		(1,110)		(67,096)		(159,093)
Distributions to minority interests—operating partnership		(75,328)		(29,735)		–		–
Dividends paid to Series B – preferred shareholders		(6,750)		(15,750)		(4,500)		(6,750)
Dividends paid to common shareholder		(672)		(265)		–		–
Net cash (used in) provided by financing activities		(28,739)		6,773		2,314		(99,598)
Net increase (decrease) in cash and cash equivalents		42,502		(52,035)		(2,087)		39,123
Cash and cash equivalents at beginning of period		17,609		69,644		71,731		32,608
Cash and cash equivalents at end of period	$	60,111	$	17,609	$	69,644	$	71,731

Supplemental cash flow information for net assets sold:


Real estate, net	$	–	$	48,598	$	590	$	156,487
Deferred rent receivable		–		–		–		3,426
Deferred costs, net		–		1,716		–		2,507
Restricted escrows		–		1,548		–		27,198
Mortgage notes payable assumed by buyer		–		(45,977)		–		(28,382)
Bonds payable assumed by buyer		–		–		–		(24,900)
Accrued real estate taxes		–		(3,055)		–		(5,173)
Other liabilities and assets, net		75,482		(2,660)		–		(6,724)
Net assets sold		75,482		170		590		124,439
Proceeds from sales of real estate		94,942		–		10,397		134,169
Gain on sales of real estate and joint venture interests(1)	$	19,460	$	170	$	9,807	$	9,730

(1)

Gain on sales of real estate of $0.7 million and $10.3 million are included in discontinued operations for the six months ended June 30, 2005 and for the year ended December 31, 2004. For the year ended December 31, 2005, the $10.7 million gain on sales of real estate includes $0.6 million of residual effects related to properties sold in prior years. For the year ended December 31, 2004, the $10.3 million gain on sales of real estate in discontinued operations includes $4.3 million of non-cash allocated costs.

Supplemental cash flow information for significant non-cash activity:


Mortgage notes payable reduction through assumption of debt by purchaser of sold properties	$	–	$	45,977	$	–	$	28,382
Bonds payable reduction through assumption of debt by purchaser of sold property		–		–		–		24,900
	$	–	$	45,977	$	–	$	53,282

Supplemental cash flow information for significant non–cash activity related to Acquisition:


Real estate, net	$	–	$	30,293	$	–	$	–
Investments in unconsolidated entities		–		107,863		–		–
Deferred rent receivable		–		(18,814)		–		–
Deferred costs, net		–		(13,363)		–		–
Mortgage notes payable		–		(10,630)		–		–
Other liabilities		–		(14,820)		–		–
Minority interests		–		(202,270)		–		–
Shareholder equity		–		121,741		–		–
	$	–	$	–	$	–	$	–

See accompanying notes.

F-9

Prime Group Realty Trust

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

Formation and Organization of the Company

We are a fully-integrated, self-administered and self-managed real estate investment trust ("REIT") which owns, manages, leases, develops and redevelops office and industrial real estate, primarily in the Chicago metropolitan area. Our portfolio of properties consists of 10 office properties, containing an aggregate of 3.9 million net rentable square feet, and one industrial property, containing 0.1 million net rentable square feet. All of our properties are located in the Chicago metropolitan area in prime business locations within established business communities and account for all of our rental revenue and tenant reimbursements revenue. In addition, we have two joint venture interests in office properties totaling approximately 1.1 million net rentable square feet. One of our joint venture properties consisting of approximately 0.1 million rentable square feet is located in Arizona. We lease and manage 5.0 million square feet comprising all of our wholly-owned properties and one joint venture property. In addition, we also manage and lease the 1.5 million square foot Citadel Center office building located at 131 South Dearborn Street in Chicago, Illinois, in which we previously owned a joint venture interest which was sold in November 2006.

Our two joint venture interests are accounted for as investments in unconsolidated joint ventures under the equity method of accounting. These consist of a 50.0% common interest in a joint venture which owns the 959,719 square foot office tower located at 77 West Wacker Drive, Chicago, Illinois and a 23.1% common interest in a joint venture that owns a 101,006 square foot office building located in Phoenix, Arizona.

Prior to our acquisition (the "Acquisition") by an affiliate of The Lightstone Group, LLC ("Lightstone"), we were the sole general partner of the Operating Partnership and owned all of the preferred units and 88.5% of the common units of the Operating Partnership then issued. Each preferred unit and common unit entitled us to receive distributions from our Operating Partnership. Distributions declared or paid to holders of common shares and preferred shares were based upon the distributions we received with respect to our common units and preferred units.

On June 28, 2005, our common shareholders approved the Acquisition by Lightstone and on July 1, 2005, the Acquisition was completed. The Acquisition closed pursuant to the terms of the previously announced agreement and plan of merger dated as of February 17, 2005, among certain affiliates of Lightstone, the Operating Partnership and us. As a result of the Acquisition, each of our common shares and limited partnership units of the Operating Partnership were cancelled and converted into the right to receive cash in the amount of $7.25 per common share/unit, without interest. In connection with the Acquisition, all outstanding options with an exercise price equal to or greater than the sales price of $7.25 per common share/unit were cancelled and each outstanding option for a common share with an exercise price less than the sales price were entitled to be exchanged for cash in an amount equal to the difference between $7.25 and the exercise price. Our

F-10

1. Summary of Significant Accounting Policies (continued)

Series B Cumulative Redeemable Preferred Shares (the "Series B Shares") remain outstanding after the completion of the Acquisition.

As a result of the Acquisition, Prime Office Company LLC ("Prime Office"), a subsidiary of Lightstone, owned 100.0%, or 236,483, common shares and 99.1%, or 26,488,389, of the outstanding common units in the Operating Partnership. Prime Group Realty Trust (the "Company" or "PGRT") owns 0.9%, or 236,483, of the outstanding common units and all of the 4.0 million outstanding preferred units in the Operating Partnership.

Accordingly, the financial statements reflect our operations prior to the Acquisition (predecessor company) and after the Acquisition for the six month period ended December 31, 2005 (successor company) and year ended December 31, 2006.

Basis of Presentation

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Investments in corporations and partnerships in which we do not have a controlling financial interest but do have significant influence or a majority interest are accounted for under the equity method of accounting. These entities are reflected on our consolidated financial statements as investments in unconsolidated entities. To the extent that our recorded share of losses exceeds our investment in an unconsolidated corporation or partnership, we reflect a deficit investment as a liability in our consolidated financial statements.

Our consolidated financial statements include our Operating Partnership and the other entities in which we have control or from which we receive all economic benefits. We have significant controlling financial interests in the Continental Towers office building located at 1701 Golf Road in Rolling Meadows, Illinois through our ownership of a second mortgage note secured by this property and we consolidate this property.

Significant intercompany accounts and transactions have been eliminated in consolidation.

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

We have one primary reportable segment consisting principally of our ongoing ownership and operation of ten office properties and one industrial property located in the Chicago area and leased through operating leases to unrelated third parties. Substantially all depreciation and interest expense reflected in the consolidated financial statements presented herein relate to our ownership of our properties.

F-11

1. Summary of Significant Accounting Policies (continued)

Accounting for the Acquisition

The Acquisition was at a purchase price of $7.25 per common share/ unit and was structured in a manner that resulted in Lightstone owning all 236,483 of our common shares and 26,488,389 limited partnership units of the Operating Partnership. As a result of the closing of the Acquisition on July 1, 2005, we were required to revalue our balance sheet to reflect the fair market value of each of our assets and liabilities in accordance with Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations." The total purchase price for the Acquisition was $204.6 million, which included $10.9 million of transaction costs, in addition to the assumption of debt of $435.2 million and the Series B Shares fairly valued at $93.0 million. For accounting purposes, the total purchase price was reduced by the $30.0 million distribution to our common shareholder, which was paid out of acquired cash, made after the Acquisition on July 5, 2005 and was accounted for as a reduction in Prime Office's investment in us. The purchase price was allocated as follows, using the methods described below:

		(dollars in
		thousands)
Total Purchase Price	$	732,800
Common Share Distribution		(30,000)
Net purchase price	$	702,800

Land	$	108,656
Building and improvements		357,324
Tenant Improvements		36,515
Furniture, fixtures and equipment		506
In–place lease value		44,875
Above/below–market lease value		15,579
Property under development		1,500
Deferred Costs		12,805
Investments in unconsolidated entities		122,072
Current assets		63,817
Other assets		2,531
Other liabilities		(52,750)
Fair value adjustment to debt		(10,630)
Total allocated purchase price	$	702,800

The net assets at the date of the Acquisition, fairly valued as described below, exceeded the cost of the Acquisition resulting in negative goodwill of approximately $62.0 million, which was allocated on a pro rata basis to all of the acquired non-financial, non-current assets.

As a result of the Acquisition and the revaluation of our balance sheet because of the Acquisition, the fair value of the real estate acquired by Lightstone is allocated to acquired tangible assets, consisting of land, buildings and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases for acquired in-place leases, lease in-place value and the value of tenant relationships, based in each case on their fair values. Purchase accounting was applied to assets and liabilities related to the Acquisition based upon the fair value of interest acquired.

The fair value of the tangible assets of an acquired property (which includes land, buildings and tenant improvements) is determined by valuing the property as if it were vacant, based on management's determination of the relative fair values of these assets. Management determines the as-if-vacant fair value of a property using generally accepted methods. In addition, the fair value of our investment in joint ventures is determined by applying our ownership percentage to the new fair value of the property.

F-12

1. Summary of Significant Accounting Policies (continued)

In determining the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease values and the capitalized below-market lease values are amortized as an adjustment to rental income over the remaining lease term.

The aggregate value of in-place leases is determined by evaluating various factors, including an estimate of carrying costs during the expected lease-up periods, current market conditions and similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions, legal and other related costs. The in-place lease value is amortized to expense over the remaining lease term.

The aggregate value of other acquired intangible assets include tenant relationships. Factors considered by management in whether to assign a value to these relationships include: assumptions of probability of lease renewals, investment in tenant improvements, leasing commissions and an approximate time lapse in rental income while a new tenant is located. The value, if assigned to this intangible asset, would be amortized over the average life of the relationship. Management after its review decided to assign no fair value to these relationships based on our current tenant mix.

The fair value of the fixed rate long-term debt of the acquired entity was determined by valuing the debt at present value amounts based on market comparisons to similar types of debt instruments having similar maturity.

The Acquisition was accounted for as a purchase, and consequently, results of operations reflect the new basis of accounting from the date of the Acquisition. The current allocation of the purchase price by Lightstone is based upon preliminary estimates and is subject to final resolution of certain contingent liabilities related to certain contingent tax indemnities.

Real Estate

Real estate assets, including acquired assets, are stated at cost. Depreciation is calculated on the straight-line method over the estimated useful lives of the related assets, which are as follows:

Buildings	40 years weighted average composite life
Building improvements	10 to 30 years
Tenant improvements	Term of related leases
Furniture and equipment	3–10 years

Development costs, which include land acquisition costs, construction costs, fees and other costs incurred in developing new properties, are capitalized as incurred. Interest, financing costs, real estate taxes, other direct costs and indirect costs (including certain employee compensation costs and related general and administrative expenses) incurred during development periods are capitalized as a component of the building costs. Subsequent to the one-year period, these costs are fully expensed as incurred. Upon completion of construction, development costs are included in buildings and improvements and are depreciated over the useful lives of the respective properties on a straight-line basis.

F-13

1. Summary of Significant Accounting Policies (continued)

Expenditures for ordinary maintenance and repairs are expensed to operations as incurred. Significant renovations and improvements which improve and/or extend the useful life of the asset are capitalized and depreciated over their estimated useful life. In accordance with SFAS No. 144, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 144"), we record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets during the expected hold period are less than the carrying amounts of those assets.

The estimated cash flows used for the impairment analysis and to determine estimated fair value are based on our plans for our respective assets and our views of market and economic conditions. The estimates consider matters such as current and historical rental rates, occupancies for the respective properties and comparable properties and recent sales data for comparable properties. Changes in estimated future cash flows due to changes in our plans or views of market and economic conditions could result in the recognition of impairment losses, which, under the applicable accounting guidance, could be substantial. As of December 31, 2006, we believe that no impairments existed. Impairment losses of $15.1 million were recognized for the year ended December 31, 2005.

Impairment losses are measured as the difference between carrying value and fair value of assets. For assets held for sale, impairment is measured as the difference between carrying value and fair value, less costs to dispose. Fair value is based on estimated cash flows discounted at a risk-adjusted rate of interest. Property held for future development and property under development are also evaluated for impairment. Impairment is determined for development costs associated with property held for future development and property under development based upon management's assessment that these costs have no future value.

Sales of Real Estate

In accordance with SFAS No. 66, "Accounting for Sales of Real Estate", we recognize gains on sale of real estate using the full accrual method upon sale, provided the sales price is reasonably assured and we are not obligated to perform significant activities after the sale. However, when we agree to assume responsibility for re-leasing sold properties for a period beyond the date of sale and where we use estimates to support our intent to mitigate our net liability, we defer recognition of the gain on sale of real estate until such time as we can more reasonably determine our actual liability with executed subleases.

In accordance with SFAS 144, net income and gain (loss) on sales of real estate for properties sold or properties held for sale are reflected in our Consolidated Balance Sheets and Statements of Operations as "discontinued operations" for all years presented.

Property Held for Sale

We evaluate held for sale classification of our owned real estate on a quarterly basis. Assets that are classified as held for sale are recorded at the lower of their carrying amount or fair value less cost to sell. Assets are generally classified as held for sale once we commit to a plan to sell the property and have initiated an active program to market them for sale. The results of operations of these real estate properties are reflected as discontinued operations in all periods reported.

On occasion, we will receive unsolicited offers from third parties to buy individual properties. Under these circumstances, we will classify the properties as held for sale when a sales contract is executed with no contingencies and the prospective buyer has funds at risk to ensure performance.

F-14

1. Summary of Significant Accounting Policies (continued)

Intangible Assets

The above-market lease values and below-market lease values are amortized as an adjustment to rental income over the remaining lease term while in-place lease values are amortized to expense over the remaining lease term.

Intangible assets consist of the following:

		December 31, 2006
		Carrying		Accumulated		Carrying
Intangible Asset Category		Amount–Gross		Amortization		Amount – Net
		(dollars in thousands)
In–place lease value	$	48,867	$	(23,107)	$	25,760
Above–market lease value		34,796		(11,392)		23,404
Below–market lease value		(18,632)		6,764		(11,868)
	$	65,031	$	(27,735)	$	37,296

Actual amortization for the year ended December 31, 2006 and estimates for each of the next five fiscal years is as follows:


		In–Place		Above–market		Below–market
Year ending December 31		Lease Value		Lease Value		Lease Value
		(dollars in thousands)
2006	$	14,141	$	7,314	$	(4,327)
2007		8,206		6,191		(3,048)
2008		5,858		5,262		(2,432)
2009		4,665		4,811		(1,959)
2010		2,613		2,332		(1,489)
2011		1,616		1,188		(1,077)

Cash Equivalents

We consider highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Restricted Cash

Restricted cash consists primarily of cash held for real estate taxes, insurance and property reserves for maintenance and expansion or tenant improvements as required by certain leases and loan agreements.

Deferred Costs

Costs incurred in connection with financings, refinancings or debt modifications are capitalized as deferred financing costs and are amortized using the straight-line method over the lives of the related loans. Upon the early extinguishment of debt, remaining deferred financing costs associated with the extinguished debt are fully amortized to interest expense. Leasing commissions, lease assumption costs and other leasing costs directly attributable to tenant leases are capitalized as deferred leasing costs and are amortized on the straight-line method over the terms of the related lease agreements.

F-15

1. Summary of Significant Accounting Policies (continued)

Allowance for Doubtful Accounts

The allowance for doubtful accounts reflects our estimate of the amounts of the recorded accounts receivable at the balance sheet date that will not be recovered from cash receipts in subsequent periods. Our policy is to record a periodic provision for doubtful accounts based on the age of the receivable. We also periodically review specific tenant balances and determine whether an additional allowance is necessary. In recording such a provision, we consider a tenant's creditworthiness, ability to pay, probability of collection and consideration of the tenant. The allowance for doubtful accounts is reviewed periodically based upon our historical experience. As a result, we recorded a provision of $0.1 million, $0.1 million, $0.3 million and $1.7 million for the year ended December 31, 2006, for the six months ended December 31, 2005, six months ended June 30, 2005 and for the year ended December 31, 2004, respectively. In addition, we had write-offs of $0.8 million during 2006.

Leases Assumed

In connection with certain tenant leases, we have assumed the liability for the remaining terms of the tenants' existing leases in their previous location. We have recorded a liability for the difference between the total remaining costs for leases assumed and the expected benefits from actual and estimated future subleasing of the assumed lease obligations. The related incentive to the lessee has been capitalized as a deferred cost and is being amortized as a reduction of rental revenue over the life of the respective lease. The deferred cost and related liability are adjusted prospectively for changes in the estimated benefits from subleases.

Revenue Recognition

Rental revenue is recorded on a straight-line basis which includes the effects of rent steps and rent abatements under the leases. We commence rental revenue recognition when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use. In addition, in circumstances where we provide a tenant improvement allowance that is not used by the tenant, we recognize the unused allowance as a reduction of rental revenue on a straight-line basis over the term of the lease. Differences between rental revenue earned and amounts due per the respective lease agreements are credited or charged, as applicable, to deferred rent receivable. Rental payments received prior to their recognition as income are classified as rent received in advance and are included in other liabilities. Lease termination income (included in rental revenue) represents amounts received from tenants in connection with the early termination of their remaining lease obligation reduced by any outstanding tenant receivables (including deferred rent receivable). Unamortized tenant improvements, deferred lease commissions and leasing costs related to terminated leases are recorded as additional depreciation and amortization expense upon lease termination.

Real estate leasing commissions are recognized upon execution of appropriate lease and commission agreements and receipt of full or partial payment, and, when payable upon certain events such as tenant occupancy or rent commencement, upon occurrence of such events. All other commissions and fees, including management fees, are recognized at the time the related services have been performed by the Company, unless future contingencies exist.

Interest Rate Protection Agreements

In the normal course of business, we are exposed to the effects of interest rate changes. We limit these risks by following established risk management policies and procedures including the use of derivatives. For interest rate exposures, derivatives are used primarily to align rate movements between interest rates associated with our leasing income and other financial assets with interest rates on related debt and to manage the cost of borrowing obligations. These are principally entered into to comply with requirements under certain of our loan agreements.

F-16

F-17

Summary of Significant Accounting Policies (continued)

We have a policy of only entering into derivative contracts with major financial institutions based upon their credit ratings and other factors. When viewed in conjunction with the underlying and offsetting exposure that the derivatives are designed to hedge, we have not sustained a material loss from those instruments nor do we anticipate any material adverse effect on our net income or financial position in the future from the use of derivatives.

We require that hedging derivative instruments be effective in reducing the interest rate risk exposure that they are designated to hedge. This effectiveness is essential for qualifying for hedge accounting. Some derivative instruments are associated with the hedge of an anticipated transaction. In those cases, hedge effectiveness criteria also requires that it be probable that the underlying transaction occurs. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract. When the terms of an underlying transaction are modified, or when the underlying hedged item ceases to exist, all changes in the fair value of the instrument are marked-to-market with changes in value included in net income each period until the instrument matures, unless the instrument is redesignated as a hedge of another transaction. Any derivative instrument used for risk management that does not meet the hedging criteria is marked-to-market each period in earnings.

To determine the fair values of derivative instruments, we use a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. For the majority of financial instruments including most derivatives, long-term investments and long-term debt, standard market conventions and techniques such as discounted cash flow analysis, option pricing models, replacement cost, and termination cost are used to determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS 133"), as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" ("SFAS 138"), established accounting and reporting standards for derivative instruments. Specifically SFAS 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either shareholders' equity or net income depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. The Financial Accounting Standards Board also issued guidance on the accounting for options used as hedges under SFAS 133. Provided certain criteria are met, options can be considered fully effective hedging vehicles, with gains and losses due to changes in market value recorded in accumulated other comprehensive loss on the balance sheet. Any unrealized gains or

F-18

1. Summary of Significant Accounting Policies (continued)

losses due to changes in market value of options, such as interest rate caps, have been recorded in comprehensive loss.

Earnings Per Share

Basic earnings per share ("EPS") is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS includes the potentially dilutive effect, if any, which would occur if outstanding: (i) common share options were exercised; (ii) limited partner common units in the Operating Partnership were exchanged for common shares; (iii) common share grants were fully-vested and (iv) common share warrants were exercised.

Income Taxes

We have elected to be taxed as a REIT under the Internal Revenue Code. As a REIT, we generally will not be subject to federal income tax to the extent that we distribute at least 90.0% of our REIT taxable income to our shareholders. REITs are subject to a number of organizational and operational requirements. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate tax rates.

We account for income taxes payable by Prime Group Realty Services, Inc., a Maryland corporation and a wholly-owned subsidiary of the Operating Partnership and its affiliates (collectively, the "Services Company"), a taxable REIT subsidiary, in accordance with SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities. SFAS 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. We evaluate quarterly the realizability of our deferred tax assets by assessing the valuation allowance and by adjusting the amount of the allowance, if necessary. The factors used to assess the likelihood of realization are our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax asset. We have used tax planning strategies to realize or renew net deferred tax assets in order to avoid the potential loss of future tax benefits.

The Services Company recorded a tax provision of $0.8 million during 2006. At December 31, 2006, the Services Company had a current tax liability of $107,000 and a deferred tax asset of $54,000. During 2005, the Services Company recorded a tax provision of $0.6 million and had a current and deferred tax liability of $96,000 and $81,000, respectively. The Services Company paid income taxes in the amount of $0.7 million for the year ended December 31, 2006, $0.2 million for the six months ended December 31, 2005, $0.2 million for the six months ended June 30, 2005 and $59,000 for the year ended December 31, 2004.

F-19

1. Summary of Significant Accounting Policies (continued)

yet completed our evaluation on whether the adoption on Interpretation 48 will have a material effect on our consolidated financial position, results of operations or cash flows, including our ability to comply with current debt covenants.

During 2006 the Internal Revenue Service began an examination of the tax returns for Prime Group Realty, L.P. for the years 2003 and 2004 as well as 180 N. LaSalle, L.L.C. for the year 2004.

Severance Costs

Severance costs of $0.2 million for the six months ended December 31, 2005 and $0.2 million for the six months ended June 30, 2005 primarily related to a reduction of corporate management and support staff. For the year ended December 31, 2004, severance costs of $0.3 million were incurred primarily resulting from the retirement of Mr. Stephen J. Nardi as our Chief Executive Officer and Chairman of our Board.

Strategic Alternative Costs

Strategic alternative costs of $10.3 million for the six months ended June 30, 2005 primarily relate to the settlement payment in connection with settling certain litigation ($7.0 million) and legal, consulting, and professional fees incurred as a result of the Acquisition.

2. Asset Impairments

We recorded the following provisions for asset impairments:

		Successor Company				Predecessor Company

		Year		Six months		Six months		Year
		ended		ended		ended		ended
		December 31		December 31		June 30		December 31
		2006		2005		2005		2004
		(dollars in thousands)				(dollars in thousands)

Discontinued operations (1)		–		–		15,074		–
	$	–	$	–	$	15,074	$	–

(1)	Discontinued operations for the year ended December 31, 2005 include provisions for asset impairments related to properties held for sale or sold. See Note 9 – Discontinued Operations to these consolidated financial statements for a description of these asset impairments.

3. Deferred Costs

Deferred costs consist of the following:


		December 31
		2006		2005
		(dollars in thousands)

Financing costs	$	4,421	$	1,329
Leasing costs		7,110		3,916
		11,531		5,245
Less: Accumulated amortization		(3,694)		(25)
	$	7,837	$	5,220

F-20

4. Mortgage Notes Payable

Mortgage Notes Payable consisted of the following:

		December 31
		2006		2005
		(dollars in thousands)
Mortgage Notes Payable (1), (2):
Mortgage notes payable to various financial institutions, collateralized by various properties, interest at fixed rates ranging from 5.43% to 8.76% per annum, with principal and interest payable monthly on dates ranging from 2007 through March 1, 2016. The weighted average rates at December 31, 2006 and 2005 were 6.30% and 8.31%, respectively	$	239,917	$	182,965
Mortgage notes payable to various financial institutions, collateralized by various properties, interest at variable rates ranging from LIBOR (5.35% at December 31, 2006) plus 143 basis points to LIBOR plus 570 basis points per annum, with interest payable monthly through January 1, 2008. The weighted average rates at December 31, 2006 and 2005 were 8.28% and 6.90%, respectively		213,778		270,000
Total mortgage notes payable (3)	$	453,695	$	452,965

(1)

The mortgage notes payable are subject to various operating and financial covenants. In addition, we are required to periodically fund and maintain escrow accounts to make future real estate tax and insurance payments, as well as to fund certain tenant releasing costs and capital expenditures. These are included in restricted cash escrows.

(2)	All of our operating real estate assets have been pledged as collateral for our mortgage notes payable.

(3)	The fair value of our notes payable is estimated at $452.3 million and $453.0 million as of December 31, 2006 and 2005, respectively.

On December 30, 2005, our subsidiary, Prime Dearborn Equity LLC ("Prime Dearborn"), entered into a $55.0 million mezzanine loan agreement with IPC Investments Holdings Canada Inc. ("IPC Lender") associated with Citadel Center and on January 11, 2006 this loan was funded out of escrow. This loan was collateralized with a pledge by Prime Dearborn of its right to distributions from the joint venture, Dearborn Center L.L.C. ("Dearborn LLC") owning Citadel Center, and a pledge by our Operating Partnership of its rights to management and leasing fees in connection with the management of the property. This loan contained a 2.0% origination fee, an original maturity date of April 5, 2010 and had an annual interest rate of 12.0%. An affiliate of IPC Lender, IPC Prime Equity, LLC ("IPC Equity"), received a membership interest in Prime Dearborn from which IPC Equity was entitled to receive 10.0% of any net sales proceeds in excess of $50.0 million from Prime Dearborn's interest in Dearborn LLC. IPC Equity also received a membership interest in Prime Office. In connection with this membership interest, and subject to Lightstone receiving the return of its equity and certain priority returns, IPC Equity was entitled to receive 12.6% of the cash available for distribution derived from Prime Office's direct ownership of the common units of our Operating Partnership and 10% derived from Prime Office's ownership of our common shares. On November 8, 2006, Dearborn LLC completed the sale of the property for $560.0 million, subject to customary pro-rations and adjustments. In conjunction with the sale of this property, Prime Dearborn repaid this loan and distributed $4.0 million to IPC Equity (recorded as interest expense). Since Prime Dearborn repaid all of the loan before the first anniversary of the loan,

F-21

4. Mortgage Notes Payable (continued)

IPC Lender had the option to use the proceeds from the repayment to purchase up to 33.3% of the membership interests in Prime Office. This option has since expired unexercised.

On January 11, 2006, our wholly-owned subsidiary, PGRT Equity LLC ("Prime Equity") obtained a loan in the original principal amount of $58.0 million (the "Citicorp Loan") from Citicorp USA Inc. ("Citicorp"), and our Operating Partnership transferred to Prime Equity, (i) its interest in the junior mortgage loan (the "Junior Loan") encumbering Continental Towers, (ii) its 50.0% common membership interest in 77 West Wacker Drive, L.L.C., the owner of 77 West Wacker Drive, Chicago Illinois, (iii) its 100.0% membership interest in 280 Shuman Blvd, L.L.C. ("280 Owner"), the owner of the property known as the Atrium located at 280 Shuman Boulevard in Naperville, Illinois, (iv) its 100.0% membership interest in 800 Jorie Blvd. Mezzanine, L.L.C., the owner of a 49.0% membership interest in 800 Jorie Blvd, L.L.C. and the owner of 800-810 Jorie Blvd., Oak Brook, Illinois, and (v) its 100.0% membership interest in Prime Group Management, L.L.C. ("Prime Management"), the manager of Continental Towers.

As security for the Citicorp Loan, among other things, (a) the Operating Partnership pledged all of its interests in Prime Equity, (b) Prime Equity pledged all of its interests in the Junior Loan, the membership interests referred to in clause (ii), (iv) and (v) above and its right to receive distributions from all of the properties referred to in clauses (i) through (v) above and (c) 280 Owner granted a mortgage to Citicorp on the Atrium property.

As contemplated by the Citicorp Loan documents, we have delivered to Citicorp the necessary consents from the senior mortgage lender on our 180 N. LaSalle Street property and, among other things, a pledge and assignment of all of the membership interests in 180 N. LaSalle II, L.L.C., our subsidiary that owns the 180 N. LaSalle Street property (the "180 Pledge"). On September 27, 2006, in connection with the 180 Pledge, the amount of the Citicorp Loan was reduced to $47.0 million and a new loan in the amount of $11.0 million (the "New Citicorp Loan") was made having the same material terms as the Citicorp Loan and secured by, among other things, the 180 Pledge and the other collateral referred to above. In connection with the closing of the New Citicorp Loan, Citicorp did not require any additional repayment of the Citicorp Loan, and the combined principal amount of the Citicorp Loan and New Citicorp Loan equal the $58.0 million principal previously outstanding under the Citicorp Loan prior to the closing of the New Citicorp Loan. On November 21, 2006, $39.2 million of the Citicorp Loan was repaid leaving an outstanding balance of $18.8 million in aggregate on the Citicorp Loan and New Citicorp Loan.

F-22

4. Mortgage Notes Payable (continued)

proceeds for the interest rate caps, which is recorded as other assets in our consolidated financial statements. We received $0.1 million in 2006 related to this cap agreement.

The Citicorp Loan had an origination fee of 1.0% ($580,000) which was paid from proceeds at closing, and the Citicorp Loan and New Citicorp Loan have an exit fee of 1.0% (not to exceed $580,000), if either loan is paid in full within one year of the original closing date. Prime Equity was required to establish a $3.0 million leasing reserve account at the closing and is required to deposit an additional $250,000 per month into the leasing reserve accounts, to be used for tenant improvements costs and leasing commissions. In addition, Prime Equity is also required to maintain a minimum cash balance during the term of the loans, including amounts in the leasing reserve accounts, of at least $6.0 million. The leasing reserve account and minimum cash balance as of December 31, 2006 is $7.2 million.

On November 21, 2006, the owners of Continental Towers refinanced the property with a first mortgage loan (the "Senior Loan") in the principal amount of $115.0 million from CWCapital LLC ("CWCapital"). Proceeds of the loan were utilized to (i) repay the existing first mortgage loan encumbering the Continental Towers property in the principal amount of $75.0 million and (ii) partially repay approximately $36.6 million of the junior mortgage loan ("Junior Loan") encumbering the property. The Junior Loan is held by Prime Equity. After the partial repayment of the Junior Loan, approximately $128.6 million of principal and accrued interest remained outstanding under the Junior Loan on November 21, 2006. Prime Equity used the funds from the partial prepayment of the Junior Loan, and certain other funds, to make the $39.2 million repayment referred to above to Citicorp.

Although the Company does not own fee title to the Continental Towers property, we have a significant economic interest in the property through our ownership of two Junior Loans secured by the property, and we consolidate the property's operations into our financial statements and account for it as an owned property. In addition, a subsidiary of Prime Equity manages the property.

The Senior Loan from CWCapital loan has a fixed interest rate of 5.864% per year and matures on December 1, 2016. The loan may not be prepaid except during the last three months of the loan term and except that upon the earlier of (a) 24 months following the securitization of the Senior Loan or (b) 36 months after closing, the Senior Loan may be prepaid as stipulated in the loan agreement. Payments of interest only are due monthly and there is no required principal amortization. The Senior Loan is assumable subject to the lenders' reasonable consent and the payment of a 0.50% transfer fee, as well as the satisfaction of certain other requirements as more fully set forth in the loan documents.

F-23

4. Mortgage Notes Payable (continued)

Interest Rate Protection Agreement. We have entered into the following interest rate cap agreements:

		Notional	Capped
		Amount as of	LIBOR/
		December 31	Eurodollar	Effective	Expiration
Loan Associated with		2006	Rate	Date	Date

330 N. Wabash Avenue
First Mortgage/Mezzanine Loans	$	195,000,000	6.6%	3/15/07	3/15/08
Continental Towers
First Mortgage	$	75,000,000	6.5%	5/02/05	5/01/08
Prime Equity
Mezzanine Loans	$	47,000,000	4.8%	1/03/06	1/03/08
Prime Equity
Mezzanine Loans	$	11,000,000	4.8%	1/03/06	1/03/08

Under the terms of the interest rate protection agreements we paid $0.3 million and $0.1 million in one-time fees during 2006 and 2005, respectively. We received $0.1 million in 2006 and no amounts were received in 2005. The current fair value of these agreements is $0.3 million and nominal at December 31, 2006 and 2005, respectively.

Amortization of Principal. We made payments totaling $1.7 million and $2.8 million for amortization of principal for loans on various properties, in 2006 and 2005, respectively.

Other. We have provided guarantees of escrow balances, certain expenses and in some cases principal balances with regard to certain mortgages and notes payable. In addition, as of December 31, 2006, guarantees related to unconsolidated joint ventures totaled $3.4 million.

The following represents our future minimum principal payments (excluding extension options) on our mortgage notes payable outstanding at December 31, 2006:

Year Ending December 31		Amount
		(dollars in
		thousands)

2007	$	198,162
2008		36,149
2009		5,162
2010		33,818
2011		65,404
Thereafter		115,000
	$	453,695

F-24

4. Mortgage Notes Payable (continued)

In February 2006, we exercised the first extension option on the $195.0 million first mortgage loan secured by the 330 N. Wabash Avenue property and paid a $0.5 million extension fee, which extended the maturity date to March 9, 2007. We exercised the second and final option in February 2007 for an additional $0.5 million payment, and extended the maturity date to March 9, 2008, which includes the cost of extending the interest rate cap agreement.

5. Debt Covenants

Certain loans contain cross-default provisions whereby a default under the covenants related to one loan agreement would also result in a default under the provisions of one or more other loans. Failure to meet a covenant could result in a requirement for a principal paydown, accelerated maturity, increased interest rate, additional collateral or other changes in terms.

6. Leases

We have entered into lease agreements with tenants with lease terms ranging from month-to-month to twenty years at lease inception. The leases generally provide for tenants to share in operating expenses and real estate taxes, although some leases only provide for sharing amounts in excess of specified base amounts. Approximately 36.1%, 38.6%, 36.2% and 33.8% of rental revenue for the year ended December 31, 2006, the six months ended December 31, 2005, the six months ended June 30, 2005 and the year ended December 31, 2004, respectively, was received from five tenants.

The total future minimum rentals to be received by us under noncancelable operating leases in effect at December 31, 2006, exclusive of tenant reimbursements and contingent rentals, are as follows:

Year Ending December 31		Amount
		(dollars in thousands)
2007	$	47,265
2008		43,527
2009		39,699
2010		26,796
2011		19,326
Thereafter		56,616
	$	233,229

As a part of lease agreements entered into with certain tenants, we assumed those tenants' leases at their previous locations and subsequently executed subleases for certain of the assumed lease space. See Note 15 – Commitments and Contingencies – Lease Liabilities to these consolidated financial statements for a description of these obligations.

F-25

6. Leases (continued)

Future minimum rental payments (exclusive of tenant reimbursements) to be paid by us under leases assumed, net of subleases executed through December 31, 2006, are as follows:

		Gross		Executed		Net
Year Ending December 31		Amount		Subleases		Amount
		(dollars in thousands)
2007	$	5,622	$	4,766	$	856
2008		5,310		4,481		829
2009		5,098		3,934		1,164
2010		5,226		4,048		1,178
2011		5,357		4,235		1,122
Thereafter		3,630		2,837		793
	$	30,243	$	24,301	$	5,942

We have an operating lease with the joint venture which owns the 77 West Wacker Drive property for our corporate office space as well as equipment leases at various other properties. Future minimum lease payments to be paid by us on this operating lease obligation in effect at December 31, 2006 are as follows:


Year Ending December 31		Amount
		(dollars in thousands)
2007	$	246
2008		240
2009		233
2010		222
2011		220
Thereafter		1,618
	$	2,779

7. Minority Interests

We are the sole general partner of the Operating Partnership and own all of the preferred units. Prior to the Acquisition we owned 88.5% of the common units of the Operating Partnership and after the Acquisition we own 0.9% of the common units of the Operating Partnership. Each preferred unit and common unit entitles us to receive distributions from our Operating Partnership. Distributions declared or paid to holders of common shares and preferred shares are based upon the distributions we receive with respect to our common units and preferred units.

As a result of the Acquisition, each of our common shares and common units of the Operating Partnership were cancelled and converted into the right to receive cash in the amount of $7.25 per common share/unit, without interest, which resulted in the delisting of our common shares from the New York Stock Exchange (the "NYSE") effective July 2, 2005. In connection with the Acquisition, all outstanding options with an exercise price greater than the sales price of $7.25 per share/unit were cancelled and each outstanding option for a common share with an exercise price less than the sales price were entitled to be exchanged for cash in an amount equal to the difference between $7.25 and the exercise price. Our Series B Shares remain outstanding after the completion of the Acquisition and continue to be publicly traded on the NYSE.

As a result of the Acquisition, subsidiaries of Lightstone, owned 100.0%, or 236,483, of our common shares and 99.1%, or 26,488,389, of the outstanding common units in the Operating Partnership. PGRT owns 0.9%, or 236,483, of the outstanding common units and all of the 4.0 million outstanding preferred units in the Operating Partnership.

F-26

8. Preferred Shares

We are authorized to issue up to 30,000,000 of non-voting preferred shares of beneficial interest in one or more series. On June 5, 1998, we completed the sale of 4,000,000 Series B Shares with a $0.01 par value.

Dividends on our Series B Shares are payable quarterly on or about the last day of January, April, July and October of each year, at the rate of 9.0% (equivalent to $2.25 per annum per Series B Share). Our Series B Shares rank senior to our common shares as to the payment of dividends and as to the dividend of assets upon liquidation. Our Series B Shares may be redeemed, at our option, at a redemption price of $25.00 per share plus accrued and unpaid dividends. The redemption price is payable solely out of the proceeds from the sale of other capital shares of beneficial interest of ours.

On December 14, 2006, our Board declared two quarterly dividends of $0.5625 per share, per quarter, for a total dividend of $1.125 per share, on our Series B Shares for the shareholders of record on January 5, 2007. These dividends were paid on January 31, 2007. Under our declaration of trust, these dividends are deemed to be the quarterly dividends related to the third and fourth quarters of 2006. Dividends paid in the amount of $1.6875 per share in 2006 on our Series B Shares have been determined to be ordinary dividends of $0.8438 per share, capital gains of $0.6159 per share and unrecaptured Section 1250 gain of $0.2278 per share. The holders of Series B Shares have the right to elect two additional members to our Board if six consecutive quarterly dividends on our Series B Shares are not made. The term of any trustee elected by the holders of Series B Shares will expire whenever the total dividend arrearage in our Series B Shares has been paid and current dividends declared and set apart for payment. Any future distributions in respect of our common shares may not be paid unless all accrued but unpaid preferred share dividends have been or are concurrently satisfied.

9. Discontinued Operations

SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," (SFAS 144) requires, among other things, that the primary assets and liabilities and the results of operations of properties which have been sold subsequent to January 1, 2002, or are held for disposition subsequent to January 1, 2002, be classified as discontinued operations and segregated in the Consolidated Statements of Operations and Balance Sheets. Properties classified as real estate held for disposition generally represent properties that are under contract for sale and are expected to close within the next twelve months.

In accordance with the requirements of SFAS 144, we have updated our historical financial statements for the years ended December 31, 2005 and 2004, to present the primary assets and liabilities and the net operating results of those properties sold or classified as held for disposition through December 31, 2006 as discontinued operations for all periods presented. The update does not have an impact on net income available to common stockholders. SFAS 144 only results in the reclassification of the operating results of all properties sold or classified as held for disposition through December 31, 2006, within the Consolidated Statements of Operations for the years ended December 31, 2005 and 2004, and the reclassification of the assets and liabilities within the Consolidated Balance Sheets for 2006 and 2005.

F-27

9. Discontinued Operations (continued)

Below is a summary of the results of operations for our 208 South LaSalle Street property, which we sold in December 2005, and for our properties sold during 2004, which includes our Carol Stream property sold in December 2004, our industrial portfolio, consisting of 29 industrial properties, one office property and three land parcels which we sold in October and November 2004, and our 33 West Monroe Street property, which we sold in April 2004.


		Successor Company			Predecessor Company

				Six		Six
		Year		months		months		Year
		ended		ended		ended		ended
		December 31		December 31		June 30		December 31
		2006		2005		2005		2004
		(dollars in thousands)			(dollars in thousands)
Rental revenue	$	(11)	$	4,381	$	5,550	$	21,098
Tenant reimbursements		(144)		3,918		3,807		11,483
Other property income		7		150		164		873
Total revenue		(148)		8,449		9,521		33,454

Property operations		(191)		2,504		2,933		11,528
Real estate taxes		(65)		1,465		1,309		6,706
Depreciation and amortization		–		(9)		833		5,880
Interest:
Expense		–		1,226		1,661		6,826
Amortization of deferred financing costs(1)		–		–		17		2,528
Total expenses		(256)		5,186		6,753		33,468

Income (loss) before provisions for asset impairment, net gain on sales of real estate and minority interests		108		3,263		2,768		(14)
Provisions for asset impairment(2)		–		–		(15,074)		–
Net (loss) gain on sales of real estate(3)		–		(6)		709		10,287
Minority interests		(107)		(3,229)		1,334		(1,181)
Discontinued operations	$	1	$	28		(10,263)	$	9,092

(1)	Amortization of deferred financing costs includes the write-off of unamortized deferred financing fees of $2.1 million for the year ended 2004 related to debt that was repaid as the result of the sale of properties.

(2)	During the second quarter of 2005, we recorded an asset impairment of $15.1 million related to our 208 South LaSalle Street office property as our anticipated hold period for the property was reduced based upon our decision to pursue a sale.

(3)	See Note 16 – Property Acquisitions, Placed in Service and Dispositions to these consolidated financial statements for a description of these sales.

F-28

10. Earnings Per Share

The following table sets forth the computation of our basic and diluted net income available per weighted-average common share of beneficial interest for the year ended December 31, 2006, for the six months ended December 31, 2005, for the six months ended June 30, 2005 and the year ended December 31, 2004:


		Successor Company				Predecessor Company

		Year		Six months		Six months		Year
		ended		ended		ended		ended
		December 31		December 31		June 30		December 31
		2006		2005		2005		2004
Numerator:		(dollars in thousands, except per share amounts)			(dollars in thousands, except per share amounts)
Loss from continuing operations before minority interests	$	(46,585)	$	(19,068)	$	(21,355)	$	(23,748)
Minority interests		55,096		23,362		2,973		3,766
Net income allocated to preferred shareholders		(9,000)		(4,500)		(4,500)		(9,000)
Loss before discontinued operations and gain (loss) on sales of real estate and joint venture interests		(489)		(206)		(22,882)		(28,982)
Discontinued operations, net of minority interests		1		28		(10,263)		9,092
Gain (loss) on sales of real estate and joint venture interests, net of minority interests		171		(3)		9,074		(493)
Numerator for earnings per share – loss available to common shares	$	(317)	$	(181)	$	(24,071)	$	(20,383)

Denominator:
Denominator for basic earnings per share – weighted average common shares		236,483		236,483		23,658,579		23,671,412
Effect of dilutive securities:
Employee stock options		–		–		–		–
Employee stock grants		–		–		–		–
Denominator for diluted earnings per share – adjusted weighted average common shares and assumed conversions		236,483		236,483		23,658,579		23,671,412

BASIC AND DILUTED EARNINGS AVAILABLE TO COMMON SHARES PER WEIGHTED–AVERAGE COMMON SHARE:
Loss from continuing operations after minority interests and allocation to preferred shareholders	$	(2.06)	$	(0.87)	$	(0.97)	$	(1.22)
Discontinued operations, net of minority interests		–		0.12		(0.43)		0.38
Gain (loss) on sales of real estate and joint venture interests, net of minority interests		0.72		(0.01)		0.38		(0.02)
Net loss available per weighted–average common share of beneficial interest – basic and diluted	$	(1.34)	$	(0.76)	$	(1.02)	$	(0.86)

In connection with the Acquisition, all outstanding options with an exercise price greater than the sales price of $7.25 per share/unit were cancelled and each outstanding option for a common share with an exercise price less than the sales price were entitled to be exchanged for cash in an amount equal to the difference between $7.25 and the exercise price. No new options have been granted by the Company.

F-29

10. Earnings Per Share (continued)

For the 2004 earnings per share computation, 1,409,827 of our options during the first and second quarters of 2004, 1,124,983 options during the third quarter of 2004 and 938,883 options during the fourth quarter of 2004 were not included in the computation of diluted earnings per share for periods after their issuance because the conversion would have been antidilutive.

We had nonvested stock grants of 9,375 shares outstanding during the year ended December 31, 2004 which were not included in the computation of diluted earnings per share because the effect would have been antidilutive.

The minority interest in the Operating Partnership had 3,076,586 weighted average common units of limited partnership interest outstanding during the year ended December 31, 2004, of which 3,076,586 could be exchanged for common shares on a one-for-one basis, subject to our 9.9% ownership limitation contained in our charter, or, at our option, cash in an amount equal to the fair market value of a common share at the time of exchange. The common units of limited partnership interest were not included in the computation of diluted earnings per share because the conversion would have been antidilutive.

11. Investments in Unconsolidated Joint Ventures

We have investments in two joint ventures, which we account for using the equity method of accounting. The following is a summary of the investments and the amounts reflected in our consolidated financial statements related to these investments which were fairly valued as a result of the Acquisition.

We have applied EITF 04-5 when required for new or amended limited partnerships in our December 31, 2006 financial statements. The adoption of the provisions of EITF 04-5 for our joint venture interests did not impact the financial position, net income, earnings per share or shareholders’ equity of the Company.

77 West Wacker Drive. We own a 50.0% common interest in 77 West Wacker Drive, LLC, which owns a 959,719 square foot office building located in Chicago, Illinois. Our joint venture partner has a preferred ownership interest in this property ($66.0 million preferred member's share with a 9.5% cumulative preferred return). Our interest at December 31, 2006, was $23.5 million (included in investment in unconsolidated entities) and at December 31, 2005 was $27.2 million. At December 31, 2006 we were current with respect to the 9.5% cumulative preferred return.

The following table summarizes our share of various items:

		Successor Company				Predecessor Company

		Year		Six months		Six months		Year
		ended		ended		ended		ended
		December 31		December 31		June 30		December 31
		2006		2005		2005		2004
		(dollars in thousands)				(dollars in thousands)
Operations (included in loss from investments in unconsolidated joint ventures)	$	(3,622)	$	(1,837)	$	855	$	(915)
Distributions received		–		–		300		–
Losses reclassified into earnings from other comprehensive income		–		–		–		2,594

F-30

11. Investments in Unconsolidated Joint Ventures (continued)

On October 24, 2003, the joint venture refinanced its existing $152.5 million first mortgage loan payable on the property with the proceeds of a new $166.0 million first mortgage loan. The new loan bears interest at a fixed rate of 5.7% and matures on November 1, 2013. The loan requires monthly payments of interest only for the first two years of the loan term and requires monthly payments of principal and interest thereafter based on a 30-year amortization schedule. As of December 31, 2006, we are in compliance with the requirements of these financial covenants.

The new loan required $0.3 million at closing and an additional $0.2 million per year to be deposited into an escrow for maintenance and repairs at the property. In addition, the loan created a rollover reserve account for future leasing costs which the joint venture deposited $8.7 million at closing and is required to deposit an additional $0.1 million per month thereafter; provided, however, in no event will the amount in the rollover reserve be required to exceed $19.7 million. In the event certain tenants do not renew their leases by certain dates or the relevant space is not re-leased, additional escrow deposits will be required. After the joint venture paid its outstanding preferred return to our partner, we and our partner each received a cash distribution of $2.4 million from the joint venture out of loan proceeds.

The following tables represent the condensed balance sheets and income statements of 77 West Wacker Drive, LLC on a historical basis:

		Year ended December 31
		2006			2005
		(dollars in thousands)

Real estate, at cost (net):	$	257,896	$	268,146
Other assets		35,613		27,278
Total assets	$	293,509	$	295,424

Mortgage note payable	$	167,321	$	169,870
Other liabilities		30,687		22,821
Total members' capital		95,501		102,733
Total liabilities and members' capital	$	293,509	$	295,424


		Successor Company				Predecessor Company

		Year		Six months		Six months		Year
		ended		ended		ended		ended
		December 31		December 31		June 30		December 31
		2006		2005		2005		2004
		(dollars in thousands)				(dollars in thousands)
Total revenue	$	41,109	$	20,192	$	21,972	$	43,345
Total expenses		42,071		20,731		17,815		40,279
Net (loss) income	$	(962)	$	(539)	$	4,157	$	3,066

Citadel Center. On March 19, 2003, we purchased all of our prior joint venture partner's ownership interest in the entity that owns Citadel Center which made us the sole owner of the property at that time. We paid $9.2 million for the interest, of which $0.5 million was deposited into an escrow account that was to be released to the joint venture partner upon the satisfaction of certain post-closing obligations of the joint venture partner (and in all events on the first anniversary of the closing date). The joint venture partner had continued to provide certain development services through November 3, 2003, for a monthly fee. As of December 31, 2003, the $0.5 million escrow had been released to the joint venture partner. Simultaneous with this transaction, the joint venture partner

F-31

11. Investments in Unconsolidated Joint Ventures (continued)

repaid us in full a loan previously made by us to them of $1.0 million, plus accrued interest of $0.2 million.

On October 8, 2003, we closed on a transaction admitting a new 70.0% joint venture partner to our former subsidiary, Dearborn LLC, that owns the Citadel Center. At the closing, our partner made a cash contribution to the venture of $106.4 million (which includes $1.4 million retained by the venture as working capital) in exchange for 70.0% of the membership interests in the venture. We retained a 30.0% subordinated common interest in the joint venture. Upon closing, the venture, in turn, distributed $105.0 million to us. Under the terms of the contribution agreement, an additional $9.8 million was paid to us on January 24, 2005 upon the leasing of an additional 40,000 square feet of space in the property over and above the square footage leased in the property as of August 4, 2003. This amount was recorded as a gain on sale of real estate in our consolidated statements of operations.

On November 8, 2006, Dearborn LLC, the owner of Citadel Center, completed the sale of Citadel Center to a subsidiary of CARI, LLC, an entity controlled by Robert Gans, a real estate investor based in New York, New York. A subsidiary of our Operating Partnership owned a thirty percent (30%) joint venture interest in Dearborn LLC.

At the closing, the Operating Partnership indemnified the purchaser against any costs or expenses in connection with the Citadel Reimbursement Obligation (as described below). The Operating Partnership previously indemnified its joint venture partner in Dearborn LLC against the Citadel Reimbursement Obligation. The Citadel Reimbursement Obligation is the obligation of Dearborn LLC under its lease with Citadel Investment Group, LLC ("Citadel") to reimburse Citadel for the financial obligations, consisting of base rent and the pro rata share of operating expenses and real estate taxes, under Citadel's pre-existing lease for 161,488 square feet of space at the One North Wacker Drive office building in downtown Chicago, Illinois. We have executed subleases at One North Wacker Drive for all of the space to partially mitigate our obligation under the Citadel Reimbursement Obligation. The foregoing obligations are partially secured by a total of $7.1 million held in escrow at closing. The Citadel Reimbursement Obligation is described in more detail in Note 15 – Commitments and Contingencies to our consolidated financial statements included in this report.

At the closing, the Operating Partnership received its annual distribution of income from Dearborn LLC of $4.2 million. The Operating Partnership share of the net proceeds from the sale was $92.4 million, and the Operating Partnership used approximately $57.1 million of the net proceeds to payoff the mezzanine loan from IPC Lender. The Operating Partnership had a book gain according to generally accepted accounting principles of approximately $18.8 million from the transaction (included in gain on sales of real estate and joint venture interests).

F-32

11. Investments in Unconsolidated Joint Ventures (continued)

Our interest in the joint venture at December 31, 2006 and 2005 was an equity investment of $0.0 million and $83.9 million, respectively (included in investment in unconsolidated entities).

The following table summarizes our share of various items:

		Successor Company				Predecessor Company

		Year		Six months		Six months		Year
		ended		ended		ended		ended
		December 31		December 31		June 30		December 31
		2006		2005		2005		2004
		(dollars in thousands)				(dollars in thousands)
Operations (included in loss from investments in unconsolidated joint ventures) (1)	$	(5,470)	$	(5,193)	$	(6,930)	$	(13,668)

(1)

During the period, distributions to our partner exceeded the joint venture's net income. As a result, income equal to the distribution was allocated to our partner and we recorded a loss in the amount of the difference between this allocation and the actual net income of the joint venture. The distribution was $9.9 million, $5.9 million, $5.7 million and $10.6 million for the year ended December 31, 2006, for the six months ended December 31, 2005, the six months ended June 30, 2005 and the year ended December 31, 2004.

The following tables represent the condensed balance sheets and income statements of Dearborn LLC on a historical cost basis:

	December 31
		2006		2005
		(dollars in thousands)
Real estate, at cost (net):	$	–	$	483,689
Other assets		386		57,885
Total assets	$	386	$	541,574

Mortgage note payable	$	–	$	271,077
Other liabilities		386		59,936
Total members' capital		–		210,561
Total liabilities and members' capital	$	386	$	541,574


		Successor Company				Predecessor Company

		Year		Six months		Six months		Year
		ended		ended		ended		ended
		December 31		December 31		June 30		December 31
		2006		2005		2005		2004
		(dollars in thousands)				(dollars in thousands)
Total revenue	$	51,778	$	25,082	$	25,142	$	45,939
Total expenses		47,339		24,383		26,335		49,149
Net income (loss)	$	4,439	$	699	$	(1,193)	$	(3,210)

Historical income does not reflect net income from the joint venture as reported in the financial statements as a result of the difference in basis in connection with the Acquisition.

F-33

11. Investments in Unconsolidated Joint Ventures (continued)

Thistle Landing. We own a 23.1% common interest in Plumcor Thistle, LLC, ("Plumcor/Thistle JV") which owns a 101,006 square foot office building located in Phoenix, Arizona, that opened in late 1999. Our interest at December 31, 2006 and 2005 was an equity investment of $0.1 million and $0.1 million (included in investments in unconsolidated entities), respectively. Our share of the venture's operations was a loss of $53,000, a gain of $29,000 and $43,000 and a loss of $296,000 for the year ended December 31, 2006, for the six months ended December 31, 2005, the six months ended June 30, 2005, and the year ended December 31, 2004, respectively (included in income (loss) from investments in unconsolidated joint ventures). We received no distribution in 2006 or 2005, except those described below, and received distributions of $0.2 million in 2004.

On August 29, 2005, we were notified by our joint venture partner of the execution of a sale agreement for three of the four buildings then owned by Plumcor/Thistle JV at Thistle Landing. The sale took place in early November and we received a distribution of $3.9 million relating to our interest on November 7, 2005.

We have granted Prime/Mansur an option to purchase our interest in Plumcor/Thistle JV for $4.0 million. On October 26, 2005, Prime/Mansur exercised its option. Concurrent with the exercising of this option, Prime/Mansur made a deposit of $80,000 as earnest money, which is being held by an escrow agent to be applied toward the purchase price. On December 22, 2005, we terminated the purchase and sale agreement relating to the Plumcor/Thistle JV because Prime/Mansur had failed to obtain our joint venture partner's consent to the transaction by the December 15, 2005 deadline contained in the agreement. Prime/Mansur subsequently sent us a letter disputing our right to terminate the agreement, to which we replied with a letter reaffirming our right to terminate the agreement. On January 31, 2006, Prime/Mansur filed a lawsuit in the Circuit Court of Cook County, Illinois claiming that our termination of the purchase and sale agreement was not justified. Prime/Mansur is requesting the Court to either grant it specific performance and order us to convey our joint venture interest in Plumcor Thistle or damages in the amount of $5.0 million. We believe we have legitimate defenses to this action and the ultimate outcome will not have a material adverse affect on our consolidated financial condition or results of operations.

Our joint venture interests described above are considered to be a variable interest in the entity that owns the property, which we believe is a variable interest entity ("VIE"). However, based on our evaluations, we are not the primary beneficiary of the entity, and, therefore, we do not consolidate the VIE's. Our maximum exposure as a result of the VIE's is not material.

As a result of the Acquisition, the investment in these joint ventures at December 31, 2006 of $23.7 million is approximately $6.7 million in excess of the company's share of the underlying historical net assets of the joint ventures. The excess of the cost of the investments acquired over the equity in the underlying net assets is ascribed to the fair values of land and buildings owned by the unconsolidated entities. The Company amortizes the excess basis related to the buildings over their estimated useful lives.

12. Stock Based Compensation

Our 1997 Share Incentive Plan (the "Plan") permitted the grant of share options, share appreciation rights, restricted shares, restricted units and performance units to officers and other key employees and to officers and employees of subsidiaries, the Operating Partnership, the Services Company and other owned partnerships. The Plan also permitted the grant of share options to non-employee trustees.

F-34

12. Stock Based Compensation (continued)

As a result of the Acquisition, the Plan was terminated and all options were either executed or retired.

Prior to January 1, 2006, the Company accounted for share-based payments under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." ("APB 25"). Under APB 25, compensation cost was not recognized for options granted because the exercise price of options granted was equal to the market value of the Company’s common shares on the grant date.

On January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payments" ("SFAS 123R"). This Statement requires the Company to recognize the cost of its employee stock option awards in its consolidated statement of income based upon the grant date fair value. According to SFAS 123R, the total cost of the Company’s share-based awards is equal to their grant date fair value and is recognized on a straight-line basis over the service periods of the awards. The Company adopted the fair value recognition provisions of SFAS 123R using the modified prospective transition method. We did not recognize any compensation expense in 2006 under the modified prospective transition method.

During 2005 and 2004, 938,883 and, 217,350 options, respectively, expired or were terminated in connection with the Acquisition in 2005 and, prior to the Acquisition, with employees or executives who held options resigning from the Company.

The unaudited pro-forma information regarding net income and earnings per share is required by SFAS No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") and has been determined as if we had accounted for our options under the fair value method of that statement. The fair value for the options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 2003: risk-free interest rate of 2.2%; expected dividend yield of 0.0%; volatility factor of the expected market price of common shares of 0.310; and a weighted-average expected life of the options of three years for options granted. There were no options granted in 2006, 2005 or 2004. There were no Company options outstanding during 2006 and accordingly no compensation expense was recorded under SFAS 123R.

We did not recognize any compensation expense in 2005 and 2004 related to options granted under APB 25. Under the fair value method of SFAS 123, $0.00 ($0.00 per basic and diluted common share), $20,000 ($0.00 per basic and diluted common share) and $40,000 ($0.00 per basic and diluted common share) would have been recognized as additional compensation expense for the six months ended December 31, 2005, for the six months ended June 30, 2005, and for the year ended December 31, 2004, respectively. For purposes of the following pro-forma disclosure, the estimated fair value of the options is amortized to expense over the vesting period of the options. On this basis, the pro-forma net loss available to common shares was $0.2 million ($0.76 per basic and diluted common shares), $24.1 million ($1.02 per basic and diluted common share) and $20.4 million ($0.86 per basic and diluted common share) for the six months ended December 31, 2005, for the six months ended June 30, 2005, and for the year ended December 31, 2004, respectively.

The effects on unaudited pro-forma net income and pro-forma earnings per common share for the six months ended December 31, 2005, for the six months ended June 30, 2005 and for the year ended December 31, 2004 of amortizing to expense the estimated fair value of share options are not necessarily representative of the effects on net income to be reported in future years due to the vesting period of the share options, and the potential for issuance of additional share options in future years. For purposes of pro-forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting periods.

F-35

12. Stock Based Compensation (continued)

The Black-Scholes options valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility.

The following is a summary of our share option activity, and related information for the years ended December 31, 2006, 2005 and 2004:

	Shares Subject to Option		Weighted Average Exercise Price Per Share
Balance at January 1, 2004	1,156,233	$	15.25
Options cancelled	(217,350)		15.51
Balance at December 31, 2004	938,883		15.19
Options cancelled	(938,883)		–
Balance at December 31, 2005	–		–
Options cancelled	–		–
Balance at December 31, 2006	–	$	–

13. Related Party Transactions

On March 19, 2002, we entered into an agreement appointing Julien J. Studley, Inc. as our exclusive agent to lease space on our behalf related to the Citadel Reimbursement Obligation. Mr. Jacque M. Ducharme, a former trustee, is the Vice Chairman Western Region and Director of Julien J. Studley, Inc. ("Studley"), a brokerage firm that specializes in representing tenants in leasing transactions. In addition, Studley is from time-to-time engaged by third-party tenants as a tenant broker in connection with the tenants' search for office space in Chicago. For the years ended December 31, 2006, for the six months ended December 31, 2005, for the six months ended June 30, 2005 and for the year ended December 31, 2004, Studley earned commissions of approximately $0.2 million, $0.0 million, $0.4 million and $0.9 million, respectively, from us in connection with transactions where tenants who had previously engaged Studley leased space from us. We are not involved in the selection of Studley by the third-parties as its broker, and we have been advised by Mr. Ducharme that he did not receive any portion of the commissions in connection with these transactions, other than compensation he may receive based on the general profitability of Studley.

F-36

13. Related Party Transactions (continued)

In connection with our management of the 77 West Wacker Drive property, we are entitled to receive property management fees and lease commissions for services performed and reimbursement of costs we pay on behalf of 77 LLC. Such amounts are summarized as follows:


		Successor Company			Predecessor Company

		Year		Six months		Six months		Year
		ended		ended		ended		ended
		December 31		December 31		June 30		December 31
		2006		2005		2005		2004
		(dollars in thousands)			(dollars in thousands)
Management fees (1)	$	1,151	$	541	$	523	$	1,081
Payroll and other operating costs		1,397		667		674		1,304
Leasing costs (1)		1,298		398		42		1,264

(1)

We earn a monthly management fee equal to 2.5% of gross rental income calculated on a cash basis and lease commissions for services performed. For financial reporting purposes, 50.0% of these amounts, representing our share of earnings from the joint venture is offset by our equity in earnings from this joint venture.

We previously owned a 30.0% subordinated common ownership interest in the Dearborn LLC, an unconsolidated joint venture that owned the office property known as Citadel Center located at 131 South Dearborn Street in Chicago, Illinois until its sale on November 8, 2006. In connection with our management of the property, we were entitled to receive property management fees and lease commissions for services performed and reimbursement of costs we paid on behalf of Dearborn LLC. Such amounts are summarized as follows:


		Successor Company				Predecessor Company

		Year		Six months		Six months
		ended		ended		ended		Year ended
		December 31		December 31		June 30		December 31
		2006		2005		2005		2004
		(dollars in thousands)				(dollars in thousands)


Management fees (1)	$	852	$	542	$	368	$	729
Payroll and other operating costs		700		375		374		1,259
Leasing costs (1)		36		–		1,623		284

(1)	We earned a monthly management fee equal to 2.0% of gross rental income calculated on a cash basis and lease commissions for services performed. For financial reporting purposes, these are offset by our equity in the loss from this joint venture.

On August 11, 2004, we made a loan in the amount of $587,771 to Dearborn LLC to cover funds required to be paid under Dearborn LLC's redevelopment agreement with the City of Chicago. The City of Chicago determined that Dearborn LLC failed to meet certain goals contained in the redevelopment agreement which resulted in the payment of $1.0 million to the City of Chicago. The payment satisfied Dearborn LLC's obligation under the redevelopment agreement. Our loan represented the excess of the payment over that estimated when our joint venture partner was admitted and was required to be made by us pursuant to the joint venture agreement. The interest rate on the loan is 10.0% per annum. The loan plus all accrued interest was repaid to us upon the sale of Citadel Center on November 8, 2006.

F-37

13. Related Party Transactions (continued)

On February 1, 2007, our Board approved of us, through one or more of our subsidiaries, entering into an asset and development agreement with an affiliate of Lightstone, which provides that one of our subsidiaries will perform certain asset management, development management and accounting services for an office and retail building located at 1407 Broadway Avenue in New York City, New York. The agreement is terminable by either party upon thirty-days notice and provides for us to receive an asset management fee of $500,000 per year and a development fee of 2.5% of any development costs, plus the reimbursement of out-of-pocket costs such as travel expenses.

14. Fair Values of Financial Instruments

SFAS No. 107, "Disclosures About Fair Value of Financial Instruments" ("SFAS 107") and SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments" require disclosure of the fair value of certain on- and off-balance sheet financial instruments for which it is practicable to estimate. Fair value is defined by SFAS 107 as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

We used the following methods and assumptions in estimating the fair value disclosures for financial instruments.

Cash and Cash Equivalents and Restricted Cash Escrows, Receivables and Payables

The carrying amount of cash and cash equivalents, restricted cash escrows, tenant accounts receivable, accounts payable and accrued expenses are reasonable estimates of their fair values because of the short maturity of these financial instruments.

We maintain our cash and cash equivalents and restricted cash escrows at various financial institutions. The combined account balances at each institution periodically exceed FDIC insurance coverage, and as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. We believe that the risk is not significant.

F-38

14. Fair Values of Financial Instruments (continued)

Mortgage and Notes Payable

The carrying amount of our variable rate borrowings approximates their fair value. The fair values of our fixed rate debt agreements are estimated using discounted cash flow analyses based upon incremental borrowing rates for similar types of borrowing arrangements.

Interest Rate Protection Agreements

The fair values of our interest rate protection agreements are based on rates offered for similar arrangements.

15. Commitments and Contingencies

Legal. On December 4, 2006, we received a copy of a Class Action Complaint and Demand for Jury Trial (the "Complaint") filed by The Jolly Roger Fund LP and Jolly Roger Offshore Fund Ltd. ("Plaintiffs") against Lightstone and us. The Complaint was filed on November 16, 2006 in the Circuit Court of Baltimore City, Maryland, Civil Division.

In the Complaint, the Plaintiffs asked the Court to certify the case as a class action on behalf of the holders of our Series B Shares. The Complaint seeks compensation for alleged damages resulting from an alleged plan by us to liquidate our assets and wind up our business without the payment to the holders of the Series B Shares of the $25.00 per share liquidation preference provided in our Articles of Amendment and Restatement. The Complaint also requests the disgorgement of dividends that the Plaintiffs claim were improperly paid to Lightstone that should have been paid to the holders of the Series B Shares in the form of the liquidation preference.

We believe that this case is without merit and we have legitimate defenses to this action, and we intend to aggressively defend the case and we currently do not believe its outcome will have a material adverse effect on our consolidated financial condition or results of operations.

The sale of our 208 South LaSalle Street property to Prime/Mansur closed on December 9, 2005. On October 26, 2005, Prime/Mansur exercised its option to acquire our membership interest in the Plumcor/Thistle JV, and the parties subsequently executed the purchase and sale agreement for the sale. On December 22, 2005, we terminated the purchase and sale agreement relating to the Plumcor/Thistle JV because Prime/Mansur had failed to obtain our joint venture partner's consent to the transaction by the December 15, 2005 deadline contained in the agreement. Prime/Mansur subsequently sent us a letter disputing our right to terminate the agreement, to which we replied with a letter reaffirming our right to terminate the agreement. On January 31, 2006, Prime/Mansur filed a lawsuit in the Circuit Court of Cook County, Illinois claiming that our termination of the purchase and sale agreement was not justified. Prime/Mansur is requesting the Court to either grant it specific performance and order us to convey our joint venture interest in Plumcor Thistle or damages in the amount of $5.0 million. We believe we have legitimate defenses to this action and the ultimate outcome will not have a material adverse affect on our consolidated financial condition or results of operations.

We are a defendant in various other legal actions arising in the normal course of business. In accordance with Statement of Financial Accounting Standards No. 5 "Accounting for Contingencies," we record a provision for a liability when it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Although the outcome of any litigation is uncertain, we believe that such legal actions will not have a material adverse affect our consolidated financial position or results of operations.

F-39

15. Commitments and Contingencies (continued)

Environmental. Phase I or similar environmental assessments have been performed by independent environmental consultants on all of our properties. Phase I assessments are intended to discover information regarding, and to evaluate the environmental condition of, the surveyed property and surrounding properties. Phase I assessments generally include a historical review, a public records review, an investigation of the surveyed site and surrounding properties and the preparation and issuance of a written report, but do not include soil sampling or subsurface investigations.

During the due diligence process in connection with the sale of certain industrial properties in October 2004, additional environmental contamination, beyond that previously identified by our environmental consultants, was discovered by the purchaser of our Chicago Enterprise Center, East Chicago Enterprise Center, and Hammond Enterprise Center facilities. As a result, we agreed to establish a $1.25 million environmental escrow at the closing, in addition to a $3.2 million reserve for use in remediation of the costs. In connection with the sale, the purchaser of these properties agreed to assume the responsibility for the environmental remediation of the property and any costs which may be incurred in excess of the amounts we placed in escrow at the closing. Any excess funds remaining in the $1.25 million escrow after the remediation of the additional environmental contamination will be returned to us. This escrow is included in our restricted cash with a corresponding liability included in other liabilities. At December 31, 2006, this escrow had a balance of $1.25 million plus interest of $45,028.

In November 2001, at the request of the Department of the Army of the United States of America (the "DOA"), we granted the DOA a right of entry for environmental assessment and response in connection with our property known as the Atrium located at 280 Shuman Boulevard in Naperville, Illinois. The DOA informed us that the property was located north of a former Nike missile base and that the DOA was investigating whether certain regional contamination of the groundwater by trichloethene ("TCE") emanated from the base and whether the DOA would be required to restore the environmental integrity of the region under the Defense Environmental Restoration Program for Formerly Used Defense Sites. In December 2001, the results from the tests of the groundwater from the site indicated elevated levels of TCE. It is currently our understanding based on information provided by the DOA and an analysis prepared by its environmental consultants that (i) the source of the TCE contamination did not result from the past or current activities on the Atrium property, (ii) the TCE contamination is a regional problem that is not confined to the Atrium and (iii) the DOA has not yet identified the source of the TCE in the groundwater. Our environmental consultants have advised us that the United States Environmental Protection Agency (the "EPA") has issued a Statement of Policy towards owners of property containing contaminated acquifers. According to this policy, it is the EPA's position that where hazardous substances have come to be located on a property solely as a result of subsurface migration in an aquifer from an offsite source, the EPA will not take enforcement actions against the owner of the property. The groundwater underneath this property is relatively deep, and the property obtains its potable water supply from the City of Naperville and not from a groundwater well. Accordingly, we do not anticipate any material liability because of this TCE contamination.

F-40

15. Commitments and Contingencies (continued)

We believe that our other properties are in compliance in all material respects with all federal, state and local laws, ordinances and regulations regarding hazardous or toxic substances. We have not been notified by any governmental authority, and are not otherwise aware, of any material noncompliance, liability or claim relating to hazardous or toxic substances in connection with any of our other properties. None of the environmental assessments of our properties have revealed any environmental liability that we believe would have a material adverse effect on our financial condition or results of operations taken as a whole, nor are we aware of any such material environmental liability. Nonetheless, it is possible that our assessments do not reveal all environmental liabilities or that there are material environmental liabilities of which we are unaware. Moreover, there can be no assurance that (i) future laws, ordinances or regulations will not impose any material environmental liability or (ii) the current environmental condition of our properties will not be affected by tenants, by the condition of land or operations in the vicinity of our properties (such as the presence of underground storage tanks) or by third parties unrelated to us. If compliance with the various laws and regulations, now existing or hereafter adopted, exceeds our budgets for such items, our financial condition could be further adversely affected.

Tax Indemnities. Our Operating Partnership entered into tax indemnification agreements with certain principals affiliated with Mr. Stephen J. Nardi, a member of our board of trustees until July 1, 2005 ("NAC Contributors"), and certain principals affiliated with one of our former executive officers ("IBD Contributors"), both of which contributed properties to us during our initial public offering. As a result of the Acquisition by Prime Office all of the outstanding limited partnership interests in our Operating Partnership, as of July 1, 2005 we have no further obligations pursuant to these agreements. Prior to July 1, 2005, under these agreements, our Operating Partnership was required to indemnify the NAC Contributors and the IBD Contributors for, among other things, the income tax liability that would result from the income or gain which they recognize upon the refinancing or repayment by our Operating Partnership of its liabilities or the sale or other disposition by our Operating Partnership of the properties they contributed. Under the terms of the agreements, our Operating Partnership indemnified the NAC Contributors and the IBD Contributors for certain income tax liabilities based on income or gain which the NAC Contributors and/or the IBD Contributors are required to include in their gross income for federal or state income tax purposes as a result of such an event. This indemnity covered these income taxes, interest and penalties and was required to be made on a "grossed up" basis that effectively results in the NAC Contributors and the IBD Contributors receiving the indemnity payment on a net, after-tax basis.

The percentage of the above tax liabilities, which our Operating Partnership was required to indemnify, was 30.0% for the taxable year ending on December 31, 2005, and declined an additional 10.0% each year thereafter until December 31, 2007. Our Operating Partnership was not required to indemnify the NAC Contributors and the IBD Contributors for income or gain realized by them after the taxable year ending December 31, 2007. As a result of the sale of substantially all of our industrial portfolio in 2004, we paid $2.7 million to the NAC Contributors during the second quarter of 2005, which was accrued and classified with gain (loss) on sale of real estate in 2004. As a result of the Acquisition by Lightstone on July 1, 2005, we no longer have any exposure under the tax indemnities with the NAC Contributors and the IBD Contributors. Further, any gain generated as a result of the transaction with Lightstone was excluded under the terms of the indemnity agreements.

On January 10, 2006, we and certain other parties, including Roland E. Casati ("Mr. Casati") and Richard H. Heise ("Mr. Heise"), entered into an Amended and Restated Tax Indemnity Agreement (the "Amended Tax Indemnity Agreement") in connection with certain modifications to the ownership structure of Continental Towers (the "Continental Transaction"), which among other things, reduced the estimated maximum liability of the Operating Partnership in the event of the

F-41

15. Commitments and Contingencies (continued)

consummation of a taxable transaction relating to Continental Towers, calculated at current tax rates, from approximately $53.2 million to $14.0 million.

In connection with the Continental Transaction, we made a payment to Mr. Casati of $4.2 million and Mr. Casati released the Operating Partnership from all of its obligations under the Amended Tax Indemnity Agreement relating to Mr. Casati. The Operating Partnership also transferred its interest in the junior mortgage loan (the "Junior Loan") encumbering Continental Towers to our wholly-owned subsidiary, PGRT Equity LLC ("Prime Equity"). In addition, the fee title ownership of Continental Towers was modified so that the property was owned as tenants in common by (i) Continental Towers, L.L.C. ("64.0% Owner"), as a co-owner having an undivided 64.0% interest in the property, and (ii) Continental Towers I, L.P. ("36.0% Owner"), as a co-owner having an undivided 36.0% interest in the property. Mr. Heise owned a 96.7% limited partnership interest in the 36.0% Owner. The remaining ownership interests in 36.0% Owner and all of the ownership interests in 64.0% Owner were owned by affiliates of Mr. Yochanan Danziger (the "CT Entities").

In December 2006, the ownership of Continental Towers was further restructured so that the property was divided into two parcels, one parcel comprising 64% of the estimated value of Continental Towers owned through the CT Entities and the other parcel comprising 36% of the estimated value of Continental Towers owned through various entities with Mr. Heise having a 96.7% limited partnership interest and the CT Entities owning the remaining interests.

Because our interest in Continental Towers constitutes a significant financial interest in the property, we consolidate the operations of Continental Towers in our financial statements and account for it as an owned property. In addition, a subsidiary of Prime Equity continues to manage Continental Towers pursuant to a management agreement that has a term that expires on December 31, 2012 and cannot be terminated by the owners of Continental Towers prior to that date.

Under the Amended Tax Indemnity Agreement, the Operating Partnership continues, subject to certain exceptions and conditions contained therein, to indemnify Mr. Heise from federal and state income tax payable as a result of any taxable income or gain in his gross income which is caused by a sale, foreclosure or other disposition of Continental Towers or other action by the Operating Partnership or the CT Entities prior to January 5, 2013. The amount of the potential tax indemnity to Mr. Heise under the Amended Tax Indemnity Agreement, including a gross-up for taxes on any such payment, is estimated to be approximately $14.0 million using current tax rates, which is a reduction of approximately $39.2 million from the estimated maximum liability of $53.2 million to Messrs. Casati and Heise prior to the execution of the Amended Tax Indemnity Agreement.

Under the Amended Tax Indemnity Agreement and the partnership agreement of the 36.0% Owner, Mr. Heise has limited consent rights with respect to transactions relating to Continental Towers which could result in taxable income or gain to Mr. Heise. Mr. Heise's consent rights relate to the following actions: (1) sale or disposition of Continental Towers or any portion thereof; (2) refinance or repayment of debt relating to the Continental Towers; (3) amendments to the Junior Loan or the junior lender's rights thereunder; and (4) any other action which results in or creates the risk of a "Tax Event" with respect to Mr. Heise; provided, however, that Mr. Heise cannot withhold his consent to any proposed transaction if (i) we obtain a tax opinion from an independent law firm stating that the relevant transaction will not create a tax event; (ii) we obtain an opinion from an independent law firm stating that Mr. Heise has a "reasonable basis" for reporting the transaction without including any taxable income or gain and either (x) we have a net worth of at least $100.0 million or (y) we deposit security in the amount of the potential tax payment which would be due Mr. Heise, grossed-up for any taxes which would be payable by Mr. Heise relating to such payment; or (iii) if we cannot obtain the opinions specified in (i) or (ii) above, we pay the amount of the tax, on a grossed-up basis, to Mr. Heise. In the event that our net worth falls below $50.0 million, then Mr. Heise has the right to acquire the general partnership interest in the 36.0% Owner for a price of $1,000.

F-42

15. Commitments and Contingencies (continued)

The Operating Partnership can be released from its obligations under the Amended Tax Indemnity Agreement in the event of the transfer of Prime Equity's interest in the Junior Loan to a third-party transferee provided that such transferee or an affiliate assumes our obligations under the Amended Tax Indemnity Agreement and has a net worth in accordance with generally accepted accounting principles ("GAAP") of not less than $100.0 million.

Lease Liabilities. As a part of lease agreements entered into with certain tenants, we assumed these tenants' leases at their previous locations and subsequently executed subleases for certain of the assumed lease space. One of these leases is a lease the Citadel Center joint venture has with Citadel.

We have agreed to reimburse the joint venture for its obligation to reimburse Citadel for the financial obligations, consisting of base rent and the pro rata share of operating expenses and real estate taxes, under Citadel's pre-existing lease (the "Citadel Reimbursement Obligation") for 161,488 square feet of space at the One North Wacker Drive office building in downtown Chicago, Illinois.

We have executed subleases at One North Wacker Drive for substantially all of the space to partially mitigate our obligation under the Citadel Reimbursement Obligation. As a requirement under one of the subleases for 27,826 square feet, we escrowed a total of $1.1 million with the owner of One North Wacker Drive as security for the payment of the difference between the rental amount payable under the Citadel lease and this sublease. This escrow is being returned to us pro-rata over the life of this sublease, of which $0.5 million has been received through December 31, 2006. The Citadel Reimbursement Obligation includes an estimated remaining nominal gross rental obligation of $66.1 million over the term of the lease. Although we have sold our investment in Citadel Center, we have retained 100.0% of this liability. Liabilities for leases assumed at December 31, 2006 and 2005 includes $4.1 million and $5.8 million, respectively, related to the Citadel Reimbursement Obligations, which is our estimate of the remaining gross rental obligation less estimated future sublease recoveries.

In connection with another sublease at One North Wacker Drive, we assumed two lease obligations, at two Chicago office buildings owned by third parties, with gross rental obligations of approximately $2.8 million. In July 2003, we paid a lease termination fee of $0.3 million on one of the two leases and subsequently made payments of $0.6 million and $0.5 million in 2006 and 2005, respectively, which retired our gross rental obligation on the remaining lease.

On November 26, 2001, we finalized a lease with a tenant for space in Continental Towers, our office buildings located in Rolling Meadows, Illinois. We have agreed to reimburse the tenant for a portion of the financial obligations consisting of base rent and the pro rata share of operating expenses and real estate taxes under the tenant's lease for occupancy executed at an office building located in downtown Chicago, Illinois. As of December 31, 2006, this lease has a remaining estimated gross rental obligation of approximately $1.4 million. On February 14, 2003, we re-leased the space to the tenant for the remainder of the lease term of the pre-existing lease subject to the tenant's option to terminate the lease effective as of any date after February 29, 2004, by providing us with six months prior written notice. We have approximately $0.9 million and $1.2 million in liabilities for leases assumed at December 31, 2006 and 2005, respectively, representing an estimate of our net liability related to this obligation which represents the differential between our remaining financial obligation under the pre-existing lease and the expected future rent from the tenant under the new lease.

F-43

16. Property Acquisitions, Placed in Service and Dispositions

The following properties were acquired, placed in service or sold in 2006, 2005 and 2004. The results of their operations are included or excluded in our consolidated statements of operations from their respective transaction dates.

				Month
Property	Location		Sales Price	Sold
			(dollars in thousands)
2006 Sales
Office:
Citadel Center (1)	Chicago, IL	$	560,000	November

Land:
Libertyville (2)	Libertyville, IL	$	2,400	April
2005 Sales
Office:
208 S. LaSalle Street (3)	Chicago, IL	$	44,000	December

Land:
Libertyville (4)	Libertyville, IL	$	700	February

2004 Sales
Office:
33 West Monroe Street(5)	Chicago, IL	$	69,600	April

Portfolio Sale(6):
Office:
1301 E. Tower Road	Schaumburg, IL

Warehouse/distribution Facilities:
425 E. Algonquin Road	Arlington Heights, IL
1455 Sequoia Drive	Aurora, IL
200 S. Mitchell	Addison, IL
11045 Gage Avenue	Franklin Park, IL
4248, 4250 and 4300 Madison Street	Hillside, IL
4211 Madison Street	Hillside, IL
4160–4190 W. Madison Street	Hillside, IL
342–346 Carol Lane	Elmhurst, IL
200 E. Fullerton Avenue	Carol Stream, IL
555 Kirk Road	St. Charles, IL
370 Carol Lane	Elmhurst, IL
550 Kehoe Blvd.	Carol Stream, IL
1543 Abbott Drive	Wheeling, IL
388 Carol Lane	Elmhurst, IL
343 Carol Lane	Elmhurst, IL
350 Randy Road	Carol Stream, IL
11039 Gage Avenue	Franklin Park, IL
1401 S. Jefferson Street	Chicago, IL

Overhead Crane/Manufacturing Facilities:
Chicago Enterprise Center	Chicago, IL
13535–A S. Torrence Avenue
13535–B S. Torrence Avenue
13535–C S. Torrence Avenue
13535–D S. Torrence Avenue
13535–E S. Torrence Avenue
13535–F S. Torrence Avenue
13535–G S. Torrence Avenue
13535–H S. Torrence Avenue
East Chicago Enterprise Center	East Chicago, IN
4407 Railroad Avenue – Building 2
4407 Railroad Avenue – Building 3
4407 Railroad Avenue – Building 4
4635 Railroad Avenue
Hammond Enterprise Center	Hammond, IN
4507 Columbia Avenue
4527 Columbia Avenue
4531 Columbia Avenue

Land:
Aurora Land	Aurora, IL
DeKalb Land	DeKalb, IL
Batavia Land	Batavia, IL

Total Portfolio Sale		$	125,100	October/ November

Land:
Carol Stream Land(7)	Carol Stream, IL	$	1,200	December

F-44

16. Property Acquisitions, Placed in Service and Dispositions (continued)

(1)

Dearborn LLC, the owner of Citadel Center and an entity in which we owned a joint venture interest, sold Citadel Center in November 2006. This property was sold by Dearborn LLC for a sales price for the entire property of $560.0 million. A subsidiary of our Operating Partnership owned a thirty percent (30%) joint venture interest in the Citadel Center property. At the closing, the Operating Partnership indemnified the purchaser against any costs or expenses in connection with the Citadel reimbursement obligation (as described below). The Operating Partnership previously indemnified its joint venture partner against the Citadel reimbursement obligation. The Citadel reimbursement obligation is the obligation of the joint venture under its lease with Citadel Investment Group, LLC ("Citadel") to reimburse Citadel for the financial obligations, consisting of base rent and the pro rata share of operating expenses and real estate taxes, under Citadel's pre-existing lease for 161,488 square feet of space at the One North Wacker Drive office building in downtown Chicago, Illinois. We have executed subleases at One North Wacker Drive for all of the space to partially mitigate our obligation under the Citadel reimbursement obligation. The foregoing obligations are partially secured by a total of $7.1 million held in escrow at closing.

At the closing, the Operating Partnership received its annual distribution of income from the joint venture of $4.2 million. The Operating Partnership share of the net proceeds from the sale was $92.4 million, and the Operating Partnership used approximately $57.1 million of the net proceeds to pay down corporate level debt. The Operating Partnership recorded a gain of approximately $18.8 million from the transaction (included in gain on sales of real estate and joint venture interests).

(2)	We sold this property for a sales price of $2.4 million. This property was unencumbered. A gain of $0.6 million was recorded as gain on sales of real estate.

(3)

We sold this property for a gross sales price of $44.0 million minus certain agreed upon closing prorations, including the assumption of the existing debt of $41.9 million on the property. After closing prorations and costs we received approximately $0.5 million in net proceeds from the sale. During the second quarter of 2005, we had recorded an asset impairment charge of $15.1 million related to this property. As a result of the revaluation of our balance sheet due to the Acquisition, no gain or loss was recorded on this sale.

(4)	Net proceeds from the sale of this property were $0.7 million. This property was unencumbered.

(5)

We sold this property for a gross sales price of $69.6 million (i) less a credit of $19.4 million, representing the sum of a portion of the amount in our leasing reserve escrow account related to the property and a credit for certain prepaid rent, and (ii) plus or minus other customary prorations. Concurrent with the sale of the property, we used a portion of the proceeds of the sale and approximately $20.0 million of a leasing escrow held by the existing lender to repay the existing first mortgage debt having an outstanding principal balance of $59.3 million, plus accrued interest of $0.2 million. After closing prorations and costs and the repayment in full of the first mortgage loan encumbering the property, we received approximately $8.8 million from the sale. We recorded an asset impairment charge of $43.4 million related to this property in 2003. After reflecting this impairment, we recognized a gain of $0.4 million on this sale.

(6)

Net proceeds from the sale of these properties after repayment or buyer assumption of mortgage and bond debt collateralized by the properties, closing costs and a tax indemnity payment obligation were $54.3 million. Included in net proceeds is approximately $9.7 million of restricted cash escrows which were released or credited by the purchaser at closing, offset by $4.4 million of environmental escrows and a rent subsidy escrow for $0.6 million that were

F-45

16. Property Acquisitions, Placed in Service and Dispositions (continued)

funded at closing. In addition, we agreed to fund approximately $0.9 million (included in other liabilities) should two tenants fail to pay the future rent due under their leases for specific periods of time. Subsequent to the sale, we repaid $22.8 million of maturing mezzanine loan financing and anticipate utilizing the remaining proceeds to fund capital improvements and leasing costs and provide to us additional working capital and liquidity. We recognized a gain of $9.5 million on this sale.

(7)	Net proceeds from the sale of this property were $1.2 million. We recognized a gain of $0.4 million on this sale.

In prior years, we acquired the first and second mortgage notes encumbering the office property known as 180 North LaSalle Street. We had an option to purchase the equity ownership of the property during the period from January 15, 2004 to February 15, 2004 for a price equal to the greater of the fair market value of the interest or $2.0 million. On January 15, 2004, we acquired fee title to the property in exchange for a payment of $0.1 million to cover certain related expenses.

F-46

17. Interim Financial Information (unaudited)

The following is our consolidated quarterly summary of operations for 2006:

		Year ended December 31
		Successor Company
				Fourth		Third		Second		First
		Total		Quarter		Quarter		Quarter		Quarter
		(dollars in thousands, except per share amounts)
Total revenue	$	99,094	$	24,997	$	24,873	$	24,749	$	24,475
Total expenses		93,601		22,262		23,606		23,780		23,953
Operating income		5,493		2,735		1,267		969		522
(Loss) income from investments in unconsolidated joint ventures		(9,145)		1,949		(3,733)		(3,365)		(3,996)
Interest and other income		2,850		839		574		566		871
Interest:
Expense		(42,637)		(13,443)		(10,200)		(9,876)		(9,118)
Amortization of deferred financing costs		(3,146)		(2,146)		(352)		(351)		(297)
Loss from continuing operations before minority interests		(46,585)		(10,066)		(12,444)		(12,057)		(12,018)
Minority interests		55,096		12,208		14,565		14,181		14,142
Income from continuing operations		8,511		2,142		2,121		2,124		2,124
Discontinued operations, net of minority interests in the amount of $108 in the fourth quarter, $4 in the third quarter, $(139) in the second quarter and $(80) in the first quarter		1		(1)		–		1		1
Income before gain on sales of real estate		8,512		2,141		2,121		2,125		2,125
Gain on sales of real estate and joint venture interests, net of minority interest of $(18,651) in the fourth quarter and $(638) in the second quarter		171		165		–		6		–
Net income		8,683		2,306		2,121		2,131		2,125
Net income allocated to preferred shareholders		(9,000)		(2,250)		(2,250)		(2,250)		(2,250)
Net (loss) income available to common shareholders	$	(317)	$	56	$	(129)	$	(119)	$	(125)

Basic and diluted earnings available to common shares per weighted average common share
Loss from continuing operations after minority interests and allocation to preferred shareholders	$	(2.06)	$	(0.45)	$	(0.55)	$	(0.53)	$	(0.53)
Discontinued operations, net of minority interests		–		–		–		–		–
Gain on sales of real estate and joint venture interests, net of minority interests		0.72		0.69		–		0.03		–
Net (loss) income available per weighted–average common share of beneficial interest – basic and diluted	$	(1.34)	$	0.24	$	(0.55)	$	(0.50)	$	(0.53)
Weighted average common shares – basic and diluted		236,483		236,483		236,483		236,483		236,483
Distributions paid per common share/common unit	$	2.8438	$	–	$	–	$	–	$	2.8438

F-47

17.

Interim Financial Information (unaudited)

The following is our consolidated quarterly summary of operations for 2005:

		Year ended December 31(1)
				Successor Company				Predecessor Company
				Fourth		Third		Second		First
		Total		Quarter		Quarter		Quarter		Quarter
	(dollars in thousands, except						(dollars in thousands, except
	per share amount)						per share amount)
Total revenue	$	96,733	$	24,867	$	23,688	$	24,098	$	24,080
Total expenses		101,001		25,401		24,075		29,347		22,178
Operating income		(4,268)		(534)		(387)		(5,249)		1,902
Loss from investments in unconsolidated joint ventures		(13,022)		(4,236)		(2,762)		(2,967)		(3,057)
Interest and other income		2,596		516		755		747		578
Interest:
Expense		(24,441)		(6,347)		(6,048)		(6,102)		(5,944)
Amortization of deferred financing costs		(1,288)		(25)		–		(1,020)		(243)
Loss from continuing operations before minority interests		(40,423)		(10,626)		(8,442)		(14,591)		(6,764)
Minority interests		26,335		12,763		10,599		1,936		1,037
(Loss) income from continuing operations		(14,088)		2,137		2,157		(12,655)		(5,727)
Discontinued operations, net of minority interests in the amount of $(1,827) in the fourth quarter, $(1,402) in the third quarter, $1,536 in the second quarter and $(202) in the first quarter		(10,235)		16		12		(11,815)		1,552
(Loss) income before gain (loss) on sales of real estate		(24,323)		2,153		2,169		(24,470)		(4,175)
Gain (loss) on sales of real estate, net of minority interest of $193 in the fourth quarter, $32 in the third quarter, $(41) in the second quarter and $(1,138) in the first quarter		9,071		(2)		(1)		316		8,758
Net (loss) income		(15,252)		2,151		2,168		(24,154)		4,583
Net income allocated to preferred shareholders		(9,000)		(2,250)		(2,250)		(2,250)		(2,250)
Net (loss) income available to common shareholders	$	(24,252)	$	(99)	$	(82)	$	(26,404)	$	2,333

Basic and diluted earnings available to common shares per weighted average common share
Loss from continuing operations after minority interests and allocation to preferred shareholders	$	(1.93)	$	(0.48)	$	(0.39)	$	(0.63)	$	(0.34)
Discontinued operations, net of minority interests		(0.86)		0.07		0.05		(0.50)		0.07
Gain (loss) on sales of real estate, net of minority interests		0.76		(0.01)		–		0.01		0.37
Net (loss) income available per weighted–average common share of beneficial interest – basic and diluted	$	(2.03)	$	(0.42)	$	(0.34)	$	(1.12)	$	0.10
Weighted average common shares – basic and diluted		11,947		236		236		23,642		23,675
Distributions paid per common share	$	1.1225	$	–	$	1.1225	$	–	$	–

(1)	Reclassifications of information for the year ended December 31, 2005 to reflect SFAS 144 for properties sold during 2005 have been made from continuing operations to discontinued operations.

F-48

18. Recent Accounting Pronouncements

In March 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments – an Amendment of FASB Statements No. 133 and 140." This Statement amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." This Statement permits fair value measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would required bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition on qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This Statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. SFAS No. 155 is not expected to have a material impact on our consolidated financial statements.

F-49

18. Recent Accounting Pronouncements (continued)

permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS No. 157, "Fair Value Measurements." The Company has not yet determined the impact of adopting SFAS No. 159 on its consolidated financial statement.

19. Subsequent Events

On December 14, 2006 our Board declared and set apart for payment two quarterly dividends on our Series B Preferred Shares of $0.5625 per share, per quarter, for a total dividend of $1.125 per share. These dividends had a record date of January 5, 2007 and were paid on January 31, 2007.

F-50

PRIME GROUP REALTY TRUST

SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION

AS OF DECEMBER 31, 2006

(dollars in thousands)


													Gross Amount Carried at
									Cost Capitalized				Close of Period
			Encumbrances(1)		Initial Cost(2)				Subsequent to Acquisition				12/31/06
																				Accumulated Depreciation
							Buildings				Buildings				Building					at
			December 31				and				and				and					December 31	Date of
			2006		Land		Improvements		Land		Improvements		Land		Improvements		Total			2006(3)	Acquisition


	280 Shuman Blvd	$	–	$	2,092	$	3,642	$	12	$	568	$	2,104	$	4,210	$	6,314	$	440		Nov. 1997
	Continental Towers		115,000		12,166		122,980		363		11,679		12,529		134,659		147,188		8,845		Dec. 1997
	4343 Commerce Court (4)		12,090		2,370		13,572		(8)		1,056		2,362		14,628		16,990		1,005		Nov. 1997
F–50	1600–1700 167^th St.		2,754		1,271		3,561		4		160		1,275		3,721		4,996		330		Nov. 1997
	800–810 Jorie Blvd		24,160		6,265		20,187		–		437		6,265		20,624		26,889		1,771		Aug. 1999
	330 N. Wabash Avenue (5)		195,000		45,582		126,397		(639)		11,888		44,943		140,025		184,968		10,610		Dec. 1999
	Brush Hill Office Court.		8,488		3,456		10,295		(24)		631		3,432		10,926		14,358		903		Dec. 1999
	Enterprise Center II		6,161		1,659		5,272		(6)		154		1,653		5,426		7,079		349		Jan. 2000
	7100 Madison Avenue		4,044		1,268		3,663		(2)		–		1,266		3,663		4,929		221		Apr. 2000
	180 North LaSalle Street		64,072		15,245		55,497		(138)		1,818		15,107		57,315		72,422		6,727		Aug. 2000
	1051 N. Kirk Road (4)		3,148		818		2,631		6		–		824		2,631		3,455		195		Nov. 1997
	Other Corporate Assets (6)		18,778		–		464		–		50		–		514		514		280
	Total	$	453,695	$	92,192	$	368,161	$	(432)	$	28,441	$	91,760	$	398,342	$	490,102	$	31,676

PRIME GROUP REALTY TRUST

SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION

AS OF DECEMBER 31, 2006

(1)	See Note 4 – Mortgage Notes Payable to these consolidated financial statements for a description of our mortgage notes payable.

(2)	As a result of the Acquisition, we were required to revalue our balance sheet to reflect the fair market value of each of our assets and liabilities in accordance with Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations.

(3)	Depreciation is calculated on the straight-line method over the estimated useful lives of assets, which are as follows:

Buildings	40 years weighted average composite life
Building improvements	10 to 30 years
Tenant improvements	Term of related leases
Furniture and equipment	3–10 years

(4)	These properties collateralize a mortgage note payable of $15.2 million.

(5)	A pledge of 100.0% of the ownership interest in the entity which owns this property is collateral for two mortgage notes payable totaling $195.0 million with the same lender.

(6)

As collateral for the $55.0 million mortgage note payable, Prime Dearborn had pledged all of its rights to distributions from Dearborn JV to IPC Lender. In addition, we guaranteed the payment of all interest under the loan and guaranteed all principal payments under the loan upon the occurrence of certain non-recourse carve-out events, including, without limitation, voluntary bankruptcy, fraud, or breach of certain covenants. Prime Group Realty Services Inc., our subsidiary, has also pledged its right to receive certain management and leasing fees in connection with its management of Citadel Center. As additional security for the loan, Prime Dearborn has deposited $458,334, the amount of one month's prepaid interest on the loan (calculated based on a 10.0% annual interest rate), with IPC Lender which was recorded as other assets in our consolidated balance sheets. We repaid this loan in full in November 2006 in connection with the sale of Citadel Center in November 2006.

The aggregate gross cost of the properties included above, for federal income tax purposes, approximated $471.8 million as of December 31, 2006. The net tax basis of our investment in unconsolidated real estate joint ventures for federal income tax purposes was $16.1 million at December 31, 2006.

The following table reconciles our historical cost for the years ended December 31, 2006, 2005 and 2004:

		Year ended December 31
		2006		2005		2004
		(dollars in thousands)

Balance, beginning of period	$	471,892	$	619,059	$	610,987
Additions		18,210		18,674		8,765
Disposals		–		(2,130)		(693)
Impact of applying push down purchase accounting		–		(163,711)		–
Property impairments recorded during period		–		–		–
Balance, close of period	$	490,102	$	471,892	$	619,059

F-52

The following table reconciles the accumulated depreciation for the years ended December 31, 2006, 2005 and 2004:

		Year ended December 31
		2006		2005		2004
		(dollars in thousands)

Balance at beginning of period.	$	11,142	$	94,252	$	77,022
Depreciation and amortization		20,534		20,211		17,881
Disposals		–		(493)		(651)
Impact of applying push down purchase accounting		–		(102,828)		–
Balance, close of period.	$	31,676	$	11,142	$	94,252

F-53

EXHIBIT 21.1

PRIME GROUP REALTY TRUST

SUBSIDIARIES OF THE REGISTRANT

DECEMBER 31, 2006

The following represents the Prime Group Realty Trust’s (the “Company”) and Prime Group Realty, L.P.’s (the “Operating Partnership”) operating subsidiaries (the Company and the Operating Partnership have a majority interest or control, except in the case of 77 West Wacker Drive, L.L.C. and Dearborn Center, L.L.C. the ownership of which are further described in the footnotes below) and related properties as of December 31, 2006:

Entity	Property
77 Fitness Center, L.P. (4),(3)	Owner of Health Club at 77 West Wacker Drive
77 West Wacker Drive, L.L.C. (1), (2)	77 West Wacker Drive
77 West Wacker Limited Partnership (3), (4)	Sole member of 330 N. Wabash Avenue, L.L.C. and 99.5% owner of Brush Hill Office Center, L.L.C.
180 N. LaSalle Holdings, L.L.C. (1), (3)	Sole member of 180 N. LaSalle II, L.L.C.
180 N. LaSalle II, L.L.C. (1), (3)	180 N. LaSalle
280 Shuman Blvd., L.L.C. (1), (3)	280 Shuman Blvd. (Atrium)
330 N. Wabash Avenue, L.L.C. (1), (3)	IBM Plaza
330 N. Wabash Mezzanine, L.L.C. (1), (3)	Sole member of 330 N. Wabash Avenue, L.L.C.
800 Jorie Blvd., L.L.C. (1), (3)	800–810 Jorie Blvd.
800 Jorie Blvd. Mezzanine, L.L.C. (1), (3)	Member owning 49.0% of 800 Jorie Blvd., L.L.C.
1051 N. Kirk Road, L.L.C. (1), (3)	1051 N. Kirk Road
1600 167th Street, L.L.C. (1), (3)	1600–1700 167th Street (Narco River Business Center)
2305 Enterprise Drive, L.L.C. (1), (3)	2305 Enterprise Drive
4343 Commerce Court, L.L.C. (1), (3)	4343 Commerce Court (The Olympian Office Center)
7100 Madison, L.L.C. (1)	7100 Madison
Brush Hill Office Center, L.L.C. (1), (3)	Brush Hill Office Center
Dearborn Center, L.L.C. (1), (5)	Former owner of Citadel Center
LaSalle–Adams, L.L.C. (1), (3)	Former owner of 208 South LaSalle Street
Libertyville Corporate Office Park, L.L.C. (1)	Former owner of Vacant Land adjacent to 80 Pine Meadow Corporate Office Park
Libertyville Corporate Office Park II, L.L.C. (1)	Former owner of Vacant Land adjacent to 80 Pine Meadow Corporate Office Park
PGR Finance II, Inc. (6)	Member owning 1% of LaSalle–Adams, L.L.C.
PGR Finance IV, Inc. (6)	Member owning 0.1% of 1600 167^th Street., L.L.C.
PGR Finance VIII, Inc. (6)	Limited Partner owning 0.5% of 77 West Wacker Limited Partnership
PGR Finance XIV, Inc. (6)	Member owning 0.1% in both 1051 N. Kirk Road, L.L.C. and 4343 Commerce Court, L.L.C.

F-54

PGR Finance XV, L.L.C. (1)	Member owning 0.5% of Brush Hill Office Center, L.L.C.
PGR Finance XVII, Inc. (6)	Member owning 0.5% of 800 Jorie Blvd., L.L.C.
PGR Finance XXI, L.L.C. (1)	Member owning 0.1% of 2305 Enterprise, L.L.C.
PGR Finance XXII, Inc. (6)	Member owning 1% of 180 N. LaSalle Holdings, L.L.C.
PGRT Equity LLC (1)	Owner of (i) junior loans encumbering Continental Towers, (ii) 50% common interest in 77 West Wacker Drive, L.L.C., (iii) 280 Shuman Blvd., L.L.C., (iv) 800 Jorie Blvd. Mezzanine, L.L.C., and (v) Prime Group Management, L.L.C.
PGRT Equity II LLC (1)	Member owning 99.0% of 180 N. LaSalle Holdings, L.L.C.
Phoenix Office, L.L.C. (1)	Owner of 23.1% interest in Plumcor/Thistle, L.L.C., owner of a building in Thistle Landing in Phoenix, Arizona
Prime Group Management, L.L.C. (1), (3)	Manager of Continental Towers
Prime Group Realty Services, Inc. (7)	The Services Company, owner of 100% of PGT Construction Co., PRS Corporate Real Estate Services, Inc., Prime Services Holdings, Inc. and 99.9% of 77 Fitness Center, L.P. It also manages and leases 77 West Wacker Drive
PGT Construction Co. (6)	Subsidiary of Services Company for construction work
Prime Rolling Meadows, L.L.C. (1)	0.6 acre detention pond adjacent to Continental Towers
PRS Corporate Real Estate Services, Inc. (6)	Brokerage subsidiary of Services Company. Leasing agent of Citadel Center
Prime Services Holding, Inc. (6)	0.1% owner of 77 Fitness Center, L.P.
PGRLP 77 Manager LLC (1)	Sub-Manager of 77 W. Wacker Drive
PGRLP 131 Manager LLC (1)	Manager, not leasing agent, of Citadel Center, 131 S. Dearborn St.

(1)	Delaware Limited liability Company

(2)	PGRT Equity LLC, a subsidiary of the Operating Partnership, owns a 50% common interest, our affiliates lease and manage the property and a third party owns the remaining 50% common interest.

(3)	We own indirect ownership interests in these entities through wholly owned subsidiaries listed above.

(4)	Illinois Limited Partnership

(5)

Citadel Center was sold in October 2006. PGRT Equity LLC, a subsidiary of the Operating Partnership owned a 30% subordinated common interest in Dearborn Center, L.L.C. PGRLP 131 Manager LLC currently manages the property and PRS Corporate Real Estate Services, Inc. is the leasing agent for the property.

F-55

(6)	Delaware Corporation.

(7)	Maryland Corporation.

F-56

Dearborn Center, L.L.C.

Financial Statements

For the years ended December 31, 2006, 2005 and 2004

Contents

Reports of Independent Registered Public Accounting Firms	F–56

Financial Statements:

Balance Sheets	F–58
Statements of Operations	F–59
Statements of Members' Capital	F–60
Statements of Cash Flows	F–61
Notes to Financial Statements	F–62

F-57

Report of Independent Registered Public Accounting Firm

Board of Trustees

Prime Group Realty Trust

We have audited the accompanying balance sheets of Dearborn Center, L.L.C. as of December 31, 2006 and 2005 and the related statements of operations, members' capital and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dearborn Center, L.L.C. at December 31, 2006 and 2005, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Grant Thornton LLP

Chicago, Illinois

March 16, 2007

F-58

Report of Independent Registered Public Accounting Firm

Board of Trustees

Prime Group Realty Trust

We have audited the accompanying statements of operations, members’ capital, and cash flows of Dearborn Center, L.L.C. for the year ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations, changes in members’ capital, and cash flows of Dearborn Center, L.L.C. for the year ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Chicago, Illinois

February 21, 2005

F-59

Dearborn Center, L.L.C.

Balance Sheets


		December 31		December 31
		2006		2005
Assets
Real estate:
Land	$	–	$	22,621,876
Building and improvements		–		281,687,123
Tenant improvements		–		68,278,130
Furniture, fixtures and equipment		–		58,489
		–		372,645,618
Accumulated depreciation		–		(29,319,025)
		–		343,326,593

Cash		191,141		4,067,474
Restricted cash escrows		120		18,250,537
Receivables net of allowance for doubtful accounts of $0 and $293,314 at December 31, 2006 and 2005, respectively:
Tenant		17,501		9,404,279
Deferred rent		–		12,731,890
Note		–		11,650,920
Other		176,838		–
Deferred costs, net		–		36,260,539
Prepaid expenses		–		49,501
Total assets	$	385,600	$	435,741,733

Liabilities and members' capital
Mortgage note payable	$	–	$	269,237,552
Accrued interest payable		–		3,624,829
Rents received in advance		–		2,036,161
Accrued tenant improvement allowances		–		23,344,965
Accounts payable and accrued liabilities		139,818		1,238,885
Due to affiliate		245,782		2,962,108
Development costs payable		–		876,885
Accrued real estate taxes		–		15,141,221
Other		–		72,250
Total liabilities		385,600		318,534,856
Members' capital		–		117,206,877
Total liabilities and members' capital	$	385,600	$	435,741,733

See notes to financial statements.

F-60

Dearborn Center, L.L.C.

Statements of Operations

		Years ended December 31
		2006		2005		2004
Revenue

Rental	$	30,888,468	$	30,575,824	$	28,919,989
Tenant reimbursements		15,627,413		17,065,568		15,328,416
Other		1,283,363		2,191,926		1,690,502
Total revenue		47,799,244		49,833,318		45,938,907

Expenses
Property operations		8,139,342		10,015,555		8,904,529
Real estate taxes		13,046,404		13,488,670		12,933,879
Depreciation		9,179,917		10,839,400		11,034,729
Amortization		1,600,709		1,695,925		1,894,238
Interest		12,886,838		14,928,348		14,141,928
Amortization of deferred financing costs		1,142,500		239,535		239,412
Total expenses		45,995,710		51,207,433		49,148,715
Net gain (loss) before gain on sale of real estate	$	1,803,534	$	(1,374,115)	$	(3,209,808)

Gain on sale of real estate		167,586,447		–		–
Net income (loss)	$	169,389,981	$	(1,374,115)	$	(3,209,808)

See notes to financial statements.

F-61

Dearborn Center, L.L.C.

Statements of Members' Capital

		UST		Prime		Total

Members' capital at January 1, 2004	$	102,639,465	$	41,419,723	$	144,059,188
(unaudited)

Net income (loss)		10,640,000		(13,849,808)		(3,209,808)
Distributions		(10,640,000)		–		(10,640,000)
Members' capital at December 31, 2004		102,639,465		27,569,915		130,209,380


Net income (loss)		11,620,000		(12,994,115)		(1,374,115)
Distributions		(11,628,388)		–		(11,628,388)
Members' capital at December 31, 2005		102,631,077		14,575,800		117,206,877

Net income		74,916,403		94,473,578		169,389,981
Distributions		(189,909,278)		(96,687,580)		(286,596,858)
Members' capital at December 31, 2006	$	(12,361,798)	$	12,361,798	$	–

See notes to financial statements.

F-62

Dearborn Center, L.L.C.

Statements of Cash Flows

		Years ended December 31
		2006		2005		2004

Operating activities
Net income (loss)	$	169,389,981	$	(1,374,115)	$	(3,209,808)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		11,923,126		12,774,860		13,168,379
Amortization of costs for leases assumed (included in rental revenue)		1,590,229		1,908,275		1,950,175
Gain on sale of real estate		(167,586,447)		–		–
Changes in other operating assets and liabilities:
Tenant receivables		1,523,108		(798,677)		(6,151,721)
Deferred rent receivable		(6,891,762)		(3,728,304)		(4,628,538)
Other receivables		(176,838)		–		–
Accrued interest on note receivable		1,164,446		644,913		(962,875)
Prepaid expenses		49,501		(37,757)		(6,645)
Accrued interest payable		(3,624,829)		(136,034)		301,088
Rents received in advance		(2,036,161)		13,490		710,056
Accounts payable and accrued liabilities		(1,076,124)		623,209		158,903
Due to affiliate		(3,132,756)		(7,434,195)		10,106,095
Accrued real estate taxes		(1,556,945)		831,221		9,225,961
Other liabilities		(72,250)		47,250		–
Net cash provided (used in) by operating activities		(513,721)		3,334,136		20,661,070

Investing activities
Additions to real estate		(3,372,094)		(24,154,307)		(7,345,733)
Proceeds from sale of real estate		556,708,024		–		–
Increase (decrease) in accrued tenant improvement allowances		(23,344,965)		22,830,465		(13,112,879)
Leasing costs		(197,461)		(2,673,777)		(1,214,186)
Decrease (increase) in restricted cash escrows		18,250,417		2,334,783		(1,052,546)
Decrease (increase) in note receivable		4,427,877		–		(587,771)
Net cash provided by (used in) investing activities		552,471,798		(1,662,836)		(23,313,115)

Financing activities
Distributions to members		(286,596,858)		(11,628,388)		(10,640,000)
Additional proceeds from mortgage note payable		–		–		22,500,000
Repayment of mortgage note payable		(269,237,552)		(762,448)		–
Financing costs		–		–		(4,825)
Net cash (used in) provided by financing activities		(555,834,410)		(12,390,836)		11,855,175
Net (decrease) increase in cash and cash equivalents		(3,876,333)		(10,719,536)		9,203,130
Cash at beginning of period		4,067,474		14,787,010		5,583,880
Cash at end of period	$	191,141	$	4,067,474	$	14,787,010

See notes to financial statements.

F-63

Dearborn Center, L.L.C.

Notes to Financial Statements

1. Summary of Significant Accounting Policies

Formation and Organization of the Company

Dearborn Center, L.L.C. (the "Company") is a Delaware limited liability company that was formed on September 27, 2000, to develop, own, lease, and operate a 37-story office building containing approximately 1.5 million square feet located in downtown Chicago, Illinois (the "Property").

On October 8, 2003 (the "Transaction Date"), Prime Group Realty, L.P. ("Prime"), the prior sole member of the Company, sold 70.0% of its interest in the Company to UST XI Dearborn, Ltd. ("UST"), a limited partnership organized under the laws of Florida. At the closing UST paid Prime $105,000,000 and made a cash contribution to the Company of $1,400,000 as working capital. Prime correspondingly made a $600,000 cash contribution to the Company. UST's opening capital balance represents an allocation of 70.0% of Prime's historical capital balance. The Company's organizational documents were amended and restated to reflect the admission of UST. For reporting purposes, no adjustments have been made to the carrying values of the Company's assets and liabilities as a result of the sales transaction in accordance with the practices of the Securities and Exchange Commission.

Under the terms of the Contribution Agreement between Prime and UST, an additional purchase price payment in the amount of $9,800,000 was to be made by UST (the "Leasing Earnout") and distributed to Prime upon the Company's lease of an additional 40,000 square feet of space in the Property over and above the square footage leased in the Property as of August 4, 2003. This payment, reflected as a component of due to affiliate at December 31, 2004, was made in December 2004 and distributed to Prime on January 24, 2005, upon achieving the Leasing Earnout.

UST is the administrative member of the Company and Prime has approval rights over major decisions. At closing, Prime received a credit to its invested capital account (as defined in the Contribution Agreement) in the Company in the amount of $45,600,000, representing 30.0% of the total invested capital of the Company, and UST received a credit to its invested capital account of $106,400,000, representing 70.0% of the total invested capital of the Company. Prime also received a credit to its invested capital account, upon the satisfaction of the Leasing Earnout, of an additional $4,200,000. While these values have been utilized for purposes of tracking balances pursuant to the Contribution Agreement, these balances have not been reflected in these statements as noted above.

In connection with the admittance of UST as a partner in the Company, Prime deposited $19,908,658 with an escrow agent, which is to be used to fund: (a) the payment of completion costs for the core and shell of the Property (which Prime and UST acknowledge were $5,670,959 as of the closing date), (b) the costs related to tenant improvements and allowances with respect

F-64

1. Summary of Significant Accounting Policies (continued)

to existing leases at the Property (which Prime and UST acknowledge were $14,201,787 as of the closing date) and (c) the payment of any outstanding lease commissions with respect to existing leases of the Property (which Prime and UST acknowledge were $35,912 as of the closing date). The balances in this escrow account at December 31, 2006 and 2005 were $0 and $1,356,239, respectively. In addition to this escrow, Prime conveyed another escrow to the Company in the amount of $1,356,942 related to completion costs for the core and shell of the Property incurred prior to the closing date. The balances in this escrow at December 31, 2006 and 2005 were $0 and $920,516, respectively.

UST is entitled to receive out of available annual cash flow (Distributable Cash), a 10.0% non-cumulative preferred return on its invested capital, after which Prime is entitled to receive a 10.0% non-cumulative, non-compounded return on its invested capital. Any remaining Distributable Cash after repayment of all amounts then due and payable pursuant to the loan documents and other expenses and liabilities of the Company then due and payable after establishment of such reserves as UST may reasonably determine for specific anticipated purposes will be distributed 50.0% to Prime and 50% to UST.

To the extent the Company's earnings exceed UST's return in any year, Prime will record 100.0% of the excess up to its 10.0% return on invested capital. Thereafter, earnings will be allocated 50.0% to Prime and 50.0% to UST. To the extent the Company's earnings are less than the amount distributable to UST, a corresponding loss will be allocated to Prime to the extent of any difference.

In accordance with the Limited Liability Company Agreement, the Company has perpetual existence unless sooner dissolved upon the occurrence of a defined termination

event. No member can transfer its interest in any part of the Company without obtaining the prior written consent of the other member unless the transfer is made to an affiliate or Prime transfers or sells its membership interests in connection with any merger, consolidation, reorganization, sale, liquidation or other similar transaction.

On November 8, 2006, the Company completed the sale of the Property. The sales price for Citadel Center was $560,000,000, subject to customary pro-rations and adjustments. At the closing, Prime received its annual distribution of income of $4,243,233 in addition to a distribution of proceeds of $92,444,347, and UST received a distribution of proceeds of $180,000,000. The Company had a book gain according to generally accepted accounting principles of $167,586,447 from the transaction (included in gain on sale of real estate). Two subsidiaries of Prime entered into a management and leasing agreement at closing providing that they will be the manager and leasing agents for the Property through August 31, 2012, subject to the terms of the agreement and extension by agreement of the parties.

Real Estate

Real estate is carried at its historical cost, less accumulated depreciation. Expenditures for ordinary maintenance and repairs are expensed to operations as incurred. Significant renovations and improvements, which improve and/or extend the useful life of the asset, are capitalized and depreciated over their estimated useful life.

F-65

1. Summary of Significant Accounting Policies (continued)

Depreciation is calculated on the straight-line method over the estimated useful lives of assets, which are as follows:

Buildings	Weighted average composite life of 40 years
Building improvements	15 to 30 years
Tenant improvements	Term of related leases

The City of Chicago, ("City") has provided tax increment financing assistance for the Property pursuant to which the Company is entitled to receive from the City up to $10,000,000 in tax increment assistance, subject to the satisfaction of certain requirements. The obligation of the City is evidenced by a promissory note in the maximum principal amount of $10,000,000 (which was subject to reduction if certain requirements were not satisfied). Interest on the note accrues at the rate of 9.5% per year. Under the agreement with the City, payments of the tax increment assistance are to be made each January 1 from 50.0% of the incremental real estate taxes attributable to the Property. The promissory note matures on December 31, 2008, and, to the extent any portion of the note remains unpaid as of the maturity date, the Company is required to forego such amounts. The Company initially recorded a note receivable in the amount of $9,412,228, which was net of a reserve for amounts anticipated due to the City for failure to meet certain of the requirements.

On August 11, 2004, payments were made to the City comprised of $587,771 from the Company and $447,845 from Prime. The payment by the Company was funded by a loan Prime made to the Company in the amount of $587,771. The loan bears interest at 10.0% per year and was repaid upon the sale of the Property. The total of $1,035,616 represented the Company's obligation under its redevelopment agreement with the City. The City issued a Certificate of Completion in regards to the Property and acknowledged the amount of the note receivable, which included principal of $10,000,000 and interest through August 11, 2004 of $1,929,028.

The balance of the note receivable of $6,058,597, which includes accrued interest of $486,474, was transferred to the purchaser upon completion of the sale of the Property. The balance of the note receivable at December 31, 2005 included accrued interest of $1,650,920.

Deferred Charges

Costs incurred in connection with financings are capitalized as deferred financing costs and are amortized on the effective interest method to interest expense over the terms of the related loan. Leasing commissions and other leasing costs directly attributable to tenant leases are capitalized as deferred leasing costs and are amortized on the straight-line method over the terms of the related lease agreements.

F-66

1. Summary of Significant Accounting Policies (continued)

Rental Revenue

Rental revenue is recorded on the straight-line method over the terms of the related lease agreements. Differences between rental revenue earned and amounts due per the respective lease agreements are credited or charged, as applicable, to deferred rent receivable. Rental payments received prior to their recognition as income are classified as rent received in advance.

Income Taxes

The Company is taxed as a partnership, and accordingly, no federal or state income taxes are payable by the Company. The members' respective share of the Company's taxable income or loss is includable on the respective tax returns of the members.

Use of Estimates

The preparation of the financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications

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

2. Deferred Costs

Deferred costs consist of the following:

		December 31
		2006		2005
Financing costs	$	–	$	7,377,041
Leasing commissions		–		15,884,349
Leasing costs		–		8,640,489
Lease assumption costs		–		20,507,230
		–		52,409,109
Less: Accumulated amortization		–		(16,148,570)
	$	–	$	36,260,539

3. Mortgage Note Payable

In connection with the admittance of UST as a member in the Company, the Company simultaneously closed on a $270,000,000 mortgage loan with a financial institution (the Loan), a portion of which was used to repay in full the existing construction loan and mezzanine loan encumbering the Property, and $22,500,000 of which was funded post-closing to pay for tenant improvement costs and other leasing costs under subsequent and future leases at the Property (the TI Amount).

F-67

3. Mortgage Note Payable (continued)

The Loan bears interest at a fixed rate of 5.47% per year, except that the TI Amount, when and as funded, bore interest at a floating rate of one or three month LIBOR plus 1.20%, as defined. The Company had the right to fix the interest rate on the TI Amount, as funded, in $5,000,000 increments, at an interest rate equal to the lender's then-current cost of funds plus 1.20%. On September 30, 2004, the Company fixed the rate on the loan for the TI amount at 5.18% and drew down $18,772,291 representing the remaining proceeds available under the original loan commitment.

This advance of the TI Amount was disbursed into an interest-bearing escrow account (with interest payable monthly to the Company) with future tenant improvement costs and leasing commissions of the Property payable out of the escrow. The balances in this escrow at December 31, 2006 and 2005 were $0 and $15,973,781, respectively.

The Loan requires interest only payments quarterly in arrears for the first two years of the loan term and payments of principal and interest pursuant to a 30-year amortization schedule thereafter. The Loan has a term of seven years. The Company is obligated to pay a $50,000 agency fee to the lender each year.

The Loan documents provide that if the debt service coverage ratio of the Property (as defined in the loan documents and tested on June 30 and December 31 of each year) falls below 1.1, it is a default under the Loan. In addition, beginning on June 30, 2006, in the event the debt service coverage ratio of the Property falls below 1.30, then the excess net cash flow from the Property will be deposited in an interest bearing escrow account with the lender until the debt service coverage ratio test of 1.30 is met. The debt service coverage ratios were 1.34 and 1.24 at June 30, 2006 and December 31, 2005, respectively.

The Loan was retired on November 8, 2006 upon the sale of the Property.

4. Related Party Transactions

In connection with operating the Property, Prime is entitled to receive fees for services performed and reimbursement for costs paid on behalf of the Company. Amounts incurred for these services for the years ended December 31, 2006, 2005 and 2004.

		2006		2005		2004
Management fee (a)	$	852,399	$	909,480	$	728,776
Payroll and other operating costs (b)		700,004		1,267,391		1,258,929
Leasing commissions		35,687		1,622,525		283,541

(a)	Management fee equal to 2% of the monthly gross revenues calculated on a cash basis (included in property operations expense).

(b)	Reimbursement for payroll and other operating costs paid on behalf of the Company.

UST also receives a monthly administrative fee of $50,000, which totaled $511,667, $600,000 and $600,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

The length of the lease terms range up to 15 and 40 years at lease inception for office and retail tenants, respectively. The leases generally provide for tenants to share in increases in operating expenses and real estate taxes in excess of specified base amounts.

5.	Leases

The Property was approximately 91.5% leased at the time of sale, of which four tenants lease approximately 86.1% and represent approximately 94.4% and 95.2% of rental and tenant reimbursements revenue, excluding amortization of lease assumption costs for the years ended December 31, 2006 and 2005, respectively.

6. Fair Values of Financial Instruments

SFAS No. 107, Disclosures About Fair Value of Financial Instruments, and SFAS No. 119, Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments, require disclosure of the fair value of certain on- and off-balance-sheet financial instruments for which it is practicable to estimate. Fair value is defined by SFAS No. 107 as the amount at which the instrument could be exchanged in a current transaction between willing parties other than in a forced or liquidation sale.

The Company used the following methods and assumptions in estimating the fair value disclosures for financial instruments.

The carrying amount of cash and restricted cash escrows reported in the balance sheets approximates their fair value.

The Company maintains its cash and restricted cash escrows at various financial institutions. The combined account balances at each institution periodically exceed FDIC insurance coverage, and as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company believes that the risk is not significant.

The carrying values of the Company's tenant receivables and accounts payable and accrued liabilities approximate their fair values due to the short maturities of such instruments. The carrying value of the Company's note receivable approximates its fair value based on the expected amount to be received from the City. The carrying amount of mortgage note payable (including accrued interest) approximates fair value based on the current borrowing rate for similar types of debt.

F-68

EX-31 2 exhibit31-1.htm EXHIBIT 31.1

EXHIBIT 31.1

I, Jeffrey A. Patterson, certify that:

I have reviewed this annual report on Form 10-K of Prime Group Realty Trust;

Based on my knowledge, this annual 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 annual report;

Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and

disclosed in this annual report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 19, 2007

/s/ Jeffrey A. Patterson

Jeffrey A. Patterson

President and Chief Executive Officer

EX-31 3 exhibit31-2.htm EXHIBIT 31.2

EXHIBIT 31.2

I, Paul G. Del Vecchio, certify that:

I have reviewed this annual report on Form 10-K of Prime Group Realty Trust;

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 19, 2007

/s/ Paul G. Del Vecchio

Paul G. Del Vecchio

Executive Vice President—Capital Markets

EX-32 4 exhibit_321.htm EXHIBIT 32.1

EXHIBIT 32.1

Certification Pursuant To

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 Of The Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Prime Group Realty Trust (the "Company") on Form 10-K for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jeffrey A. Patterson, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, 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 aspects, the financial condition and results of operations of the Company.

/s/ Jeffrey A. Patterson

Jeffrey A. Patterson

President and Chief Executive Officer

March 19, 2007

EX-32 5 exhibit_32-2.htm EXHIBIT 32.2

EXHIBIT 32.2

Certification Pursuant To

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 Of The Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Prime Group Realty Trust (the "Company") on Form 10-K for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Paul G. Del Vecchio, Executive Vice President—Capital Markets of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, 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 aspects, the financial condition and results of operations of the Company.

/s/ Paul G. Del Vecchio

Paul G. Del Vecchio

Senior Vice President—Capital Markets

March 19, 2007

EX-10 6 exhibit-10_59.htm EXHIBIT 10.59

EXHIBIT 10.59

INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT (this “Agreement”), dated as of November 8, 2006, is made by and between PRIME GROUP REALTY, L.P., a Delaware limited partnership (“Indemnitor”), and 131 SOUTH DEARBORN LLC, a Delaware limited liability company (“Indemnitee”).

R E C I T A L S:

A. Indemnitee (as successor-in-interest to CARI, LLC, a New York limited liability company) and Dearborn Center, L.L.C., a Delaware limited liability company (“Seller”), are parties to that certain Purchase and Sale Agreement dated as of August 28, 2006 (as the same may have been amended, the “Purchase Agreement”), whereby Seller agreed to sell, and Indemnitee agreed to purchase, the real property and improvements commonly known as Citadel Center and located at 131 South Dearborn Street, Chicago, Illinois and certain other related property (collectively, the “Property”). All capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Purchase Agreement.

B. JPMorgan Chase Bank, N.A., a national banking association (the “Lender”), is providing mortgage and mezzanine financing (collectively, the “Loan”) in connection with Indemnitee’s purchase of the Property, and is a third-party beneficiary of this Agreement as hereafter provided.

C. This Agreement is intended to constitute the “One N. Wacker Guaranty” pursuant to Section 3.5 of the Purchase Agreement.

D. Simultaneously herewith, the parties hereto have entered into a certain escrow agreement (a copy of which is annexed as Exhibit A hereto) by and among Indemnitor, on the one hand, Indemnitee, on the other hand, and Lender, as escrow agent (in such capacity, the “Escrow Agent”), which is intended to constitute (and is herein referred to as) the “One N. Wacker Escrow Agreement” pursuant to Section 3.5 of the Purchase Agreement. The sums held pursuant to such One N. Wacker Escrow Agreement are referred to herein as the “Purchase Agreement Escrow Funds.”

E. Near North National Title LLC (the “Title Company”) is currently holding sums in escrow that were deposited (and continue to be held and disbursed) pursuant to the terms of that certain Strict Joint Order Escrow Agreement dated as of December 26, 2002 by and among One N. Wacker Drive Chicago LP, Citadel Investment Group, L.L.C. (“Citadel”), Seller and Title Company (the “SDMA Escrow Agreement”), such SDMA Escrow Agreement having been made in connection with that certain Sublease dated October 10, 2002 between Citadel, as sublandlord, and Sedgwick, Detert, Moran and Arnold LLP, as subtenant, with respect to a portion of the One N. Wacker Space. The sums held pursuant to such SDMA Escrow Agreement are referred to herein as the “SDMA Sublease Escrow Funds.”

F. Indemnitor is an affiliate of Seller, and as such is deriving a substantial benefit from the sale of the Property.

G. Indemnitee’s agreement to purchase the Property is made in reliance upon Indemnitor’s execution and delivery of this Agreement, failing which, Indemnitee would not have agreed to consummate the purchase of the Property.

A G R E E M E N T

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Indemnitor hereby represents, warrants and covenants to Indemnitee as follows:

1. Defined Terms. For purposes of this Agreement, the term “One N. Wacker Obligations” shall mean the agreements, covenants and obligations of the landlord under Section 43 of that certain Lease Agreement dated February 9, 2001 by and between Seller, as landlord, and Citadel, as tenant (such Lease Agreement, as the same has been amended from time to time through the date hereof, the “Citadel Lease”; the holder from time to time of the tenant’s interest under the Citadel Lease, the “Citadel Lease Tenant”). Nothing herein contained is intended to limit Indemnitee’s right, in its capacity following the Closing as the landlord under the Citadel Lease, to freely modify the Citadel Lease, it being understood that Indemnitor’s obligations hereunder are limited to the One N. Wacker Obligations as are in effect as of the date hereof. The documents and instruments comprising the Citadel Lease as are currently in effect are listed on Schedule 1 annexed hereto. Indemnitor hereby represents and warrants to Indemnitee that, except as set forth in Section 43 of the Citadel Lease, there are no existing obligations of the landlord under the Citadel Lease relating to space other than the space located at the Property as demised pursuant to the Citadel Lease.

Indemnification.

(a) Indemnitor hereby agrees to indemnify and hold harmless Indemnitee, its successors and assigns subject to the provisions of Section 9(j) below, from and against any and all suits, claims, demands, liabilities, damages, costs and expenses of every kind and nature (including, without limiting the generality of the foregoing, reasonable attorneys’ fees and expenses and any and all court costs, penalties and fines), that may at any time be incurred by, imposed on or asserted against Indemnitee based on, relating to, or arising out of or resulting from the One N. Wacker Obligations, including, without limitation, any abatements and/or offsets of any nature under the Citadel Lease of which the Citadel Lease Tenant may avail itself to the extent based on, relating to, or arising out of or resulting from the One N. Wacker Obligations (collectively, the “Indemnified Matters”). Without limiting the generality of the foregoing, the parties acknowledge and agree that notwithstanding the consummation of the transactions under the Purchase Agreement and the assumption of the Citadel Lease in accordance therewith, the intention of the parties with respect to such assumption is and has been (and as an express inducement for Indemnitee to enter into the Purchase Agreement, the parties’ understanding is and was) that the One N. Wacker Obligations were, following the Closing under the Purchase Agreement, to be the responsibility of the Indemnitor.

(b) Without limiting the generality of the foregoing (but subject in all events to Section 3 hereof and to the One N. Wacker Escrow Agreement, including, without limitation, Section 13.B thereof), Indemnitee acknowledges that Indemnitor has the right (as provided in

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Section 3.5 of the Purchase Agreement) to first look to obtain the release of the Purchase Agreement Escrow Funds to be used for the One N. Wacker Obligations before funding any of the Indemnified Matters from its own funds.

3. Payment and Reimbursement. Without limiting the generality of the foregoing, Indemnitor shall pay all sums required to satisfy the One N. Wacker Obligations as and when due (subject to any applicable notice and cure period(s), and subject, further, to Indemnitee’s delivery to Indemnitor of the invoices and other materials required pursuant to the next succeeding sentence, to the extent not otherwise furnished or known to Indemnitor), failing which, Indemnitee shall have the right to deliver written notice of such failure to Indemnitor, and, if such sums are not paid within ten (10) days following Indemnitee’s delivery to Indemnitor of such notice, then Indemnitee shall have the right to pay any and all such sums (including any late fees and other penalties) and Indemnitor shall reimburse Indemnitee therefor (together with interest accruing on all sums paid by Indemnitee from the date when paid by Indemnitee until paid by Indemnitor at the “prime rate” plus two (2.0%) percent), promptly upon receipt of Indemnitee’s written demand therefor. In furtherance of the foregoing, Indemnitee shall promptly forward to Indemnitor and to Lender copies of all invoices and other material correspondence and documents it receives from the Citadel Lease Tenant with respect to the One N. Wacker Obligations. The term “prime rate” shall mean the rate per annum (rounded to the nearest basis point) announced by the Escrow Agent from time to time as its base lending rate in effect at its principal office. Each change in the “prime rate” shall be effective on the date such change is announced to become effective.

4. Management of Subleasing. Indemnitor represents and warrants to Indemnitee that (i) Seller and Citadel have entered into a certain letter agreement dated May 29, 2002, as amended by that certain letter agreement dated as of May, 2004 (as so amended and as it may be further amended in accordance with the terms of this Agreement, the “Asset Management Agreement”), (ii) a true, correct and complete copy of such Asset Management Agreement is annexed as Exhibit B hereto, (iii) except as may be set forth on said Exhibit B, the Asset Management Agreement has been neither amended nor modified, and (iv) the Asset Management Agreement is in full force and effect. Simultaneously with the Closing under the Purchase Agreement, and notwithstanding anything to the contrary therein, the Asset Management Agreement has been assigned by Seller to Indemnitee on the date hereof pursuant to a certain assignment of even date herewith. Indemnitee hereby revocably assigns and Indemnitor hereby assumes (such assignment and assumption, the “AMA Assignment”), the rights and obligations of the Seller under the Asset Management Agreement, provided, that the AMA Assignment may only be revoked by Indemnitee upon not less than five (5) Business Days prior written notice to Indemnitor in the event of Indemnitor’s default hereunder, which default remains uncured beyond any applicable notice and cure period, and is not otherwise cured within such five (5) Business Day period. The AMA Assignment shall be subject to the rights of Lender to succeed to the interest of Indemnitee hereunder under any collateral assignment hereof made by Indemnitee to Lender. Accordingly, without limiting the foregoing, for so long as the AMA Assignment is in effect, Indemnitor shall have (x) the right and the obligation to manage the subleasing of the One N. Wacker Space, and (y) subject to the prior written consent of Indemnitee (which, in each case, shall not be unreasonably withheld, conditioned or delayed), the right to effectuate new subleases and/or modifications of the current subleases affecting the One N. Wacker Space, but in each case subject to and in accordance with the Asset Management

RSDOCS1\1344279.8

Agreement. Neither party hereto may amend, modify or terminate the Asset Management Agreement without the consent of the other party hereto (such consent, in each case, not to be unreasonably withheld, conditioned or delayed) (provided, that no such consent shall be necessary following a revocation of the AMA Assignment in accordance with the terms hereof). If (a) Indemnitee, following its receipt of a request for any consent referred to either in the preceding sentence or in clause (y) above, or (b) Indemnitor, following its receipt of a request for any consent referred to in the preceding sentence, shall, in any case, not respond in writing to the requesting party within twelve (12) Business Days after receipt of any such request, then the non-requesting party’s consent to the request in question shall be deemed granted, provided, that the notice wherein such request is contained shall refer to this Agreement and shall state in bold upper case type on the first page thereof: “FAILURE TO RESPOND TO THIS REQUEST FOR CONSENT WITHIN TWELVE (12) BUSINESS DAYS SHALL BE DEEMED CONSENT PURSUANT TO SECTION 4 OF THE REFERENCED AGREEMENT.”

SDMA Escrow Agreement.

(a) Indemnitor represents and warrants to Indemnitee that (i) a true, correct and complete copy of the SDMA Escrow Agreement is annexed as Exhibit C hereto, (ii) except as may be set forth on said Exhibit C, the SDMA Escrow Agreement has been neither amended nor modified, (iii) the SDMA Escrow Agreement is in full force and effect, and (iv) the amount of the SDMA Sublease Escrow Funds is currently equal to Six Hundred Ninety One Thousand Two Hundred Seventy and 60/100ths Dollars($691,270.60). Simultaneously with the Closing under the Purchase Agreement, and notwithstanding anything to the contrary therein, Seller’s interest in the SDMA Escrow Agreement has been assigned to Indemnitee pursuant to a certain assignment of even date herewith. Indemnitee hereby revocably assigns and Indemnitor hereby assumes (such assignment and assumption, the “SDMA Escrow Assignment”), the rights and the obligations of the Seller under the SDMA Escrow Agreement, provided, that the SDMA Escrow Assignment may only be revoked by Indemnitee upon not less than five (5) Business Days prior written notice to Indemnitor in the event of Indemnitor’s default hereunder, which default remains uncured beyond any applicable notice and cure period, and is not otherwise cured within such five (5) Business Day period. The SDMA Escrow Assignment shall be subject to the rights of Lender to succeed to the interest of Indemnitee hereunder under any collateral assignment hereof made by Indemnitee to Lender. Neither party hereto may amend or modify the SDMA Escrow Assignment without the consent of the other party hereto (such consent, in each case, not to be unreasonably withheld, conditioned or delayed). If either party, following its receipt of a request for any consent referred to in the preceding sentence, shall not respond in writing to the requesting party within twelve (12) Business Days after receipt of any such request, then the non-requesting party’s consent to the request in question shall be deemed granted, provided, that the notice wherein such request is contained shall refer to this Agreement and shall state in bold upper case type on the first page thereof: “FAILURE TO RESPOND TO THIS REQUEST FOR CONSENT WITHIN TWELVE (12) BUSINESS DAYS SHALL BE DEEMED CONSENT PURSUANT TO SECTION 5(a) OF THE REFERENCED AGREEMENT.”

(b) Indemnitor covenants and agrees that if any portion (the “Released Portion”) of the SDMA Sublease Escrow Funds is disbursed to any person or entity other than the (x) landlord of the One N. Wacker Space in reduction of the One N. Wacker Obligations or

RSDOCS1\1344279.8

(y) the Seller in accordance with the terms of the SDMA Escrow Agreement, then the Indemnitor shall promptly and in any event within two (2) Business Days of such disbursement, cause funds in an amount equal to the Released Portion to be added to the Purchase Agreement Escrow Funds pursuant to the One N. Wacker Escrow Agreement.

(c) Indemnitor acknowledges that Indemnitee has pledged to Lender all of Indemnitee’s right, title and interest in and to the SDMA Escrow Agreement and the SDMA Sublease Escrow Funds, it being expressly understood, however, that the SDMA Sublease Escrow Funds are not, under any circumstances, deemed to be collateral for the Loan.

6. Cooperation. Indemnitee shall reasonably and promptly cooperate in good faith with Indemnitor in connection with the One N. Wacker Obligations. Without limiting the generality of the foregoing, Indemnitee agrees, in acting in its capacity as the landlord under the Citadel Lease and in connection with the enforcement of its rights with respect to the One N. Wacker Obligations, to promptly act or not act, as the case may be, with respect to such rights pursuant to Indemnitor’s reasonable direction from time to time. In addition, Indemnitee agrees that it shall not amend or modify Section 43 of the Citadel Lease without the consent of Indemnitor (such consent not to be unreasonably withheld, conditioned or delayed, so long as it does not increase Indemnitor’s obligations (other than in the case of monetary obligations, to more than a de minimus extent) or limit Indemnitee’s rights (to more than a de minimus extent) under this Agreement, the One N. Wacker Escrow Agreement, the Citadel Lease or the SDMA Escrow Agreement or any related document). If Indemnitor, following its receipt of Indemnitee’s request for any consent referred to in the preceding sentence, shall not respond in writing thereto within ten (10) Business Days after receipt thereof, then the Indemnitor’s consent to the request in question shall be deemed granted, provided, that the notice wherein such request is contained shall refer to this Agreement and shall state in bold upper case type on the first page thereof: “FAILURE TO RESPOND TO THIS REQUEST FOR CONSENT WITHIN TEN (10) BUSINESS DAYS SHALL BE DEEMED CONSENT PURSUANT TO SECTION 4 OF THE REFERENCED AGREEMENT.”

Representations and Covenants.

(a) Indemnitor hereby represents and warrants to Indemnitee that, (i) Indemnitor is a limited partnership, duly organized and validly existing and in good standing under the laws of the State of Delaware, and has the requisite right, power and authority to enter into, execute and deliver this Agreement and to perform its obligations hereunder, (ii) this Agreement has been duly executed and delivered and is the valid and binding obligation of Indemnitor, enforceable in accordance with its terms, (iii) to the best of Indemnitor’s knowledge, the Wacker Lease (as such term is defined in the Citadel Lease) is in full force and effect, and, except as otherwise disclosed by Indemnitor in writing to Indemnitee, the Wacker Lease has not been amended or modified, (iv) to the best of Indemnitor’s knowledge, neither of the parties to the Wacker Lease are in default thereunder, nor is Indemnitor aware of any circumstances which, but for the passage of time, would give rise to a default thereunder by either of such parties, (v) neither Indemnitor nor Seller has received any notice from the Citadel Lease Tenant demanding payment of any of the One N. Wacker Obligations which remain unpaid and are past due, (vi) there are no subleases, occupancies or licensees of any space in the One N. Wacker Space except as set forth on Exhibit D hereto (the same, as listed on said Exhibit D, the “One N. Wacker

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Subleases”), (vii) each of the One N. Wacker Subleases is in full force and effect, (viii) to the best of Indemnitor’s knowledge, none of the parties to the One N. Wacker Subleases are in default thereunder, nor is Indemnitor aware of any circumstances which, but for the passage of time, would give rise to a default thereunder by any of such parties, (ix) all of the information set forth on the rent roll annexed as Exhibit D-1 hereto is true, correct and complete, and said rent roll accurately and completely sets forth with respect to the Wacker Lease the fixed and additional rents payable thereunder (both currently and for the duration of the term thereof), the lease expiration date and security deposit, and (x) all of the information set forth on the rent roll annexed as Exhibit D-2 hereto is true, correct and complete, and said rent roll accurately and completely sets forth with respect to the One N. Wacker Subleases the fixed and additional rents payable thereunder (both currently and for the duration of the term thereof), sublease expiration dates and security deposits, renewal rights, expansion options if any and the fixed and additional rents which would be payable if any such expansion options are exercised, and whether any such expansion options or renewal rights have heretofore been exercised.

(b) Indemnitee hereby represents and warrants to Indemnitor that, (i) Indemnitee is a limited liability company, duly formed and validly existing and in good standing under the laws of the State of Delaware, and has the requisite right, power and authority to enter into, execute and deliver this Agreement and to perform its obligations hereunder, and (ii) this Agreement has been duly executed and delivered and is the valid and binding obligation of Indemnitee, enforceable in accordance with its terms.

Covenant to Maintain Liquidity.

(a) Indemnitor covenants and agrees to maintain at all times prior to the Termination Date (as defined in the One N. Wacker Escrow Agreement) unrestricted cash in accordance with the following schedule (the “Liquidity Covenant”):

(i) During the period commencing on the date hereof and ending on December 31, 2007, unrestricted cash in an aggregate amount equal to Twelve Million Five Hundred Thousand and No/100ths Dollars ($12,500,000.00).

(ii) During the period commencing on January 1, 2008, and ending on December 31, 2008, unrestricted cash in an aggregate amount equal to Eleven Million Five Hundred Thousand and No/100ths Dollars ($11,500,000.00).

(iii) During the period commencing on January 1, 2009, and ending on December 31, 2009, unrestricted cash in an aggregate amount equal to Nine Million Five Hundred Thousand and No/100ths Dollars ($9,500,000.00).

(iv) During the period commencing on January 1, 2010, and ending on December 31, 2010, unrestricted cash in an aggregate amount equal to Seven Million and No/100ths Dollars ($7,000,000.00).

(v) During the period commencing on January 1, 2011, and ending on December 31, 2011, unrestricted cash in an aggregate amount equal to Four Million Five Hundred Thousand and No/100ths Dollars ($4,500,000.00).

RSDOCS1\1344279.8

(vi) During the period commencing on January 1, 2012, and ending on the Termination Date, unrestricted cash in an aggregate amount equal to Two Million and No/100ths Dollars ($2,000,000.00).

If Indemnitor shall at any time fail to satisfy the Liquidity Covenant, then, within thirty (30) days following delivery to Indemnitor of written notice of such failure from either Indemnitee or Lender, Indemnitor shall either (i) cause cash to be deposited in its account(s) so as to thereafter satisfy the Liquidity Covenant (the foregoing, to be evidenced to Lender and Indemnitee in their respective sole discretion), or (ii) deposit cash in an amount equal to the Liquidity Covenant Shortfall with Lender, to be held (in Lender’s capacity as escrow agent under the One N. Wacker Escrow Agreement) as Purchase Agreement Escrow Funds pursuant to and in accordance with the One N. Wacker Escrow Agreement. The term “Liquidity Covenant Shortfall” means, at any time, the difference between (x) the cash amount then required to satisfy the Liquidity Covenant and (y) the cash amount then actually maintained by Indemnitor in order to satisfy the Liquidity Covenant.

(b) Indemnitor shall deliver to Lender and Indemnitee copies of Prime Group Realty Trust’s (the “Trust”) quarterly-filed Form 10-Q and/or Form 10-K no later than thirty (30) days following the filing thereof in satisfaction of quarterly securities laws disclosure requirements (and the same shall include, specifically, evidence of how much unrestricted cash Indemnitor has as of the end of each quarter). If the Trust ceases to file a Form 10-Q or a Form 10-K, then in lieu thereof, Indemnitor shall deliver to Lender and Indemnitee a balance sheet of the Trust, prepared in accordance with generally accepted accounting principles, consistently applied, and certified by the Chief Executive Officer and the Chief Financial Officer (or other equivalent officer) of the Trust.

Miscellaneous.

(a) This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and be governed by the law of the State of Illinois.

(b) All pronouns and any variations of pronouns herein shall be deemed to refer to the masculine, feminine, or neuter, singular or plural, as the identity of the parties may require. Whenever the terms herein are singular, the same shall be deemed to mean the plural, and vice versa, as the identity of the parties or the context requires.

(c) This Agreement may be executed in multiple counterparts, each of which shall constitute a duplicate original, but all of which together shall constitute one and the same instrument.

(d) All notices, requests, demands or other communications required or permitted under this Agreement shall be in writing and delivered personally or by facsimile transmission (provided that any facsimile delivery is promptly followed by the sender by personal delivery or overnight courier), or by overnight courier (such as Federal Express), addressed as follows:

If to Indemnitor:

Prime Group Realty, L.P.

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77 West Wacker Drive

Suite 3900

Chicago, Illinois 60601

Attention: Jeffrey A. Patterson

Fax: 312/917-1597

With a copy to:

Prime Group Realty Trust

77 West Wacker Drive

Suite 3900

Attention: James F. Hoffman

Chicago, Illinois 60601

Fax: 312/917-1684

And to:

Jenner & Block LLP

330 North Wabash Avenue

Chicago, Illinois 60611

Attention: Donald I. Resnick

Fax: 312/840-7656

If to Indemnitee:

131 South Dearborn LLC

c/o Richland Properties LLC

617 11th Avenue

New York, New York 10036

Attention: Robert Gans

Fax:

212/246-0855

With a copy to:

Bryan Cave LLP

1290 Avenue of the Americas

New York, New York 10104-3300

Attention: Ronald B. Emanuel

Fax: 212/541-4630

With a copy to:

JPMorgan Chase Bank, N.A.

c/o ARCap Servicing, Inc.

5221 N. O’Connor Blvd., Suite 600

Irving, Texas 75039

Attention: Clyde Greenhouse – Director of Administration

Fax: 972/580-3888

With a copy to:

Cadwalader, Wickersham & Taft LLP

One World Financial Center

New York, New York 10281

Attention: John M. Zizzo

Fax: 212/504-6666

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(e) Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated unless such change, waiver discharge or termination is in writing and signed by each of the parties hereto.

(f) Paragraph headings are inserted solely for ease of reference and shall not be construed to enlarge, modify or limit the provisions hereof.

(g) In the event of any litigation arising out of this Agreement, the prevailing party shall be entitled to reimbursement of the cost and expenses thereof from the other party or parties, including reasonable attorneys’ fees and including such costs, expenses and fees incurred on appeals of such litigation.

(h) Indemnitor and Indemnitee (by acceptance hereof), having been represented by counsel, each knowingly and voluntarily waive any right to a trial by jury in any action or proceeding to enforce or defend any rights under this Agreement or under any amendment, instrument, document or agreement delivered or which may in the future be delivered in connection herewith and agrees that any such action or proceeding will be tried before a court and not before a jury.

(i) Indemnitor and Indemnitee hereby agree that all proceeds or actions in any way arising out of or related to this Agreement will be litigated in courts having sites in Chicago, Illinois. Indemnitor and Indemnitee hereby consent and submit to the jurisdiction of any court located within Chicago, Illinois, waive personal service of process and agree that all such service or process may be made by registered mail directed to either Indemnitor or Indemnitee at the address stated herein and service so made will be deemed to completed upon actual receipt.

(j) This Agreement shall be binding upon and inure to the benefit of Indemnitor and Indemnitee and their respective successors and assigns, including without limitation, JPMorgan Chase Bank, N.A. and/or any other party providing or holding mortgage and/or mezzanine financing with respect to the Property or equity interests in Indemnitee, as applicable (each, an “Other Lending Party”) (and in furtherance of, and without limiting, the foregoing, Indemnitor acknowledges and agrees that the representations made by it to Indemnitee hereunder shall run to the benefit of the Lender and any such Other Lending Party), provided, in the case of any such Other Lending Party, (i) notice (and a notice-address for purposes of Section 9(d) hereof) of such Other Lending Party’s succession or assumption of rights hereunder is given to Indemnitor and Indemnitee, and (ii) any such Other Lending Party acknowledges the terms and conditions hereof. Indemnitee shall have the right to collaterally assign this Agreement and/or the SDMA Escrow Agreement to JPMorgan Chase Bank, N.A., as mortgage and mezzanine lender, or any Other Lending Party meeting the requirements of clauses (i) and (ii) of the preceding sentence. In addition to, and without limiting, the foregoing, the parties hereto agree that JPMorgan Chase Bank, N.A. and each Other Lending Party shall be a third party beneficiary of this Agreement. Notwithstanding the foregoing, Lender’s rights hereunder (including, without limitation, any consent rights granted Lender hereunder), shall expire and be of no further force and effect following the repayment of the Loan in full.

(k) This Agreement may not be terminated or modified without the written consent of the Lender (not to be unreasonably withheld, conditioned or delayed), and any such

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termination or modification without written consent of the Lender shall be deemed void ab initio. Notwithstanding the foregoing, upon the occurrence of the Termination Date, and provided that there are then no outstanding Indemnified Matters, this Agreement shall be deemed terminated and of no further force and effect, except to the extent of any matters expressly stated herein to survive the termination hereof.

(l) Nothing contained in this Agreement and no failure of Indemnitor to perform its obligations hereunder shall diminish, impair or otherwise affect in any way the surviving obligations of the Purchaser under the Purchase Agreement, including without limitation, the indemnification made by the Purchaser under Section 3.2 of the Purchase Agreement (and in each case, subject to and in accordance with the terms and conditions thereof, including, without limitation, the obligations of Indemnitor provided in Section 3.5 of the Purchase Agreement, as memorialized herein and in the One N. Wacker Escrow Agreement).

[Signature Page follows]

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IN WITNESS WHEREOF, this Agreement has been executed by Indemnitor and Indemnitee and is effective as of the day and year first above written.

INDEMNITOR:

PRIME GROUP REALTY, L.P., a Delaware limited

partnership

By: Prime Group Realty Trust, a Maryland real estate trust, its managing general partner

By: [s] Jeffrey A. Patterson

Name: Jeffrey A. Patterson

Its: President and Chief Executive Officer

INDEMNITEE:

131 SOUTH DEARBORN LLC, a Delaware limited liability company

By:

[s] Robert M. Gans

Robert M. Gans, President

ACKNOWLEDGED AND AGREED

AS THIRD PARTY BENEFICIARY:

JPMORGAN CHASE BANK, N.A.,

as Mortgage Lender

By: [s] Michael A. Fralin

Name: Michael A. Fralin

Title: Authorized Signatory

JPMORGAN CHASE BANK, N.A.,

as Mezzanine Lender

By: [s] Michael A. Fralin

Name: Michael A. Fralin

Title: Authorized Signatory

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SCHEDULE 1

Citadel Lease

[Intentionally omitted]

EXHIBIT A

One N. Wacker Escrow Agreement

See attached document

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ESCROW AGREEMENT

[ONE N. WACKER]

ESCROW NO. ____________

DATE: November ___, 2006

1. 131 South Dearborn LLC, a Delaware limited liability company (as successor-in-interest to CARI, LLC, a New York limited liability company) (“Purchaser”) and Dearborn Center, L.L.C., a Delaware limited liability company (“Seller”), are parties to that certain Purchase and Sale Agreement dated as of August 28, 2006 (as the same may have been amended, the “Purchase Agreement”) with respect to the real property and improvements commonly known as Citadel Center and located at 131 South Dearborn Street, Chicago, Illinois and certain other related property (collectively, the “Property”).

2. JPMorgan Chase Bank, N.A., a national banking association (the “Lender”), is providing mortgage and mezzanine financing (collectively, the “Loan”) in connection with Indemnitee’s purchase of the Property.

3. This escrow agreement (this “Escrow Agreement”) is intended to constitute the “One N. Wacker Escrow Agreement” pursuant to Section 3.5 of the Purchase Agreement.

4. Simultaneously herewith, Seller and Purchaser have entered into a certain Indemnification Agreement of even date herewith (the “Indemnification Agreement”), which is intended to constitute the “One N. Wacker Guaranty” pursuant to Section 3.5 of the Purchase Agreement. All capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Indemnification Agreement.

5. Pursuant to said Section 3.5 of the Purchase Agreement, Prime Group Realty, L.P., a Delaware limited partnership (“PGRLP”), is hereby depositing Six Million Four Hundred Eight Thousand Seven Hundred Twenty Nine and 40/100ths Dollars ($6,408,729.40) with JPMorgan Chase Bank, N.A., as escrow agent (in such capacity, the “Escrow Agent”), as security for the One N. Wacker Obligations. The sums deposited hereunder, as the same may be increased or reduced from time to time in accordance with the terms hereof, are referred to herein as the “Purchase Agreement Escrow Funds.”

6. The Purchase Agreement Escrow Funds shall be deposited into a separate account maintained by Escrow Agent in accordance with the provisions of Section 10 hereof, and shall be held and disbursed by Escrow Agent pursuant to the following (as further supplemented by the provisions of Section 13 hereof):

A. PGRLP shall have the right from time to time, subject to the provisions of Section 13 hereof, to direct the Escrow Agent to disburse portions of the Purchase Agreement Escrow Funds in payment of the One N. Wacker Obligations, by submitting to Escrow Agent a written request for disbursement (a “PGRLP Disbursement Request”), a copy of which PGRLP Disbursement Request shall be simultaneously delivered to Purchaser. Any PGRLP Disbursement Request shall (i) include PGRLP’s

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certification that a copy of the same has been delivered to Purchaser, (ii) include reasonably detailed back-up information supporting the request made thereby, (iii) specify whether the funds requested thereby shall be paid to the Citadel Lease Tenant or, subject to and in accordance with Section 7 hereof, PGRLP (provided, that in the case of a request for disbursal directly to PGRLP, satisfactory evidence of the prior payment by PGRLP of the requested sums shall be included with any such PGRLP Disbursement Request), and (iv) such further information and materials as provided in Section 6.G hereof.

B. Purchaser shall have the right from time to time, subject to the provisions of Section 13 hereof, to direct the Escrow Agent to disburse portions of the Purchase Agreement Escrow Funds to Purchaser in payment of Indemnified Matters, by submitting to Escrow Agent a written request for disbursement (a “Purchaser Disbursement Request”), a copy of which Purchaser Disbursement Request shall be simultaneously delivered to PGRLP. Any Purchaser Disbursement Request shall (i) include Purchaser’s certification that a copy of the same has been delivered to PGRLP, and (ii) reasonably detailed back-up information supporting the request made thereby.

C. Upon receipt of a PGRLP Disbursement Request, Escrow Agent shall proceed with payment of the requested funds pursuant to the direction therein contained, provided, however, that the Escrow Agent shall not honor such PGRLP Disbursement Request until not less than seven (7) business days after the date on which the Escrow Agent shall have delivered a copy of such PGRLP Disbursement Request to Purchaser, nor thereafter (except as hereafter provided) if during such seven (7) business day period the Escrow Agent shall have received an objection in writing to such payment from Purchaser (a “Purchaser Objection Notice”). Any Purchaser Objection Notice shall include (i) Purchaser’s certification that a copy of the same has been delivered to PGRLP, (ii) specific reasons for such objection, and (iii) the amount of the disbursement request to which an objection is being raised.

D. Upon receipt of a Purchaser Disbursement Request, Escrow Agent shall proceed with payment of the requested funds pursuant to the direction therein contained, provided, however, that the Escrow Agent shall not honor such Purchaser Disbursement Request until not less than seven (7) business days after the date on which the Escrow Agent shall have delivered a copy of such Purchaser Disbursement Request to PGRLP, nor thereafter (except as hereafter provided) if during such seven (7) business day period the Escrow Agent shall have received an objection in writing to such payment from PGRLP (a “PGRLP Objection Notice”). Any PGRLP Objection Notice shall include (i) PGRLP’s certification that a copy of the same has been delivered to Purchaser, (ii) specific reasons for such objection, and (iii) the amount of the disbursement request to which an objection is being raised.

E. In the event Escrow Agent receives either a PGRLP Objection Notice or a Purchaser Objection Notice, Escrow Agent shall not pay all or that portion of the requested funds to which an objection is raised unless and until it receives a joint written notice to do so from both Purchaser and PGRLP or a final judgment of a court having jurisdiction.

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F. Escrow Agent agrees, (x) promptly following its receipt of any PGRLP Disbursement Request or PGRLP Objection Notice, to deliver a copy thereof to Purchaser, and (y) promptly following its receipt of any Purchaser Disbursement Request or Purchaser Objection Notice, to deliver a copy thereof to PGRLP.

G. PGRLP shall submit to Escrow Agent as part of any PGRLP Disbursement Request made hereunder such reasonably detailed back-up information as may be necessary in order to reasonably evidence to Escrow Agent and to Purchaser that any sums that have been disbursed since the time of the previous draw by PGRLP under this Escrow Agreement by the Title Company under the SDMA Escrow Agreement to PGRLP, have theretofor been paid by PGRLP or the Title Company to the Citadel Lease Tenant and/or the landlord of the One N. Wacker Space in satisfaction of the portion of the One North Wacker Obligations covered by such disbursed portion of the SDMA Sublease Escrow Funds; it being understood that, if PGRLP shall fail to so reasonably evidence such prior payment to such parties, then Escrow Agent shall in such case hold back from the sums requested pursuant to the applicable PGRLP Disbursement Request a sum equal to any such sums theretofor disbursed by Title Company since the time of the previous draw by PGRLP under this Escrow Agreement (or in the case of the first draw, since the date hereof), and such held back sums shall continue to be held as Purchase Agreement Escrow Funds hereunder until such evidence is provided.

7. In the event that the Escrow Agent continues to hold any Purchase Agreement Escrow Funds on the date that the One N. Wacker Obligations expire or otherwise terminate in accordance with the applicable provisions of the Citadel Lease (the “Termination Date”), then PGRLP shall have the right to send a notice to Escrow Agent requesting the disbursal to PGRLP of all then remaining Purchase Agreement Escrow Funds (a “Final Disbursement Request Notice”), a copy of which Final Disbursement Notice shall be simultaneously delivered to Purchaser. Any Final Disbursement Request Notice shall include (i) PGRLP’s certification that a copy of the same has been delivered to Purchaser, and (ii) reasonably detailed back-up information supporting the request made thereby. Upon receipt of a Final Disbursement Request Notice, Escrow Agent shall proceed with payment of the requested funds pursuant to the direction therein contained, provided, however, that the Escrow Agent shall not honor such Final Disbursement Request Notice until not less than ten (10) business days after the date on which the Escrow Agent shall have delivered a copy of such Final Disbursement Request Notice to Purchaser, nor thereafter (except as hereafter provided) if during such ten (10) business day period the Escrow Agent shall have received an objection in writing to such payment from Purchaser (“Final Disbursement Objection Notice”), a copy of which Final Disbursement Objection Notice shall be simultaneously delivered to PGRLP. Any Final Disbursement Objection Notice shall include (i) Purchaser’s certification that a copy of same has been delivered to PGRLP, (ii) specific reasons for such objection, and (iii) the amount of the Final Disbursement Request Notice to which an objection is being raised. If Escrow Agent receives a Final Disbursement Objection Notice, Escrow Agent shall not disburse the requested funds unless it receives a joint written direction to do so from both Purchaser and PGRLP or a final judgment of a court having jurisdiction. Escrow Agent agrees, promptly following its receipt of either a Final Disbursement Request Notice or a Final Disbursement Objection Notice, to deliver a copy thereof to the other party hereto.

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8. Except as provided in Sections 5, 6 and 9 of this Escrow Agreement, Escrow Agent is hereby expressly authorized to disregard, in its sole discretion, any and all notices or warnings given by any of the parties hereto, or by any other person or corporation. Notwithstanding the foregoing, the Escrow Agent is hereby expressly authorized to regard and to comply with and obey any and all orders, judgments or decrees entered or issued by any court having jurisdiction, and in case the said Escrow Agent obeys or complies with any such order, judgment or decree of any such court it shall not be liable to any of the parties hereto or any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside or vacated. In case of any suit or proceeding regarding this escrow, to which said Escrow Agent is or may at any time become a party, PGRLP and Purchaser will each pay one-half to said Escrow Agent upon demand of any and all costs, fees and expenses (including reasonable attorneys’ fees, whether such attorneys shall be regularly retained or specifically employed) which it may incur or become liable for on account thereof.

9. Notwithstanding anything otherwise herein set forth, subject to the General Provisions set forth in Exhibit A attached to this Escrow Agreement and specifically incorporated herein by reference, in no case shall the above mentioned deposits be surrendered except pursuant to the terms of this Agreement or in obedience of the process or order of court as aforesaid.

10. The Purchase Agreement Escrow Funds may be invested on behalf of PGRLP and at PGRLP’s direction, provided, that, (x) in no event shall the Purchase Agreement Escrow Funds be invested other than in (i) bonds, notes, Treasury Bills or other securities in each case constituting the direct obligation of, or guaranteed by the full faith and credit of, the United States of America, or (ii) an interest-bearing account of Escrow Agent, (y) any direction to Escrow Agent for such investment shall be expressed in writing, and (z) Escrow Agent is in receipt of the taxpayer’s identification number and investment forms as may be required by Escrow Agent. Earnings arising from the investment of funds deposited hereunder, less the cost of making such investment (collectively, the “Earnings”), shall be paid to or for the account of PGRLP. Within thirty (30) days after the last day of each calendar quarter occurring during the term of this Escrow Agreement, Escrow Agent shall send an accounting to PGRLP and Purchaser of all Earnings for such calendar quarter along with payment to PGRLP of fifty percent (50%) of the Earnings for such quarter. The remaining Earnings shall be included and held as Purchase Agreement Escrow Funds hereunder in accordance with the terms and conditions of this Agreement. Escrow Agent will, upon request, furnish information concerning its procedures and fee schedules for investment.

11. Except as to deposits of funds for which Escrow Agent has received express written direction concerning investment or other handling as provided in Section 9 hereof, the parties hereto agree that the Escrow Agent shall be under no duty to invest or reinvest any deposits at any time held by it hereunder; and, further, that Escrow Agent may commingle such deposits with other deposits in the manner provided for the administration of funds under Section 3 of Illinois Banking and Finance Act (Chap. 17, Para. 1555 Ill. Rev. Stat.), provided, however, nothing herein shall diminish Escrow Agent’s obligation to apply the full amount of the Purchase Agreement Escrow Funds in accordance with the terms of this Agreement.

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12. In the event the Escrow Agent is requested to invest deposits hereunder, Escrow Agent is not to be held responsible for any loss of principal or interest which may be incurred as a result of making the investments or redeeming said investment for the purposes of these escrow instructions, unless Escrow Agent shall act with gross negligence or willful misconduct.

13. Supplementing the provisions of Section 6, the Purchase Agreement Escrow Funds shall also be held and disbursed by Escrow Agent pursuant to the following:

A. For purposes hereof, the following terms have the following meanings, respectively:

(i) “Applicable Aggregate Leasing Shortfall Amount” means, for each Escrow Year hereunder, the sum obtained by adding all the Applicable Yearly Leasing Shortfall Amounts for each of the Escrow Years then remaining hereunder.

(ii) “Applicable Yearly Leasing Shortfall Amounts” means the nominal portions of the One N. Wacker Obligations which are set forth on Schedule 1 annexed hereto in amounts corresponding to each Escrow Year.

(iii) “Approved Leasing Costs” means reasonable and customary leasing and brokerage commissions incurred in connection with, and any direct payments and work allowances paid or granted to or for the benefit of the subtenant under a sublease heretofore or hereafter entered into by the Citadel Lease Tenant with respect to the One N. Wacker Space (as defined in the Purchase Agreement) (as heretofore or hereafter effectuated by PGRLP (or its predecessor-in-interest, as applicable) pursuant to the Asset Management Agreement) (excluding any direct payments or work allowances made or granted by the landlord of the One N. Wacker Space).

(iv) “Escrow Year” means (x) as and for the first (1^st) Escrow Year hereunder, the period which commences on the date hereof and which ends on December 31, 2007, and (y) as and for each Escrow Year thereafter, each successive calendar year thereafter, provided, that the final Escrow Year hereunder shall be calendar year 2012.

B. Notwithstanding anything otherwise set forth herein, until the Termination Date (and subject to the further provisions of Subsection 13.C below), the Escrow Agent shall not be authorized during any Escrow Year to disburse Purchase Agreement Escrow Funds in amount(s) in the aggregate in excess of the Applicable Yearly Leasing Shortfall Amount for such Escrow Year.

C. Beginning in the Escrow Year which commences on January 1, 2009 and during each Escrow Year thereafter occurring hereunder, the Escrow Agent is authorized to disburse Purchase Agreement Escrow Funds in the aggregate in excess of the Applicable Yearly Leasing Shortfall Amount for such Escrow Year (the amount by which the Purchase Agreement Escrow Funds disbursed during any such Escrow Year exceeds the Applicable Yearly Leasing Shortfall Amount for such Escrow Year is referred to

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herein as the “Applicable Leasing Shortfall Excess Amount”), provided, that, (i) the Applicable Leasing Shortfall Excess Amount resulting therefrom shall be utilized for reimbursement of Approved Leasing Costs (as evidenced by the requisite certification and information to be delivered to Escrow Agent pursuant to (x) Subsection 6.A and 6.B above and (y) the next succeeding sentence), and (ii) each such disbursal shall result, to Escrow Agent’s and Purchaser’s reasonable satisfaction, in a reduction of the then Applicable Aggregate Leasing Shortfall Amount by an amount equal to or more than the Applicable Leasing Shortfall Excess Amount. Each request for disbursals pursuant to this Section 13.C shall (a) specify the amount requested and describe in reasonable detail the applicable Approved Leasing Costs to be paid for with the requested funds, (b) include copies of the invoices to be paid with the requested funds and partial lien waivers (and, in the case of a request for reimbursement, copies of paid invoices), (c) in the case of a request for payment of leasing commissions, include a true, correct and complete copy of the agreement(s), with the applicable broker or agent pursuant to which a commission is due, and (d) include or be thereafter supplemented with such other evidence as Escrow Agent shall reasonably request in order to evidence that any tenant improvements which comprise the applicable Approved Leasing Costs and which are to be funded by the requested disbursement have been completed and are paid for or will be paid upon such disbursement.

14. All notices, requests, demands or other communications required or permitted under this Agreement shall be in writing and delivered personally or by facsimile transmission (provided that any facsimile delivery is promptly followed by the sender by personal delivery or overnight courier), or by overnight courier (such as Federal Express), addressed as follows:

If to PGRLP:

Prime Group Realty, L.P.

77 West Wacker Drive

Suite 3900

Chicago, Illinois 60601

Attention: Jeffrey A. Patterson

Fax: 312/917-1597

With a copy to:

Prime Group Realty Trust

77 West Wacker Drive

Suite 3900

Attention: James F. Hoffman

Chicago, Illinois 60601

Fax: 312/917-1684

And to:

Jenner & Block LLP

330 North Wabash Avenue

Chicago, Illinois 60611

Attention: Donald I. Resnick

Fax: 312/840-7656

If to Purchaser:

131 South Dearborn LLC

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c/o Richland Properties LLC

617 11th Avenue

New York, New York 10036

Attention: Robert Gans

Fax:

212/246-0855

With a copy to:

Bryan Cave LLP

1290 Avenue of the Americas

New York, New York 10104-3300

Attention: Ronald B. Emanuel

Fax: 212/541-4630

If to Escrow Agent:

JPMorgan Chase Bank, N.A.

[c/o ARCap Servicing, Inc.

5221 N. O’Connor Blvd., Suite 600

Irving, Texas 75039

Attention: Clyde Greenhouse – Director of Administration

Fax: 972/580-3888]

With a copy to:

Cadwalader, Wickersham & Taft LLP

One World Financial Center

New York, New York 10281

Attention: John M. Zizzo

Fax: 212/504 6666

All notices given in accordance with the terms hereof shall be deemed given and received when delivered. Any party hereto may change the address for receiving notices, requests, demands or other communication by notice sent in accordance with the terms of this Section.

15. This Agreement may be executed in any number of identical counterparts, any or all of which may contain the signatures of fewer than all of the parties but all of which shall be taken together as a single instrument.

16. In the event of any litigation arising out of this Agreement between PGRLP and Purchaser, the prevailing party shall be entitled to reimbursement of the costs and expenses thereof from the other party, including any amounts paid by the prevailing party pursuant to the terms of the last sentence of Section 7 hereof, the next succeeding sentence of this Section 16, Section 19 and Section 20 hereof, and including reasonable attorney’s fees and including such costs, expenses and fees incurred for appeals of such litigation. PGRLP and Purchaser jointly and severally indemnify Escrow Agent against, and hold it harmless from, any and all liabilities, claims, costs, expenses and damages of any nature (including but not limited to allocated costs of staff counsel, other reasonable attorneys’ fees and any fees and expenses) in any way arising out of or relating to disputes or legal actions between PGRLP and Purchaser. The obligations of Purchaser and PGRLP under this Section 19 shall survive termination of this Escrow Agreement.

17. This Agreement shall be binding upon and inure to the benefit of PGRLP and Purchaser and their respective successors and assigns, including without limitation, JPMorgan Chase Bank,

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N.A. (in its capacity as the Lender) and/or any other party providing financing with respect to the Property. Indemnitee shall have the right to collaterally assign this Agreement and all its right, title and interest hereunder to JPMorgan Chase Bank, N.A. (in its capacity as the Lender) or any such other party in connection with any such financing, provided, however, that in no event shall the Purchase Agreement Escrow Funds be deemed to be additional collateral for the Loan, and, provided, further, however, that Purchaser’s default, if any, under the Loan, shall not be a basis for Escrow Agent’s refusal to fund disbursals of the Purchase Agreement Escrow Funds as otherwise provided for herein.

18. At the option of Escrow Agent, the Purchase Agreement Escrow Funds may be held by a servicer (the “Servicer”) selected by Escrow Agent and Escrow Agent may delegate all or any portion of its responsibilities under this Agreement to the Servicer pursuant to a servicing agreement (the “Servicing Agreement”) between Escrow Agent and Servicer. Servicer shall be entitled to reimbursement of costs and expenses as and to the same extent (but without duplication) as Escrow Agent is entitled thereto under the applicable provisions of this Agreement. Upon notice thereof from Escrow Agent, Servicer shall have the right to exercise all rights of Escrow Agent and enforce all obligations of the parties hereto, pursuant to the provisions of this Agreement.

19. PGRLP and Purchaser shall jointly and severally indemnify Escrow Agent against, and hold it harmless from, any and all liabilities, claims, costs, expenses and damages of any nature (including but not limited to allocated costs of staff counsel, other reasonable attorneys’ fees and any fees and expenses) in any way arising out of or relating to disputes or legal actions concerning Escrow Agent’s provision of the services described in this Escrow Agreement. This section does not apply to any cost or damage attributable to the gross negligence or intentional misconduct of Escrow Agent. The obligations of Purchaser and PGRLP under this Section 19 shall survive termination of this Escrow Agreement.

20. PGRLP and Purchaser shall jointly and severally pay to Escrow Agent, upon receipt of Escrow Agent’s invoice, all costs, expenses and attorneys’ fees (including allocated costs for in-house legal services) incurred by Escrow Agent in connection with the enforcement of this Escrow Agreement and any instrument or agreement required hereunder, including but not limited to any such costs, expenses and fees arising out of the resolution of any conflict, dispute, motion regarding entitlement to rights or rights of action, or other action to enforce Escrow Agent’s rights in a case arising under Title 11, United States Code. PGRLP and Purchaser each agree to pay Escrow Agent, upon receipt of Escrow Agent’s invoice, all costs, expenses and reasonable attorneys’ fees (including allocated costs for in-house legal services) incurred by Escrow Agent in the administration of this Agreement (including any amendments hereto or instruments or agreements required hereunder).

21. Nothing contained in the Agreement shall create any agency, fiduciary, joint venture or partnership relationship between Escrow Agent, PGRLP and Purchaser. PGRLP and Purchaser each agree that nothing contained in this Agreement, nor any course of dealing among the parties to this Agreement, shall constitute a commitment or other obligation on the part of Escrow Agent to extend credit to PGRLP or Purchaser.

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22. Purchaser and PGRLP shall each indemnify, defend and hold harmless the other from and against any and all claims, demands, actions, penalties, suits, damages, losses and liabilities (including, without limitation, the cost of defense, settlement, appeal and reasonable attorneys’ fees and costs) which such party may incur or suffer as a result of any disbursement request or objection notice wrongfully delivered pursuant to Section 6.A, Section 6.B, Section 6.C, Section 6.D or Section 7 hereunder. A disbursement request or objection notice will be deemed to have been wrongfully delivered by Purchaser or PGRLP, as the case may be, if, in the case of a disbursement request, the party that delivers any such request knew or reasonably should have known that such party was not entitled to the sums (or applicable portion thereof) requested thereby, and in the case of an objection notice, the party delivering any such objection knew or reasonably should have known that the requesting party was entitled to the sums requested thereby.

23. Nothing contained in this Agreement and no failure of PGRLP to perform its obligations hereunder shall diminish, impair or otherwise affect in any way the surviving obligations of the Purchaser under the Purchase Agreement, including without limitation, the indemnification made by the Purchaser under Section 3.2 of the Purchase Agreement (and in each case, subject to and in accordance with the terms and conditions thereof, including, without limitation, the obligations of PGRLP provided in Section 3.5 of the Purchase Agreement as memorialized herein and in the Indemnification Agreement).

[Signature page follows]

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IN WITNESS WHEREOF, this Agreement has been executed by PGRLP and Purchaser and is effective as of the day and year first above written.

PGRLP:

PRIME GROUP REALTY, L.P., a Delaware limited partnership, its sole member

By:

Prime Group Realty Trust, a Maryland real estate investment trust, its managing partner

By:

______________________________

Name:

______________________________

Title:

______________________________

PURCHASER:

131 SOUTH DEARBORN LLC, a Delaware limited liability company

By:

_______________________________

Robert M. Gans, President

Accepted and Agreed this ____ day of November, 2006:

JPMORGAN CHASE BANK, N.A.,

as Escrow Agent

By:___________________________

Name:_________________________

Title:__________________________

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EXHIBIT A TO ESCROW AGREEMENT

GENERAL PROVISIONS

1. These instructions may be supplemented, amended, or revoked in writing only, signed by all of the parties hereto, and approved by the Escrow Agent, upon payment of all fees, costs and expenses incidental thereto.

2. No assignment, transfer, conveyance, or hypothecation of any rights, title, or interest in and to the subject matter of this escrow shall be binding upon the Escrow Agent unless written notice thereof shall be served upon the Escrow Agent and all reasonable fees, costs and expenses incident thereto have been paid and then only upon the Escrow Agent’s assent thereto in writing.

3. The Escrow Agent may receive any payment called for hereunder after the due date thereof unless subsequent to the due date of such payment and prior to the receipt thereof the Escrow Agent shall have been instructed in writing to refuse any such payment.

4. The Escrow Agent shall not be personally liable for any act it may do or omit to do hereunder as such agent, while acting in good faith and in the exercise of reasonably prudent judgment. Escrow Agent shall be entitled to rely upon the advice of its own attorneys in connection with any act done or omitted by the Escrow Agent.

[Intentionally Omitted]

6. In consideration of the acceptance of this escrow by the Escrow Agent, the undersigned agree for themselves, their heirs, legal representatives, successors and assigns, to jointly and severally indemnify and hold Escrow Agent harmless as to any liability by it incurred to any other person, firm or corporation by reason of its having accepted the funds deposited hereby, or carrying out any of the terms hereof, and to reimburse it for all its reasonable expenses, including among other things, reasonable counsel fees and court costs incurred in connection herewith (except where arising in connection with Escrow Agent’s negligence or willful misconduct). Purchaser shall pay Escrow Agent its reasonable charges hereunder (i.e., Escrow Agent’s escrow fee and any related servicing fees, as distinguished from other expenses hereunder) pursuant to separate agreement with Escrow Agent.

7. The Escrow Agent shall be under no duty or obligation to ascertain the identity, authority or rights of the parties executing or delivering or purporting to execute or deliver these instructions or any documents or papers or payments deposited or called for hereunder, and assumes no responsibility or liability for the validity or sufficiency of these instructions or any documents or papers or payments deposited or called for hereunder, other than the duty and obligation to act in good faith and in a reasonably prudent manner. Upon request of Escrow Agent from time to time, each party hereto shall deliver evidence of its authorization to issue notices or instructions hereunder or confirm the authenticity of any of the foregoing.

8. In the event of any dispute between the parties hereto as to the facts of default, the validity or meaning of these instructions or any other fact or matter relating to the transaction between the parties, the Escrow Agent is instructed as follows:

CHICAGO_1450623_3

(a) That it shall be under no obligation to act, except under process or order of court, or until it has been adequately indemnified to its full satisfaction, and shall sustain no liability for its failure to act pending such process or court order or indemnification;

(b) That it may in its sole and absolute discretion, deposit the property described herein or so such thereof as remains in its hands with the Clerk of the Cook County, Illinois Circuit Court, in whose jurisdiction it falls. Upon so depositing such property and filing its complaint in interpleader it shall be relieved of all liability under the terms hereof as to the property so deposited. The institution of any such interpleader action shall not impair the rights of the Escrow Agent under Paragraph 6 of these General Provisions.

9. The provisions of these instructions shall be binding upon the legal representatives, heirs, successors and assigns of the parties hereto.

[Balance of page purposefully left blank]

CHICAGO_1450623_3

EXHIBIT B

Asset Management Agreement

[Intentionally omitted]

CHICAGO_1450623_3

EXHIBIT C

SDMA Escrow Agreement

[Intentionally omitted]

CHICAGO_1450623_3

EXHIBIT D

One N. Wacker Subleases

[Intentionally omitted]

CHICAGO_1450623_3

EXHIBIT D-1

Wacker Lease Rent Roll

[Intentionally omitted]

CHICAGO_1450623_3

EXHIBIT D-2

One N. Wacker Subleases Rent Roll

[Intentionally omitted]

CHICAGO_1450623_3

EX-10 7 exhibit-10_60.htm EXHIBIT 10.60

EXHIBIT 10.60

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into as of the 30th day of November, 2006, by and between Prime Group Realty Trust, a Maryland real estate investment trust (“PGRT”), Prime Group Realty, L.P., a Delaware limited partnership and the operating partnership for PGRT (“Prime”) and solely for purposes of Section 4 hereof, Prime Office Company, LLC, a Delaware limited liability company (the “Parent”) and Nancy Fendley, an individual domiciled in the State of Illinois (“Executive”).

W I T N E S S E T H:

A. PGRT and Prime are engaged primarily in the ownership, management, leasing, marketing, acquisition, development and construction of office and industrial real estate facilities throughout the Chicago metropolitan area.

B. Each of PGRT, Prime and Parent believe that each would benefit from Executive’s service as Executive Vice-President – Leasing of Employer (as defined in Section 1 hereof), and PGRT and Prime agree to employ Executive in such position.

C. Executive wishes to commit to serve Employer in the position set forth herein on the terms herein provided.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein set forth, and for other good and valuable consideration, Employer and Executive hereby agree as follows:

1. Employment and Duties. During the Employment Term (as defined in Section 2 hereof), Prime and PGRT shall employ Executive, and Executive agrees to be employed by Prime and PGRT, as Executive Vice President – Leasing of Prime and PGRT on the terms and conditions provided in this Agreement (Prime and PGRT, collectively, are “Employer”). Employer shall have the right to specify which of Employer’s affiliates or related parties (including but not limited to Prime Group Realty Services, Inc. or PRS Corporate Realty Services, Inc.) shall have Executive on its payroll. Executive shall conduct, operate, manage and promote the leasing efforts across the Employer’s portfolio, with primary responsibility for 77 West Wacker, Citadel Center, and 330 North Wabash and/or such other building(s) as may be mutually determined by Executive and the Employer’s Chief Executive Officer (the “CEO”). The CEO and/or the Board of Trustees of PGRT (the “Board”) may from time to time further define and clarify Executive’s duties and services hereunder. Executive agrees to devote Executive’s diligent, professional and commercially reasonable-efforts and substantially all of Executive’s business time, attention, energy and skill to perform Executive’s duties as Executive Vice President – Leasing of Employer, provided that it shall not be a violation of this Agreement for Executive to engage in limited tenant and owner (in connection with sales of assets and not leasing) representation contemplated by EXHIBIT A hereto, or to manage her and her family’s personal investments or engage in service for such corporate, civil, community or charitable

organizations as she may select, so long as such activities do not substantially interfere with Executive’s performance of her duties hereunder or violate her obligations under Section 6.

2. Term. The term of this Agreement shall commence on November 30, 2006, Executive’s start date, and expire on December 31, 2008 (the “Initial Term”), provided, however, that this Agreement shall automatically be renewed for successive one year terms following the Initial Term (each a “Renewal Term” and together with the Initial Term, the “Employment Term”), unless at least thirty (30) days prior to the end of the Initial Term or any Renewal Term, as applicable, either party shall give the other written notice of its intention to terminate this Agreement.

3. Compensation and Related Matters. (a) Base Salary. As compensation for performing the services required by this Agreement during Executive’s employment with Employer, Employer shall pay to Executive an annual salary of no less than $190,000 (“Base Compensation”), payable in accordance with the general policies and procedures for payment of salaries to its executive personnel maintained, from time to time, by Employer (but no less frequently than monthly), subject to withholding for applicable federal, state, and local taxes. Commencing on January 1, 2008, increases in Base Compensation, if any, shall be determined based on periodic reviews of Executive’s performance pursuant to the Company’s standard performance appraisal processes.

(b) Bonus. In addition to Base Compensation, the Executive shall be paid, or shall have the opportunity to earn, Bonus Compensation, as set forth on EXHIBIT A hereto consisting of the: PNOI Bonus, Leasing Bonus, Tenant Representation Bonus, and Year-End Bonus as described, and subject to the terms and conditions, of EXHIBIT A and this Agreement.

(c) Benefits. During Executive’s employment and subject to the limitations and alternative rights set forth in this Section 3(c), Executive and Executive’s eligible dependents shall have the right to participate in the medical and dental benefit plan established by Employer (which may include contributions by Executive) and in any other retirement, pension, insurance, health or other benefit plan or program that has been or is hereafter adopted by Employer (or in which Employer participates), as such plans and programs may be amended or modified from time to time by Employer, according to the terms of such plan or program with all the benefits, rights and privileges as are enjoyed by any other executive officers of Employer.

(d) Expenses. Executive shall be reimbursed, subject to Employer’s receipt of invoices or similar records as Employer may reasonably request in accordance with its policies and procedures, as such policies and procedures may be amended or modified from time to time by Employer, for all reasonable and necessary expenses incurred by Executive in the performance of Executive’s duties hereunder, including expenses for business entertainment and meals (whether in or out of town) and the Employer’s standard mileage rate reimbursement for business travel, but excluding automobile insurance. Employer shall provide Executive with Employer-paid parking at 77 West Wacker.

(e) Vacations. During Executive’s employment with Employer, Executive shall be entitled to vacation in accordance with Employer’s practices, as such practices may be amended or modified from time to time by Employer, provided that Executive shall be entitled to

at least four (4) weeks paid vacation in each full calendar year. Vacation time for Executive shall not be required to vest, but shall be fully available as of 2007, with 2 vacation days available for 2006. Upon the termination of Executive’s employment, no compensation shall be paid to Executive for unused vacation time, except that in the event Executive’s employment is terminated without cause as provided in Section 5(a)(i) below, Executive shall be entitled to payment for “Pro-Rata Unused Vacation Time”, as defined below. Executive may accrue unused vacation time if not used in any calendar year or years, however, the maximum cumulative amount of vacation time that Executive may accrue and carry over from all prior calendar years to the next calendar year is one (1) week. “Pro-Rata Unused Vacation Time” means an amount equal to the positive difference, if any, between (i) twenty-eight (28) days plus any unused vacation time carried over from prior years to the extent permitted pursuant to the foregoing sentence, multiplied by the quotient of (A) the number of days in the then-current calendar year through to the date of the termination of Executive’s employment, divided by (B) 365, less (ii) the amount of vacation days taken by Executive for the then-current calendar year through to the date of the termination of Executive’s employment.

(f) Indemnification and Insurance. Subject to applicable law from time to time, Employer agrees to indemnify and hold harmless Executive to the fullest extent permitted by applicable law and upon terms no less favorable than as provided in Employer’s organizational documents in effect immediately prior to the date of this Agreement.

4. Equity Opportunity. Parent shall provide to Executive an opportunity to purchase equity on terms and conditions set forth on EXHIBIT B hereto.

Termination. (a) Termination by Employer:

(i) Without Cause. Employer may terminate this Agreement and Executive’s employment at any time (other than for Cause, as that term is defined in Section 5(a)(ii) hereof) upon thirty (30) days’ prior written notice to Executive. In connection with the termination of Executive’s employment during the Employment Term pursuant to this Section 5(a)(i), (A) Employer shall pay to Executive Executive’s Base Compensation in accordance with Section 3(a) hereof up to the effective date of such termination, (B) to the extent not previously paid, Employer shall pay to Executive all Leasing Bonuses previously earned, payable to Executive in accordance with Section 3(b) and EXHIBIT A hereof for or with respect to any calendar years prior to and including the calendar year in which such termination occurs; (C) to the extent not previously paid, Employer shall pay to Executive a pro-rata share of her PNOI Bonus, in accordance with Section 3(b) and EXHIBIT A hereof, with respect to any calendar years prior to and for that portion of the calendar year in which the termination occurs; (D) Employer shall provide to Executive the benefits set forth in Sections 3(c) for six (6) months from the date of such termination and in Sections, 3(d) and 3(e) hereof up to the effective date of such termination and (E) Employer shall pay to Executive an amount in one lump sum equal to the aggregate Base Compensation over the remainder of the Employment Term in effect immediately prior to the effective date of termination, determined without regard to such termination, but not to exceed six (6) months of Base Compensation if Employer provides notice of such termination prior to May 29, 2007 and not to exceed one (1) year of Base Compensation if Employer provides notice of such

termination after such date, and (F) Leasing Bonuses shall be paid to Executive if a transaction is consummated, in which Executive was involved prior to the effective date of termination, within six (6) months of the date of termination (a “Post-Termination Leasing Bonus”); provided, however, that the Employer’s obligations to make such payments shall be subject to the execution, enforceability and effectiveness of a general release and waiver of all claims by the Executive with respect to the Employer and its subsidiaries, and their respective affiliates, officers, directors, trustees, employees and agents pursuant to a separation agreement in form and substance reasonably specified by the Employer. For purposes of this Agreement, the “effective date of termination” shall mean the last day on which Executive is employed with Employer which may be later than the date of the delivery of any applicable notice of termination. Notwithstanding the foregoing, no Post-Termination Leasing Bonus shall be due unless (i) the name of the relevant tenant is contained on a list of tenants provided by Executive to Employer within ten (10) business days after the effective date of the termination of Executive’s employment, and (ii) any such tenant is a tenant to which a written lease proposal or a draft of a lease or term sheet was sent by Employer to such potential tenant within six (6) months prior to the effective date of the termination.

(ii) With Cause. Employer may terminate this Agreement for Cause immediately upon written notice to Executive. Employer may elect to require Executive to continue to perform Executive’s duties under this Agreement for an additional thirty (30) days following notice of termination, and Executive shall be entitled to the benefits of this Agreement (including compensation) during such thirty (30) day period; provided, however, that unless per-approved by Employer, Executive shall not incur any material business expenses during such period other than customary recurring expenses such as monthly cell phone and blackberry charges. In connection with the termination of Executive’s employment pursuant to this Section 5(a)(ii), (A) Employer shall pay to Executive Executive’s Base Compensation in accordance with Section 3(a) hereof up to the effective date of such termination, and (B) Employer shall provide to Executive the benefits set forth in Sections 3(c), 3(d) and 3(e) hereof up to the effective date of such termination. For purposes of this Agreement, “Cause” shall mean (1) a finding by the CEO or Board that Executive has materially harmed Employer, its business, assets or employees through an act of dishonesty, material conflict of interest, gross misconduct or willful malfeasance, (2) Executive’s conviction of (or plea of nolo contendere to) a felony, (3) Executive’s failure to perform (which shall not include inability to perform due to disability) in any material respect Executive’s material duties under this Agreement after written notice specifying the failure and an opportunity to cure within thirty (30) days receipt of such written notice (it being understood that (i) if Executive’s failure to perform is not of a type requiring a single action to fully cure, then Executive may commence the cure promptly after such written notice and thereafter diligently prosecute such cure to completion and (ii) that failure of Employer to terminate this Agreement upon the expiration of the thirty (30) day period provided for Executive to cure shall in no way constitute a waiver of Employer’s right to terminate Executive for cause pursuant to this subparagraph if, in Employer’s reasonable judgment, Executive has failed to cure such failure to perform), (4) the breach by Executive of any of Executive’s material obligations hereunder (other than those covered by clause (3) above) and the failure of Executive to cure such breach within thirty (30) days after receipt by Executive

of a written notice of Employer specifying in reasonable detail the nature of the breach, or (5) Executive’s sanction (including restrictions, prohibitions and limitations agreed to under a consent decree or agreed order) under, or conviction for violation of, any federal or state securities law, rule or regulation (provided that in the case of a sanction, such sanction materially impedes or impairs the ability of Executive to perform Executive’s duties and exercise Executive’s responsibilities hereunder in a satisfactory manner).

(iii) Disability. If due to illness, physical or mental disability, or other incapacity, Executive shall fail during any four (4) consecutive months to perform the duties required by this Agreement, Employer may, upon thirty (30) days’ written notice to Executive, terminate this Agreement and Executive’s employment. In the event of any such termination, (A) Employer shall pay to Executive Executive’s Base Compensation in accordance with Section 3(a) hereof up to the effective date of such termination, (B) to the extent not previously paid, Executive shall be entitled to all Bonus Compensation payable to Executive in accordance with Section 3(b) and EXHIBIT A hereof for or with respect to any calendar years prior to the calendar year (and any Leasing Bonuses earned through the date of termination in the current calendar year) in which such termination occurs, and (C) Employer shall provide to Executive the benefits set forth in Sections 3(c) (or the after-tax cash equivalent) for six (6) months from the date of such termination and in Sections 3(d) and 3(e) hereof up to the effective date of such termination and (D) any earned Post-Termination Leasing Bonuses. This Section 5(a)(iii) shall not limit the entitlement of Executive, Executive’s estate or beneficiaries to any disability or other benefits available to Executive under any disability insurance or other benefits plan or policy which is maintained by Employer for Executive’s benefit (as opposed to Employer’s benefit). For purposes of this Agreement, the “date of disability” shall mean the first day of the consecutive period during which Executive fails to perform the duties required by this Agreement due to illness, physical or mental disability or other incapacity.

(b) Termination by Executive. Executive may terminate this Agreement and Executive’s employment at any time for any reason or for no reason upon thirty (30) days’ written notice to Employer, during which period Executive shall continue to perform Executive’s duties under this Agreement if Employer so elects. In connection with the termination of Executive’s employment pursuant to this Section 5(b), (A) Employer shall pay to Executive Executive’s Base Compensation in accordance with Section 3(a) hereof up to the effective date of such termination, (B) to the extent not previously paid, Executive shall be entitled to all Bonus Compensation payable to Executive in accordance with Section 3(b) hereof for or with respect to any calendar years prior to the calendar year in which such termination occurs, and (C) Employer shall provide to Executive the benefits set forth in Sections 3(c), 3(d) and 3(e) hereof up to the effective date of such termination.

(c) Death. Notwithstanding any other provision of this Agreement, this Agreement shall terminate on the date of Executive’s death. In such event occurring during the Employment Term, (A) Employer shall pay to Executive Executive’s Base Compensation in accordance with Section 3(a) hereof up to the date of such death, (B) to the extent not previously paid, Executive shall be entitled to all Bonus Compensation payable to Executive in accordance with Section 3(b) and EXHIBIT A hereof for or with respect to any calendar years prior to the

calendar year in which such death occurs, and (C) Employer shall provide to Executive’s family enrolled in any such benefit plans the benefits set forth in Sections 3(c) (or the after-tax cash equivalent) for six (6) months from the date of such termination and in Sections 3(d) and 3(e) hereof up to the date of such death and (D) any earned Post-Termination Leasing Bonuses. This Section 5(c) shall not limit the entitlement of Executive, Executive’s estate or beneficiaries under any insurance or other benefits plan or policy which is maintained by Employer for Executive’s benefit (as opposed to Employer’s benefit).

Covenants of Executive.

(a) No Conflicts. Executive represents and warrants that Executive is not personally subject to any agreement, order or decree which restricts Executive’s acceptance of this Agreement and the performance of Executive’s duties with Employer hereunder.

(b) Non-Competition. During Executive’s employment with the Employer and, in the event of the termination of this Agreement pursuant to the provisions of Section 5(a)(ii) (by Employer with Cause) or 5(b) (by Executive) hereof, for a period of six (6) months thereafter, Executive shall not, in any capacity whatsoever, either on Executive’s own behalf or on behalf of any other person or entity with whom Executive may be employed or associated, participate or engage in any marketing or leasing activities relating to the leasing or potential leasing of any real estate space to any tenants of Employer and/or its affiliates. Furthermore, for a period of twelve (12) months after any applicable Section 5(a)(ii) or 5(b) termination event, Executive shall not, directly or indirectly, solicit, attempt to hire or hire any employee or client of Employer.

(c) Non-Disclosure. During the Executive’s employment with the Employer and for as long after the expiration or termination of this Agreement as such information is a Trade Secret (as hereinafter defined), Executive shall not disclose or use, except in the pursuit of the Business for or on behalf of Employer, any Trade Secret of Employer, whether such Trade Secret is in Executive’s memory or embodied in writing or other physical form. For purposes of this Section 6(c), “Trade Secret” means any information which derives independent economic value, actual or potential, with respect to Employer from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use and is the subject of efforts to maintain its secrecy that are reasonable under the circumstances, including, but not limited to, lease terms and provisions, trade secrets, customer lists, sales records and other proprietary commercial information. Said term, however, shall not include general “know-how” information acquired by Executive prior to or during the course of Executive’s service which could have been obtained by him from public sources without the expenditure of significant time, effort and expense which does not relate to Employer.

(d) Business Opportunities. For so long as Executive is employed by Employer, Executive agrees to bring to Employer any and all business opportunities which come to Executive’s attention for the acquisition, development, management, leasing or marketing of real estate for industrial or office use. The foregoing shall not prohibit Executive from making passive investments so long as they are not investments in a Competing Opportunity, except for publicly traded securities of entities which may be involved in Competing Opportunities. In the

event that Employer elects not to participate or take advantage of any such business opportunity, (i) upon termination of Executive’s employment with Employer for any reason, Executive shall be free to pursue such business opportunity, provided that such business opportunity does not cause any tenant to relocate from a facility owned and/or operated by Employer, PGRT or any of their respective subsidiaries and (ii) upon reasonable prior written notice to Employer, Executive may pursue such business opportunity so long as in Employer’s reasonable discretion it does not interfere with the performance of Executive’s duties under this Agreement and it does not involve a facility or activity which is or could reasonably be expected to be in competition for tenants with properties owned by Employer or being considered for acquisition or development by Employer (a “Competing Opportunity”).

(e) Return of Documents. Upon termination of Executive’s services with Employer, Executive shall return all originals and copies of books, records, documents, customer lists, sales materials, tapes, keys, credit cards and other tangible property of Employer within Executive’s possession or under Executive’s control.

(f) Equitable Relief. In the event of any breach by Executive of any of the covenants contained in this Section 6, it is specifically understood and agreed that Employer shall be entitled, in addition to any other remedy which it may have, to equitable relief by way of injunction, an accounting or otherwise and to notify any employer or prospective employer of Executive as to the terms and conditions hereof.

(g) Acknowledgment. Executive acknowledges that Executive will be directly and materially involved as a senior executive in all important policy and operational decisions of Employer. Executive further acknowledges that the scope of the foregoing restrictions has been specifically bargained between Employer and Executive, each being fully informed of all relevant facts. Accordingly, Executive acknowledges that the foregoing restrictions of Section 6 are fair and reasonable, are minimally necessary to protect Employer, its other partners and the public from the unfair competition of Executive who, as a result of Executive’s performance of services on behalf of Employer, will have had unlimited access to the most confidential and important information of Employer, its business and future plans. Executive furthermore acknowledges that no unreasonable harm or injury will be suffered by him from enforcement of the covenants contained herein and that Executive will be able to earn a reasonable livelihood following termination of Executive’s services notwithstanding enforcement of the covenants contained herein.

7. Entire Agreement. This Agreement supersedes any and all prior agreements between Executive and Employer and any officer, director, employee or affiliate thereof and constitutes the entire agreement between the parties representing the subject matter hereof and there are no representations, warranties or other commitments other than those expressed herein.

8. Assignment. Neither this Agreement nor any rights or duties of Executive hereunder shall be assignable by Executive and any such purported assignment by him shall be void. Employer may assign all or any of its rights hereunder provided that substantially all of the assets of Employer are also transferred to the same party.

9. Successor to Employer. Employer will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all the business and/or assets of Employer, as the case may be, by agreement in form and substance reasonably satisfactory to Executive, expressly, absolutely and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that Employer would be required to perform it if no such succession or assignment had taken place. This Agreement shall inure to the benefit of and be enforceable by Executive’s personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amounts are still payable to Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee or other designee or, if there be no such designee, to Executive’s estate.

10. Notices. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and if personally delivered, sent by courier or by certified mail, postage or delivery charges prepaid, to the following addresses:

(a)

if to Executive, to:

Nancy Fendley

1539 W. Oakdale Ave.

Chicago, IL 60657

(b)

if to Employer, to:

Prime Group Realty Trust

Suite 3900

77 West Wacker Drive

Chicago, IL 60601

Attn: Chief Executive Officer

With a copy to:

Prime Group Realty Trust

Suite 3900

77 West Wacker Drive

Chicago, IL 60601

Attn: General Counsel

Any notice, claim, demand, request or other communication given as provided in this Section 10, if delivered personally, shall be effective upon delivery; and if given by courier, shall be effective one (1) business day after deposit with the courier if next day delivery is guaranteed; and if given by certified mail, shall be effective three (3) business days after deposit in the mail. Either party may change the address at which it is to be given notice by giving written notice to the other party as provided in this Section 10.

11. Amendment. This Agreement may not be changed, modified or amended except in writing signed by both parties hereto.

12. Waiver of Breach. The waiver by either party of the breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by either party.

13. Severability. Employer and Executive each expressly agree and contract that it is not the intention of either party to violate any public policy, statutory or common law, and that if any covenant, sentence, paragraph, clause or combination of the same of this Agreement (a “Contractual Provision”) is in violation of the law of any state where applicable, such Contractual Provision shall be void in the jurisdictions where it is unlawful, and the remainder of such Contractual Provision, if any, and the remainder of this Agreement shall remain binding on the parties such that such Contractual Provision shall be binding only to the extent that such Contractual Provision is lawful or may be lawfully performed under then applicable laws. In the event that any part of any Contractual Provision of this Agreement is determined by a court of competent jurisdiction to be overly broad thereby making the Contractual Provision unenforceable, the parties hereto agree, and it is their desire, that such court shall substitute a judicially enforceable limitation in its place, and that the Contractual Provision, as so modified, shall be binding upon the parties as if originally set forth herein.

14. Governing Law. This Agreement shall be governed by, and construed, interpreted and enforced in accordance with the laws of the State of Illinois, exclusive of the conflict of laws provisions of the State of Illinois.

15. Counterparts and Facsimile Signatures. This Agreement may be executed by the parties in separate counterparts, each of which shall be considered one and the same Agreement. This Agreement may be signed by each of the parties via facsimile or email signatures, each of which shall be as valid and binding as an original signature.

IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the date first written above.

PRIME GROUP REALTY TRUST

By: [s] Jeffrey A. Patterson
Name: Jeffrey A. Patterson
Title: President and Chief Executive Officer

PRIME GROUP REALTY, L.P.

By:PRIME GROUP REALTY TRUST
Its: General Partner

By: [s] Jeffrey A. Patterson
Name: Jeffrey A. Patterson
Title: President and Chief Executive Officer

[s] Nancy Fendley
Nancy Fendley

The undersigned agrees to perform the obligations of Parent described in Section 4 and EXHIBIT B hereof.

PRIME OFFICE COMPANY, LLC

By:[s] David Lichtenstein
Name: David Lichtenstein
Title: President and Authorized Person

EXHIBIT A

A.	PNOI Bonus

2007. Provided Executive remains continuously employed with Employer through December 31, 2007, Executive shall receive a PNOI Bonus for 2007, payable within 45 days after year-end 2007. The “PNOI Bonus” shall be equal to the gross PNOI Bonus for 2007 determined as described below.

2008. Provided Executive remains continuously employed with Employer through December 31, 2007, and the earlier of the expiration of the Employment Term or December 31, 2008, Executive shall receive a PNOI Bonus for each of 2007 and 2008, respectively, payable within 45 days after the applicable year end. The “PNOI Bonus” shall be equal to the gross PNOI Bonus determined as described below, pro rated, in the case of 2008, for the period of actual employment during 2008.

Calculation of PNOI Bonus. With respect to each calendar year during the Employment Term, Executive shall be entitled to receive a gross PNOI Bonus equal to 2% of the positive increase, if any, in PNOI (as defined below) for the calendar year with respect to which the PNOI Bonus is being determined (“Bonus Year”) over PNOI for the prior calendar year (“Base Year”). For purposes of this calculation, PNOI shall be equal to the aggregate net property operating income of all of Employer’s properties based upon the property specific operating statements, exclusive of debt and other financing costs. PNOI for the Bonus Year and/or Base Year will be subject to such adjustments as the Board and Executive may agree to take into account for known or anticipated lease expirations or inceptions or other events; provided, that with respect to new leases involving free or discounted lease payment periods at inception, income shall be rolled forward into such periods using a discount factor of 8%; and, provided further, that with respect to properties that are not wholly-owned, there will be taken into account from the operating statements of such properties only that portion of the results that reflects the Employer’s ownership portion. For purposes of determining the PNOI Bonus for 2007, the PNOI for the 2006 Base Year shall be $52,914,000 (subject to reasonable adjustment by the Employer for changes in the portfolio of properties owned by Employer).

Leasing Bonus.

Executive shall be entitled to receive a bonus payment with respect to each new lease and lease renewal executed during the Employment Term (and for six (6) months after the Employment Term in the event of any Post-Termination Leasing Bonuses); provided a bonus will be payable with respect to those lease transactions where the lease is executed before four weeks after Executive commences Executive’s employment only if in the reasonable judgment of the

B-1

Company, the Executive has taken an active role in obtaining the executed lease. The amount of the bonus (with the exception of bonuses for leases relating to 77 West Wacker Drive, Citadel Center and 330 N. Wabash or such other building for which Executive has primary responsibility for leasing as mutually determined by Employer and Executive pursuant to Section 1 of the Agreement) shall be 25 cents per square foot for leases having a term of at least three years. Bonuses for such leases having a term of less than three years will be pro-rated at 8.33 cents per square foot for each full year of term. With respect to leases of space in 77 West Wacker, Citadel Center and 330 N. Wabash (or such other building for which Executive has primary responsibility for leasing as mutually determined by Employer and Executive pursuant to Section 1 of the Agreement), such leasing bonus shall be $1.00 per square foot for leases having a term of at least three years, and for leases having terms shorter than three years, 33 cents per square foot for each full year of term. The leasing bonuses described in this paragraph shall be paid within 30 days after execution of the lease or lease renewal. For new leases or lease renewals, expansions or extensions which have a commencement date or effective date of more than twenty four (24) months from the date signed, the relevant leasing bonus shall be discounted to present value at a discount rate of 8% per year. Notwithstanding the foregoing sentence, there shall be no discount to present value for the extension, expansion or renewal of existing leases if the tenant is already in occupancy of the space in question and all conditions to the effectiveness of such extension, expansion or renewal have been satisfied.

Except as provided below, Executive shall also be entitled to a leasing bonus of $82,500 less any leasing bonuses Executive receives after the date of this Agreement relating to Floors 2 through 13, inclusive, of 330 N. Wabash Avenue, Chicago, Illinois (“Floors 2-13”), in the event the foregoing building or a portion of it that contains Floors 2-13, is sold to an unaffiliated third party and Employer or an affiliate is not retained as leasing agent for Floors 2-13. In the event that a portion but not all of Floors 2-13 is sold, then the $82,500 shall be adjusted pro-rata and the leasing bonuses, if any, deducted shall only be those relating to that portion of Floors 2-13 being sold. In the event that any sale of all or a portion of Floors 2-13 is being made in lieu of a lease to an office space user (or third party designated by an office space user for transaction structuring purposes), which office space user is using such space for its own office purposes, then a leasing bonus of $1.00 per square foot shall be payable in the same manner as specified in the foregoing paragraph and the $82,500 leasing bonus shall not be applicable.

Tenant Representation Bonus.

During the Employment Term, Executive may be involved in limited tenant representation and consulting and property disposition/acquisition work provided (a) Executive conducts such activity through the Employer’s licensed brokerage firm, (b) such activity is incidental in nature, each project is done with the consent of the CEO and such activity does not interfere with Executive’s discharge of her duties and responsibilities as contemplated in Section 1 of the Agreement and is

B-2

not a Competing Opportunity, and (c) commissions are paid to the Employer’s licensed brokerage firm. The Executive will be entitled to receive a bonus with respect to such representations from the Employer’s licensed brokerage firm a commission as follows:

For gross commissions received by Employer up to $249,999: 70% to Executive

Once the sum of gross commissions received by Employer exceed $250,000, then Executive shall receive 90% of such commissions.

The transactions set forth below shall be excluded from the operation of this Paragraph provided they close by December 31, 2007, such that Executive shall be entitled to 100% of any commissions arising from the specified transactions

(1)

Tenant Rep Work-State Farm (Detroit area and Homewood)

(2)

Building Sales – State Farm (Homewood and Tinley Park).

Executive shall be responsible for paying any direct third-party costs and expenses incurred by Employer in connection with the foregoing Items (1) and (2) above.

Year End Bonus.

Executive shall also be eligible for discretionary year-end bonus related to her employment during each calendar year based on a review of Executive’s performance for the respective calendar year pursuant to the Company’s standard performance appraisal processes and subject to Executive working diligently toward and achieving overall leasing objectives. Employer will also consider a discretionary pro-rata year-end bonus for calendar year 2006 subject to Executive achieving certain lease objectives.

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EXHIBIT B

Provided Executive has remained continuously employed through the May 29, 2007, then Executive shall have the following rights pursuant to the business terms as described below.

Equity-Based Arrangements

Equity Investment

From and after the May 29, 2007 through to December 31, 2007, the Executive will be permitted to purchase up to 1.0% of the equity ownership (the “Equity”) of Prime Office Company, LLC (the “Company”) in the form of L.P. or similar units of the same class at a price on substantially the same other economic terms as Prime Office Company LLC’s other initial equity investors (the “Investors”). This option may not be exercised prior to May 29, 2007, and will expire on the earlier of December 31, 2007, or such earlier date that Executive’s employment with Employer is terminated, for any reason.

To the extent the Company is funded through additional issuances of equity, the Executive shall be given an opportunity to purchase additional equity in an amount necessary to preserve the Executive’s 1.0% percent of ownership. The price for such additional Equity shall be the purchase price paid for the additional equity issuance that gave rise to the additional Equity purchase opportunity. The Company will provide Executive at least ten business days notice prior to any cash distributions resulting from financing or sale transactions (as opposed to from operations) to the Investors such that Executive shall have an opportunity to purchase Equity prior thereto and thereby be entitled to share in any such distribution. This notice obligation shall cease once Executive has purchased all of the Equity.

Purchase Loan

The Lightstone Group LLC or an affiliate thereof (“Lightstone”) will make a loan (“Loan”) available to the Executive for her purchase of the Equity. The principal and interest on the loan will be subject to a ten-year balloon repayment with interest accruing annually at 7%; provided that Executive shall be required to apply the net after-tax cash proceeds of any distributions from the Equity (but not other compensation due under this Agreement) towards payment of the Loan. The Loan shall be secured by the Equity and non-recourse to the Executive.

The Loan may be prepaid without penalty. The Loan will accelerate and become due to the extent of any transfer or sale of Equity by Executive other than as permitted below.

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Transfer Restrictions

No Equity issued to the Executive may be transferred (subject to customary exceptions for estate planning, transfers at death and transfers to an entity controlled solely by the Executive and formed solely for the benefit of the Executive and her immediate family), except as permitted under drag-along, tag-along or registration rights.

Tag-Along,

Drag-Along and

Registration Rights

Executive’s Equity will be subject to customary tag-along drag-along and registration rights

Termination of

Restrictions

The restrictions on transfer shall terminate in the event of an IPO or other transaction whereby the Equity becomes publicly traded, subject to any lock-up restrictions imposed on other employee shareholders or Company or its affiliates.

Any capitalized terms used in this Term Sheet that are not defined herein shall have the respective meanings given to such terms in the Employment Agreement to which this EXHIBIT B is attached.

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EX-10 8 exhibit-10_61.htm EXHIBIT 10.61

EXHIBIT 10.61

Prepared by and when recorded return to:

Winston & Strawn LLP

35 West Wacker Drive

Chicago, Illinois 60601

Attn: M. Christine Graff, Esq.

TERMINATION OF CO-OWNERSHIP AGREEMENT

This TERMINATION OF CO-OWNERSHIP AGREEMENT (this “Agreement”) dated as of December 29, 2006, is by and between CONTINENTAL TOWERS ASSOCIATES III, LLC, a Delaware limited liability company (“CTAIII”) and CONTINENTAL TOWERS, L.L.C., a Delaware limited liability company (“CTLLC”) (CTAIII and CTLLC are collectively referred to herein as the “Co-Owners”).

WHEREAS, Continental Towers Associates I, L.P., an Illinois limited partnership (“CTAI”), as the owner of an undivided 36% interest in the real property and office building complex commonly known as Continental Towers, 1701 Golf Road, Rolling Meadows, Illinois and more particularly described on Exhibit A (the “Property”), and CTLLC, as the owner of an undivided 64% interest in the Property, entered into that certain Co-Ownership Agreement dated as of January 10, 2006 and recorded January 13, 2006 as Document Number 0601341113 (the “Original Co-Ownership Agreement”);

WHEREAS, Co-Owners entered into that certain First Amendment to Co-Ownership Agreement dated as of November 21, 2006, and recorded on November 27, 2006 as Document Number 0633134005 (the “First Amendment”; the First Amendment together with the Original Co-Ownership Agreement is the “Co-Ownership Agreement”); and

WHEREAS, the parties desire to terminate the Co-Ownership Agreement because the Property is being bifurcated into two separate parcels and the Co-Owners will no longer be co-owners of the Property.

NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1. Effective as of the date hereof, the Co-Owership Agreement and all of the terms, covenants and conditions therein contained shall be canceled and terminated, whereupon Co-Owners shall thereafter be forever released and discharged from all obligations and liabilities accruing under the Co-Ownership Agreement.

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2. In the event any term or provision of this Agreement shall be declared invalid, void or unenforceable it shall not effect the validity of any other term and provision hereof, all which shall remain valid, binding and enforceable.

3. This Agreement may be executed in counterparts, each of which shall for all purposes be deemed an original and all of such counterparts shall together constitute one and the same agreement.

[Signature Page Follows]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers as of the day and year first above written.

CONTINENTAL TOWERS ASSOCIATES III, LLC, a Delaware limited liability company

By:

CTA GENERAL PARTNER, LLC, a Delaware limited liability company, its Manager

By:

CTA MEMBER, INC., a Delaware corporation, its Managing Member

By: [s] Paul G. Del Vecchio

Name:

Yochanan Danziger, by Paul G.

Del Vecchio, Attorney-In-Fact

Title:

President

CONTINENTAL TOWERS, L.L.C., a Delaware limited liability company

By:

CTA GENERAL PARTNER, LLC, a Delaware limited liability company, its sole member

By:

CTA MEMBER, INC., a Delaware corporation, its Managing Member

By: [s] Paul G. Del Vecchio

Name:

Yochanan Danziger, by Paul G.

Del Vecchio, Attorney-In-Fact

Title:

President

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STATE OF ILLINOIS )

) ss.

COUNTY OF COOK

)

BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared Paul G. Del Vecchio, known to me to be the Attorney in Fact for Yochanan Danziger, the President of CTA MEMBER, INC., a Delaware corporation, the Managing Member of CTA GENERAL PARTNER, LLC, a Delaware limited liability company, the general partner of CONTINENTAL TOWERS ASSOCIATES III, LLC, the limited liability company that executed the foregoing instrument, and known to me to be the person who executed the foregoing instrument on behalf of said limited liability company, as general partner of such limited partnership, and acknowledged to me that he executed the same in such capacity and that such limited partnership executed the same for the purposes and consideration therein expressed.

Given under my hand and sale of office this 29^th day of December, 2006.

[s] Jared R. Feehan

Notary Public

[Seal]

My commission expires: 1/23/07

STATE OF ILLINOIS

)

) ss.

COUNTY OF COOK

)

BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day personally appeared Paul G. Del Vecchio, known to me to be the Attorney in Fact for Yochanan Danziger, the President of CTA MEMBER, INC., a Delaware corporation, the Managing Member of CTA GENERAL PARTNER, LLC, a Delaware limited liability company, the sole member of CONTINENTAL TOWERS, L.L.C., the limited liability company that executed the foregoing instrument, and known to me to be the person who executed the foregoing instrument on behalf of said limited liability company, as the sole member of such limited liability company, and acknowledged to me that he executed the same in such capacity and that such limited liability company executed the same for the purposes and consideration therein expressed.

Given under my hand and sale of office this 29^th day of December, 2006.

[s] Jared R. Feehan

Notary Public

[Seal]

My commission expires: 1/23/07

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Exhibit A

Legal Description

REAL PROPERTY IN THE CITY OF ROLLING MEADOWS, COUNTY OF COOK, STATE OF ILLINOIS, DESCRIBED AS FOLLOWS:

PARCEL 1:

LOTS 1 AND 2 IN CASATI-HEISE SUBDIVISION, BEING A SUBDIVISION OF PART OF THE NORTHEAST 1/4 OF SECTION 17 AND PART OF THE NORTHWEST 1/4 OF SECTION 16, BOTH IN TOWNSHIP 41 NORTH, RANGE 11 EAST OF THE THIRD PRINCIPAL MERIDIAN, IN COOK COUNTY, ILLINOIS, ACCORDING TO THE PLAT THEREOF RECORDED DECEMBER 27, 1988 AS DOCUMENT NUMBER 88592766, (EXCEPTING THEREFROM THAT PART OF LOT 1 DEDICATED FOR ROADWAY PURPOSES ACCORDING TO PLAT RECORDED DECEMBER 2, 2002, AS DOCUMENT NUMBER 0021325095), IN COOK COUNTY, ILLINOIS.

PARCEL 2:

EASEMENTS APPURTENANT TO AND FOR THE BENEFIT OF PARCELS 1 AND 4, AS CREATED AND GRANTED AND SET FORTH IN EASEMENT AGREEMENT DATED AS OF SEPTEMBER 23, 1977 AND RECORDED OCTOBER 10, 1978 AS DOCUMENT NUMBER 24662689 AND AS AMENDED BY AMENDMENT TO EASEMENT AGREEMENT DATED AS OF MAY 15, 1980 AND RECORDED JUNE 10, 1980 AS DOCUMENT NUMBER 25482426 UPON, OVER AND UNDER PORTIONS OF LOTS 1 TO 6, INCLUSIVE, IN HEISE’S SUBDIVISION, A SUBDIVISION OF PART OF THE NORTHWEST 1/4 OF SECTION 16, TOWNSHIP 41 NORTH, RANGE 11 EAST OF THE THIRD PRINCIPAL MERIDIAN, IN COOK COUNTY, ILLINOIS, ACCORDING TO THE PLAT THEREOF RECORDED DECEMBER 23, 1977 AS DOCUMENT 24119807 AND ALSO OVER, UPON AND UNDER PORTIONS OF THAT PART OF THE NORTHEAST 1/4 OF SECTION 17, TOWNSHIP 41 NORTH, RANGE 11 EAST OF THE THIRD PRINCIPAL MERIDIAN, IN COOK COUNTY, ILLINOIS DESCRIBED AS FOLLOWS:

COMMENCING AT THE NORTHEAST CORNER OF THE NORTHEAST 1/4 OF SECTION 17; THENCE SOUTHERLY ALONG THE EAST LINE OF SAID NORTHEAST 1/4 OF SECTION 17, A DISTANCE OF 80.0 FEET TO THE SOUTHERLY RIGHT-OF-WAY OF GOLF ROAD (STATE ROUTE 58), AS DEDICATED AND RECORDED SEPTEMBER 24, 1929 AS DOCUMENT NUMBERS 10488005 AND 10488006; THENCE SOUTH 89 DEGREES, 08 MINUTES WEST ALONG SAID SOUTHERLY RIGHT-OF-WAY OF GOLF ROAD (STATE ROUTE 58), 691.05 FEET FOR A POINT OF BEGINNING; THENCE SOUTH 0 DEGREES, 52 MINUTES EAST, 265.0 FEET; THENCE SOUTH 89 DEGREES, 08 MINUTES WEST PARALLEL, WITH SAID SOUTHERLY RIGHT-OF-WAY OF GOLF ROAD (STATE ROUTE 58), 196.11 FEET; THENCE NORTH 0 DEGREES, 27 MINUTES, 20 SECONDS EAST PARALLEL WITH THE WEST LINE OF SCHWAKE’S SUBDIVISION RECORDED AUGUST 11, 1970 AS DOCUMENT 21235091, NOW VACATED, 265.07 FEET TO SAID SOUTHERLY RIGHT-OF-WAY OF GOLF ROAD (STATE ROUTE 58); THENCE NORTH 89 DEGREES, 08 MINUTES EAST, ALONG SAID SOUTHERLY RIGHT-OF-WAY OF GOLF ROAD (STATE ROUTE 58), 190.0 FEET TO THE POINT OF BEGINNING, ALL IN COOK COUNTY, ILLINOIS, FOR THE OPERATION, MAINTENANCE, REPAIR, REPLACEMENT, RELOCATION AND REMOVAL OF A WATER SUPPLY LINE, SEWER AND OTHER UTILITIES, IN COOK COUNTY, ILLINOIS.

PARCEL 3:

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COMMENCING AT THE NORTHEAST CORNER OF THE NORTHEAST 1/4 OF SECTION 17; THENCE SOUTHERLY ALONG THE EAST LINE OF SAID NORTHEAST 1/4 OF SECTION 17, A DISTANCE OF 80.0 FEET TO THE SOUTHERLY RIGHT-OF-WAY OF GOLF ROAD (STATE ROUTE 58), AS DEDICATED AND RECORDED SEPTEMBER 24, 1929 AS DOCUMENT NUMBERS 10488005 AND 10488006; THENCE SOUTH 89 DEGREES, 08 MINUTES WEST ALONG SAID SOUTHERLY RIGHT-OF-WAY OF GOLF ROAD (STATE ROUTE 58), 691.05 FEET FOR A POINT OF BEGINNING; THENCE SOUTH 0 DEGREES, 52 MINUTES EAST, 265.0 FEET; THENCE SOUTH 89 DEGREES, 08 MINUTES WEST PARALLEL WITH SAID SOUTHERLY RIGHT-OF-WAY OF GOLF ROAD (STATE ROUTE 58), 196.11 FEET; THENCE NORTH 0 DEGREES, 27 MINUTES, 20 SECONDS EAST, PARALLEL WITH THE WEST LINE OF SCHWAKE’S SUBDIVISION, RECORDED AUGUST 11, 1970 AS DOCUMENT 21235091, NOW VACATED, 265.07 FEET TO SAID SOUTHERLY RIGHT-OF -WAY OF GOLF ROAD (STATE ROUTE 58); THENCE NORTH 89 DEGREES, 08 MINUTES EAST, ALONG SAID SOUTHERLY RIGHT-OF-WAY OF GOLF ROAD (STATE ROUTE 58), 190 FEET TO THE POINT OF BEGINNING, ALL IN COOK COUNTY, ILLINOIS, FOR THE OPERATION, MAINTENANCE, REPAIR, REPLACEMENT, RELOCATION AND REMOVAL OF A WATER SUPPLY LINE, SEWER AND OTHER UTILITIES IN COOK COUNTY, ILLINOIS.

PARCEL 4:

LOT 3 IN CASATI-HEISE SUBDIVISION, BEING A SUBDIVISION OF PART OF THE NORTHEAST 1/4 OF SECTION 17 AND PART OF THE NORTHWEST 1/4 OF SECTION 16, BOTH IN TOWNSHIP 41 NORTH, RANGE 11 EAST OF THE THIRD PRINCIPAL MERIDIAN, IN COOK COUNTY, ILLINOIS, ACCORDING TO THE PLAT THEREOF RECORDED DECEMBER 27, 1988 AS DOCUMENT NUMBER 88592766, IN COOK COUNTY, ILLINOIS.

Common address: Continental Towers, 1701 Golf Road, Rolling Meadows, Illinois

PINS: 08-16-100-034, 08-16-100-035 and 08-16-100-036

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EX-10 9 exhibit-10_62.htm EXHIBIT 10.62

EXHIBIT 10.62

RECORDING REQUESTED

BY, AND WHEN RECORDED

RETURN TO:

M. Christine Graff, Esq.

Winston & Strawn LLP

35 West Wacker Drive

Chicago, Illinois 60601

RECIPROCAL EASEMENT AGREEMENT

THIS RECIPROCAL EASEMENT AGREEMENT (the “Agreement”) is made and entered into as of this 29th day of December, 2006, by and between CONTINENTAL TOWERS, L.L.C., a Delaware limited liability company (“CTLLC”) and CONTINENTAL TOWERS ASSOCIATES III, LLC, a Delaware limited liability company ( “CTAIII”).

WITNESSETH:

WHEREAS, CTLLC is the owner of fee title in and to a parcel of real estate (hereinafter called the “CTLLC Parcel”) located in the City of Rolling Meadows, Cook County, Illinois (the “City”), which parcel is more particularly described on Exhibit A attached hereto and made a part hereof; and

WHEREAS, CTAIII is the owner of fee title in and to a parcel of real estate (hereinafter called the “CTAIII Parcel”) located in the City, which parcel is more particularly described on Exhibit B attached hereto and made a part hereof (the CTLLC Parcel and the CTAIII Parcel are sometimes hereinafter collectively called the “Parcels”); and

WHEREAS, the CTLLC Parcel and the CTAIII Parcel are adjacent to one another and there exists open driveways, pedestrian walkways and parking lots at and between the CTLLC Parcel and the CTAIII Parcel; and

WHEREAS, CTAIII desires to grant and CTLLC desires to receive, upon and subject to the terms and conditions herein provided, certain perpetual non-exclusive access and parking easements over and across portions of the CTAIII Parcel for the purpose of providing the owner of the CTLLC Parcel and its tenants, and their respective customers, suppliers, employees and invitees parking, cross-access between the Parcels and ingress and egress to and from Wilke Road, Meijer Drive and Golf Road, as applicable, and for such other purposes as such access may be required by applicable law; and

WHEREAS, CTLLC desires to grant and CTAIII desires to receive, upon and subject to the terms and conditions herein provided, certain perpetual non-exclusive access and parking easements over and across portions of the CTLLC Parcel for the purpose of providing the owner of the CTAIII Parcel and its tenants, and their respective customers, suppliers, employees and invitees parking, cross-access between the Parcels and ingress and egress to and from Wilke Road, Meijer Drive and Golf Road, as applicable, and for such other purposes as such access may be required by applicable law; and

WHEREAS, the parties hereto desire to enter into this Agreement in order to set forth the terms and conditions governing the use, maintenance, repair and replacement of the easements herein granted.

NOW, THEREFORE, in consideration of the foregoing, the sum of Ten and No/100 Dollars ($10.00), the mutual covenants and agreements of the parties hereto, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1. Recitals Incorporated by Reference. The provisions of the aforesaid recital paragraphs are by this reference herein incorporated as if they had been set forth in the text of this Section 1 to this Agreement.

2. Grant of Easement. Subject to the terms of this Agreement and to all covenants, conditions and restrictions affecting the CTLLC Parcel or the CTAIII Parcel, as the case may be:

CTLLC hereby grants, gives and conveys to CTAIII, its successors and assigns and tenants and their respective employees, agents, customers and invitees, (1) a nonexclusive perpetual easement for the purpose of vehicular cross-access over, upon and across any private drives or parking areas now or hereafter located on the CTLLC Parcel (the “CTLLC Parking Area”) for vehicular and pedestrian ingress and egress to and from the Parcels and any public roadways adjacent thereto; (2) a non-exclusive perpetual easement for the use of the CTLLC Parking Area for the parking of motor vehicles; and (3) a nonexclusive perpetual easement for the purpose of pedestrian cross-access over, upon and across any walkways now or hereafter located on the CTLLC Parcel for pedestrian ingress and egress to and from the Parcels and any public walkways adjacent thereto.

CTAIII hereby grants, gives and conveys to CTLLC, its successors and assigns and tenants and their respective employees, agents, customers and invitees, (1) a nonexclusive perpetual easement for the purpose of vehicular cross-access over, upon and across any private drives or parking areas now or hereafter located on the CTAIII Parcel (the “CTAIII Parking Area”; collectively with the CTLLC Parking Area, the “Parking Areas”) for vehicular and pedestrian ingress and egress to and from the Parcels and any public roadways adjacent thereto; (2) a non-exclusive perpetual easement for the use of the CTAIII Parking Area for the parking of motor vehicles; and (3) a nonexclusive perpetual easement for the purpose of pedestrian cross-access over, upon and across any walkways now or hereafter located on the CTAIII Parcel for pedestrian ingress and egress to and from the Parcels and any public walkways adjacent thereto.

3. Conduct and Coordination of Maintenance, Repair and Replacement. All maintenance and repair of the Parking Areas shall be made so as to interfere as little as practicable with the rights granted to the other party pursuant to this Agreement and with the operations on each Parcel of any of the owners thereof or their employees, agents, tenants, invitee or licensees. The parties shall use every effort to coordinate maintenance, repairs and replacement so that both Parking Areas shall not be obstructed at the same time. The parties shall conduct repaving of the Parking Areas so as to provide a smooth surface between the Parcels.

4. Performance of Other Party’s Obligations. In the event of an emergency requiring maintenance or repair of either Parking Area, if the party who is responsible for such maintenance or repair does not undertake the same within a period of time which is reasonable under the circumstances or it does not appear that such party who is responsible will, or will be able to, undertake such maintenance or repair, the other party may, at its option, perform such maintenance or repair and pay any and all costs and charges associated therewith.

Subject to the provisions of Section 5 hereof, in the event either party hereto fails to maintain and repair the Parking Area on the Parcel to which it holds title, as such party is required to do pursuant to this Agreement, results in a material interference with the rights granted to the other party by this Agreement or with the use or operation of the other party’s Parcel or the improvements located thereon from time to time, but does not result in an emergency, the other party may notify the party in default of such failure in writing. In the event the party in default fails to remedy such default within ten (10) days after receipt of such notice or, if such default cannot be cured within ten (10) days, in the event the party in default fails to commence the cure of such default within such ten (10) day period and to diligently pursue such cure to completion, the other party may, at its option, subject to the rights under Section 6 of the holder of any mortgage, perform the obligation which the party in default has failed to properly perform hereunder and pay any and all costs and charges associated therewith.

In any event described in this Section 4, the performing party shall be entitled to recover from the other party the charges, fees, costs and expenses incurred by the performing party (including, if the other party is in default, reasonable attorneys’ fees) in connection therewith if the obligation is one which was to have been performed pursuant to this Agreement by the party in default at its sole cost and expense, or one half (1/2) thereof if this Agreement provides that the cost and expense of performance is to be divided equally between the parties, including in each case interest at the Default Rate of Interest from the date of payment. Such charges, fees, costs, expenses and interest shall be paid by the other party within ten (10) days after receipt of a statement thereof from the performing party. For the purposes hereof, the term “Default Rate of Interest” shall be a rate of interest that is four percent (4%) above the rate of interest from time to time announced by LaSalle Bank, National Association as its prime rate.

Each party which performs any maintenance or repair on the Parcel to which the other party holds title shall restore the area affected by such maintenance or repair to the condition existing prior thereto or prior to any damage or disrepair necessitating such maintenance or repair, and any failure to do so shall give the party which holds title to such area the rights of a non defaulting party pursuant to this Section 4.

5. Force Majeure; Interruption of Services. If either party hereto fails to perform in a timely manner any of the obligations to be performed by such party under this Agreement, and such failure is due in whole or in part to any strike, lockout, labor trouble, civil disorder, inability to procure materials, failure of power, restrictive governmental laws and regulations, riots, insurrections, war, fuel shortages, accidents, casualties, acts of God, acts caused directly or indirectly by the other party (or such other party’s employees, agents, licensees, invitees or contractors) or any other cause beyond the reasonable control of the non performing party, then the non performing party shall not be deemed in default hereunder as a result of such failure. The foregoing shall not excuse any failure to make any payment of money in a timely manner.

Neither party shall be liable in damages for any interruption of utility services to the Parcel to which the other party holds title which may arise out of or be occasioned by maintenance or repair of either Parking Area unless such interruption of service results from the gross negligence or willful misconduct of such party.

6. Mortgages. Each party hereto agrees to give the holder of any mortgage to which the Parcel owned by the other party is subject, by registered or certified mail, a copy of any notice or claim of default served by the party giving such notice upon the other party, provided that prior to such notice the party giving such notice has been notified in writing of the name and address of such mortgage holder. Each party hereto further agrees that if the other party shall have failed to cure any default within the pertinent period permitted by Section 4 hereof, then the holder of any mortgage to which the Parcel owned by the other party is subject shall have an additional thirty (30) days within which to cure or

correct such default (or if such default cannot be cured or corrected within that time, then such additional time as may be necessary if such holder of such mortgage has commenced within such thirty (30) days and is diligently pursuing the remedies or steps necessary to cure such default, including the time necessary to obtain possession if possession is necessary to cure or correct such default, but in no event more than an additional forty five (45) days).

Any mortgagee with respect to either Parcel shall not be responsible for any amounts incurred or becoming due under this Agreement prior to a foreclosure of its mortgage or a transfer of the interest of a party hereto in a Parcel to such mortgagee in lieu of foreclosure, and its liability hereunder in the event of such a foreclosure or transfer shall exist only so long as such mortgagee is the owner of a Parcel and shall not continue or survive after further transfer of ownership.

7. Transfer of Ownership. Whenever a transfer of ownership of either Parcel occurs, the liability of the transferor for any breach of covenant occurring thereafter shall automatically terminate with respect to such transferor. Any transferee shall automatically assume and be bound by the burdens and obligations hereunder running with the land to the owner of the Parcel or portion thereof being transferred.

8. Interpretation. The rule of strict construction does not apply to the grants herein. The grants herein shall be given a reasonable construction to carry out the intention of the parties hereto to confer a commercially usable right of enjoyment on each grantee.

9. Termination. The grantee of any easement granted hereunder may terminate such easement by recording a release thereof with the Office of Recorder of Deeds of Cook County, Illinois, with directions for delivery of the same to the grantor of such easement at its address given pursuant hereto, whereupon all rights, duties and liabilities hereby created shall terminate as to such easement except for liabilities incurred hereunder prior to such termination. Notwithstanding the foregoing, no party shall, so long as the Loans (as hereinafter defined) or any portion thereof are outstanding, without the prior written consent of Senior Lender and, if applicable, Junior Lender, terminate or cancel this Agreement or any of the easements granted herein, or modify, change, supplement, alter or amend this Agreement in any manner whatsoever. For purposes of this Section 9, the term “Loans” shall mean, collectively, (1) that certain loan in the original principal amount of $41,400,000 made by WELLS FARGO BANK, N.A., as trustee for the registered holders of COBALT CMBS COMMERCIAL MORTGAGE TRUST 2006-C1, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2006-C1 (“Senior Lender”) to CTAIII, which loan is secured by an Amended and Restated Mortgage, Security Agreement and Fixture Financing Statement dated as of December 29, 2006 and recorded against the CTAIII Parcel, (2) that certain loan in the original principal amount of $73,600,000 made by Senior Lender to CTLLC, which loan is secured by an Amended and Restated Mortgage, Security Agreement and Fixture Financing Statement dated as of December 29, 2006 and recorded against the CTLLC Parcel, (3) that certain loan in the original principal amount of $46,701,459.00 made by PGRT Equity LLC (“Junior Lender”) to CTAIII, which loan is secured by a Second Amended and Restated Mortgage and Security Agreement dated as of December 29, 2006 and recorded against the CTAIII Parcel, and (4) that certain loan in the original principal amount of $83,024,815.00 made by Junior Lender to CTLLC, which loan is secured by a Second Amended and Restated Mortgage and Security Agreement dated as of December 29, 2006 and recorded against the CTLLC Parcel.

10. Indemnity and Insurance. CTLLC shall indemnify and hold harmless CTAIII and its agents from and against any and all liability, loss, damage, costs and expenses (including reasonable attorneys’ fees) for injury to person or death or property damage arising out of or resulting from CTLLC’s negligent use of the CTAIII Parcel, except for any such liability, loss, damages, costs and expenses

arising in whole or in part from the acts of the CTLLC or its agents or the acts of other parties who have been granted any easement by CTLLC, upon the CTLLC Parcel.

The CTLLC shall indemnify and hold harmless the CTAIII, its beneficiaries and their agents from and against any and all liability, loss, damage, costs and expenses (including reasonable attorneys’ fees) for injury to person or death or property damage arising out of or resulting from the CTLLC’s negligent use of the CTAIII Parcel, except for any such liability, loss, damage, costs and expenses arising in whole or in part from the acts of the CTAIII or its agents or the acts of other parties who have been granted any easement by the CTAIII upon the CTAIII Parcel.

Each party shall carry at all times, with respect to the Parcel owned by it, commercial general public liability insurance, including contractual liability, in an amount not less than Two Million Dollars ($2,000,000.00) combined single limit per occurrence or such higher limits the other party may reasonably request and procure for its own policy. Such insurance shall name the other party and its beneficiaries and the respective agents and employees of each of them as additional insured.

Each party shall, from time to time upon the request of the other party, furnish to the other party policies or certificates evidencing such coverage, which policies or certificates shall state that such insurance coverage may not be reduced, cancelled or allowed to expire without at least thirty (30) days’ prior written notice to each party hereto.

11. Notices. All notices and other communications given pursuant to this Agreement shall be in writing and shall be deemed properly served if delivered in person or by facsimile to the party to whom it is addressed or two (2) days after deposit in the U.S. mail if sent postage prepaid by U.S. registered or certified mail, return receipt requested, addressed as follows:

(a)

If to CTAIII:

Continental Towers Associates II, LLC

c/o CTA General Partner, LLC

c/o Prime Group Realty Trust

77 West Wacker Drive, Suite 3900

Chicago, Illinois 60601

Attn: Jeffrey A. Patterson

With a copy to:

Prime Group Realty Trust

77 West Wacker Drive, Suite 3900

Chicago, Illinois 60601

Attn: James F. Hoffman

And a copy to:

Richard A. Heise

5317 West Cullom Avenue

Chicago, Illinois 60641

(b)

If to CTLLC:

Continental Towers, L.L.C.

c/o CTA General Partner, LLC

c/o Prime Group Realty Trust

77 West Wacker Drive, Suite 3900

Chicago, Illinois 60601

Attn: Jeffrey A. Patterson

With a copy to:

Prime Group Realty Trust

77 West Wacker Drive, Suite 3900

Chicago, Illinois 60601

Attn: James F. Hoffman

Either party may change the name of the person or address to which notices and other communications are to be given by so notifying the other party. Notices or demands from either Trustee may be given by the Trustee, its beneficiaries or any of their agents.

12. Covenants Run with the Land. All provisions of this Agreement concerning the perpetual easement rights granted hereunder, including the benefits and burdens, shall run with the land and be binding upon and inure to the benefit of all parties having or acquiring any right, title or interest in or to any portion of or interest or estate in the CTLLC Parcel or the CTAIII Parcel, as the case may be.

13.

Additional Terms of this Agreement . Each party covenants to the other:

a. It has fee title to those land areas that such party is purporting to grant an easement in, over, through, upon or under, subject to all matters currently affecting any such lands.

b. The grants herein are accepted by the respective parties subject to any and all encumbrances, reservations, conditions, covenants, easements, and restrictions, if any, of record or otherwise affecting the use of the Parking Areas conveyed herein. This Agreement, however, shall not be subordinate to any lien created in the future against the Parking Areas.

c. The rights granted herein to the use of the Parking Areas, except as otherwise specifically noted, are limited to the right of surface ingress and egress for pedestrian and vehicular use and the maintenance of underground lines and pipes as set forth above only and are nonexclusive, and the grantor of the Parking Area, or portion thereof, and its heirs, successors, and assigns may, without joinder by the grantee thereof or such grantee’s successor’s and assigns, grant further easements in, over, across, through, and under the CTLLC Parcel or CTAIII Parcel, as the case may be, including the Parking Areas, for any lawful purpose, provided that the holder of such easement does not unreasonably interfere with the rights herein granted.

d. It is expressly understood and agreed that all easements granted herein are only a grant of specifically defined rights, subject to the terms and limitations contained herein, and do not constitute a conveyance of any portion of the CTLLC Parcel or the CTAIII Parcel, as the case may be, and accordingly the rights granted herein to the use of the CTLLC Parcel or CTAIII Parcel, as the case may be, are nonexclusive, and such grantors and such grantors’ respective heirs, successors, and assigns retain the following rights:

(1) To grant, without joinder by grantee, or grantee’s successors and assigns, further easements in, over, across, through, and under the CTLLC Parcel or the CTAIII Parcel, as the case may be, for any lawful purpose; and

(2) To use the CTLLC Parcel or the CTAIII Parcel, as the case may be, for any purpose, provided that such retained rights may be exercised only to the extent that no unreasonable interference with the easements herein granted for the benefit of the CTLLC Parcel or the CTAIII Parcel, as the case may be, will result from the exercise of the retained rights by such grantor or such grantors’ respective successors and assigns.

14. Zoning Control. The parties acknowledge that (1) the Parcels are governed for zoning purposes by, among other regulations, a planned development first approved by the City on August 23, 1978 and known as the Continental Towers Planned Development (the “Planned Development”); and (2) that certain Development Agreement dated November 24, 1998 among the owners of the Continental Towers property, Prime Group Realty, L.P. and the City, approved by the City in Resolution No. 98-R-124 (the “Development Agreement”). Consistent with the requirements contained in Section 3 of the Development Agreement that the Parcels be under single designated control for, among other purposes, the Planned Development, the parties agree that, unless otherwise changed by mutual written consent, CTLLC (and not CTAIII) shall be the named applicant for any future applications for amendments, modifications or changes (administrative or legislative) to the Planned Development, the Development Agreement or any proposed plat of resubdivision (a “Change” or, collectively, “Changes”). CTLLC shall submit applications to the City for Changes if requested by CTAIII unless CTLLC reasonably determines that the requested Change will have a material detriment to the CTLLC Parcel. CTLLC shall make no request for Change without the approval of CTAIII, which approval shall not be withheld, unless CTAIII reasonably determines that the requested change will have a material detriment on the CTAIII Parcel. Prior to any application for a Change, the Parties shall agree on an equitable division of the costs of each such application. The parties hereby represent, warrant and covenant that the Parcels and all improvements thereon comply with and shall remain in compliance with the Planned Development and the Development Agreement and any future modifications thereto.

15. Successors and Assigns. The rights, benefits, duties and obligations contained herein, and the provisions hereof shall be binding upon and inure to the benefit of CTLLC, CTAIII and their respective legal representatives, successors and assigns.

[signature page follows]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their proper officer duly authorized to execute same, the day and year first written above.

CONTINENTAL TOWERS ASSOCIATES III, LLC, a Delaware limited liability company

By: CONTINENTAL TOWERS ASSOCIATES II, LLC, a Delaware limited liability company,
its sole member

By: CTA GENERAL PARTNER, LLC,
a Delaware limited liability company,
its manager

By: CTA MEMBER, INC.,
a Delaware corporation,
its managing member

By: [s] Paul G. Del Vecchio

Name: Yochanan Danziger,
by Paul G. Del Vecchio,
Attorney-In-Fact

Title: President

CONTINENTAL TOWERS, L.L.C.,
a Delaware limited liability company

By: CTA GENERAL PARTNER, LLC,
a Delaware limited liability company,
its sole member

By: CTA MEMBER, INC.,
a Delaware corporation,
its managing member

By: [s] Paul G. Del Vecchio
Name:      Yochanan Danziger,
           by Paul G. Del Vecchio,
           Attorney-In-Fact
Title:        President

STATE OF ILLINOIS

COUNTY OF COOK

This instrument was ACKNOWLEDGED before me on December 29, 2006, by PAUL G. DEL VECCHIO, Attorney-In-Fact for YOCHANAN DANZIGER, the President of CTA MEMBER, INC., a Delaware corporation, as managing member of CTA GENERAL PARTNER, LLC, a Delaware limited liability company, as the manager of CONTINENTAL TOWERS ASSOCIATES II, LLC, a Delaware limited liability company, as the sole member of CONTINENTAL TOWERS ASSOCIATES III, LLC, a Delaware limited liability company, on behalf of said limited liability company.

[S E A L]

[s] Barbara M. DeVitto

Notary Public, State of Illinois

My Commission Expires:

Barbara M. DeVitto

11/09/2008

Printed Name of Notary Public

STATE OF ILLINOIS

COUNTY OF COOK

This instrument was ACKNOWLEDGED before me on December 29, 2006 by PAUL G. DEL VECCHIO, Attorney-In-Fact for YOCHANAN DANZIGER, the President of CTA MEMBER, INC., a Delaware corporation, as managing member of CTA GENERAL PARTNER, LLC, a Delaware limited liability company, as sole member of CONTINENTAL TOWERS, L.L.C., a Delaware limited liability company, on behalf of said limited liability company.

[S E A L]

[s] Barbara M. DeVitto

Notary Public, State of Illinois

My Commission Expires:

Barbara M. DeVitto

11/9/2008

Printed Name of Notary Public

EXHIBIT A

PROPERTY DESCRIPTION FOR THE CTLLC PARCEL

REAL PROPERTY IN THE CITY OF ROLLING MEADOWS, COUNTY OF COOK, STATE OF ILLINOIS, DESCRIBED AS FOLLOWS:

Parcel 1:

Excepting therefrom that part of Lot 1 dedicated for roadway purposes according to instrument recorded December 2, 2002 as Document No. 0021325095;

Also excepting therefrom that part of Lot 1 in CASATI-HEISE SUBDIVISION, being a subdivision of part of the Northeast 1/4 of Section 17 and part of the Northwest 1/4 of Section 16, both in Township 41 North, Range 11 East of the Third Principal Meridian in Cook County, Illinois according to the plat thereof recorded December 27, 1988 as Document Number 88592766, bounded by a line described as follows: Beginning at the northeast corner of said Lot 1; thence South 06 Degrees 09 Minutes 30 Seconds West, along an east line of said Lot 1, a distance of 156.16 feet; thence South 58 Degrees 17 Minutes 03 Seconds East, along a northerly line of said Lot 1, a distance of 152.90 feet; thence North 20 Degrees 09 Minutes 00 Seconds East, along a west line of said Lot 1, a distance of 10.29 feet; thence South 69 Degrees 51 Minutes 00 Seconds East, along a north line of said Lot 1, a distance of 0.83 feet to a point in the southwesterly right of way line of Meijer Drive according to the Plat of Dedication, thereof, recorded December 12, 2002 as Document Number 0021325095; thence southeasterly, along said southwesterly line, along the arc of a curve left, having a radius of 75.00 feet, the chord of which bears South 36 Degrees 52 Minutes 51 Seconds East, an arc distance of 55.06 feet to a point in the easterly most east line of aforesaid Lot 1; thence South 20 Degrees 09 Minutes 00 Seconds West, along said east line, 326.25 feet; thence North 69 Degrees 51 Minutes 00 Seconds West, perpendicular to the last described course, 53.96 feet; thence South 19 Degrees 58 Minutes 13 Seconds West, 301.92 feet; thence North 57 Degrees 41 Minutes 17 Seconds West, 247.73 feet; thence South 32 Degrees 18 Minutes 43 Seconds West, perpendicular to the last described course, 33.31 feet; thence North 57 Degrees 41 Minutes 17 Seconds West, perpendicular to the last described course, 482.82 feet; thence North 32 Degrees 18 Minutes 43 Seconds East, perpendicular to the last described course, 218.53 feet; thence North 57 Degrees 45 Minutes 33 Seconds West, 69.41 feet; thence North 00 Degrees 19 Minutes 35 Seconds East, 245.85 feet to a point in the south line of aforementioned Lot 1, also being the south line of Golf Road (also known as Illinois State Route 58); thence North 89 Degrees 05 Minutes 58 Seconds East, along said north line, 692.03 feet to the point of beginning, all in Cook County, Illinois.

Parcel 2:

Easements appurtenant to and for the benefit of Parcel 1 as created and granted and set forth in easement agreement dated as of September 23, 1977 and recorded October 10, 1978 as Document Number 24662689 and as amended by Amendment to Easement Agreement dated as of May 15, 1980 and recorded June 10, 1980 and recorded as Document Number 25482426 upon, over, and under portions of Lots 1 to 6, inclusive, in Heise’s Subdivision, a subdivision of part of the Northwest 1/4 of Section 16, Township 41 North, Range 11 East of the Third Principal Meridian, in Cook County, Illinois, according to the plat thereof recorded December 23, 1977 as Document 24119807 and also over, upon and under portions of that part of the Northeast 1/4 of Section 17, Township 41 North, Range 11 East of the Third Principal Meridian, in Cook County, Illinois described as follows:

Commencing at the Northeast Corner of the Northeast 1/4 of Section 17; thence Southerly along the east line of said Northeast 1/4 of Section 17, a distance of 80.0 feet to the southerly right-of-way of Golf Road (State Route 58), as dedicated and recorded September 24, 1929 as Document Numbers 10488005 and 10488006; thence South 89 Degrees, 08 Minutes West along said southerly right-of-way of Golf Road (State Route 58), 691.05 feet for a Point of Beginning; Thence South 0 Degrees, 52 Minutes East, 265.0 feet; thence South 89 Degrees, 08 Minutes West parallel with said southerly right -of-way of Golf Road (State Route 58) 196.11 feet; thence North 0 Degrees, 27 Minutes, 20 Seconds East parallel with the west line of Schwake’s Subdivision recorded August 11, 1970 as Document 21235091, now vacated, 265.07 feet to said southerly right-of-way of Golf Road (State Route 58); thence North 89 Degrees, 08 Minutes East, along said southerly right-of-way of Golf Road (State Route 58), 190.0 feet to the Point of Beginning, all in Cook County, Illinois, for the operation, maintenance, repair, replacement, relocation and removal of a water supply line, sewer and other utilities.

Parcel 3:

Easements appurtenant to and for the benefit of Parcel 1 as created and granted and set forth in Reciprocal Easement and Common Wall Agreement dated as of September 23, 1977 and recorded October 10, 1978 as Document Number 24662688 and as amended by Agreement thereto dated as of November 21, 1979 and recorded December 17, 1979 and recorded as Document Number 25284791 upon and under portions that part of the Northeast 1/4 of Section 17, Township 41 North, Range 11 East of the Third Principal Meridian, in Cook County, Illinois described as follows:

Common address: Continental Towers, 1701 Golf Road, Rolling Meadows, Illinois

PINS: 08-16-100-034 (part) and 08-16-100-035

EXHIBIT B

PROPERTY DESCRIPTION FOR THE CTAIII PARCEL

REAL PROPERTY IN THE CITY OF ROLLING MEADOWS, COUNTY OF COOK, STATE OF ILLINOIS, DESCRIBED AS FOLLOWS:

Parcel 1:

Lot 3 in CASATI-HEISE SUBDIVISION, being a subdivision of part of the Northeast 1/4 of Section 17 and part of the Northwest 1/4 of Section 16, both in Township 41 North, Range 11 East of the Third Principal Meridian in Cook County, Illinois according to the plat thereof recorded December 27, 1988 as Document Number 88592766, in Cook County, Illinois.

Parcel 2:

That part of Lot 1 in CASATI-HEISE SUBDIVISION, being a subdivision of part of the Northeast 1/4 of Section 17 and part of the Northwest 1/4 of Section 16, both in Township 41 North, Range 11 East of the Third Principal Meridian in Cook County, Illinois according to the plat thereof recorded December 27, 1988 as Document Number 88592766, bounded by a line described as follows: Beginning at the northeast corner of said Lot 1; thence South 06 Degrees 09 Minutes 30 Seconds West, along an east line of said Lot 1, a distance of 156.16 feet; thence South 58 Degrees 17 Minutes 03 Seconds East, along a northerly line of said Lot 1, a distance of 152.90 feet; thence North 20 Degrees 09 Minutes 00 Seconds East, along a west line of said Lot 1, a distance of 10.29 feet; thence South 69 Degrees 51 Minutes 00 Seconds East, along a north line of said Lot 1, a distance of 0.83 feet to a point in the southwesterly right of way line of Meijer Drive according to the Plat of Dedication, thereof, recorded December 12, 2002 as Document Number 0021325095; thence southeasterly, along said southwesterly line, along the arc of a curve left, having a radius of 75.00 feet, the chord of which bears South 36 Degrees 52 Minutes 51 Seconds East, an arc distance of 55.06 feet to a point in the easterly most east line of aforesaid Lot 1; thence South 20 Degrees 09 Minutes 00 Seconds West, along said east line, 326.25 feet; thence North 69 Degrees 51 Minutes 00 Seconds West, perpendicular to the last described course, 53.96 feet; thence South 19 Degrees 58 Minutes 13 Seconds West, 301.92 feet; thence North 57 Degrees 41 Minutes 17 Seconds West, 247.73 feet; thence South 32 Degrees 18 Minutes 43 Seconds West, perpendicular to the last described course, 33.31 feet; thence North 57 Degrees 41 Minutes 17 Seconds West, perpendicular to the last described course, 482.82 feet; thence North 32 Degrees 18 Minutes 43 Seconds East, perpendicular to the last described course, 218.53 feet; thence North 57 Degrees 45 Minutes 33 Seconds West, 69.41 feet; thence North 00 Degrees 19 Minutes 35 Seconds East, 245.85 feet to a point in the south line of aforementioned Lot 1, also being the south line of Golf Road (also known as Illinois State Route 58); thence North 89 Degrees 05 Minutes 58 Seconds East, along said north line, 692.03 feet to the point of beginning, all in Cook County, Illinois.

Parcel 3:

Easements appurtenant to and for the benefit of Parcels 1 and 2, as created and granted and set forth in easement agreement dated as of September 23, 1977 and recorded October 10, 1978 as Document Number 24662689 and as amended by Amendment to Easement Agreement dated as of May 15, 1980 and recorded June 10, 1980 and recorded as Document Number 25482426 upon, over, and under portions of Lots 1 to 6, inclusive, in Heise’s Subdivision, a subdivision of part of the Northwest 1/4 of Section 16, Township 41 North, Range 11 East of the Third Principal Meridian, in Cook County, Illinois, according to the plat thereof recorded December 23, 1977 as Document 24119807 and also over, upon and under portions of that part of the Northeast 1/4 of Section 17, Township 41 North, Range 11 East of the Third Principal Meridian, in Cook County, Illinois described as follows:

Parcel 4:

Easements appurtenant to and for the benefit of Parcels 1 and 2, as created and granted and set forth in Reciprocal Easement and Common Wall Agreement dated as of September 23, 1977 and recorded October 10, 1978 as Document Number 24662688 and as amended by Agreement thereto dated as of November 21, 1979 and recorded December 17, 1979 and recorded as Document Number 25284791 upon and under portions that part of the Northeast 1/4 of Section 17, Township 41 North, Range 11 East of the Third Principal Meridian, in Cook County, Illinois described as follows:

Common address: Continental Towers, 1701 Golf Road, Rolling Meadows, Illinois

PINS: 08-16-100-034 (part) and 08-16-100-036

EX-10 10 exhibit-10_63.htm EXHIBIT 10.63

EXHIBIT 10.63

MANAGEMENT AGREEMENT

THIS MANAGEMENT AGREEMENT (this “Agreement”), dated as of December 29, 2006, is made and entered into by and between CONTINENTAL TOWERS, L.L.C., a Delaware limited liability company (“Owner”) and PRIME GROUP MANAGEMENT, L.L.C., a Delaware limited liability company (“Manager”).

R E C I T A L S:

WHEREAS, Owner owns a portion of the real property and office building complex commonly known as Continental Towers, 1701 Golf Road, Rolling Meadows, Illinois, identified on Schedule A hereto (the “Facility”); and

WHEREAS, Manager is experienced and qualified in the business of owning and operating an office complex such as the Facility, and Owner desires to engage Manager to operate the Facility; and

WHEREAS, Manager is willing to operate the Facility on the terms and subject to the conditions set forth in this Agreement.

AGREEMENTS

NOW, THEREFORE, in consideration of the recitals and the mutual promises and covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

Responsibilities of Manager.

(a) Owner hereby engages Manager to operate the Facility, and Manager hereby accepts such engagement and, subject to the conditions set forth in this Agreement, agrees to operate the Facility, at Owner’s expense, so as to provide all services required by applicable law and regulations and by the terms set forth in this Agreement. During the term of this Agreement, Manager shall have full authority to operate and manage the Facility as a Class A office building complex in accordance with applicable law and regulations and the terms and conditions hereof, and shall have full and complete control and reign over, and use of, the entire Facility, including its common areas. Without limiting the generality of the foregoing, Manager shall have full authority and responsibility as follows:

(i) Operational Policies and Forms. Manager shall establish and implement such operational policies and procedures, and develop such new policies and procedures, as Manager may deem necessary to cause or to ensure the establishment and maintenance of operational standards appropriate for a Class A office building complex.

(ii) Information. Manager shall develop any informational material, mass media releases, and other related publicity materials, that it deems necessary for the operation of the Facility.

(iii) Regulatory Compliance. Manager shall use commercially reasonable efforts to maintain all licenses, permits, qualifications and approvals from any applicable

governmental or regulatory authority required for the operation of the Facility, to operate the Facility in compliance with all applicable laws and regulations, and to comply with such laws and regulations in performing Manager’s obligations under this Agreement. In addition, Manager shall supervise and coordinate the preparation and filing of (and, where required to do so under applicable law or regulations, file) all reports or other information required by all state or other governmental agencies having jurisdiction over the Facility and shall deliver copies of all such reports and information to Owner simultaneously with such filings. Manager shall cooperate with governmental inspection and enforcement activities.

(iv) Equipment, Improvements, Refurbishment and Redevelopment. Manager shall, on behalf of Owner, acquire or effect the acquisition of equipment and improvements which are needed to maintain or upgrade the quality of the Facility or its services, to replace obsolete or run-down equipment, or to correct any other deficiencies which may be identified by Manager during the term of this Agreement, and shall make, or engage third parties to make, all such repairs, replacements and maintenance and shall cause to be acquired all necessary equipment, including replacement equipment. Manager shall have the authority to refurbish and redevelop the Facility in order to maintain it as a Class A office building complex provided that the funds to pay any expenses or expenditures in connection therewith will be available either from (1) operating revenues of the Facility or (2) the proceeds of borrowings where the lender’s recourse is limited to Owner’s interest in the Facility.

(v) Accounting. Manager shall supervise and coordinate accounting support to, and prepare and maintain records for, the Facility, including the following:

a) a monthly balance sheet and statement of operations for the Facility, to be submitted to Owner within forty-five (45) days after the end of each calendar month;

tenant billing records;

accounts receivable and collection records;

accounts payable records;

e) all payroll functions, including preparation of payroll checks, establishment of depository accounts for withholding taxes, payment of such taxes (at Owner’s sole expense), filing of payroll reports and the issuance of W-2 forms to all employees;

f) a complete general ledger for the purposes of recording and summarizing all transactions for the Facility; and

g) the preparation and filing of all necessary reports as required by any and all governmental authorities having jurisdiction over the Facility or the operation thereof (including, but not limited to, the Manager) and the simultaneous provision of copies thereof to Owner. Manager shall file, on its own behalf or on behalf of Owner, all such reports as are required to be filed by Manager or Owner.

All accounting procedures and systems utilized in providing said support shall be in accordance with the operating capital and cash programs developed by Manager, which programs shall conform to generally accepted accounting principles and shall not materially distort income or

loss. Nothing herein shall preclude Manager from engaging a third party to assist it in the performance of the accounting duties provided for herein.

(vi) Reports. Manager shall supervise and coordinate the preparation of any reasonable operational information which may from time to time be specifically requested by Owner, including any information and reports needed to assist Owner in completing its tax returns and in complying with any reporting obligations imposed by any mortgagees or lessors of the Facility. In addition, (i) within forty-five (45) days after the end of each calendar month, Manager shall supervise and coordinate the preparation and the delivery to Owner of an unaudited balance sheet of the Facility, dated as of the last day of such month, and unaudited statements of income and expenses and cash flow for such month relating to the operation of the Facility and (ii) within one hundred twenty (120) days after the end of the fiscal year of the Facility, Manager shall supervise and coordinate the preparation and the delivery to Owner of audited financial statements, including a balance sheet of the Facility dated as of the last day of said fiscal year and statements of income and expense, statement of building operations and changes in financial position and an unaudited statement of cash flow for the fiscal year then ended relating to the operation of the Facility. In addition, Manager shall supervise and coordinate the preparation and the delivery to Owner of monthly occupancy reports and related information with respect to the Facility. All originals of the books, forms and records generated by Manager in connection with the operation of the Facility shall be Manager’s property, except that on termination of this Agreement, all such books, forms and records shall be Owner’s (or its successor’s) property; provided, that Manager shall provide Owner with copies of any of such books, forms and records reasonably requested by Owner.

(vii) Bank Accounts. Manager shall establish an account or accounts and shall deposit therein all money received by Manager on Owner’s behalf from the operation of the Facility. Withdrawals and payments from this account shall be made only on checks signed by one or more person or persons designated by Manager. Manager shall give Owner written notice as to the identity of such authorized signatories on such account. All expenses incurred in the operation of the Facility in accordance with the terms of the Annual Budgets (as defined in subsection (xi) below), including, but not limited to, Facility mortgage or lease payments, payroll and employee benefits and payment of Fees (as defined in Section 7 below), shall be paid by check drawn on this account unless directly deducted from the lock box maintained by Owner for the benefit of Mortgagee (as defined in Section 8). Monthly payments shall be made out of this account first to pay any debt service or rent due with respect to the Facility, and next to pay the operating expenses of the Facility in such order of priority as Manager deems appropriate to the operation of the Facility (including the Fees). Any Fees which are not paid when due as a result of an insufficiency of revenues from the Facility to cover the same shall accrue and shall be due and payable promptly by Owner out of cash flow of the Facility.

(viii) Personnel. Manager shall have full power and authority to recruit, hire, train, promote, direct, discipline and fire all Facility personnel; establish salary levels, personnel policies and employee benefits; and establish employee performance standards, all as Manager determines to be necessary or desirable during the term of this Agreement to ensure the efficient and satisfactory operation of all departments within, and all services offered by, the Facility. All of the foregoing obligations shall be undertaken in accordance with the Annual Budgets and applicable law and regulations. All of the Facility personnel shall be the employees of Manager, unless otherwise agreed by Owner and Manager, and all salary, bonuses, fringe benefits, payroll taxes and related expenses payable to or in respect of the Facility’s on-site personnel shall be expenses of the Property.

(ix) Supplies and Equipment. Manager shall purchase, on behalf of Owner, supplies and non-capital equipment needed to operate the Facility.

(x) Legal Proceedings. Manager shall, through legal counsel designated by Manager, direct all legal matters and proceedings that are within the scope of Manager’s authority pursuant to this Agreement, including without limitation, instituting any necessary legal actions or proceedings to collect obligations owing to the Facility, canceling or terminating any contract or agreement relating to the Facility for breach thereof or default thereunder, and otherwise enforce the obligations of the tenants, sponsors, licensees, customers and any other users of the Facility. Without limiting the generality of the foregoing, Manager is authorized (without the prior written consent of Owner) to settle, in the name and on behalf of Owner and on such terms and conditions as Manager may deem to be in the best interests of the Facility, any and all claims or demands arising out of, or in connection with, the operation of the Facility, whether or not legal action has been instituted. All such amounts paid in respect of any such settlements shall be expenses of the Facility. Manager will give notice promptly to Owner of all demands and claims and all settlements and legal actions, but the failure to give such notice shall not affect the preceding provisions of this paragraph. Notwithstanding anything contained in this Agreement to the contrary, (i) no claim, demand or proceeding with respect to which Owner may be potentially exposed to recourse beyond its interest in the Facility or criminal liability shall be settled or compromised without Owner’s prior written consent, which shall neither be unreasonably withheld or delayed; and (ii) with respect to any such claim or demand, Owner at its sole cost and expense shall be entitled to select counsel to represent it.

(xi)

Annual Budgets.

a) Preparation and submission. At least sixty (60) days prior to each calendar year that commences during the term of this Agreement, Manager shall submit to Owner a proposed annual budget for the Facility projecting the revenues available and funds required during such fiscal year in order to operate the Facility and to make capital improvements necessary or desirable in order to keep the Facility’s physical plant in good condition and repair. The proposed annual budget shall be based upon data and information then available to Manager and shall include, without limitation, estimated salaries and fringe benefits for all personnel groups, projected staffing patterns for the Facility, estimates of required capital expenditures and purchases of equipment, supplies, inventory and similar items, and an estimate of the level of rates and charges to tenants of the Facility sufficient to generate revenue necessary to operate the Facility and make the capital improvements projected in such budget. The proposed annual budget shall be an estimate of revenues and costs, and Owner and Manager acknowledge that (1) projected revenue may not be actually received and (2) projected costs may be exceeded by actual expenses and capital expenditures incurred in connection with the operation and maintenance of the Facility. By submitting such a projected budget, Manager will not be deemed to be providing a guarantee or warranty as to the projected revenue, expenses or capital expenditures of the Facility.

b) Adoption. Each annual budget for the Facility as finally established by Manager (including as it may thereafter be revised from time to time during a calendar year by Manager by Manager), as the same may be modified by Manager, shall constitute an “Annual Budget” for all purposes under this Agreement.

c) Efforts to Operate within Annual Budget. Manager agrees to use commercially reasonable efforts to operate the Facility in accordance with the Annual Budgets. Subject to the foregoing limitation, Owner shall be responsible on a periodic basis, as and when needed, for all expenses and capital expenditures incurred in connection with the operation and

maintenance of the Facility, including, without limitation, Fees and cost overruns which exceed the projections in the then current Annual Budget. Notwithstanding anything in this Agreement, if Manager determines in good faith that the incurrence of any expenditure is required in order to comply with applicable law or regulations, then, with Owner’s prior approval, which shall not be unreasonably withheld, Manager shall be entitled to make such expenditures, and all such expenditures shall be deemed, for all purposes of this Agreement, to be in accordance with the then current Annual Budget.

(xii) Collection of Accounts. Manager shall issue bills and collect accounts and monies owed for goods and services furnished by the Facility, including, but not limited to, enforcing the rights of Owner and the Facility as creditor under any contract or in connection with the rendering of any services. Any actions taken by Manager to collect said accounts receivable shall be in accordance with the applicable laws, rules and regulations governing the collection of accounts receivable and in accordance with the applicable Annual Budget.

(xiii) Contracts. Subject to Owner’s prior approval, Manager shall negotiate, enter into, secure, cancel and/or terminate such agreements and contracts which Manager may deem necessary or advisable for the operation of the Facility, including, without limitation, the furnishing of concessions, supplies, utilities, extermination, refuse removal and other services. Where lawful and provided Owner has approved, said agreements and contracts will be entered into in the name of and on behalf of Owner.

(b) Exclusive Representative. It is understood and agreed that Manager shall be the exclusive representative of Owner for purposes of communicating and dealing directly with the regulatory authorities, governmental agencies, employees, independent contractors, suppliers, tenants, licensees, and customers of the Facility. Any communications from Owner to such persons or entities or authorities shall be directed through Manager unless Owner determines that direct communications between Owner and one or more such persons or entities is required, and in such case, Owner shall advise Manager of such communications.

2. Insurance. Manager shall arrange for and maintain all necessary and proper hazard insurance covering the Facility, including the furniture, fixtures and equipment situated thereon, all necessary and proper malpractice and public liability insurance for Manager’s and Owner’s protection and for the protection of Manager’s and Owner’s directors, officers, partners, agents and the Facility’s personnel. Manager shall also arrange for and maintain all employee health and worker’s compensation insurance for the Facility’s personnel. Any insurance provided pursuant to this paragraph shall comply with the requirements of any applicable Facility mortgage or lease and, with the exception of the insurance maintained by Manager for its own protection, shall be an expense of the Facility.

3. Proprietary Interest. The systems, methods, procedures and controls employed by Manager and any written materials or brochures developed by Manager to document the same are to remain the property of Manager.

4. Term of Agreement; Effect of Termination. Unless this Agreement is sooner terminated as provided in this Section 4 or as otherwise agreed in writing, the initial term of this Agreement shall commence on the date hereof and shall end on December 31, 2012, with successive automatic renewal periods of one (1) year each thereafter, unless either party notifies the other in writing, within sixty (60) days prior to the expiration of the then current term, of such party’s intention not to exercise the then upcoming automatic renewal period. This Agreement may not be terminated by Owner for any reason. This Agreement may be terminated by Manager but only with the prior written consent of the Mortgagee (as defined in Section 8)

upon thirty (30) days’ prior written notice to Owner given at any time after the date hereof. Upon any termination of this Agreement pursuant to the immediately preceding sentence, the parties hereto shall have no further obligations or liabilities other than the right of Manager to receive Fees through the date of termination during any such period for which Manager provides services or assists in the operation of the Facility in connection therewith it shall be entitled to receive an appropriate fee therefor.

Facility Operations.

(a) No Guarantee of Profitability. Manager does not guarantee that operation of the Facility will be profitable, but Manager shall use commercially reasonable efforts to operate the Facility as a Class A office building complex in as cost effective and profitable a manner as reasonably possible consistent with maintaining operations in accordance with the an office building industry’s then prevailing standards in the geographic area in which the Facility is located.

(b) Standard of Performance; Acting within Budget. In performing its obligations under this Agreement, Manager shall use commercially reasonable efforts and act in good faith and with professionalism in accordance with the Annual Budgets and the prevailing standards of the office building industry in the geographic area in which the Facility is located.

(c) Force Majeure. The parties will not be deemed to be in violation of this Agreement if they are prevented from performing any of their respective obligations hereunder for any reason beyond their control, including, without limitation, strikes, shortages, war, acts of God, or any applicable statute, regulation or rule of federal, state or local government or agency thereof having jurisdiction over the Facility or the operations thereof.

6. Withdrawal of Funds by Manager. Owner and Manager acknowledge and agree that the efficient operation of the Facility requires that Manager have ready access to the funds required therefor. Accordingly, unless otherwise agreed by Owner and Manager, Owner agrees not to withdraw any funds from the Facility’s bank account(s) reasonably believed by Manager to be required for the proper operation of the Facility or maintenance of appropriate reserves with respect thereto as set forth in the most recently approved Annual Budget.

7. Fees. During the term of this Agreement, Manager shall be entitled to receive management fees (the “Fees”) up to three percent (3.0%) of the gross revenues of the Facility during each month or portion thereof occurring during such term. Fees shall be paid on a monthly basis simultaneously with the delivery by Manager to Owner of the monthly statements provided for in Section 1. In addition, a schedule of leasing commissions payable to Manager and outside brokers is attached hereto as Schedule 1 and Manager shall be entitled to receive leasing commissions in accordance with such Schedule for new leases at the Property.

8. Assignment. This Agreement shall not be assigned (including by operation of law, whether by merger or consolidation or otherwise) by Owner, without the prior written consent of Manager. This Agreement may be assigned by Manager without the consent of Owner, but only with the consent of the holder of the mortgage on the Facility (the “Mortgagee”). Manager acknowledges that under the terms of the loan agreement between Owner and Mortgagee, Mortgagee has the right to designate the manager of the Facility. If Mortgagee exercises such right by notice to Owner and Manager, this Agreement shall be deemed to be assigned by Manager to the party designated by Mortgagee as of the date set forth in such notice. Owner and Manager shall take such further actions and execute such further documents as may be requested by Mortgagee or such new Manager with respect to such assignment and the new Manager will

provide an agreement to Owner agreeing to perform the obligations of Manager hereunder after the date of such assignment.

9. Notices. Any notices required or permitted to be sent hereunder shall be delivered personally or mailed, certified mail, return receipt requested, or delivered by overnight courier service to the following addresses, or such other addresses as shall be given by notice delivered hereunder, and shall be deemed to have been given upon delivery, if delivered personally, three (3) business days after mailing, if mailed, or one business day after delivery to the courier, if delivery by overnight courier service:

If to Owner, to:

Continental Towers, L.L.C.

c/o Prime Group Realty, L.P.

77 West Wacker Drive, Suite 3900

Chicago, Illinois 60601

Attention: James F. Hoffman

If to Manager, to:

c/o Prime Group Realty Trust

77 West Wacker Drive

Suite 3900

Chicago, Illinois 60601

Attention: Jeffrey A. Patterson

with a copy to:

77 West Wacker Drive

Suite 3900

Chicago, Illinois 60601

Attention: James F. Hoffman

and:

Winston & Strawn

35 West Wacker Drive

Chicago, Illinois 60601

Attention: M. Christine Graff

10. Relationship of the Parties. The relationship of Manager to Owner in connection with this Agreement shall be that of an independent contractor, and all acts performed by Manager during the term hereof shall be deemed to be performed in Manager’s capacity as an independent contractor. Nothing contained in this Agreement is intended to or shall be construed to give rise to or create a partnership or joint venture or lease between Owner, its successors and assigns, on the one hand, and Manager, its successors and assigns, on the other hand.

11. Entire Agreement. This Agreement and any documents executed in connection herewith contain the entire agreement among the parties and shall be binding upon their respective successors and assigns, and shall be construed in accordance with the laws of the State

of Illinois. This Agreement may not be modified or amended except by written instrument signed by the parties hereto.

12. Contract Modifications for Certain Legal Events. In the event any state or federal laws or regulations, whether now existing or enacted or promulgated after the effective date of this Agreement, are interpreted by judicial decision, a regulatory agency or legal counsel of both parties in such a manner as to indicate that the structure of this Agreement may be in violation of such laws or regulations, Owner and Manager agree to cooperate in restructuring their relationship and this Agreement to eliminate such violation or to reduce the risk thereof to the extent such restructuring can be accomplished upon commercially reasonable terms; provided, that any such restructuring shall, to the maximum extent possible, preserve the underlying economic and financial arrangements between Owner and Manager. The parties agree that such amendment may require either or both parties to obtain appropriate regulatory licenses and approvals.

13. Captions. The captions used herein are for convenience of reference only and shall not be construed in any manner to limit or modify any of the terms hereof.

14. Severability. In the event one or more of the provisions contained in this Agreement is deemed to be invalid, illegal or unenforceable in any respect under applicable law, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be impaired thereby.

15. Remedies Cumulative; No Waiver. No right or remedy herein conferred upon or reserved to any of the parties hereto is intended to be exclusive of any other right or remedy, and each and every right and remedy shall be cumulative and in addition to any other right or remedy given hereunder, or now or hereafter legally existing upon the occurrence of an event of default hereunder. The failure of any party hereto to insist at any time upon the strict observance or performance of any of the provisions of this Agreement or to exercise any right or remedy as provided in this Agreement shall not impair any such right or remedy or be construed as a waiver or relinquishment thereof with respect to subsequent defaults. Every right and remedy given by this Agreement to the respective parties hereto may be exercised from time to time and as often as may be deemed expedient by such parties. To the extent either party hereto incurs legal fees and expenses in connection with such party’s enforcement of any of its rights hereunder as a result of a breach of this Agreement by the other party hereto (the “Breaching Party”), then, to the extent it is determined, either by the admission of the Breaching Party or by a court having competent jurisdiction over such dispute, that the Breaching Party had committed the alleged breach of this Agreement, then the Breaching Party shall pay all such reasonable attorneys’ fees and expenses incurred by the other party in connection with such enforcement.

16. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and each such counterpart shall together constitute but one and the same Agreement.

17. Other Management Agreement. As of the date hereof, Manager also is acting as a manager pursuant to a Management Agreement between Manager and Continental Towers Associates III, LLC (the “Other Management Agreement”) for contiguous property which is a portion of the real property and office building complex commonly known as Continental Towers, 1701 Golf Road, Rolling Meadows, Illinois, identified on Schedule B hereto (the “Other Facility”). With respect to the Other Management Agreement, the parties agree as follows:

(a) So long as Manager is the manager of both the Facility and the Other Facility, Manager agrees to operate the Facility and the Other Facility as a cohesive property; and

(b) The occurrence and continuance of an event of default under the Other Management Agreement shall be an event of default hereunder.

[SIGNATURE PAGE FOLLOWS ON NEXT PAGE]

IN WITNESS WHEREOF, the parties hereto have caused this Management Agreement to be executed and delivered in their names and on their behalf of the date first set forth above.

OWNER:

CONTINTENTAL TOWERS, L.L.C., a Delaware limited liability company

By:

CONTINENTAL TOWERS ASSOCIATES-I, L.P., an Illinois limited partnership, its sole member

By:

CTA GENERAL PARTNER, LLC, a Delaware limited liability company, its general partner

By:

CTA MEMBER, INC., a Delaware corporation, its Managing Member

By: [s] Paul G. Del Vecchio

Name:

Yochanan Danziger, by Paul G.

Del Vecchio, Attorney-In-Fact

Title:

President

MANAGER:

PRIME GROUP MANAGEMENT, L.L.C., a Delaware limited liability company

By:

Prime Group Realty, L.P., its sole member

By:

Prime Group Realty Trust, its managing general partner.

By: [s] Paul G. Del Vecchio

Name: Paul G. Del Vecchio

Its: S.V.P. Capital Markets

SCHEDULE A

THE FACILITY

Part of the office building complex located at 1701 Golf Road, Rolling Meadows, Illinois and commonly known as Continental Towers, as more particularly described as follows:

REAL PROPERTY IN THE CITY OF ROLLING MEADOWS, COUNTY OF COOK, STATE OF ILLINOIS, DESCRIBED AS FOLLOWS:

Parcel 1:

Lots 1 and 2 in CASATI-HEISE SUBDIVISION, being a subdivision of part of the Northeast 1/4 of Section 17 and part of the Northwest 1/4 of Section 16, both in Township 41 North, Range 11 East of the Third Principal Meridian in Cook County, Illinois according to the plat thereof recorded December 27, 1988 as Document Number 88592766, in Cook County, Illinois. Excepting therefrom that part of Lot 1 dedicated for roadway purposes according to Document No. 0021325095, recorded December 2, 2002. Also excepting therefrom, That part of Lot 1 in CASATI-HEISE SUBDIVISION, being a subdivision of part of the Northeast 1/4 of Section 17 and part of the Northwest 1/4 of Section 16, both in Township 41 North, Range 11 East of the Third Principal Meridian in Cook County, Illinois according to the plat thereof recorded December 27, 1988 as Document Number 88592766, bounded by a line described as follows: Beginning at the northeast corner of said Lot 1; thence South 06 Degrees 09 Minutes 30 Seconds West, along an east line of said Lot 1, a distance of 156.16 feet; thence South 58 Degrees 17 Minutes 03 Seconds East, along a northerly line of said Lot 1, a distance of 152.90 feet; thence North 20 Degrees 09 Minutes 00 Seconds East, along a west line of said Lot 1, a distance of 10.29 feet; thence South 69 Degrees 51 Minutes 00 Seconds East, along a north line of said Lot 1, a distance of 0.83 feet to a point in the southwesterly right of way line of Meijer Drive according to the Plat of Dedication, thereof, recorded December 12, 2002 as Document Number 0021325095; thence southeasterly, along said southwesterly line, along the arc of a curve left, having a radius of 75.00 feet, the chord of which bears South 36 Degrees 52 Minutes 51 Seconds East, an arc distance of 55.06 feet to a point in the easterly most east line of aforesaid Lot 1; thence South 20 Degrees 09 Minutes 00 Seconds West, along said east line, 326.25 feet; thence North 69 Degrees 51 Minutes 00 Seconds West, perpendicular to the last described course, 53.96 feet; thence South 19 Degrees 58 Minutes 13 Seconds West, 301.92 feet; thence North 57 Degrees 41 Minutes 17 Seconds West, 247.73 feet; thence South 32 Degrees 18 Minutes 43 Seconds West, perpendicular to the last described course, 33.31 feet; thence North 57 Degrees 41 Minutes 17 Seconds West, perpendicular to the last described course, 482.82 feet; thence North 32 Degrees 18 Minutes 43 Seconds East, perpendicular to the last described course, 218.53 feet; thence North 57 Degrees 45 Minutes 33 Seconds West, 69.41 feet; thence North 00 Degrees 19 Minutes 35 Seconds East, 245.85 feet to a point in the south line of aforementioned Lot 1, also being the south line of Golf Road (also known as Illinois State Route 58); thence North 89 Degrees 05 Minutes 58 Seconds East, along said north line, 692.03 feet to the point of beginning, all in Cook County, Illinois.

Parcel 2:

Easements appurtenant to and for the benefit of Parcel 1, as created and granted and set forth in easement agreement dated as of September 23, 1977 and recorded October 10, 1978 as Document Number 24662689 and as amended by Amendment to Easement Agreement dated as of May 15, 1980 and recorded June 10, 1980 and recorded as Document Number 25482426 upon, over, and under portions of Lots 1 to 6, inclusive, in Heise’s Subdivision, a subdivision of part of the Northwest 1/4 of Section 16, Township 41 North, Range 11 East of the Third Principal Meridian, in Cook County, Illinois, according to the plat thereof recorded December 23, 1977 as Document 24119807 and also over, upon and under portions of that part of the Northeast 1/4 of Section of Section 17, Township 41 North, Range 11 East of the Third Principal Meridian, in Cook County, Illinois described as follows:

Commencing at the Northeast Corner of the Northeast 1/4 of Section 17; thence Southerly along the east line of said Northeast 1/4 of Section 17, (a distance of) 80.0 feet to the southerly right-of-way of Golf Road (State Route 58), as dedicated and recorded September 24, 1929 as Document Numbers 10488005 and 10488006; thence South 89 Degrees, 08 Minutes West along said southerly right-of-way of Golf Road (State Route 58), 691.05 feet for a Point of Beginning; Thence South 0 Degrees, 52 Minutes East, 265.0 feet; thence South 89 Degrees, 08 Minutes West parallel with said southerly right -of-way of Golf Road (State Route 58) 196.11 feet; thence North 0 Degrees, 27 Minutes, 20 Seconds East parallel with the west line of Schwake’s Subdivision recorded August 11, 1970 as Document 21235091, now vacated, 265.07 feet to said southerly right-of-way of Golf Road (State Route 58); thence North 89 Degrees, 08 Minutes East, along said southerly right-of-way of Golf Road (State Route 58), 190.0 feet to the Point of Beginning, all in Cook County, Illinois, for the operation, maintenance, repair, replacement, relocation and removal of a water supply line, sewer and other utilities, in Cook County, Illinois

Parcel 3:

Easements appurtenant to and for the benefit of Parcel 1, as created and granted and set forth in reciprocal easement and common wall agreement dated as of September 23, 1977 and recorded October 10, 1978 as Document Number 24662688 and as amended by Agreement thereto dated as of November 21, 1979 and recorded December 17, 1979 and recorded as Document Number 252484791 upon and under portions that part of the Northeast 1/4 of Section of Section 17, Township 41 North, Range 11 East of the Third Principal Meridian, in Cook County, Illinois described as follows:

Common address: Continental Towers, 1701 Golf Road, Rolling Meadows, Illinois

PINS: 08-16-100-034 (part) and 08-16-100-035

SCHEDULE B

THE OTHER FACILITY

Part of the office building complex located at 1701 Golf Road, Rolling Meadows, Illinois and commonly known as Continental Towers, as more particularly described as follows:

REAL PROPERTY IN THE CITY OF ROLLING MEADOWS, COUNTY OF COOK, STATE OF ILLINOIS, DESCRIBED AS FOLLOWS:

Parcel 1:

Parcel 2:

Parcel 3:

part of the Northeast 1/4 of Section of Section 17, Township 41 North, Range 11 East of the Third Principal Meridian, in Cook County, Illinois described as follows:

Parcel 4:

Easements appurtenant to and for the benefit of Parcels 1 and 2, as created and granted and set forth in reciprocal easement and common wall agreement dated as of September 23, 1977 and recorded October 10, 1978 as Document Number 24662688 and as amended by Agreement thereto dated as of November 21, 1979 and recorded December 17, 1979 and recorded as Document Number 252484791 upon and under portions that part of the Northeast 1/4 of Section of Section 17, Township 41 North, Range 11 East of the Third Principal Meridian, in Cook County, Illinois described as follows:

Common address: Continental Towers, 1701 Golf Road, Rolling Meadows, Illinois

PINS: 08-16-100-034 (part) and 08-16-100-036

SCHEDULE 1

LEASING COMMISSIONS

[SEE ATTACHED]

[Intentionally omitted]

EX-10 11 exhibit-10_64.htm EXHIBIT 10.64

EXHIBIT 10.64

MANAGEMENT AGREEMENT

THIS MANAGEMENT AGREEMENT (this “Agreement”), dated as of December 29, 2006, is made and entered into by and between CONTINENTAL TOWERS ASSOCIATES III, LLC, a Delaware limited liability company (“Owner”) and PRIME GROUP MANAGEMENT, L.L.C., a Delaware limited liability company (“Manager”).

R E C I T A L S:

WHEREAS, Manager is experienced and qualified in the business of owning and operating an office complex such as the Facility, and Owner desires to engage Manager to operate the Facility; and

WHEREAS, Manager is willing to operate the Facility on the terms and subject to the conditions set forth in this Agreement.

AGREEMENTS

Responsibilities of Manager.

(ii) Information. Manager shall develop any informational material, mass media releases, and other related publicity materials, that it deems necessary for the operation of the Facility.

(iii) Regulatory Compliance. Manager shall use commercially reasonable efforts to maintain all licenses, permits, qualifications and approvals from any applicable

(v) Accounting. Manager shall supervise and coordinate accounting support to, and prepare and maintain records for, the Facility, including the following:

a) a monthly balance sheet and statement of operations for the Facility, to be submitted to Owner within forty-five (45) days after the end of each calendar month;

tenant billing records;

accounts receivable and collection records;

accounts payable records;

f) a complete general ledger for the purposes of recording and summarizing all transactions for the Facility; and

loss. Nothing herein shall preclude Manager from engaging a third party to assist it in the performance of the accounting duties provided for herein.

(ix) Supplies and Equipment. Manager shall purchase, on behalf of Owner, supplies and non-capital equipment needed to operate the Facility.

(xi)

Annual Budgets.

Facility Operations.

provide an agreement to Owner agreeing to perform the obligations of Manager hereunder after the date of such assignment.

If to Owner, to:

Continental Towers Associates III, LLC

c/o Prime Group Realty, L.P.

77 West Wacker Drive, Suite 3900

Chicago, Illinois 60601

Attention: James F. Hoffman

If to Manager, to:

c/o Prime Group Realty Trust

77 West Wacker Drive

Suite 3900

Chicago, Illinois 60601

Attention: Jeffrey A. Patterson

with a copy to:

77 West Wacker Drive

Suite 3900

Chicago, Illinois 60601

Attention: James F. Hoffman

and:

Winston & Strawn

35 West Wacker Drive

Chicago, Illinois 60601

Attention: M. Christine Graff

of Illinois. This Agreement may not be modified or amended except by written instrument signed by the parties hereto.

13. Captions. The captions used herein are for convenience of reference only and shall not be construed in any manner to limit or modify any of the terms hereof.

16. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and each such counterpart shall together constitute but one and the same Agreement.

17. Other Management Agreement. As of the date hereof, Manager also is acting as a manager pursuant to a Management Agreement between Manager and Continental Towers L.L.C. (the “Other Management Agreement”) for contiguous property which is a portion of the real property and office building complex commonly known as Continental Towers, 1701 Golf Road, Rolling Meadows, Illinois, identified on Schedule B hereto (the “Other Facility”). With respect to the Other Management Agreement, the parties agree as follows:

(a) So long as Manager is the manager of both the Facility and the Other Facility, Manager agrees to operate the Facility and the Other Facility as a cohesive property; and

(b) The occurrence and continuance of an event of default under the Other Management Agreement shall be an event of default hereunder.

[SIGNATURE PAGE FOLLOWS ON NEXT PAGE]

IN WITNESS WHEREOF, the parties hereto have caused this Management Agreement to be executed and delivered in their names and on their behalf of the date first set forth above.

OWNER:

CONTINTENTAL TOWERS ASSOCIATES III, LLC, a Delaware limited liability company

By:

CONTINENTAL TOWERS ASSOCIATES II, LLC, a Delaware limited liability company, its sole member

By:

CTA GENERAL PARTNER, LLC, a Delaware limited liability company, its managing member

By:

CTA MEMBER, INC., a Delaware corporation, its Managing Member

By: [s] Paul G. Del Vecchio

Name:

Yochanan Danziger, by Paul G.

Del Vecchio, Attorney-In-Fact

Title:

President

MANAGER:

PRIME GROUP MANAGEMENT, L.L.C., a Delaware limited liability company

By:

Prime Group Realty, L.P., its sole member

By:

Prime Group Realty Trust, its managing general partner.

By: [s] Paul G. Del Vecchio

Name: Paul G. Del Vecchio

Its: S.V.P. - Capital Markets

SCHEDULE A

THE FACILITY

Part of the office building complex located at 1701 Golf Road, Rolling Meadows, Illinois and commonly known as Continental Towers, as more particularly described as follows:

REAL PROPERTY IN THE CITY OF ROLLING MEADOWS, COUNTY OF COOK, STATE OF ILLINOIS, DESCRIBED AS FOLLOWS:

Parcel 1:

Parcel 2:

Parcel 3:

Easements appurtenant to and for the benefit of Parcels 1 and 2, as created and granted and set forth in easement agreement dated as of September 23, 1977 and recorded October 10, 1978 as Document Number 24662689 and as amended by Amendment to Easement Agreement dated as of May 15, 1980 and recorded June 10, 1980 and recorded as Document Number 25482426 upon, over, and under portions of Lots 1 to 6, inclusive, in Heise’s Subdivision, a subdivision of part of the Northwest 1/4 of Section 16, Township 41 North, Range 11 East of the Third Principal Meridian, in Cook County, Illinois, according to the plat thereof recorded December 23, 1977 as Document 24119807 and also over, upon and under portions of that part of the Northeast 1/4 of Section of Section 17, Township 41 North, Range 11 East of the Third Principal Meridian, in Cook County, Illinois described as follows:

Parcel 4:

Common address: Continental Towers, 1701 Golf Road, Rolling Meadows, Illinois

PINS: 08-16-100-034 (part) and 08-16-100-036

SCHEDULE B

THE OTHER FACILITY

Part of the office building complex located at 1701 Golf Road, Rolling Meadows, Illinois and commonly known as Continental Towers, as more particularly described as follows:

REAL PROPERTY IN THE CITY OF ROLLING MEADOWS, COUNTY OF COOK, STATE OF ILLINOIS, DESCRIBED AS FOLLOWS:

Parcel 1:

Parcel 2:

part of the Northeast 1/4 of Section of Section 17, Township 41 North, Range 11 East of the Third Principal Meridian, in Cook County, Illinois described as follows:

Parcel 3:

Common address: Continental Towers, 1701 Golf Road, Rolling Meadows, Illinois

PINS: 08-16-100-034 (part) and 08-16-100-035

SCHEDULE 1

LEASING COMMISSIONS

[SEE ATTACHED]

[Intentionally omitted]

EX-10 12 exhibit-10_65.htm EXHIBIT 10.65

EXHIBIT 10.65

AMENDED AND RESTATED PROMISSORY NOTE

$41,400,000.00

December 29, 2006

FOR VALUE RECEIVED, the undersigned, CONTINENTAL TOWERS ASSOCIATES III, LLC, a Delaware limited liability company ("Borrower"), whose address is c/o Prime Group Realty Trust, 77 West Wacker Drive, Suite 3900, Chicago, Illinois 60601, promises to pay to the order of WELLS FARGO BANK, N.A., as trustee for the registered holders of COBALT CMBS COMMERCIAL MORTGAGE TRUST 2006-C1, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2006-C1 ("Lender"), at the office of Lender at c/o CWCapital LLC, One Charles River Place, 63 Kendrick Street, Needham, Massachusetts 02494, or at such other place as Lender may designate to Borrower in writing from time to time, the principal sum of FORTY-ONE MILLION FOUR HUNDRED THOUSAND NO/100 DOLLARS ($41,400,000.00) together with interest on so much thereof as is from time to time outstanding and unpaid, from the date of the advance of the principal evidenced hereby, at the rate of Five and Eight Hundred Sixty-Four Thousandths percent (5.864%) per annum (the "Note Rate"), in lawful money of the United States of America, which shall at the time of payment be legal tender in payment of all debts and dues, public and private.

ARTICLE I

TERMS AND CONDITIONS

1.01 Computation of Interest. Interest shall be computed hereunder based on a 360-day year and paid for on the actual number of days elapsed for any whole or partial month in which interest is being calculated. Interest shall accrue from the date on which funds are advanced (regardless of the time of day) through and including the day on which funds are credited pursuant to Section 1.02 hereof.

1.02 Payment of Principal and Interest. Payments in federal funds immediately available in the place designated for payment received by Lender prior to 3:00 p.m. local time on a day on which Lender is open for business at said place of payment shall be credited prior to close of business, while other payments may, at the option of Lender, not be credited until immediately available to Lender in federal funds at the place designated for payment prior to 3:00 p.m. local time at said place of payment on a Business Day. Interest only payments computed at the Note Rate and due in arrears, shall be due and payable beginning on the first day of the second full calendar month following the date of this Note (or on the first day of the first full calendar month following the date hereof, in the event the advance of the principal amount evidenced by this Note is the first day of a calendar month)(the "First Payment Date"), and continuing on the first day of each and every month thereafter through and including December 1, 2016 (the "Maturity Date"), at which time the entire outstanding principal balance hereof, together with all accrued but unpaid interest thereon, shall be due and payable in full.

AMENDED AND RESTATED PROMISSORY NOTE - Page 1

43412-20/Continental Towers

The date each month on which payment of interest is due hereunder may be referred to as the "Payment Date." Lender shall have the right, to be exercised not more than once during the term of the Loan, by not less than 30 days' written notice to Borrower, to change the Payment Date for each month thereafter to a date other than the first day of each month. The amount of interest due on each Payment Date as so rescheduled shall be the same as the amount of interest that shall have been due on each Payment Date as originally scheduled, except that for the month in which the first rescheduled Payment Date occurs, the payment due also shall include interest for the period from and including the first day of such month to the first rescheduled Payment Date. If the Payment Date is changed in accordance with the foregoing, then the Maturity Date shall be extended to the day in the month in which the Maturity Date originally was scheduled which corresponds with the Payment Date.

1.03 Application of Payments. So long as no Event of Default (as hereinafter defined) has occurred and is continuing hereunder or under any other Loan Document, each such monthly installment shall be applied first, to any amounts hereafter advanced by Lender hereunder or under any other Loan Document, second, to any late fees and other amounts payable to Lender, third, to the payment of accrued interest and last to reduction of principal.

1.04 Payment of Short Interest. If the advance of the principal amount evidenced by this Note is made on a date other than the first day of a calendar month, then Borrower shall pay to Lender contemporaneously with the execution hereof interest at the Note Rate for a period from the date hereof through and including the last day of this calendar month.

1.05

Prepayment; Defeasance.

(a) This Note may not be prepaid, in whole or in part (except as otherwise specifically provided herein or in the other Loan Documents), at any time. In the event that Borrower wishes to have the Security Property (as hereinafter defined) released from the lien of the Security Instrument (as hereinafter defined), Borrower's sole option shall be a Defeasance (as hereinafter defined) upon satisfaction of the terms and conditions set forth in Subsection 1.05(c) hereof. Notwithstanding anything contained herein to the contrary, this Note may be prepaid in whole but not in part, without premium or penalty on or after the date which is within three (3) months prior to the Maturity Date provided (i) written notice of such prepayment is received by Lender not more than ninety (90) days and not less than thirty (30) days prior to the anticipated date of such prepayment (and Lender does not receive a written rescission of such notice from Borrower), (ii) such prepayment is accompanied by all interest accrued hereunder through and including the date of such prepayment and all other sums due hereunder or under the other Loan Documents, provided however that if such prepayment occurs on any day other than a scheduled Payment Date, then such prepayment shall be accompanied by all interest that would have accrued hereunder until the next scheduled Payment Date (or until the Maturity Date, if there is no scheduled Payment Date remaining) as if such prepayment had not occurred, and (iii) the Other Loan (as defined in the Borrower Security Instrument) is simultaneously paid in full. If, upon any such permitted prepayment occurring within the three (3) months prior to the Maturity Date, the aforesaid prior written notice has not been timely received by Lender, there shall be due a prepayment fee in an amount equal to the lesser of (i) thirty (30) days' interest computed at the Note Rate on the outstanding principal balance of this Note so prepaid and (ii) interest computed at the Note Rate on the outstanding principal balance of this Note so prepaid that

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would have been payable for the period from, and including, the date of prepayment through the Maturity Date of this Note as though such prepayment had not occurred.

(b) Except as described above, partial or entire prepayments of this Note shall not be permitted, except for partial and entire prepayments resulting from Lender's election to apply insurance or condemnation proceeds to reduce the outstanding principal balance of this Note as provided in the Borrower Security Instrument or as a result of Lender's acceleration of the Debt (as defined in the Borrower Security Instrument) pursuant to Section 15 or 16 of the Borrower Security Instrument, in which event no prepayment fee or premium shall be due, provided that with respect to any such entire prepayment of this Note, the entirety of the Other Loan shall be simultaneously paid in full. No notice of prepayment shall be required under the circumstances specified in the preceding sentence. No principal amount repaid may be reborrowed. Any such partial prepayments of principal shall be applied to the unpaid principal balance evidenced hereby. Except as otherwise expressly provided in this Section 1.05, the prepayment fees provided in the immediate following paragraph shall be due, to the extent permitted by applicable law, under any and all circumstances where all or any portion of this Note is paid prior to the Maturity Date, whether such prepayment is voluntary or involuntary, including, without limitation, if such prepayment results from Lender's exercise of its rights upon Borrower's default and acceleration of the Maturity Date of this Note (irrespective of whether foreclosure proceedings have been commenced), and shall be in addition to any other sums due hereunder or under any of the other Loan Documents. No tender of a prepayment of this Note with respect to which a prepayment fee is due shall be effective unless such prepayment is accompanied by the applicable prepayment fee.

If, prior to the third anniversary of the First Payment Date (the "Lockout Expiration Date"), the indebtedness evidenced by this Note shall have been declared due and payable by Lender pursuant to Article II hereof or the provisions of any other Loan Document due to an Event of Default, then, in addition to the indebtedness evidenced by this Note being immediately due and payable, there shall also then be immediately due and payable a sum equal to the interest which would have accrued on the principal balance of this Note at the Note Rate from the date of such acceleration to the Lock-out Expiration Date, together with a prepayment fee in an amount equal to the Yield Maintenance Premium (as hereinafter defined) based on the entire indebtedness outstanding on the date of such acceleration. If such acceleration is on or following the Lockout Expiration Date, the Yield Maintenance Premium shall also then be immediately due and payable as though Borrower were prepaying the entire indebtedness on the date of such acceleration. In addition to the amounts described in the two preceding sentences, in the event any such acceleration or tender of payment of such indebtedness occurs or is made on or prior to the Lockout Expiration Date, there shall also then be immediately due and payable an additional prepayment fee equal to one percent (1%) of the principal balance of this Note. The term "Yield Maintenance Premium" shall mean an amount equal to the greater of (A) one percent (1.0%) of the principal amount being prepaid, and (B) the present value of a series of payments each equal to the Payment Differential (as hereinafter defined) and payable on each Payment Date over the remaining original term of this Note and on the Maturity Date, discounted at the Reinvestment Yield (as hereinafter defined) for the number of months remaining as of the date of such prepayment to each such Payment Date and the Maturity Date. The term "Payment Differential" shall mean an amount equal to (i) the Note Rate less the Reinvestment Yield, divided by (ii) twelve (12) and multiplied by (iii) the principal sum outstanding under this Note

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after application of the constant monthly payment due under this Note on the date of such prepayment, provided that the Payment Differential shall in no event be less than zero. The term "Reinvestment Yield" shall mean an amount equal to the lesser of (i) the yield on the U.S. Treasury issue (primary issue) with a maturity date closest to the Maturity Date, or (ii) the yield on the U.S. Treasury issue (primary issue) with a term equal to the remaining average life of the indebtedness evidenced by this Note, with each such yield being based on the bid price for such issue as published in The Wall Street Journal on the date that is fourteen (14) days prior to the date of such prepayment set forth in the notice of prepayment (or, if such bid price is not published on that date, the next preceding date on which such bid price is so published) and converted to a monthly compounded nominal yield. In the event that any prepayment fee is due hereunder, Lender shall deliver to Borrower a statement setting forth the amount and determination of the prepayment fee, and, provided that Lender shall have in good faith applied the formula described above, Borrower shall not have the right to challenge the calculation or the method of calculation set forth in any such statement in the absence of manifest error, which calculation may be made by Lender on any day during the fifteen (15) day period preceding the date of such prepayment. Lender shall not be obligated or required to have actually reinvested the prepaid principal balance at the Reinvestment Yield or otherwise as a condition to receiving the prepayment fee.

Borrower waives any right to prepay this Note except under the terms and conditions as expressly set forth in this Note and agrees that if this Note is prepaid, whether voluntarily or involuntarily, Borrower will pay the prepayment charges set forth above and all costs and losses incurred by Lender as a result of such prepayment. Borrower hereby acknowledges that the inclusion of this waiver of prepayment rights and agreement to pay the prepayment charge for the right to prepay this Note was separately negotiated with Lender, that the economic value of the various elements of this waiver and agreement was discussed, that the consideration given by Borrower for the loan was adjusted to reflect the specific waiver and agreement negotiated between Borrower and Lender and contained herein.

(c) (i) At any time after the earlier of (x) the Lockout Expiration Date, and (y) the date which is two (2) years after the "startup day," within the meaning of Section 860G(a)(9) of the Internal Revenue Code of 1986, as amended from time to time or any successor statue (the "Code"), of the "real estate mortgage investment conduit," within the meaning of Section 860D of the Code that holds the last portion of the Loan to be securitized, provided no Event of Default has occurred and is continuing hereunder or under any of the other Loan Documents, Lender shall cause the release of the Security Property from the lien of the Security Instrument and the other Loan Documents (a "Defeasance") upon the satisfaction of the following conditions:

(A) Borrower shall give not more than ninety (90) days or less than thirty (30) days prior written notice to Lender specifying the date Borrower intends for the Defeasance to be consummated (the "Release Date"), which date shall be a Payment Date.

(B) All accrued and unpaid interest and all other sums due under this Note and under the other Loan Documents up to and including the Release Date shall be paid in full on or prior to the Release Date.

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(i) a sum of money in immediately available funds (the "Defeasance Deposit") equal to the outstanding principal balance of this Note plus an amount, if any, which together with the outstanding principal balance of this Note, shall be sufficient to enable Lender to purchase, through means and sources customarily employed and available to Lender, for the account of Borrower, direct, non-callable obligations of the United States of America that provide for payments prior, but as close as possible, to all successive monthly Payment Dates occurring after the Release Date and to the Maturity Date, with each such payment being equal to or greater than the amount of the corresponding installment of principal and/or interest required to be paid under this Note (including, but not limited to, all amounts due on the Maturity Date) for the balance of the term hereof (the "Defeasance Collateral"), each of which shall be duly endorsed by the holder thereof as directed by Lender or accompanied by a written instrument of transfer in form and substance satisfactory to Lender in its sole discretion (including, without limitation, such instruments as may be required by the depository institution holding such securities or the issuer thereof, as the case may be, to effectuate book-entry transfers and pledges through the book-entry facilities of such institution) in order to perfect upon the delivery of the Defeasance Security Agreement (as hereinafter defined) the first priority security interest in the Defeasance Collateral in favor of Lender in conformity with all applicable state and federal laws governing granting of such security interests.

(ii) A pledge and security agreement, in form and substance satisfactory to Lender in its sole discretion, creating a first priority security interest in favor of Lender in the Defeasance Collateral (the "Defeasance Security Agreement"), which shall provide, among other things, that any excess received by Lender from the Defeasance Collateral over the amounts payable by Borrower hereunder shall be refunded to Borrower promptly after each monthly Payment Date.

(iii) A certificate of Borrower certifying that all of the requirements set forth in this Section 1.05(c)(i) have been satisfied.

(iv) An opinion of counsel for Borrower in form and substance and delivered by counsel satisfactory to Lender in its reasonable discretion stating, among other things, that (x) Lender has a perfected first priority security interest in the Defeasance Collateral and that the Defeasance Security Agreement is enforceable against Borrower in accordance with its terms, and (y) that any REMIC Trust formed pursuant to a securitization will not fail to maintain its status as a "real estate mortgage investment conduit" within the meaning of Section 860D of the Code as a result of such defeasance.

(v) Borrower shall deliver evidence in writing from the applicable rating agencies to the effect that the collateral substitution will not result in a downgrading, withdrawal or qualification of the respective ratings in effect immediately prior to such defeasance event for any securities issued in connection with the securitization which are then outstanding.

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(vi) A certificate from a firm of independent public accountants acceptable to Lender certifying that the Defeasance Collateral is sufficient to satisfy the provisions of paragraph (1) above.

(vii) Such other certificates, documents or instruments as Lender may reasonably require.

(viii) Payment of all reasonable out-of-pocket fees, costs, expenses and charges incurred by Lender in connection with the Defeasance of the Security Property and the purchase of the Defeasance Collateral, including, without limitation, reasonable legal fees and all reasonable out-of-pocket costs and expenses incurred by Lender or its agents in connection with release of the Security Property, review of the proposed Defeasance Collateral and preparation of the Defeasance Security Agreement and related documentation, any revenue, documentary, stamp, intangible or other taxes, charges or fees due in connection with transfer of the Note, assumption of the Note, or substitution of collateral for the Security Property. Without limiting Borrower's obligations with respect thereto, Lender shall be entitled to deduct all such fees, costs, expenses and charges from the Defeasance Deposit to the extent of any excess of the Defeasance Deposit.

(D) In connection with the Defeasance Deposit, Borrower hereby authorizes and directs Lender using the means and sources customarily employed and available to Lender to use the Defeasance Deposit to purchase for the account of Borrower the Defeasance Collateral. Furthermore, the Defeasance Collateral shall be arranged such that payments received from such Defeasance Collateral shall be paid directly to Lender to be applied on account of the indebtedness of this Note. Any part of the Defeasance Deposit in excess of the amount necessary to purchase the Defeasance Collateral and to pay the other and related costs Borrower is obligated to pay under this Section 1.05 shall be refunded to Borrower.

(ii) Upon compliance with the requirements of Section 1.05(c)(i), the Security Property shall be released from the lien of the Security Instrument and the other Loan Documents, and the Defeasance Collateral shall constitute collateral which shall secure this Note, the Other Note (as defined in the Borrower Security Instrument), and all other obligations under the Loan Documents. Lender will, at Borrower's expense, execute and deliver any agreements reasonably requested by Borrower to release the lien of the Security Instrument from the Security Property.

(iii) Upon the release of the Security Property in accordance with this Subsection 1.05(c), Borrower shall assign all its obligations and rights under this Note, together with the pledged Defeasance Collateral, to a newly created entity which complies with the terms of Section 12 of the Security Instrument designated by Borrower and approved by Lender in its sole discretion. Such successor entity shall execute an assumption agreement in form and substance satisfactory to Lender in its sole discretion pursuant to which it shall assume Borrower's obligations under this Note and the Defeasance Security Agreement. As conditions to such assignment and assumption, Borrower shall (x) deliver to Lender an opinion of counsel in form and substance and delivered by counsel satisfactory to Lender in its sole discretion stating, among other things, that such assumption agreement is enforceable against Borrower and such successor entity in accordance with its terms and that this Note and the Defeasance Security

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Agreement as so assumed, are enforceable against such successor entity in accordance with their respective terms, and (y) pay all reasonable out-of-pocket costs and expenses (including, but not limited to, reasonable legal fees) incurred by Lender or its agents in connection with such assignment and assumption (including, without limitation, the review of the proposed transferee and the preparation of the assumption agreement and related documentation). Upon such assumption, Borrower shall be relieved of its obligations hereunder, under the other Loan Documents other than the Environmental and Hazardous Substances Indemnification Agreement (as hereinafter defined) and under the Defeasance Security Agreement.

(iv) Borrower shall pay to Lender upon demand all reasonable out-of-pocket costs and expenses incurred by Lender in connection with any proposed Defeasance (including without limitation the fees and expenses of attorneys, accountants and rating agencies), whether or not such Defeasance actually occurs. At Lender's option, payment of such costs and expenses shall be a condition to any Defeasance.

(E) Contemporaneous Defeasance election being undertaken and completed relative to the Other Loan and pursuant to the terms of the Other Note (as defined in the Borrower Security Instrument).

1.06 Security. The indebtedness evidenced by this Note and the obligations created hereby are secured by, among other things, those two (2) certain Amended and Restated Mortgage, Security Agreement and Fixture Financing Statements (collectively, the "Security Instrument") more particularly described as follows: (i) that certain Amended and Restated Mortgage, Security Agreement and Fixture Financing Statement from Borrower for the benefit of Lender, dated as of the date hereof, concerning property located in Rolling Meadows, Cook County, Illinois ("Borrower Security Instrument"); and (ii) that certain Amended and Restated Mortgage, Security Agreement and Fixture Financing Statement from Continental Towers, L.L.C., a Delaware limited liability company ("Other Borrower"), for the benefit of Lender, dated as of the date hereof, concerning property located in Rolling Meadows, Cook County, Illinois. The Security Instrument together with this Note, the Other Note, and all other documents to or of which Lender is a party or beneficiary now or hereafter evidencing, securing, guarantying, modifying or otherwise relating to the indebtedness evidenced hereby, are herein referred to collectively as the "Loan Documents". All property, rights and interests encumbered by the Security Instrument may be referred to herein as the "Security Property." All Security Property, together with any other security that may be pledged or otherwise granted to Lender under the Loan Documents may be referred to as the "Collateral." All of the terms and provisions of the Loan Documents are incorporated herein by reference.

ARTICLE II

DEFAULT

2.01 Event of Default. It is hereby expressly agreed that should any default occur in the payment of principal or interest as and when due, which is not cured within five (5) days thereafter (provided, however, any payment due hereunder on the Maturity Date shall expressly not be subject to such five (5) day grace period), or should any other Event of Default (as defined in the Security Instrument) or any default not cured within any applicable grace or notice period

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occur under any other Loan Document, then an event of default (an "Event of Default") shall exist hereunder, and in such event the indebtedness evidenced hereby, including all sums advanced or accrued hereunder or under any other Loan Document, and all unpaid interest accrued thereon, shall, at the option of Lender and without notice to Borrower, at once become due and payable and may be collected forthwith, whether or not there has been a prior demand for payment and regardless of the stipulated date of maturity.

2.02 Late Charges and Default Interest Rate. In the event that any scheduled payment other than any payment due on the Maturity Date (whether of principal, interest, principal and interest, reserves or otherwise) is not received by Lender on the date when due, or within five (5) days thereafter, or any other payment is not received within five (5) days following written notice that the same is due, then in addition to any default interest payments due hereunder, Borrower shall also pay to Lender a late charge in an amount equal to the lesser of (a) five percent (5.0%) of the amount of such overdue payment or (b) the maximum late charge that can be collected from Borrower under applicable law. So long as any Event of Default has occurred and is continuing, regardless of whether or not there has been an acceleration of the indebtedness evidenced hereby, and at all times after maturity of the indebtedness evidenced hereby (whether by acceleration or otherwise), interest shall accrue on the outstanding principal balance of this Note from the date of default at a rate per annum equal to the lesser of (x) five percent (5.0%) in excess of the Note Rate, or (y) the maximum rate of interest, if any, which may be charged or collected from Borrower under applicable law (the "Default Interest Rate"), and such default interest shall be immediately due and payable. Borrower acknowledges that it would be extremely difficult or impracticable to determine Lender's actual damages resulting from any late payment or default, and such late charges and default interest are reasonable estimates of those damages and do not constitute a penalty.

2.03 Cumulative Remedies. The remedies of Lender in this Note or in the Loan Documents, or at law or in equity, shall be cumulative and concurrent, and may be pursued singly, successively or together in Lender's discretion. In the event this Note, or any part hereof, is collected by or through an attorney-at-law, Borrower agrees to pay all reasonable out-of-pocket costs of collection including, but not limited to, reasonable attorneys' fees.

2.04 Exculpation. Notwithstanding anything in the Loan Documents to the contrary, but subject to the qualifications hereinbelow set forth:

(a) Borrower shall be liable upon the indebtedness evidenced hereby and for the other obligations arising under the Loan Documents to the full extent (but only to the extent) of the Collateral, including the rents, issues, income and profits from the Security Property collected after an Event of Default. If an Event of Default occurs, any judicial or other proceedings brought by Lender against Borrower shall be limited to the preservation, enforcement, including, without limitation, the appointment of a receiver, and foreclosure, or any thereof, of the liens, security titles, estates, assignments, rights and security interests now or at any time hereafter securing the payment of this Note and/or the other obligations of Borrower under the Loan Documents, and no attachment, execution or other writ of process shall be sought, issued or levied upon any assets, properties or funds of Borrower other than the Collateral. In the event of a foreclosure of such liens, security titles, estates, assignments, rights or security interests securing the payment of this Note and/or the other obligations of Borrower

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under the Loan Documents, no judgment for any deficiency upon the indebtedness evidenced hereby shall be sought or obtained by Lender against Borrower. This Subsection 2.04(a) is in all respects subject to the following provisions of this Section 2.04, and in the event of any conflict between this Subsection 2.04(a) and any other provision of this Section 2.04, the other provision of this Section 2.04 shall control.

(b) Notwithstanding anything to the contrary in Subsection 2.04(a), Borrower shall be fully and personally liable for payment and performance of all obligations set forth in the Loan Documents, including the payment of all principal, interest, and other amounts under this Note, in the event of (i) any assignment, encumbrance, transfer or conveyance of the Security Property or any interest therein in violation of Section 10 of the Borrower Security Instrument, (ii) an Event of Default under Subsections (a), (b), (c), (d), (e), (g), (h), (j), (l), (n), (p), (s), (t), (u), (v), (w), or (x) of Section 12 of the Borrower Security Instrument, or (iii) the occurrence of any event or condition described in Section 55 of the Borrower Security Instrument.

(c) Further, notwithstanding anything to the contrary in Subsection 2.04(a), Borrower shall be fully and personally liable and subject to legal action to the extent of any loss, damage, cost, expense, liability, claim or other obligation actually incurred by Lender (including reasonable attorneys' fees and costs incurred) arising out of or in connection with the following: (i) for fraud or intentional misrepresentation in connection with obtaining the indebtedness evidenced by this Note by or on behalf of Borrower or by any guarantor of (or indemnitor with respect to) any obligations under the Loan Documents (in either case, a "Guarantor"), (ii) for insurance proceeds, condemnation awards, or other sums or payments attributable to the Security Property not applied in accordance with the provisions of the Loan Documents (except to the extent that such application of such funds is prevented by bankruptcy, receivership, or similar judicial proceeding in which Borrower is legally prevented from directing the application of such funds), (iii) for all rents, profits, issues, products and income of the Security Property paid following any Event of Default and not applied to payment of principal and interest due under this Note, and the payment of actual and reasonable operating expenses of the Security Property, as they become due or payable (except to the extent that such application of such funds is prevented by bankruptcy, receivership, or similar judicial proceeding in which Borrower is legally prevented from directing the disbursement of such funds), (iv) for misappropriation (including failure to turn over to Lender upon request after the occurrence or during the continuance of an Event of Default) of tenant security deposits and all rents collected in advance, (v) for waste of the Security Property, and for damage to the Security Property as a result of the intentional misconduct or gross negligence of Borrower or any Guarantor or by any authorized agent, authorized employee or other person authorized to act on behalf of Borrower or any Guarantor with respect to the Security Property, or any removal of any Security Property in violation of the Loan Documents, (vi) for criminal acts by Borrower, or any Guarantor, or by any authorized agent of Borrower or any Guarantor with respect to the Security Property resulting in forfeiture, seizure or loss of any portion of the Security Property, (vii) for Borrower's failure to pay transfer fees and charges due Lender under this Note or the Security Instrument in connection with any subordinate financing or any transfer of all or any part of the Security Property, or any interest in Borrower (if Borrower is not a natural person or persons but is a corporation, partnership, trust or other legal entity), (viii) for failure by Borrower, any general partner of Borrower, or any Guarantor to comply with the covenants, obligations, liabilities, warranties and representations contained in the Guaranty Agreement and Environmental and

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Hazardous Substances Indemnification Agreement of even date herewith or otherwise pertaining to environmental matters, (ix) for a breach or default under Subsections (f), (i), (k), (o), (q), or (r) of Section 12 of the Security Instrument, (x) so long as Borrower is Continental Towers Associates III, LLC, a Delaware limited liability company, for any act by any member or manager of Borrower, or by any owner, member, or manager of any constituent party of Borrower, not done in accordance with the Loan Documents or which (A) materially and adversely affects the fair value market value, physical condition, tenant-mix, use, reputation, income, expenses, or operations of the Security Property, (B) prohibits or materially and adversely affects the ability of the Manager (as defined in the Borrower Security Instrument) (or any successor or assignee of Manager) to perform its obligations under the Management Agreement (as defined in the Borrower Security Instrument) or (C) prohibits or materially and adversely affects the ability of Subordinate Lender (as defined in the Security Instrument) to complete a Foreclosure (as defined in the Borrower Security Instrument) of the Security Property in accordance with the terms and conditions of the Subordinate Loan Documents (as defined in the Borrower Security Instrument) and as permitted by the Borrower Security Instrument, (xi) for Borrower's failure to pay to Aon Service Corporation, an Illinois corporation ("Aon"), the retrofit allowance in the amount of $356,037.52 owed to Aon pursuant to the Fourth Amendment, dated June 2, 2002, to the lease by and between Borrower and Aon, dated December, 1998, for the lease of space at the Security Property; (xii) any claim, allegation, notice, or citation against Lender issued by the Internal Revenue Service or any other federal agency claiming or alleging that Lender is in any manner in violation of federal tax laws in connection with the Loan as a direct or indirect result of Borrower's relationship to Guarantor, Other Borrower, Manager, and Subordinate Lender; (xiii) for all amounts for which Other Borrower is liable under Subsections (b) and (c) of Section 2.04 of the Other Note; and (xiv) for the actual third party costs (including reasonable attorneys' fees and costs), incurred by Lender in recovering any amounts owing pursuant to this Section.

(d) Nothing contained in this Section shall (i) be deemed to be a release or impairment of the indebtedness evidenced by this Note or the other obligations of Borrower under the Loan Documents or the lien of the Loan Documents upon the Security Property, or (ii) preclude Lender from foreclosing the Loan Documents in case of any default or from enforcing any of the other rights of Lender except as stated in this Section, or (iii) release, relieve, reduce, waive, limit or impair in any way whatsoever, any obligation of any party to the Guaranty Agreement and Environmental and Hazardous Substances Indemnification Agreement each of even date executed and delivered in connection with the indebtedness evidenced by this Note.

(e) Notwithstanding anything to the contrary in this Note, the Security Instrument or any of the other Loan Documents, Lender shall not be deemed to have waived any right which Lender may have under Section 506(a), 506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code to file a claim for the full amount of the indebtedness evidenced hereby or secured by the Security Instrument or any of the other Loan Documents or to require that all Collateral shall continue to secure all of the indebtedness owing to Lender in accordance with this Note, the Security Instrument and the other Loan Documents.

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ARTICLE III

GENERAL CONDITIONS

3.01 No Waiver: Amendment. No failure to accelerate the debt evidenced hereby by reason of default hereunder, acceptance of a partial or past due payment, or indulgences granted from time to time shall be construed (a) as a novation of this Note or as a reinstatement of the indebtedness evidenced hereby or as a waiver of such right of acceleration or of the right of Lender thereafter to insist upon strict compliance with the terms of this Note, or (b) to prevent the exercise of such right of acceleration or any other right granted hereunder or by any applicable laws; and Borrower hereby expressly waives the benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the foregoing. No extension of the time for the payment of this Note or any installment due hereunder, made by agreement with any person now or hereafter liable for the payment of this Note shall operate to release, discharge, modify, change or affect the original liability of Borrower under this Note, either in whole or in part unless Lender agrees otherwise in writing. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought.

3.02 Waivers. Presentment for payment, demand, protest and notice of demand, intent to accelerate, acceleration, protest and nonpayment and all other notices are hereby waived by Borrower. Borrower hereby further waives and renounces, to the fullest extent permitted by law, all rights to the benefits of any moratorium, reinstatement, marshalling, forbearance, valuation, stay, extension, redemption, appraisement, exemption and homestead now or hereafter provided by the Constitution and laws of the United States of America and of each state thereof, both as to itself and in and to all of its property, real and personal, against the enforcement and collection of the obligations evidenced by this Note or the other Loan Documents.

3.03 Limit of Validity. The provisions of this Note and of all agreements between Borrower and Lender, whether now existing or hereafter arising and whether written or oral, are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of demand or acceleration of the maturity of this Note or otherwise, shall the amount paid, or agreed to be paid ("Interest"), to Lender for the use, forbearance or detention of the money loaned under this Note exceed the maximum amount permissible under applicable law. If, from any circumstance whatsoever, performance or fulfillment of any provision hereof or of any agreement between Borrower and Lender shall, at the time performance or fulfillment of such provision shall be due, exceed the limit for Interest prescribed by law or otherwise transcend the limit of validity prescribed by applicable law, then ipso facto the obligation to be performed or fulfilled shall be reduced to such limit and if, from any circumstance whatsoever, Lender shall ever receive anything of value deemed Interest by applicable law in excess of the maximum lawful amount, an amount equal to any excessive Interest shall be applied to the reduction of the principal balance owing under this Note in the inverse order of its maturity (whether or not then due) or at the option of Lender be paid over to Borrower, and not to the payment of Interest. All Interest (including, but not limited to, any amounts or payments deemed to be Interest) paid or agreed to be paid to Lender shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full period until payment in full of the principal

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balance of this Note so that the Interest thereof for such full period will not exceed the maximum amount permitted by applicable law. This Section 3.03 will control all agreements between Borrower and Lender.

3.04 Use of Funds. Borrower hereby warrants, represents and covenants that the proceeds of this Note shall be used for business purposes and no funds disbursed hereunder shall be used for personal, family or household purposes.

3.05 Unconditional Payment. Borrower is and shall be obligated to pay principal, interest and any and all other amounts which become payable hereunder or under the other Loan Documents absolutely and unconditionally and without any abatement, postponement, diminution or deduction and without any reduction for counterclaim or setoff. In the event that at any time any payment received by Lender hereunder shall be deemed by a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under any bankruptcy, insolvency or other debtor relief law, then the obligation to make such payment shall survive any cancellation or satisfaction of this Note or return thereof to Borrower and shall not be discharged or satisfied with any prior payment thereof or cancellation of this Note, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof, and such payment shall be immediately due and payable upon demand.

3.06 Miscellaneous. This Note shall be interpreted, construed and enforced according to the laws of the State of Illinois. The terms and provisions hereof shall be binding upon and inure to the benefit of Borrower and Lender and their respective heirs, executors, legal representatives, successors, successors-in-title and assigns, whether by voluntary action of the parties or by operation of law. As used herein, the terms "Borrower" and "Lender" shall be deemed to include their respective heirs, executors, legal representatives, successors, successors-in-title and assigns, whether by voluntary action of the parties or by operation of law. If Borrower consists of more than one person or entity, each shall be jointly and severally liable to perform the obligations of Borrower under this Note. All personal pronouns used herein, whether used in the masculine, feminine or neuter gender, shall include all other genders; the singular shall include the plural and vice versa. Titles of articles and sections are for convenience only and in no way define, limit, amplify or describe the scope or intent of any provisions hereof. Time is of the essence with respect to all provisions of this Note. This Note and the other Loan Documents contain the entire agreements between the parties hereto relating to the subject matter hereof and thereof and all prior agreements relative hereto and thereto which are not contained herein or therein are terminated.

3.07 Amendment and Restatement. This Amended and Restated Promissory Note and the Other Note shall amend, restate and replace in its entirety that certain Promissory Note (the "Original Note") dated as of November 21, 2006 in the original principal amount of One Hundred Fifteen Million and No/100 Dollars ($115,000,000.00) made by Borrower and Other Borrower, payable to the order of CWCapital LLC, a Massachusetts limited liability company ("CWC"). CWC assigned and endorsed the Note, and assigned the entirety of its interest in the Loan Documents, to Lender on December 21, 2006. All terms, conditions and obligations of the Original Note shall remain in full force and effect as assigned and endorsed to Lender and as amended and restated herein and in the Other Note in its entirety, and all rights and remedies provided for therein shall be preserved to Lender. Nothing contained herein or done pursuant

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hereto shall affect or be construed to affect the priority of the lien or security interest securing this Note over the priority of other liens, charges, encumbrances or other security interests. Borrower does hereby confirm, ratify and reaffirm the obligations contained in the Original Note, as assigned and endorsed to Lender and as amended and restated hereby and by the Other Note in its entirety. This Note is an amendment and restatement only and not a novation; and except as herein provided and as provided in the Other Note, all other terms and conditions of the Original Note shall remain in full force and effect until payment of the Debt in full. The Original Note is being retained by Lender with a notation placed on the face thereof indicating that such Original Note has been amended and restated by this Note and the Other Note.

Borrower's Tax Identification No.: 20-4071122

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IN WITNESS WHEREOF, Borrower has executed this Note under seal as of the date first above written.

CONTINENTAL TOWERS ASSOCIATES III, LLC,
a Delaware limited liability company

By: CONTINENTAL TOWERS ASSOCIATES II, LLC,
a Delaware limited liability company,
its sole member

By: CTA GENERAL PARTNER, LLC,
a Delaware limited liability company,
its managing member

By: CTA MEMBER, INC.,
a Delaware corporation,
its managing member

By: [s] Paul G. Del Vecchio

Name: Yochanan Danziger, by
Paul G. Del Vecchio,
Attorney-In-Fact

Title: President

Attachment

Notarial Jurat

AMENDED AND RESTATED PROMISSORY NOTE - Signature Page

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STATE OF ILLINOIS

COUNTY OF COOK

This instrument was ACKNOWLEDGED before me on December 28, 2006, by PAUL G. DEL VECCHIO, Attorney-In-Fact for YOCHANAN DANZIGER, the President of CTA MEMBER, INC., a Delaware corporation, as managing member of CTA GENERAL PARTNER, LLC, a Delaware limited liability company, as the managing member of CONTINENTAL TOWERS ASSOCIATES II, LLC, a Delaware limited liability company, as the sole member of CONTINENTAL TOWERS ASSOCIATES III, LLC, a Delaware limited liability company, on behalf of said limited liability company.

[S E A L]

[s] Joella Malone

Notary Public, State of Illinois

My Commission Expires:

Joella Malone

07/10/09_________________

Printed Name of Notary Public

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EX-10 13 exhibit-10_66.htm EXHIBIT 10.66

EXHIBIT 10.66

CONTINENTAL TOWERS ASSOCIATES III, LLC

(Mortgagor or Borrower)

WELLS FARGO BANK, N.A., as trustee for the registered holders of

COBALT CMBS COMMERCIAL MORTGAGE TRUST 2006-C1,

COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES,

SERIES 2006-C1

(Mortgagee or Lender)

This Mortgage, Security Agreement and Fixture Financing Statement

also constitutes a Fixture Financing Statement.

AMENDED AND RESTATED

MORTGAGE, SECURITY AGREEMENT AND FIXTURE FINANCING STATEMENT

Dated: As of December 29, 2006

PROPERTY LOCATION:

Permanent Tax Identification Numbers: 08-16-100-034, 08-16-100-035, and 08-16-100-036

1701 Golf Road

Rolling Meadows, Cook County, Illinois

DOCUMENT PREPARED BY AND WHEN RECORDED RETURN TO:

WINSTEAD SECHREST & MINICK P.C.

5400 Renaissance Tower

1201 Elm Street

Dallas, Texas 75270

Attention: Christopher T. Nixon, Esq.

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THIS AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT AND FIXTURE FINANCING STATEMENT (this “Mortgage” or “Security Instrument”), made as of December 29, 2006, by CONTINENTAL TOWERS ASSOCIATES III, LLC, a Delaware limited liability company (“Mortgagor” or “Borrower”), having its principal place of business at c/o Prime Group Realty Trust, 77 West Wacker Drive, Suite 3900, Chicago, Illinois 60601, and to WELLS FARGO BANK, N.A., as trustee for the registered holders of COBALT CMBS COMMERCIAL MORTGAGE TRUST 2006-C1, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2006-C1, c/o CWCAPITAL LLC, a Massachusetts limited liability company, having its principal office at One Charles River Place, 63 Kendrick Street, Needham, Massachusetts 02494 (“Mortgagee” or “Lender”).

W I T N E S S E T H:

To secure the payment of (i) the indebtedness evidenced by those certain Amended and Restated Promissory Notes as described below (such Promissory Notes together with all extensions, renewals or modifications thereof hereinafter collectively called the “Note”, and the indebtedness evidenced by the Note hereinafter being referred to as the “Loan”): (A) that certain Promissory Note (singularly, the “Borrower Note”) of even date of this Mortgage, made by Borrower and payable to the order of Lender in the original principal sum of FORTY-ONE MILLION FOUR HUNDRED THOUSAND AND NO/100 DOLLARS ($41,400,000.00), lawful money of the United States of America, to be paid with interest at a rate per annum of 5.864% and having a maturity date of December 1, 2016 (the indebtedness evidenced by the Borrower Note hereinafter being referred to as the “Borrower Loan”), and (B) that certain Promissory Note (singularly, the “Other Note”) of even date of this Mortgage, made by CONTINENTAL TOWERS, L.L.C., a Delaware limited liability company (“Other Borrower”), and payable to the order of Lender in the original principal sum of SEVENTY-THREE MILLION SIX HUNDRED THOUSAND AND NO/100 DOLLARS ($73,600,000.00), lawful money of the United States of America, to be paid with interest at a rate per annum of 5.864% and having a maturity date of December 1, 2016 (the indebtedness evidenced by the Other Note hereafter being referred to as the “Other Loan”), and all other sums due hereunder, under the Other Mortgage (hereinafter defined), under the other Loan Documents (hereinafter defined) and under the Note; (ii) any and all future or additional advances (whether or not obligatory) made by Lender to protect or preserve the Security Property or the lien or security interest created hereby on the Security Property, or for taxes, assessments or insurance premiums as hereinafter provided or for performance of any of Borrower’s obligations hereunder or under the other Loan Documents or for any other purpose provided herein or in the other Loan Documents (whether or not the original Borrower remains the owner of the Security Property at the time of such advances) together with interest thereon at the Default Interest Rate (as defined in the Note) such advances to be secured to the same extent as if such future advances were made on the date hereof and although there may be no indebtedness outstanding at the time any advance is made; and (iii) ANY AND ALL OTHER INDEBTEDNESS NOW OWING OR WHICH MAY HEREAFTER BE OWING BY BORROWER OR OTHER BORROWER TO LENDER HEREUNDER, UNDER THE OTHER MORTGAGE, UNDER THE NOTE AND THE OTHER LOAN DOCUMENTS, HOWEVER AND WHENEVER INCURRED OR EVIDENCED, WHETHER EXPRESS OR IMPLIED, DIRECT OR INDIRECT, ABSOLUTE OR CONTINGENT, OR DUE OR TO BECOME DUE, AND ALL RENEWALS, MODIFICATIONS, AMENDMENTS,

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RESTATEMENTS, CONSOLIDATIONS, SUBSTITUTIONS, REPLACEMENTS AND EXTENSIONS THEREOF (said indebtedness and interest due under the Note and all other sums due hereunder, under the Other Mortgage, under the Note and the other Loan Documents being hereinafter collectively referred to as the “Debt”). The principal amount of the Debt shall not exceed double the aggregate original principal amount of the Note and the Other Note.

Borrower has mortgaged, given, granted, bargained, transferred, sold, alienated, enfeoffed, conveyed, confirmed, warranted, pledged, assigned, and hypothecated and by these presents does hereby deed, mortgage, give, grant, bargain, sell, alien, enfeoff, convey, confirm, warrant, pledge, assign and hypothecate unto Lender, the real property described in Exhibit A attached hereto (the “Premises”) and all of Borrower’s right, title and interest to the buildings, structures, fixtures, additions, enlargements, extensions, modifications, repairs, replacements and improvements now or hereafter located thereon (the “Improvements”);

TOGETHER WITH: all right, title, interest and estate of Borrower now owned, or hereafter acquired, in and to the following property, rights, interests and estates (the Premises, the Improvements, and such property, rights, interests and estates hereinafter described are collectively referred to herein as the “Security Property”):

GRANTING CLAUSE ONE

All easements, rights-of-way, strips and gores of land, streets, ways, alleys, passages, sewer rights, water, water courses, water rights and powers, air rights and development rights, all rights to oil, gas, minerals, coal and other substances of any kind or character, and all estates, rights, titles, interests, privileges, liberties, tenements, hereditaments and appurtenances of any nature whatsoever, in any way belonging, relating or pertaining to the Premises and the Improvements and the reversion and reversions, remainder and remainders, and all land lying in the bed of any street, road, highway, alley or avenue, opened, vacated or proposed, in front of or adjoining the Premises, to the center line thereof and all the estates, rights, titles, interests, dower and rights of dower, curtsey and rights of curtsey, property, possession, claim and demand whatsoever, both at law and in equity, of Borrower of, in and to the Premises and the Improvements and every part and parcel thereof, with the appurtenances thereto;

GRANTING CLAUSE TWO

All machinery, furniture, furnishings, equipment, computer software and hardware, fixtures (including, without limitation, all heating, air conditioning, plumbing, lighting, communications and elevator fixtures) and other property of every kind and nature, whether tangible or intangible, whatsoever owned by Borrower, or in which Borrower has or shall have an interest, now or hereafter located upon the Premises and the Improvements, or appurtenant thereto, and usable in connection with the present or future operation and occupancy of the Premises and the Improvements and all building equipment, materials and supplies of any nature whatsoever owned by Borrower, or in which Borrower has or shall have an interest, now or hereafter located upon the Premises and the Improvements, or appurtenant thereto, or usable in connection with the present or future operation, enjoyment and occupancy of the Premises and the Improvements (hereinafter collectively referred to as the “Equipment”), including any leases of any of the foregoing, any deposits existing at any time in connection with any of the

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foregoing, and the proceeds of any sale or transfer of the foregoing, and the right, title and interest of Borrower in and to any of the Equipment that may be subject to any “security interests” as defined in the Uniform Commercial Code, as adopted and enacted by the State or States where any of the Security Property is located (the “Uniform Commercial Code”), superior in lien to the lien of this Security Instrument;

GRANTING CLAUSE THREE

Awards or payments, including interest thereon, that may heretofore and hereafter be made with respect to the Premises and the Improvements, whether from the exercise of the right of eminent domain or condemnation (including, without limitation, any transfer made in lieu of or in anticipation of the exercise of said rights), or for a change of grade, or for any other injury to or decrease in the value of the Premises and Improvements;

GRANTING CLAUSE FOUR

All leases and other agreements or arrangements heretofore or hereafter entered into affecting the use, enjoyment or occupancy of, or the conduct of any activity upon or in, the Premises and the Improvements, including any extensions, renewals, modifications or amendments thereof (the “Leases”) and all rents, rent equivalents, moneys payable as damages or in lieu of rent or rent equivalents, lease termination fees and penalties, royalties (including, without limitation, all oil and gas or other mineral royalties and bonuses), income, receivables, receipts, revenues, deposits (including, without limitation, security, utility and other deposits), accounts, cash, issues, profits, charges for services rendered, and other consideration of whatever form or nature received by or paid to or for the account of or benefit of Borrower or its agents or employees from any and all sources arising from or attributable to the Premises and the Improvements (the “Rents”), together with all proceeds from the sale or other disposition of the Leases and the right to receive and apply the Rents to the payment of the Debt;

GRANTING CLAUSE FIVE

All proceeds of and any unearned premiums on any insurance policies covering the Security Property, including, without limitation, the right to receive and apply the proceeds of any insurance, judgments, or settlements made in lieu thereof, for damage to the Security Property;

GRANTING CLAUSE SIX

The right, in the name and on behalf of Borrower, to appear in and defend any action or proceeding brought with respect to the Security Property and to commence any action or proceeding to protect the interest of Lender in the Security Property;

GRANTING CLAUSE SEVEN

All accounts, escrows, documents, instruments, chattel paper, claims, deposits and general intangibles, as the foregoing terms are defined in the Uniform Commercial Code, and all franchises, trade names, trademarks, symbols, service marks, books, records, plans, specifications, designs, drawings, permits, consents, licenses, management agreements, contract

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rights (including, without limitation, any contract with any architect or engineer or with any other provider of goods or services for or in connection with any construction, repair, or other work upon the Security Property), approvals, actions, refunds of real estate taxes and assessments (and any other governmental impositions related to the Security Property), and causes of action that now or hereafter relate to, are derived from or are used in connection with the Security Property, or the use, operation, maintenance, occupancy or enjoyment thereof or the conduct of any business or activities thereon (hereinafter collectively referred to as the “Intangibles”); and

GRANTING CLAUSE EIGHT

All proceeds, products, offspring, rents and profits from any of the foregoing, including, without limitation, those from sale, exchange, transfer, collection, loss, damage, disposition, substitution or replacement of any of the foregoing.

TO HAVE AND TO HOLD the above granted and described Security Property unto and to the use and benefit of Lender, forever;

PROVIDED, HOWEVER, these presents are upon the express condition that, if Borrower shall well and truly pay to Lender the Debt at the time and in the manner provided in the Note and this Security Instrument and shall well and truly abide by and comply with each and every covenant and condition set forth herein, in the Note and in the other Loan Documents in a timely manner, these presents and the estate hereby granted shall cease, terminate and be void;

AND Borrower represents and warrants to and covenants and agrees with Lender as follows:

PART I

GENERAL PROVISIONS

1. Payment of Debt and Incorporation of Covenants, Conditions and Agreements. Borrower shall pay the Debt at the time and in the manner provided in the Note and in this Security Instrument. All the covenants, conditions and agreements contained in (a) the Note and (b) all and any of the documents including the Note, this Security Instrument and the Other Mortgage now or hereafter executed by Borrower and/or others and by or in favor of Lender, which evidences, secures or guarantees all or any portion of the payments due under the Note or otherwise is executed and/or delivered in connection with the Note and this Security Instrument (the “Loan Documents”) are hereby made a part of this Security Instrument to the same extent and with the same force as if fully set forth herein.

2. Warranty of Title. Borrower warrants that Borrower has good, marketable and insurable title to the Security Property and has the full power, authority and right to execute, deliver and perform its obligations under this Security Instrument and to deed, encumber, mortgage, give, grant, bargain, sell, alienate, enfeoff, convey, confirm, pledge, assign and hypothecate the same and that Borrower possesses fee estate in the Premises and the Improvements and that it owns the Security Property free and clear of all liens, encumbrances

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and charges whatsoever subject only to those exceptions shown in the title insurance policy insuring the lien of this Security Instrument (the “Permitted Exceptions”) and that this Security Instrument is and will remain a valid and enforceable first lien on and security interest in the Security Property, subject only to said exceptions. Borrower shall forever warrant, defend and preserve such title and the validity and priority of the lien of this Security Instrument and shall forever warrant and defend the same to Lender against the claims of all persons whomsoever.

Insurance.

(a) Borrower, at its sole cost and expense, for the mutual benefit of Borrower and Lender, shall obtain and maintain during the entire term of this Security Instrument (the “Term”) policies of insurance against loss or damage by fire, lightning, hail, windstorm, explosion, vandalism, malicious mischief, riot, civil commotion, acts of terrorism, burglary and theft, and such perils as are included in a standard “all-risk” endorsement, and against loss or damage by all risks and hazards covered by a standard extended coverage insurance policy. Such insurance shall be in an amount equal to the greater of (i) the then full replacement cost of the Improvements and Equipment, without deduction for physical depreciation, or (ii) the outstanding principal balance of the Loan. The policies of insurance carried in accordance with this Section shall be paid annually in advance and shall contain a “Replacement Cost Endorsement” and no coinsurance or if coinsurance, then an “Agreed Amount Endorsement” with a waiver of depreciation, and shall have a deductible no greater than $25,000; provided, however, that hail, windstorm and storm coverage shall have a deductible of no greater than five percent (5%) of the total amount of damage subject to a $100,000.00 minimum deductible.

(b) Borrower, at its sole cost and expense, for the mutual benefit of Borrower and Lender, shall also obtain and maintain during the Term the following policies of insurance:

(i) Flood insurance if any part of the Security Property is located in an area identified by the Federal Emergency Management Agency as an area having special flood hazards in an amount equal to the replacement cost of the Security Property or such other amount to be determined by Lender.

(ii) Comprehensive public liability insurance, including broad form property damage, blanket contractual and personal injuries (including death resulting therefrom) coverages and containing minimum limits per occurrence of $1,000,000 and $2,000,000 in the aggregate for any policy year with a deductible or self insured retention no greater than $25,000.00. In addition, at least $10,000,000 excess and/or umbrella liability insurance shall be obtained and maintained for any and all claims, including all legal liability imposed upon Borrower and all court costs and attorneys’ fee incurred in connection with the ownership, operation and maintenance of the Security Property. Lender shall be named an Additional Insured with respect to all liability coverage.

(iii) Rental loss and/or business interruption insurance in an amount sufficient to compensate Borrower for all Gross Income from Operations during a period of not less than eighteen (18) months. The amount of such insurance shall be increased from time to time during the Term as and when new Leases and renewal Leases are entered into and the Rents increase or the estimate of (or the actual) gross revenue, as may be applicable, increases. For

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purposes of this Security Instrument, “Gross Income from Operations” shall mean all income, computed on an accrual basis in accordance with generally accepted accounting practices and principles, derived for each full or partial month during the Term from the ownership and operation of the Security Property from whatever source, including, but not limited to, Leases, all guest room revenues, all food, beverage, and merchandise sales receipts, all interest income, if any, rent, utility charges, escalations, forfeited security deposits, service fees or charges, license fees, parking fees, rent concessions or credits, and any business interruption insurance proceeds but excluding sales, use and occupancy or other taxes on receipts required to be accounted for by Borrower to any government or governmental agency, refunds and uncollectible accounts, sales of furniture, fixtures and equipment, proceeds of casualty insurance and condemnation awards, and interest on credit accounts. Gross Income from Operations shall not be diminished as a result of this Security Instrument or the creation of any intervening estate or interest in the Security Property or any part thereof.

(iv) Insurance against loss or damage from (A) leakage of sprinkler systems and (B) explosion of steam boilers, air conditioning equipment, high pressure piping, machinery and equipment, pressure vessels or similar apparatus now or hereafter installed in the Improvements (without exclusion for explosions), to the extent that such items now or hereafter exist upon the Security Property, in an amount at least equal to the outstanding principal amount of the Note or $2,000,000, whichever is less.

(v) If the Security Property includes commercial property, worker’s compensation insurance with respect to any employees of Borrower, as required by any governmental authority or legal requirement.

(vi) During any period of repair or restoration, builder’s “all risk” insurance in an amount equal to not less than the full insurable value of the Security Property insuring against such risks (including, without limitation, fire and extended coverage and collapse of the Improvements to agreed limits) as Lender may request, in form and substance acceptable to Lender.

(vii) If the Security Property is or becomes a legal “non-conforming” use, “Ordinance or Law Coverage” endorsement and insurance coverage to compensate for the cost of demolition, the increased cost of construction and the loss of value on the undamaged portion of the Security Property in an amount equal to the original principal balance of the Loan in amounts as requested by Lender.

(viii) Such other insurance as may be customary for properties of the same type as the Security Property in the geographic area in which the Security Property is located and as may from time to time be reasonably required by Lender in order to protect its interests.

(c) All policies of insurance (the “Policies”) required pursuant to this Section: (i) shall be issued by companies approved by Lender and licensed to do business in the state where the Security Property is located, with a claims paying ability rating of “A-” or better by Standard & Poor’s Rating Services, a division of the McGraw Hill Companies, Inc.; (ii) shall name Lender and its successors and/or assigns as their interest may appear as the

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Lender/mortgagee; (iii) shall contain a non-contributory standard mortgagee clause and a lender’s loss payable endorsement or their equivalents, naming Lender as the person to which all payments made by such insurance company shall be paid; (iv) shall contain a waiver of subrogation against Lender; (v) shall be maintained throughout the Term without cost to Lender; (vi) shall be assigned and the originals delivered to Lender; (vii) shall contain such provisions as Lender deems reasonably necessary or desirable to protect its interest including, without limitation, endorsements providing that neither Borrower, Lender nor any other party shall be a co-insurer under said Policies and that Lender shall receive at least thirty (30) days prior written notice of any modification, reduction or cancellation; and (viii) shall be reasonably satisfactory in form and substance to Lender and shall be approved by Lender as to amounts, form, risk coverage, deductibles, loss payees and insureds. Borrower shall pay the premiums for such Policies (the “Insurance Premiums”) as the same become due and payable and shall furnish to Lender evidence of the renewal of each of the Policies with receipts for the payment of the Insurance Premiums or other evidence of such payment reasonably satisfactory to Lender (provided, however, that Borrower is not required to furnish such evidence of payment to Lender in the event that such Insurance Premiums have been paid by Lender pursuant to Section 6 hereof). Within thirty (30) days after request by Lender, Borrower shall obtain such increases in the amounts of coverage required hereunder as may be reasonably requested by Lender, taking into consideration changes in the value of money over time, changes in liability laws and changes in prudent customs and practices.

As required pursuant to the Collateral Protection Act, 815 ILCS 180/10(3), Borrower is hereby notified that in the event Borrower fails to provide, maintain, keep in force or deliver and furnish to Lender the policies of insurance required by this Mortgage or evidence of their renewal as required herein, Lender may, but shall not be obligated to, procure such insurance at Borrower’s expense to protect Lender’s interests in the Security Property. This insurance may, but need not, protect Borrower’s interests. The coverage Lender purchases may not pay any claim that Borrower makes or any claim that is made against Borrower in connection with the Security Property. Borrower may later cancel any insurance purchased by Lender, but only after providing Lender with evidence that Borrower has obtained insurance as required by the terms of this Mortgage. If Lender purchases insurance for the Security Property as set forth herein, Borrower shall pay all amounts advanced by Lender, together with interest thereon at the Default Interest Rate (as defined in the Note) from and after the date advanced by Lender until actually repaid by Borrower, promptly upon demand by Lender. Any amounts so advanced by Lender, together with interest thereon, shall be secured by this Mortgage and by all of the other Loan Documents securing all or any part of the Debt. The costs of the insurance may be more than the cost of insurance Borrower may be able to obtain on its own.

Casualty.

(a) If the Security Property shall be damaged or destroyed, in whole or in part, by fire or other casualty (an “Insured Casualty”), Borrower shall give prompt notice thereof to Lender. Following the occurrence of an Insured Casualty, Borrower, regardless of whether insurance proceeds are available, shall promptly proceed to restore, repair, replace or rebuild the same to be of at least equal value and of substantially the same character as immediately prior to such damage or destruction, all to be effected in accordance with applicable law. The actual, out-of-pocket expenses incurred by Lender in the adjustment and collection of insurance proceeds

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shall become part of the Debt and be secured hereby and shall be reimbursed by Borrower to Lender upon demand.

(b) In case of loss or damages covered by any of the Policies, the following provisions shall apply:

(i) In the event of an Insured Casualty that does not exceed the lesser of (a) $2,500,000.00 or (b) ten percent (10%) of the then outstanding principal balance of the Note, Borrower may settle and adjust any claim without the consent of Lender and agree with the insurance company or companies on the amount to be paid upon the loss; provided that such adjustment is carried out in a competent and timely manner. In such case, Borrower is hereby authorized to collect and receipt for any such insurance proceeds.

(ii) In the event an Insured Casualty shall exceed the lesser of (a) $2,500,000.00 or (b) ten percent (10%) of the then outstanding principal balance of the Note, then and in that event, Lender may settle and adjust any claim without the consent of Borrower and agree with the insurance company or companies on the amount to be paid on the loss and the proceeds of any such policy shall be due and payable solely to Lender and held in escrow by Lender in accordance with the terms of this Security Instrument.

(iii) In the event of an Insured Casualty where the loss is in an aggregate amount less than thirty percent (30%) of the original principal balance of the Note, and if, in the reasonable judgment of Lender, the Security Property can be restored within nine (9) months of the Insured Casualty and no later than six (6) months prior to the Maturity Date (as defined in the Note) to an economic unit not materially less valuable (including an assessment of the impact of the termination of any Leases due to such Insured Casualty) and not less useful than the same was immediately prior to the Insured Casualty, and after such restoration will adequately secure the outstanding balance of the Debt, then, if no Event of Default (as hereinafter defined) shall have occurred and be then continuing, the proceeds of insurance (after reimbursement of any actual, out-of-pocket expenses incurred by Lender) shall be applied towards the cost of restoring, repairing, replacing or rebuilding the Security Property or part thereof subject to the Insured Casualty, in the manner set forth below. Borrower hereby covenants and agrees to commence and diligently to prosecute such restoring, repairing, replacing or rebuilding; provided always, that Borrower shall pay all costs (and if required by Lender, Borrower shall deposit the total thereof with Lender in advance) of such restoring, repairing, replacing or rebuilding in excess of the net proceeds of insurance made available pursuant to the terms hereof.

(iv) Except as provided above in clauses (ii) and (iii) of this Section 4, the proceeds of insurance collected upon any Insured Casualty shall, at the option of Lender in its sole discretion, be applied to the payment of the Debt or applied to reimburse Borrower for the cost of restoring, repairing, replacing or rebuilding the Security Property or part thereof subject to the Insured Casualty, in the manner set forth below. Any such application to the Debt shall be without any prepayment consideration. Any such application to the Debt shall be applied to those payments of principal and interest last due under the Note but shall not postpone or reduce any payments otherwise required pursuant to the Note other than such last due payments. In the event Lender elects for the proceeds of insurance to be applied to the payment of the Debt,

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Borrower and Other Borrower shall have the right to prepay the entirety of the Debt without any prepayment consideration within fifteen (15) days after Lender provides notice to Borrower of Lender’s election to so apply such proceeds. Notwithstanding the foregoing, in the event of an Insured Casualty, as defined in the Other Mortgage, with respect to the Other Property in which Lender elects for the proceeds of insurance to be applied to pay the entirety of the Other Loan, Borrower shall have the right to prepay the entirety of the Borrower Note without any prepayment consideration within fifteen (15) days after Lender notifies Other Borrower of Lender’s election to so apply such proceeds. In no event shall Borrower have the right to prepay the entirety of the Borrower Note as a result of the application by Lender of insurance proceeds unless the entirety of the Debt pursuant to the terms hereof is simultaneously prepaid in full.

(v) In the event Borrower is entitled to reimbursement out of insurance proceeds held by Lender, such proceeds shall be disbursed from time to time upon Lender being furnished with (1) evidence reasonably satisfactory to it of the estimated cost of completion of the restoration, repair, replacement and rebuilding, (2) funds or, at Lender’s option, assurances reasonably satisfactory to Lender that such funds are available, sufficient in addition to the proceeds of insurance to complete the proposed restoration, repair, replacement and rebuilding, and (3) such architect’s certificates, waivers of lien, contractor’s sworn statements, title insurance endorsements, bonds, plats of survey and such other reasonable evidences of cost, payment and performance as Lender may reasonably require and approve. Lender may, in any event, require that all plans and specifications for such restoration, repair, replacement and rebuilding be submitted to and reasonably approved by Lender prior to commencement of work. No payment made prior to the final completion of the restoration, repair, replacement and rebuilding shall exceed ninety percent (90%) of the first fifty percent (50%) of the value of the work performed and ninety-five percent (95%) of the remaining fifty percent (50%) of the value of the work performed from time to time; funds other than proceeds of insurance shall be disbursed prior to disbursement of such proceeds; and at all times, the undisbursed balance of such proceeds remaining in the hands of Lender, together with funds deposited for that purpose or irrevocably committed to the reasonable satisfaction of Lender by or on behalf of Borrower for that purpose, shall be at least sufficient in the reasonable judgment of Lender to pay for the cost of completion of the restoration, repair, replacement or rebuilding, free and clear of all liens or claims for lien. Any surplus which may remain out of insurance proceeds held by Lender after payment of such costs of restoration, repair, replacement or rebuilding shall be paid to Borrower.

5. Payment of Taxes, Etc. Subject to Borrower’s contest rights set forth in Section 31 below, Borrower shall pay all taxes, assessments, water rates and sewer rents, now or hereafter levied or assessed or imposed against the Security Property or any part thereof (the “Taxes”) and all ground rents, maintenance charges, other impositions, and other charges, including, without limitation, vault charges and license fees for the use of vaults, chutes and similar areas adjoining the Premises, now or hereafter levied or assessed or imposed against the Security Property or any part thereof (the “Other Charges”) as the same become due and payable. Borrower will deliver to Lender receipts for payment or other evidence satisfactory to Lender that the Taxes and Other Charges have been so paid or are not then delinquent no later than ten (10) days prior to the date on which the Taxes and/or Other Charges would otherwise be delinquent if not paid. Borrower shall not suffer and shall promptly cause to be paid and discharged any lien or charge whatsoever which may be or become a lien or charge against the Security Property, and shall promptly pay for all utility services provided to the Security

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Property. Borrower shall furnish to Lender receipts for the payment of the Taxes and the Other Charges prior to the date the same shall become delinquent (provided, however, that Borrower is not required to furnish such receipts for payment of Taxes in the event that such Taxes have been paid for by Lender pursuant to Section 6 hereof).

Tax and Insurance Impound Fund; Other Reserves.

(a) Tax and Insurance Impound Fund. Borrower shall pay to Lender on the “Payment Date” (as defined in the Note) in each calendar month one-twelfth of the amount of Taxes and Insurance Premiums that Lender reasonably estimates will be payable during the next ensuing twelve (12) months. Borrower shall also pay to Lender on demand, a sum of money which Lender reasonably estimates, together with such monthly deposits, will be sufficient to make each payment of Taxes and Insurance Premiums at least 30 days prior to the date the same becomes initially due. Funds paid to Lender pursuant to this provision, together with any additions thereto, may be hereinafter called the “Tax and Insurance Impound Fund”. Lender will apply the Tax and Insurance Impound Fund to payments of Taxes and Insurance Premiums required to be made by Borrower pursuant to Sections 3 and 5 hereof. In making any payment relating to the Tax and Insurance Impound Fund, Lender may do so according to any bill, statement or estimate procured from the appropriate public office (with respect to Taxes) or insurer or agent (with respect to Insurance Premiums), without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof unless with respect to the payment of Taxes and Other Charges, Lender has received from Borrower, not less than thirty (30) days prior to the date on which such Taxes and Other Charges become delinquent and prior to Lender’s payment thereof, notice that Borrower is contesting such Taxes and Other Charges pursuant to, and in accordance with, Section 31 hereof, in which case, provided no Event of Default has occurred and is continuing, Lender shall not pay such Taxes and Other Charges except in accordance with Section 31 hereof or until (a) Lender receives notice from Borrower or the applicable taxing or assessing authority that such contest is resolved, or (b) an Event of Default occurs. If the amount of the Tax and Insurance Impound Fund shall exceed the amounts which Lender reasonably estimates shall be due for Taxes and Insurance Premiums in the following 12 months, Lender shall return any excess to Borrower or credit such excess against future payments to be made to the Tax and Insurance Impound Fund. If at any time Lender reasonably determines that the Tax and Insurance Impound Fund is not or will not be sufficient to pay the Taxes and Insurance Premiums as required herein, Lender may notify Borrower of such determination and Borrower shall increase its monthly payments to Lender by the amount that Lender reasonably estimates is sufficient to make up the deficiency at least thirty (30) days prior to delinquency of the Taxes and/or expiration of the Policies, as the case may be, provided Borrower receives not less than ten (10) days prior written notice of any such increase. No earnings or interest on the Tax and Insurance Impound Fund shall be payable to Borrower. In the event Borrower notifies Lender that it has paid the Taxes to the appropriate public office notwithstanding the funds available in the Tax and Insurance Impound Fund therefor, if Lender so elects at any time thereafter, Borrower shall provide, at Borrower’s expense, a tax service contract for the Term issued by a tax reporting agency acceptable to Lender. If Lender does not so elect, Borrower shall reimburse Lender for the cost of making annual tax searches throughout the Term.

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(b) Replacement Escrow Fund. At Closing, Borrower and Other Borrower shall reserve from the proceeds of the Loan an aggregate amount equal to $15,548.00; $5,597.28 of which shall be reserved by Borrower and $9,950.72 of which shall be reserved by Other Borrower. Borrower and Other Borrower shall also pay to Lender on the Payment Date in each calendar month an amount equal to $15,548.00 ($5,597.28 of which shall be reserved by Borrower and $9,950.72 of which shall be reserved by Other Borrower) which shall be deposited with and held by Lender in an interest-bearing account for the purposes specified in this Subsection. Funds paid to Lender pursuant to this Subsection, together with any interest thereon and additions thereto, may be referred to herein as the “Replacement Escrow Fund”. Borrower’s and Other Borrower’s obligation to pay the monthly amount for deposit into the Replacement Escrow Fund shall be suspended during any time when the balance in the Replacement Escrow Fund equals or exceeds $554,583.00. At such time as the balance is less than $554,583.00, then Borrower’s and Other Borrower’s obligation to make such monthly payments shall resume, subject to subsequent suspension and resumption in accordance with the foregoing. Borrower and Other Borrower shall utilize funds drawn from the Replacement Escrow Fund for the purchase, replacement and repairs of furnishings, fixtures and equipment required to be made to the Security Property or the Other Property and for any other work reasonably approved by Lender, provided such costs and expenses (i) are not incurred for routine maintenance at the Security Property or the Other Property , (ii) are not for items as to which other Reserves are established hereunder, and (iii) are categorized under generally accepted accounting principles as capital costs and not as operating expense. By means of example and not as a limitation, the Replacement Escrow Fund may be used for the following replacements: roofing, HVAC systems, window systems, flooring, landscaping, paving and appliances. Upon written application of Borrower and Other Borrower, Borrower and Other Borrower shall be entitled to draw upon the Replacement Escrow Fund to pay for costs for which such Reserve has been established after such costs shall have been incurred by Borrower and Other Borrower and invoiced, provided that the Disbursement Conditions shall have been satisfied. It is expressly agreed and understand that the Replacement Escrow Fund referenced in this Mortgage is the very same Replacement Escrow Fund which is identically referenced in the Other Mortgage. The Replacement Escrow Fund in both this Mortgage and the Other Mortgage shall be maintained in the aggregate by Lender with disbursement to Borrower or Other Borrower or otherwise as Lender may elect consistent with the terms and provisions of this Section 6(b) in the corresponding Section 6(b) of the Other Mortgage.

(c) Leasing Escrow Fund. Borrower and Other Borrower shall pay to Lender on the Payment Date in each calendar month an amount equal to $65,647.00, ($23,632.92 of which shall be paid by Borrower and $42,014.08 of which shall be paid by Other Borrower), which shall be deposited with and held by Lender in an interest-bearing account for the purposes specified in this Subsection. Funds paid to Lender pursuant to this Subsection, together with any interest thereon and additions thereto, may be referred to herein as the “Leasing Escrow Fund”. In addition, Borrower and Other Borrower shall pay to Lender for deposit in the Leasing Escrow Fund all funds received by Borrower or Other Borrower from or on behalf of tenants or lease guarantors in connection with the termination of any Lease, including, but not limited to, any settlement amounts, cancellation fees, penalties, drawings under letters of credit, debits to security deposits, and funds for tenant improvements, leasing commissions or other charges (collectively, “Lease Settlement Payments”). Borrower’s and Other Borrower’s obligation to pay the monthly amount for deposit into the Leasing Escrow Fund shall be suspended during any

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time when the balance in the Leasing Escrow Fund (exclusive of the amount of Lease Settlement Payments in connection with any Lease at the Security Property or the Other Property for less than 3,500 square feet of space that have been deposited therein) equals or exceeds $2,495,625.00. At such time as the balance (exclusive of Lease Settlement Payments in connection with any Lease at the Security Property or the Other Property for less than 3,500 square feet of space) is less than $2,495,625.00, then Borrower’s and Other Borrower’s obligation to make such monthly payments shall resume, subject to subsequent suspension and resumption in accordance with the foregoing. Borrower and Other Borrower shall utilize funds drawn from the Leasing Escrow Fund only for tenant improvement and leasing commission obligations incurred following the date hereof for new Leases entered into by Borrower in accordance with the provisions of Section 8 below and the corresponding Section 8 of the Other Mortgage. Upon written application of Borrower and Other Borrower, Borrower and Other Borrower shall be entitled to draw upon the Leasing Escrow Fund to pay for costs for which such Reserve has been established after such costs shall have been incurred by Borrower or Other Borrower and invoiced, provided that the Disbursement Conditions shall have been satisfied. It is expressly agreed and upon that the Leasing Escrow Fund referenced in this Mortgage is the very same Leasing Escrow Fund which is identically referenced in the Other Mortgage. The Leasing Escrow Fund in both this Mortgage and the Other Mortgage shall be maintained in the aggregate by Lender with disbursement to Borrower or Other Borrower or otherwise as Lender may elect consistent with the terms and provisions of this Section 6(c) in the corresponding Section 6(c) of the Other Mortgage.

(d) Security Interest. Borrower hereby pledges to Lender and grants to Lender a security interest in any and all monies now or hereafter deposited in the Tax and Insurance Impound Fund, the Replacement Escrow Fund and the Leasing Escrow Fund (each a “Reserve” and collectively “Reserves”) and all proceeds thereof as security for the payment of the Debt and performance of all obligations secured by this Security Instrument. Upon the occurrence and during the continuance of an Event of Default, (i) Lender shall have no obligation to disburse any amounts from any of the Reserves to the Borrower or otherwise, (ii) Lender is hereby authorized and shall be entitled to do any one or more of the following, at Lender’s election (1) continue to hold any moneys in any of the Reserves as security, (2) pay or apply any such moneys for the purposes of the applicable Reserve irrespective of the default, or (3) pay or apply any such moneys against any obligation of Borrower under the Loan Documents (including full or partial payment of the Debt) in any order that Lender may determine in its sole discretion.

(e) Disbursement Conditions. Where this Security Instrument provides that the “Disbursement Conditions” shall be satisfied, the same are as follows: (i) no Event of Default shall have occurred and continue without cure, (ii) Borrower shall provide to Lender a draw request on Lender’s standard form, together with such documentation and certifications as Lender may reasonably request, (iii) Borrower shall provide Lender with all invoices, receipts, lien waivers and other documentation of lawful and workmanlike progress or completion and lien-free status, all as may be reasonably requested by Lender, (iv) Borrower shall provide Lender such evidence as may be reasonably satisfactory to Lender that, after payment of the requested disbursement, the funds remaining in the applicable Reserve (together with deposits that are required to be made therein, if applicable) shall be sufficient to pay for the remainder of the work for which the Reserve was established, (v) Lender shall have completed such field inspections as it deems necessary, and Borrower shall pay any actual, out-of-pocket costs and

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expenses incurred by Lender in connection with the same, (vi) disbursements from each Reserve shall be requested no more frequently than once each month (except for the Tax and Insurance Impound Fund if Taxes and Insurance Premiums are due in the same month), and in the case of work to be performed and reimbursed pursuant to the Leasing Escrow Fund or the Replacement Escrow Fund, disbursement shall occur only after completion of the work except as provided in subsection 6(h) below, (vii) disbursement shall not be requested in amounts less than $1,000, and (viii) all documents and information provided under this provision shall be in form and substance satisfactory to Lender in its reasonable discretion.

(f) Partial Disbursements from the Leasing Escrow Fund and the Replacement Escrow Fund. If (1) the cost of a particular item of work to which any such request for disbursement from the Leasing Escrow Fund or the Replacement Escrow Fund (each, a “Work Reserve”) relates shall exceed $150,000 (“Work”), (2) the contractor performing such item of Work requires periodic payments pursuant to the terms of a written contract, and (3) Lender has approved in writing in advance such periodic payments (such approval not to be unreasonably withheld or delayed), a request for disbursement from such Work Reserve may be made after completion of a portion of the Work under such contract, provided (v) such contract requires payment upon completion of such portion of the Work, (w) the materials for which the request is made are on site at the Security Property or the Other Property, as applicable, and are properly secured or have been installed in the Security Property or the Other Property, as applicable, and (x) items (i), (ii), (iii), (iv), (v), (viii) and (ix) of the Disbursement Conditions have been satisfied.

(i) Each periodic payment disbursement from a Work Reserve, except for a final disbursement, shall be in the amount of actual costs incurred for completed Work, as certified by the Contractor performing such work or, to the extent required by Lender, in its reasonable discretion, an architect selected by Borrower or Other Borrower, as applicable, and reasonably approved by Lender (the “Approved Architect”), less a retainage equal to ten percent (10%) of the first fifty percent (50%) of such costs incurred and five percent (5%) of the remaining fifty percent (50%) of such costs incurred until such portion of the Work applicable to such retainage has been completed. The retainage shall in no event be less than the percentage of such costs that the contract with the relevant contractor or supplier specifies to be retained and advanced as part of the final disbursement. No funds will be advanced for materials stored at any Security Property or the Other Property, as applicable, unless such materials are properly stored and secured at the Security Property or the Other Property, as applicable, in accordance with the Borrower’s and Other Borrower’s customary procedures and sound construction practices as reasonably determined by Lender. The retainage shall not be released until the applicable contractor or the Approved Architect certifies to Lender that the portion of the Work applicable to such retainage has been completed substantially in accordance with the provisions of this Section 6(i) and that all material approvals for that portion of the Work have been obtained from all appropriate governmental authorities, and Lender receives evidence reasonably satisfactory to Lender that the costs of the Work have been paid in full or will be paid in full out of the retainage.

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Borrower, as applicable (in which event, Borrower or Other Borrower, as applicable, covenants and agrees to promptly pay such invoices) or, if an Event of Default has occurred and is continuing, at Lender’s option and in Lender’s sole and absolute discretion, directly to the contractor, supplier, materialman, mechanic or subcontractor indicated on said invoices unless already paid by Borrower or Other Borrower and Lender has received satisfactory evidence of such payment in which case Lender shall reimburse Borrower or Other Borrower, as applicable. In the event that Borrower or Other Borrower requests that any amounts be disbursed directly to Borrower or Other Borrower pursuant to the foregoing sentence, Borrower or Other Borrower, as applicable, shall be required to deliver evidence reasonably acceptable to Lender of payment of all invoices for which disbursements were previously made to Borrower or Other Borrower, as applicable, as a condition to such requested disbursement.

(iii) No more than one disbursement will be made by Lender from a Work Reserve in any calendar month. Lender shall not be required to make any periodic payment disbursement from a Work Reserve with respect to the Security Property or the Other Property unless such requested disbursement is in an amount equal to or greater than $10,000 or it is the last disbursement for such Work.

(iv) In connection with Lender’s advance approval of periodic payments for any partial disbursement from a Work Reserve, Lender reserves the right, at its option and as a condition to any such partial disbursement, to reasonably approve (1) all drawings and plans and specifications, if any, for any Work the anticipated cost of which will exceed $200,000, and (2) all contracts and work orders with materialmen, mechanics, suppliers, subcontractors, contractors and other parties providing labor or materials in connection with any Work the anticipated cost of which will exceed $200,000. Any such approval shall not be unreasonably withheld, conditioned or delayed and shall be deemed given if Lender fails to respond within ten (10) Business Days after Lender receives all information reasonably required to adequately review such drawings, plans and specifications, contracts or work orders.

(v) In addition to the above conditions, any retainage held by Lender pursuant to Section 6(h)(i) above in connection with any Work for which disbursement from the Leasing Escrow Fund is available shall, at Lender’s option, not be released until Borrower or Other Borrower, as applicable, has delivered to Lender an estoppel certificate or letter executed by the applicable tenant certifying that all applicable Work has been completed (except for minor or insubstantial details of construction that remain to be performed (i.e., so-called “punch list” items)) by Borrower or Other Borrower, as applicable, in accordance with the applicable Lease and that such tenant has accepted the premises covered thereby.

(g) General Provisions Regarding Reserves. Borrower’s and Other Borrower’s obligations to make deposits into each Reserve are separate from Borrower’s and Other Borrower’s obligations to make deposits into each other Reserve, and from its obligations to pay as and when due all principal, interest, and other amounts evidenced and secured by the Loan Documents. The Reserves shall be held in Lender’s name at one or more financial institutions selected by Lender in its reasonable discretion. Interest earned on each of the Reserves other than the Tax and Insurance Impound Fund shall be added to the applicable Reserve, and may be held, disbursed and applied in the same manner as other moneys in such Reserve; provided, however, by notice to Lender, Borrower and Other Borrower may collectively allocate interest accruals on

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the Leasing Escrow Fund amongst themselves and Lender will report such interest consistent with that designation. Lender shall have no obligation to produce any specific rate of return on any of the Reserves. Provided that Lender shall hold (and invest if applicable) the Reserves in accordance with the customary standards used by holders of such funds in connection with rated debt or rated pools of debt, Lender shall not be responsible for any loss. The Reserves are not and shall not be trust funds. Lender is authorized to commingle moneys held in the Reserves among the Reserves and with other moneys held by Lender. Nothing in this Section 6 shall excuse Borrower’s or Other Borrower’s performance of any obligation set forth elsewhere in this Security Instrument or in the Loan Documents.

7. Condemnation. Borrower shall promptly give Lender written notice of the actual or threatened commencement of any condemnation or eminent domain proceeding (a “Condemnation”) and shall deliver to Lender copies of any and all papers served in connection with such Condemnation. Following the occurrence of a Condemnation, Borrower, regardless of whether an Award (hereinafter defined) is available, shall promptly proceed to restore, repair, replace or rebuild the same to the extent practicable to be of at least equal value and of substantially the same character as immediately prior to such Condemnation, all to be effected in accordance with applicable law.

(a) Lender is hereby irrevocably appointed as Borrower’s attorney-in-fact, coupled with an interest, with exclusive power to collect, receive and retain any award or payment (“Award”) for any taking accomplished through a Condemnation (a “Taking”) and to make any compromise or settlement in connection with such Condemnation, subject to the provisions of this Security Instrument. Notwithstanding any Taking by any public or quasi-public authority (including, without limitation, any transfer made in lieu of or in anticipation of such a Taking), Borrower shall continue to pay the Debt at the time and in the manner provided for in the Note, in this Security Instrument and the other Loan Documents and the Debt shall not be reduced unless and until any Award shall have been actually received and applied by Lender to Lender’s actual, out-of-pocket expenses of collecting the Award and to discharge of the Debt. Borrower shall cause any Award that is payable to Borrower to be paid directly to Lender.

(b) In the event of any Condemnation where the Award is in an aggregate amount less than the lesser of (i) $900,000.00 or (ii) ten percent (10%) of the then outstanding original principal balance of the Note, and if, in the reasonable judgment of Lender, the Security Property can be restored within nine (9) months of the Condemnation and no later than six (6) months prior to the Maturity Date to an economic unit not less valuable (including an assessment of the impact of the termination of any Leases due to such Condemnation) and not less useful than the same was prior to the Condemnation, and after such restoration will adequately secure the outstanding balance of the Debt, then, if no Event of Default shall have occurred and be then continuing, the proceeds of the Award (after reimbursement of any actual, out-of-pocket expenses incurred by Lender) shall be applied to reimburse Borrower for the cost of restoring, repairing, replacing or rebuilding the Security Property or part thereof subject to Condemnation, in the manner set forth below. Borrower hereby covenants and agrees to commence and diligently to prosecute such restoring, repairing, replacing or rebuilding; provided always, that Borrower shall pay all costs (and if required by Lender, Borrower shall deposit the total thereof

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with Lender in advance) of such restoring, repairing, replacing or rebuilding in excess of the Award made available pursuant to the terms hereof.

(c) Except as provided above, the Award collected upon any Condemnation shall, at the option of Lender in its sole discretion, be applied to the payment of the Debt or applied towards the cost of restoring, repairing, replacing or rebuilding the Security Property or part thereof subject to the Condemnation, in the manner set forth below. Any such application to the Debt shall be without any prepayment consideration. Any such application to the Debt shall be applied to those payments of principal and interest last due under the Note but shall not postpone or reduce any payments otherwise required pursuant to the Note other than such last due payments. If the Security Property is sold, through foreclosure or otherwise, prior to the receipt by Lender of such Award, Lender shall have the right, whether or not a deficiency judgment on the Note shall be recoverable or shall have been sought, recovered or denied, to receive all or a portion of said Award sufficient to pay the Debt. In the event Lender elects for the Award to be applied to the payment of the Debt, Borrower and Other Borrower shall have the right to prepay the entirety of the Debt without any prepayment consideration within fifteen (15) days after Lender provides notice to Borrower of Lender’s election to so apply the Award. Notwithstanding the foregoing, in the event of a Condemnation, as defined in the Other Mortgage, with respect to the Other Property in which Lender elects for the Award, as defined in the Other Mortgage, to be applied to pay the entirety of the Other Loan, Borrower shall have the right to prepay the entirety of the Borrower Note without any prepayment consideration within fifteen (15) days after Lender notifies Other Borrower of Lender’s election to so apply such Award. In no event shall Borrower have the right to prepay the entirety of the Borrower Note pursuant to the terms hereof as a result of the application by Lender of a condemnation award unless the entirety of the Debt is simultaneously prepaid in full.

(d) In the event Borrower is entitled to payment of the Award received by Lender, such proceeds shall be disbursed from time to time upon Lender being furnished with (1) evidence reasonably satisfactory to it of the estimated cost of completion of the restoration, repair, replacement and rebuilding resulting from such condemnation, (2) funds or, at Lender’s option, assurances reasonably satisfactory to Lender that such funds are available, sufficient in addition to the proceeds of the Award to complete the proposed restoration, repair, replacement and rebuilding, and (3) such architect’s certificates, waivers of lien, contractor’s sworn statements, title insurance endorsements, bonds, plats of survey and such other evidences of costs, payment and performance as Lender may reasonably require and approve; and Lender may, in any event, require that all plans and specifications for such restoration, repair, replacement and rebuilding be submitted to and reasonably approved by Lender prior to commencement of work. No payment made prior to the final completion of the restoration, repair, replacement and rebuilding shall exceed ninety percent (90%) of the value of the work performed up to the completion of fifty percent (50%) of the work and thereafter ninety-five percent (95%) of the value of the work performed from time to time; funds other than proceeds of the Award shall be disbursed prior to disbursement of such proceeds; and at all times, the undisbursed balance of such proceeds remaining in hands of Lender, together with funds deposited for that purpose or irrevocably committed to the reasonable satisfaction of Lender by or on behalf of Borrower for that purpose, shall be at least sufficient in the reasonable judgment of Lender to pay for the costs of completion of the restoration, repair, replacement or rebuilding, free and clear of all liens or claims for lien. Any surplus which may remain out of the Award

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received by Lender after payment of such costs of restoration, repair, replacement or rebuilding shall, in the sole and absolute discretion of Lender, be retained by Lender and applied to payment of the Debt.

Leases and Rents.

(a) Borrower does hereby absolutely and unconditionally assign to Lender, all Borrower’s right, title and interest in all current and future Leases and Rents, it being intended by Borrower that this assignment constitutes a present, absolute assignment and not an assignment for additional security only. Such assignment to Lender shall not be construed to bind Lender to the performance of any of the covenants, conditions or provisions contained in any such Lease or otherwise impose any obligation upon Lender. Borrower agrees to execute and deliver to Lender such additional instruments, in form and substance satisfactory to Lender, as may hereafter be requested by Lender to further evidence and confirm such assignment. Nevertheless, subject to the terms of this Section, Lender grants to Borrower a revocable license to operate and manage the Security Property and to collect the Rents. Borrower shall hold the Rents, or a portion thereof, sufficient to discharge all current sums due on the Debt, in trust for the benefit of Lender for use in the payment of such sums. Upon and during the continuance of an Event of Default, without the need for notice or demand, the license granted to Borrower herein shall automatically be revoked, and Lender shall immediately be entitled to possession of all Rents, whether or not Lender enters upon or takes control of the Security Property. Lender is hereby granted and assigned by Borrower the right, at its option, upon revocation of the license granted herein, to enter upon the Security Property in person, by agent or by court-appointed receiver to collect the Rents. Any Rents collected after the revocation of the license may be applied toward payment of the Debt in such priority and proportions as Lender in its sole discretion shall deem proper. Anything to the contrary set forth herein or elsewhere notwithstanding, if Lender shall have required and Borrower shall have executed a Cash Management Agreement in favor of Lender, then, except to the extent that Lender in its sole discretion determines otherwise, (i) the provisions of the Cash Management Agreement shall control over any conflicting provisions of this Section, (ii) the provisions of the Cash Management Agreement which require that Rents shall be delivered or paid directly to a lockbox or similar cash control mechanism shall take priority over any conflicting provisions herein or elsewhere in the Loan Documents, and (iii) the provisions of the Cash Management Agreement which specify the order of application of Rents shall take priority over any conflicting provisions in this Section or elsewhere in the Loan Documents, other than provisions granting to Lender any rights following and during the continuance of a default or an Event of Default.

(b) All non-residential Leases executed after the date hereof shall provide that they are subordinate to this Security Instrument and that the tenant agrees to attorn to Lender. Unless specifically approved by Lender, none of the Leases shall contain any option to purchase, any right of first refusal to purchase or, with respect to any Major Lease, any right to terminate the lease term (except in the event of the destruction or condemnation of all or substantially all of the Security Property) to the extent such termination right would disqualify such Lease from being a Major Lease. Leases executed after the date hereof shall not contain any provisions which adversely affect the Security Property or have a material adverse effect on the rights of any holder of the Loan without the prior written consent of Lender. Each tenant shall conduct

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business only in that portion of the Security Property covered by its lease. Upon request, Borrower shall furnish Lender with executed copies of all Leases.

(c) Borrower shall not, without the prior consent of Lender which consent shall not be unreasonably withheld (i) enter into any Lease of all or any part of the Security Property in excess of (x) 90,000 rentable square feet (inclusive of expansion options), or (y) 20,000 rentable square feet (inclusive of expansion options) with a term greater than five (5) years (inclusive of extension options) (a “Major Lease”), (ii) cancel, terminate, abridge or otherwise modify the terms of any Major Lease, or accept a surrender thereof, (iii) consent to any assignment of or subletting under any Major Lease not in accordance with its terms, (iv) cancel, terminate, abridge or otherwise modify any guaranty of any Major Lease or the terms thereof, (v) accept prepayments of installments of Rents for a period of more than one (1) month in advance or (vi) further assign the whole or any part of the Leases or the Rents except to Subordinate Lender pursuant to the Subordinate Loan Documents. If Lender fails to respond to a request for consent hereunder within ten (10) business days of receipt thereof, such consent shall be deemed granted, provided that such request shall have been accompanied by all information reasonably requested by Lender or reasonably necessary for Lender to evaluate such request and shall have clearly stated, in 14 point type or greater, that if Lender fails to respond to such request within ten (10) business days, Lender’s consent shall be deemed to have been granted. Notwithstanding the foregoing, Lender’s consent shall not be required for renewal Leases containing economic terms which are no less favorable than the terms that are existing under the original Lease. In addition, Borrower shall not (A) lease all or any part of the Security Property, (B) cancel, terminate, abridge or otherwise modify the terms of any Lease, or accept a surrender thereof, (C) consent to any assignment of or subletting under any Lease not in accordance with its terms or (D) cancel, terminate, abridge or otherwise modify any guaranty of any Lease or the terms thereof, unless such actions are exercised for a commercially reasonable purpose in arms-length transactions for market rate terms (provided, however, that Borrower may, subject to all other terms of this Mortgage, lease any part of the Security Property to an affiliated entity if such action is exercised for a commercially reasonable purpose and for market rate terms).

(d) Borrower (i) shall observe and perform in all material respects all the obligations imposed upon the lessor under the Leases and shall not do or permit to be done anything to impair the value of the Leases as security for the Debt; (ii) shall promptly send copies to Lender of all notices of default which Borrower shall send or receive thereunder; (iii) shall use commercially reasonable efforts to enforce all the material terms, covenants and conditions contained in the Leases upon the part of the lessee thereunder to be observed or performed, short of termination thereof; (iv) shall not collect any of the Rents more than one (1) month in advance; (v) shall not execute any other assignment of the lessor’s interest in the Leases or the Rents other than any such assignment set forth specifically in the Subordinate Loan Documents; (vi) shall deliver to Lender, upon Lender’s reasonable request, tenant estoppel certificates from each commercial tenant at the Security Property in form and substance reasonably satisfactory to Lender, provided that Borrower shall not be required to deliver such certificates more frequently than one (1) time in any calendar year (except in the event an Event of Default has occurred and remains uncured); and (vii) shall execute and deliver at the reasonable request of Lender all such further assurances, confirmations and assignments in connection with the Security Property as Lender shall from time to time reasonably require.

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(e) All security deposits of tenants, whether held in cash or any other form, shall not be commingled with any other funds of Borrower and, if cash, shall be deposited by Borrower at such commercial or savings bank or banks, or otherwise held in compliance with applicable law, as may be reasonably satisfactory to Lender. Any bond or other instrument which Borrower is permitted to hold in lieu of cash security deposits under any applicable legal requirements shall be maintained in full force and effect in the full amount of such deposits unless replaced by cash deposits as hereinabove described, shall be issued by an institution reasonably satisfactory to Lender, shall, if permitted pursuant to any legal requirements, name Lender as payee or Lender thereunder (or at Lender’s option, be fully assignable to Lender) and shall, in all respects, comply with any applicable legal requirements and otherwise be reasonably satisfactory to Lender. Borrower shall, upon request, provide Lender with evidence reasonably satisfactory to Lender of Borrower’s compliance with the foregoing. Following the occurrence and during the continuance of any Event of Default, Borrower shall, upon Lender’s request, if permitted by any applicable legal requirements, turn over to Lender the security deposits with respect to all or any portion of the Security Property, to be held by Lender subject to the terms of the Leases.

9. Maintenance and Use of Security Property. Borrower shall cause the Security Property to be maintained in a good and safe condition and repair. The Improvements and the Equipment shall not be removed, demolished or materially altered (except for normal replacement of the Equipment and in connection with the performance of tenant improvements work required under applicable Leases) without the consent of Lender. Borrower shall promptly comply with all laws, orders and ordinances affecting the Security Property, or the use thereof. Borrower shall not initiate, join in, acquiesce in, or consent to any change in any private restrictive covenant, zoning law or other public or private restriction, limiting or defining the uses which may be made of the Security Property or any part thereof. If under applicable zoning provisions the use of all or any portion of the Security Property is or shall become a nonconforming use, Borrower will not cause or permit such nonconforming use to be discontinued or abandoned without the express written consent of Lender. Except as specifically approved by Lender, Borrower shall not (i) change the use of the Security Property, (ii) permit or suffer to occur any waste on or to the Security Property or to any portion thereof or (iii) take any steps whatsoever to convert the Security Property, or any portion thereof, to a condominium or cooperative form of management. Borrower will not install or permit to be installed on the Premises any underground storage tank.

10.

Transfer or Encumbrance of the Security Property.

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permit the Security Property or any part thereof to be sold, conveyed, alienated, mortgaged, encumbered, pledged or otherwise transferred. During the six month period after Closing, any transfer for which Lender’s consent is required under this Section 10 shall be conditioned upon, among other things requested by lender, written confirmation from Lender that such transfer shall not affect or impair Lender’s underwritten loan to value requirements.

(b) A sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer within the meaning of this Section 10 shall be deemed to include (i) an installment sales agreement wherein Borrower agrees to sell the Security Property or any part thereof for a price to be paid in installments; (ii) an agreement by Borrower leasing all or a substantial part of the Security Property for other than actual occupancy by a space tenant thereunder; (iii) a sale, assignment or other transfer of, or the grant of a security interest in, Borrower’s right, title and interest in and to any Leases or any Rents; (iv) if Borrower, Guarantor or any general partner or managing member of Borrower or Guarantor is a corporation, the voluntary or involuntary sale, conveyance or transfer of such corporation’s stock (or the stock of any corporation directly or indirectly controlling such corporation by operation of law or otherwise) or the creation or issuance of new stock in all instances in one or a series of transactions by which an aggregate of more than 49% of such corporation’s stock shall be vested in a party or parties who are not now stockholders or any change in the control of such corporation; (v) if Borrower, any Guarantor or any general partner of Borrower or any Guarantor is a limited or general partnership, joint venture or limited liability company, the change, removal, resignation or addition of a general partner, managing member, joint venturer or the transfer, assignment or pledge of any ownership interest of any general partner, managing member or joint venturer in Borrower or the transfer, assignment or pledge of any ownership interest in any general partner, managing member or joint venturer; or (vi) if Borrower or any Guarantor is a limited partnership or limited liability company, the voluntary or involuntary sale, conveyance, transfer or pledge of any limited partnership interests or non-managing membership interests or the creation or issuance of new limited partnership interests or non-managing membership interests, by which an aggregate of more than 49% of such limited partnership interests or non-managing membership interests are held by, or pledged to, parties who are not currently limited partners or members.

(c) Lender shall not be required to demonstrate any actual impairment of its security or any increased risk of default hereunder in order to declare the Debt immediately due and payable upon Borrower’s sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer of the Security Property in violation of this Section 10 without Lender’s consent. This provision shall apply to every sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer of the Security Property in violation of this Section 10 regardless of whether voluntary or not, or whether or not Lender has consented to any previous sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer of the Security Property.

(d) Lender’s consent to one sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer of the Security Property shall not be deemed to be a waiver of Lender’s right to require such consent to any future occurrence of same. Any sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer of the Security Property made in contravention of this Section shall be null and void and of no force and effect.

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(e) Borrower agrees to bear and shall pay a non-refundable application fee in the amount of $5,000 and to reimburse Lender on demand for all reasonable out-of-pocket expenses (including, without limitation, reasonable fees and expenses of attorneys and accountants, fees and expenses of any applicable rating agency, title search costs and title insurance endorsement premiums) incurred by Lender in connection with the review, approval and documentation of any such sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer.

(f) Lender’s consent to the sale or transfer of the Security Property will not be unreasonably withheld or delayed after consideration of all relevant factors, provided that:

(i) No Event of Default or event which with the giving of notice or the passage of time would constitute an Event of Default shall have occurred and remain uncured;

(ii) The proposed transferee (“Transferee”) shall be a reputable entity or person of good character, creditworthy, with sufficient financial worth considering the obligations assumed and undertaken, as evidenced by financial statements and other information reasonably requested by Lender with an organizational structure and documentation reasonably acceptable to Lender;

(iii) The Transferee and its property manager shall have sufficient experience in the ownership and management of properties similar to the Security Property, and Lender shall be provided with reasonable evidence thereof (and Lender reserves the right to approve the Transferee without approving the substitution of the property manager);

(iv) Lender, at its option, shall have recommendations in writing from the Rating Agencies to the effect that such transfer will not result in a requalification, reduction or withdrawal of any current securities rating assigned in a Securitization. The term “Rating Agencies” as used herein shall mean each of Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc., Moody’s Investors Service, Inc., Duff and Phelps Credit Rating Co. and Fitch Investors Service, L.P., or any other nationally-recognized statistical rating agency which has been approved by Lender;

(v) The Transferee shall have executed and delivered to Lender an assumption agreement in form and substance reasonably acceptable to Lender, evidencing such Transferee’s agreement to abide and be bound by the terms of the Note, this Security Instrument and the other Loan Documents, together with such legal opinions and title insurance endorsements as may be reasonably requested by Lender;

(vi) A party associated with the Transferee approved by Lender in its sole discretion assumes the obligations of the current indemnitor under its guaranty or indemnity agreement and such party associated with the Transferee executes, without any cost or expense to Lender, a new guaranty or indemnity agreement in form and substance reasonably satisfactory to Lender and delivers such legal opinions as Lender may reasonably require;

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simultaneously with the closing of such sale or transfer and Borrower executes, without any cost or expense to Lender, such documents and agreements as Lender shall reasonably require to evidence and effectuate the ratification of said personal liability. Borrower shall be released from and relieved of any personal liability under the Note or any of the other Loan Documents for any acts or events occurring or obligations arising after the closing of such sale or transfer which are not caused by or arising out of any acts or events occurring or obligations arising prior to or simultaneously with the closing of such sale or transfer;

(viii) Such sale or transfer is not construed so as to relieve any current indemnitor of its obligations under any guaranty or indemnity agreement for any acts or events occurring or obligations arising prior to or simultaneously with the closing of such sale or transfer, and each such current indemnitor executes, without any cost or expense to Lender, such documents and agreements as Lender shall reasonably require to evidence and effectuate the ratification of each such guaranty and indemnity agreement. Each such current indemnitor shall be released from and relieved of any of its obligations under any guaranty or indemnity agreement executed in connection with the loan secured hereby for any acts or events occurring or obligations arising after the closing of such sale or transfer which are not caused by or arising out of any acts or events occurring or obligations arising prior to or simultaneously with the closing of such sale or transfer; and

(ix) Lender shall have received an assumption fee equal to the greater of (i) $15,000.00 or (ii) one-half of one percent (0.5%) of the Debt on the date of such assumption and the payment of, or reimbursement for, all reasonable costs and expenses actually incurred by Lender (including reasonable attorneys’ fees and costs) in connection with such assumption.

(x) Such sale or transfer shall occur only with the simultaneous sale or transfer of the Other Property to the identical Transferee in accordance with the terms of the Other Mortgage.

(g)

Intentionally deleted.

(h) Notwithstanding anything to the contrary contained herein, so long as Borrower is Continental Towers Associates III, LLC, a Delaware limited liability company, Borrower is permitted to incur, and shall contemporaneously herewith amend and restate, the subordinate debt outstanding as of the date of this Mortgage (the “Subordinate Debt”) in the amount of $46,701,459.00 from PGRT Equity, LLC, a Delaware limited liability company (the “Subordinate Lender”) a wholly-owned subsidiary of Prime Group Realty, L.P., a Delaware limited partnership, subject to Borrower’s strict compliance with the following requirements:

(i) The Subordinate Debt shall only be undertaken pursuant to those amended and restated loan documents reasonably acceptable to Lender and executed contemporaneously herewith (the “Subordinate Loan Documents”), which Subordinate Loan Documents shall not be amended or modified in any manner absent obtaining the prior written consent of Lender; provided, however, that upon a transfer of the Security Property from Borrower to a Transferee pursuant to the terms and conditions of Section 10(j) below, Lender shall not unreasonably withhold its consent to non-economic modifications of the Subordinate

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Loan Documents provided that such modifications do not adversely affect the Loan, Borrower, or Security Property in any manner;

(ii) The Subordinate Debt shall be secured only by a lien on the Security Property and the Other Property, an assignment of leases and rents, and an assignment of Borrower’s rent account, each which shall be expressly subject and subordinate to the lien of this Mortgage; and

(iii) Subordinate Lender shall not be entitled to exercise any rights or remedies under the Subordinate Loan Documents or otherwise (including, but not limited to foreclosure of the Security Property) without the prior written consent of Lender except in a manner consistent, and in strict accordance, with Section 10(i) below and the Amended and Restated Subordination and Standstill Agreement between Lender and Subordinate Lender dated of even date herewith (the “Subordination and Standstill Agreement”).

(i) Notwithstanding anything to the contrary contained herein or in the Subordinate Loan Documents, Subordinate Lender shall have the right, to the extent available under the Subordinate Loan Documents, to foreclose the Security Property, or accept a deed in lieu of foreclosure of the Security Property (either such transfer is referred to hereinafter as a “Foreclosure”), only in the event Subordinate Lender obtains Lender’s prior written consent to do so. Lender’s consent to a Foreclosure by Subordinate Lender pursuant to the terms of the Subordinate Loan Documents will not be unreasonably withheld, conditioned or delayed after consideration of all relevant factors, provided that:

(i) No Event of Default shall have occurred and remain uncured (excluding specifically any default under the Subordinate Loan Documents);

(ii) The proposed Transferee is Prime (hereinafter defined) or an affiliate of Prime that is directly or indirectly owned and controlled entirely by Prime;

(iii) The proposed Transferee shall be a reputable entity or person of good character, creditworthy, with sufficient financial worth considering the obligations assumed and undertaken, as evidenced by financial statements and other information reasonably requested by Lender. Lender acknowledges that Prime meets this requirement as of the date of this Mortgage;

(iv) The proposed Transferee shall have an organizational structure and documentation reasonably acceptable to Lender;

(v) The proposed Transferee and its property manager shall have sufficient experience in the ownership and management of properties similar to the Security Property, and Lender shall be provided with reasonable evidence thereof (and Lender reserves the right to approve the Transferee without approving the substitution of the property manager);

(vi) Lender, at its option, shall have recommendations in writing from the Rating Agencies to the effect that such transfer will not result in a requalification, reduction or withdrawal of any current securities rating assigned in a Securitization;

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(vii) The proposed Transferee shall have executed and delivered to Lender an assumption agreement in form and substance reasonably acceptable to Lender, evidencing such Transferee’s agreement to abide and be bound by the terms of the Note, this Security Instrument and the other Loan Documents, together with such legal opinions and title insurance endorsements as may be reasonably requested by Lender;

(viii) Prime is, and continues upon such transfer to be, an indemnitor under the Guaranty for the benefit of Lender dated as of even date herewith and executes, without any cost or expense to Lender, a new guaranty or indemnity agreement in form and substance satisfactory to Lender and delivers such legal opinions as Lender may reasonably require;

(ix) Subject to the provisions of Section 2.04 of the Note, such sale or transfer is not construed so as to relieve Borrower of any personal liability under the Note or any of the other Loan Documents for any acts or events occurring or obligations arising prior to or simultaneously with the closing of such sale or transfer and Borrower executes, without any cost or expense to Lender, such documents and agreements as Lender shall reasonably require to evidence and effectuate the ratification of said personal liability. Borrower shall be released from and relieved of any personal liability under the Note or any of the other Loan Documents for any acts or events occurring or obligations arising after the closing of such sale or transfer which are not caused by or arising out of any acts or events occurring or obligations arising prior to or simultaneously with the closing of such sale or transfer;

(x) The Foreclosure of the Subordinate Debt shall not occur until the maturity date, or upon a default by Borrower, of the Subordinate Debt;

(xi) The lien of this Mortgage and all of Lender’s rights and remedies under the Loan Documents shall not be adversely affected in any manner by the Foreclosure, or, if so affected, Borrower and Prime shall execute any and all documentation Lender reasonably deems necessary or appropriate to protect such rights and remedies of Lender;

(xii) Borrower shall reimburse Lender for all reasonable costs and expenses (including all reasonable attorneys’ fees and costs) actually incurred by Lender in connection with any such transfer;

(xiii) No action is taken by the Subordinate Lender to force or place Borrower into bankruptcy and the proposed Transferee assumes or satisfies in full all permitted liabilities of Borrower; and

(xiv) The Foreclosure of the Subordinate Debt shall not occur without the simultaneous transfer of the Other Property to the identical Transferee in accordance with the requirements of the Other Mortgage.

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Delaware corporation (“CTAM”) and the entirety (but expressly not only a portion) of his non-managing membership interest in CTA General Partner, LLC, a Delaware limited liability company (“CTAGP”) to either (A) Prime Group Realty, L.P., a Delaware limited liability company (“Prime”), (B) an affiliate of Prime that is directly or indirectly owned and controlled entirely by Prime, or (C) an executive officer of Prime; and (2) Richard Heise, Sr. shall have the right to transfer the entirety (but expressly not only a portion) of his membership interest in Continental Towers Associates II, LLC, a Delaware limited liability company, the sole member of Borrower to either (A) Prime or (B) an affiliate of Prime that is directly or indirectly owned and controlled entirely by Prime; each subject to the following conditions precedent:

(i) No Event of Default or event which with the giving of notice or the passage of time would constitute an Event of Default shall have occurred and remain uncured;

(ii) Borrower provides to Lender thirty (30) days prior notice of any such transfer;

(iii) If the proposed Transferee is an entity or person other than Prime, the proposed Transferee shall be reasonably acceptable to Lender, considering all relevant factors;

(iv) Subject to the provisions of Section 2.04 of the Note, such transfer is not construed so as to relieve Borrower of any personal liability under the Note or any of the other Loan Documents and Borrower executes, without any cost or expense to Lender, such documents and agreements as Lender shall reasonably require to evidence and effectuate the ratification of said personal liability;

(v) Such sale or transfer is not construed so as to relieve any current indemnitor of its obligations under any guaranty or indemnity agreement for any acts or events occurring or obligations arising prior to or simultaneously with the closing of such sale or transfer, and each such current indemnitor executes, without any cost or expense to Lender, such documents and agreements as Lender shall reasonably require to evidence and effectuate the ratification of each such guaranty and indemnity agreement;

(vi) Prime is, and continues upon such transfer to be, an indemnitor under the Guaranty for the benefit of Lender dated as of even date herewith; and

(vii) Borrower shall reimburse Lender for all reasonable costs and expenses (including all reasonable attorneys’ fees and costs) actually incurred by Lender in connection with any such transfer.

(k) Notwithstanding anything in this Section 10 to the contrary, so long as Prime is the Guarantor, Lender’s consent shall not be required, nor shall the payment of any application, assumption or transfer fees be due, in connection with:

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PGRT for (x) limited partnership interests in Guarantor or (y) shares of any outstanding class of equity securities of PGRT, or

(B)(1) the transfer to a Permitted Transferee (as defined below) of all or substantially all of assets of PGRT or Guarantor which results in a change of control of Guarantor or PGRT, or (2) the transfer to a Permitted Transferee of more than 49% of the ownership interests in Guarantor or PGRT, or (3) any merger, consolidation, or other corporate reorganization of Guarantor or PGRT with or into a Permitted Transferee, shall be permitted subject to the following conditions precedent:

(i)

No Event of Default shall have occurred and remain uncured;

(ii) Borrower provides to Lender thirty (30) days prior notice of any such transfer;

(iii) Such transfer is not construed so as to relieve Prime or its successor in the case of Section 10(k)(B)(3) above, of its obligations under any guaranty or indemnity agreement for any acts or events occurring or obligations arising prior to or simultaneously with the closing of such sale or transfer, and Prime or its successor in the case of Section 10(k)(B)(3) above, executes, without any cost or expense to Lender, such documents and agreements as Lender shall reasonably require to evidence and effectuate the ratification of each such guaranty and indemnity agreement; and

(iv) Lender shall have received reimbursement for, all reasonable costs and expenses actually incurred by Lender (including reasonable attorneys’ fees and costs) in connection with such transfer.

(l) For purposes of Section 10(k) above, “Permitted Transferee” shall mean any of the following entities:

(i) a pension fund, pension trust or pension account that immediately prior to such transfer owns, directly or indirectly, total gross real estate assets of at least the greater of (A) $500,000,000 or (B) an amount equal to the amount of total gross real estate assets of PGRT immediately prior to the proposed transfer to Permitted Transferee;

(ii) a pension fund advisor who (i) immediately prior to such transfer, controls, directly or indirectly, at least the greater of (A) $500,000,000 of total gross real estate assets or (B) total gross real estate assets equal to the amount of total gross real estate assets of PGRT immediately prior to the proposed transfer to Permitted Transferee, and (ii) is acting on behalf of one or more pension funds that, in the aggregate, satisfy the requirements of clause (a) of this definition;

(iii) an insurance company which is subject to supervision by the insurance commissioner, or a similar official or agency, of a state or territory of the United States (including the District of Columbia) which, immediately prior to such transfer, controls, directly or indirectly, total gross real estate assets of at least the greater of (A) $500,000,000 or (B) an amount equal to the amount of gross real estate assets of PGRT immediately prior to the proposed transfer to Permitted Transferee;

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(iv) a corporation organized under the banking laws of the United States or any state or territory of the United States (including the District of Columbia) which, immediately prior to such transfer, controls, directly or indirectly total gross real estate assets of at least the greater of (A) $500,000,000 or (B) an amount equal to the amount of gross real estate assets of PGRT immediately prior to the proposed transfer to Permitted Transferee;

(v) any other entity who (i) owns or operates, directly or indirectly, at least five (5) Class A office buildings totaling no less than the greater of (A) 4,000,000 square feet (exclusive of the Security Property) or (B) or the square footage of all such office buildings owned, directly or indirectly, by PGRT immediately prior to the proposed transfer, (ii) has a net worth, determined as of a date no more than six (6) months prior to the date of such transfer, of at least the greater of (A) the net worth of PGRT as of the closing date of the Loan or (B) the net worth of PGRT as of the date which is six (6) months prior to the date of such transfer and (iii) immediately prior to such transfer, controls, directly or indirectly, total gross real estate assets of at least the greater of (A) $500,000,000 or (B) an amount equal to the amount of gross real estate assets owned, directly or indirectly, by PGRT immediately prior to the proposed transfer to Permitted Transferee, provided such entity is reasonably acceptable to Lender based upon, among other things, its credit history and general reputation; or

(vi) any entity in which more than fifty percent (50%) of the ownership interests are owned directly or indirectly by any of the entities listed in subsections (iii) through (v) of this definition of “Permitted Transferee”, or any combination of more than one such entity, and which is controlled directly or indirectly by such entity or entities;

in each event (i) with respect to which Lender shall have received information satisfactory to it confirming that neither the proposed Permitted Transferee nor any affiliate of the proposed Permitted Transferee (A) is on the OFAC List or would, if such entity assumes the Loan or obtains an interest in Borrower, cause Lender to be in violation of any applicable statute, rule, regulation or other law or (B) has been, within the seven (7) years prior to the proposed Transfer, subject to any material, uncured event of default in connection with a loan financing which resulted in litigation or an acceleration of indebtedness or the subject of any bankruptcy, reorganization or insolvency proceeding, and (ii) with respect to which such entity shall have sufficient experience in the ownership and management of properties similar to the Security Property, as determined by Lender in its reasonable discretion, and Lender shall have been provided with reasonable evidence thereof.

11. Representations and Covenants Concerning the Borrower and Security Property. Borrower represents, warrants and covenants as follows:

(a) Organization and Existence. Each Borrower is duly organized and validly existing as a limited liability company in good standing under the laws of Delaware and in all other jurisdictions in which Borrower is transacting business. Borrower has the power and authority to execute, deliver and perform the obligations imposed on it under the Loan Documents and to consummate the transactions contemplated by the Loan Documents. Each Borrower and any managing member have delivered to Lender true and correct copies of their organizational documents and there are no other documents or agreements which supplement, amend or otherwise modify such organizational documents.

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(b) Authorization. Borrower has taken all necessary actions for the authorization of the borrowing on account of the Loan and for the execution and delivery of the Loan Documents, including, without limitation, that those members of Borrower whose approval is required by the terms of Borrower’s organizational documents have duly approved the transactions contemplated by the Loan Documents and have authorized execution and delivery thereof by the respective signatories. To the best of Borrower’s knowledge, no other consent by any local, state or federal agency is required in connection with the execution and delivery of the Loan Documents.

(c) Valid Execution and Delivery. All of the Loan Documents requiring execution by Borrower have been duly and validly executed and delivered by Borrower.

(d) Enforceability. All of the Loan Documents constitute valid, legal and binding obligations of Borrower and are fully enforceable against Borrower in accordance with their terms by Lender and its successors, transferees and assigns, subject only to bankruptcy laws and general principles of equity.

(e) No Defenses. The Note, this Security Instrument and the other Loan Documents are not subject to any right of rescission, set-off, counterclaim or defense, nor would the operation of any of the terms of the Note, this Security Instrument or any of the other Loan Documents, or the exercise of any right thereunder, render this Security Instrument unenforceable, in whole or in part, or subject to any right of rescission, set-off, counterclaim or defense, including the defense of usury. None of Borrower, Guarantor, nor any constituent (irrespective of the number of tiers of ownership) partner, member, manager, shareholder, officer, director or other person related to Borrower (the “Borrower Affiliates”) has any claim or right whatsoever against Lender or any shareholder, director, officer, member, manager, partner, employee, agent or attorney of Lender, and their successors and assigns (the “Lender Parties”), except only for the express contractual obligations of Lender set forth in the Loan Documents which are executed and delivered to become first effective as of this date. Any rights or claims contrary to this provision, whether known or unknown, are hereby expressly waived, including without limitation any such rights or claims arising from any course of dealing, statement, agreement, assurance, or inducement, document or instrument to which Lender or any other Lender Party is a party or otherwise is bound.

(f) Defense of Usury. Borrower knows of no facts that would support a claim of usury to defeat or avoid its obligation to repay the principal of, interest on, and other sums or amounts due and payable under, the Loan Documents.

(g) No Conflict/Violation of Law. The execution, delivery and performance of the Loan Documents by the Borrower will not cause or constitute a default under or conflict with the organizational documents of Borrower, any Guarantor or any general partner or managing member of Borrower or any Guarantor. To the best of Borrower’s knowledge, after due inquiry and investigation, the execution, delivery and performance of the obligations imposed on Borrower under the Loan Documents will not cause Borrower to be in default, including after due notice or lapse of time or both, under the provisions of any agreement, judgment or order to which Borrower is a party or by which Borrower is bound.

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(h) Compliance with Applicable Laws and Regulations. To the best of Borrower’s knowledge, after due inquiry and investigation, all of the Improvements and the use of the Security Property comply in all material respects with, and shall remain in compliance in all material respects with, all applicable statutes, rules, regulations and private covenants now or hereafter relating to the ownership, construction, use or operation of the Security Property, including all applicable statutes, rules and regulations pertaining to requirements for equal opportunity, anti-discrimination, fair housing, environmental protection, zoning and land use. To the best of Borrower’s knowledge, after due inquiry and investigation, the Improvements comply with, and shall remain in compliance with, applicable health, fire and building codes. To the best of Borrower’s knowledge, after due inquiry and investigation, there is no evidence of any illegal activities relating to controlled substances on the Security Property. To the best of Borrower’s knowledge, after due inquiry and investigation, all certifications, permits, licenses and approvals, including, without limitation, certificates of completion and occupancy permits required for the legal use, occupancy and operation of the Security Property as an office building have been obtained and are in full force and effect. To the best of Borrower’s knowledge, after due inquiry and investigation, all of the Improvements comply with all material requirements of any applicable zoning and subdivision laws and ordinances.

(i) Consents Obtained. All consents, approvals, authorizations, orders or filings with any court or governmental agency or body, if any, required for the execution, delivery and performance of the Loan Documents by Borrower have been obtained or made.

(j) No Litigation. There are no pending actions, suits or proceedings, arbitrations or governmental investigations against the Security Property, an adverse outcome of which would materially affect the Borrower’s performance under the Note, this Security Instrument or the other Loan Documents.

(k) Title. Borrower has good and marketable fee simple title to the Security Property, and good title to the Equipment, subject to no liens, charges or encumbrances other than the Permitted Exceptions. The possession of the Security Property has been peaceful and undisturbed and title thereto has not been disputed or questioned to the best of Borrower’s knowledge.

(l) Permitted Exceptions. The Permitted Exceptions do not and will not materially and adversely affect (1) the ability of Borrower to pay in full the principal and interest on the Note in a timely manner or (2) the use of the Security Property for the use currently being made thereof, the operation of the Security Property as currently being operated or the value of the Security Property.

(m) First Lien. Upon the execution by Borrower and the recording of this Security Instrument, and upon the execution and filing of UCC-1 financing statements or amendments thereto, Lender will have a valid first lien on the Security Property and a valid security interest in the Equipment subject to no liens, charges or encumbrances other than the Permitted Exceptions.

(n) ERISA. Borrower has made and shall continue to make all required contributions to all employee benefit plans, if any, and Borrower has no knowledge of any

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material liability which has been incurred by Borrower which remains unsatisfied for any taxes or penalties with respect to any employee benefit plan or any multi-employer plan, and each such plan has been administered in compliance with its terms and the applicable provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and any other federal or state law.

(o) Contingent Liabilities. Borrower has no known material contingent liabilities.

(p) No Other Obligations. Borrower has no material financial obligation under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which Borrower is a party or by which Borrower or the Security Property is otherwise bound, other than (a) obligations incurred in the ordinary course of the operation of the Security Property, (b) obligations under this Security Instrument and the other Loan Documents, and (c) obligations under the Subordinate Loan Documents. No member or partner has pledged or otherwise conveyed their respective ownership interests in Borrower as security for any financial obligation of Borrower or such member or partner.

(q) Fraudulent Conveyance. Borrower (1) has not entered into the Loan or any Loan Document with the actual intent to hinder, delay, or defraud any creditor and (2) received reasonably equivalent value in exchange for its obligations under the Loan Documents. Giving effect to the Loan contemplated by the Loan Documents, including the effect of Section 5 of the Subordination and Standstill Agreement on the Subordinate Lender’s rights under the Subordinate Loan Documents, the fair saleable value of Borrower’s assets exceed and will, immediately following the execution and delivery of the Loan Documents, exceed Borrower’s total liabilities, including, without limitation, subordinated, unliquidated, disputed or contingent liabilities. Giving effect to the Loan contemplated by the Loan Documents, including the effect of Section 5 of the Subordination and Standstill Agreement on the Subordinate Lender’s rights under the Subordinate Loan Documents, The fair saleable value of the Borrower’s assets is and will, immediately following the execution and delivery of the Loan Documents, be greater than Borrower’s probable liabilities, including the maximum amount of its contingent liabilities or its debts as such debts become absolute and matured. Borrower’s assets do not and, immediately following the execution and delivery of the Loan Documents will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. Borrower does not intend to, and does not believe that it will, incur debts and liabilities (including, without limitation, contingent liabilities and other commitments) beyond its ability to pay such debts as they mature (taking into account the timing and amounts to be payable on or in respect of obligations of Borrower).

(r) Investment Company Act. Borrower is not (1) an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended; (2) a “holding company” or a “subsidiary company” of a “holding company” or an “affiliate” of either a “holding company” or a “subsidiary company” within the meaning of the Public Utility Holding Company Act of 1935, as amended; or (3) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money.

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(s) Access/Utilities. The Security Property has adequate rights of access to public ways and is served by adequate water, sewer, sanitary sewer and storm drain facilities. All public utilities necessary to the continued use and enjoyment of the Security Property as presently used and enjoyed are located in the public right-of-way abutting the Security Property, and all such utilities are connected so as to serve the Security Property without passing over other property. All roads necessary for the full utilization of the Security Property for its current purpose have been completed and dedicated to public use and accepted by all governmental authorities or are the subject of access easements for the benefit of the Security Property.

(t) Taxes Paid. Borrower has filed all federal, state, county and municipal tax returns required to have been filed by Borrower, and has paid all taxes which have become due pursuant to such returns or to any notice of assessment received by Borrower, and Borrower has no knowledge of any basis for additional assessment with respect to such taxes.

(u) Single Tax Lot. Within 90 days after the date of this Mortgage, Borrower shall cause the Premises to consist of a single lot or multiple tax lots; no portion of said tax lot(s) shall cover property other than the Premises or a portion of the Premises and no portion of the Premises lies in any other tax lot. As soon as possible after any Partial Release, Borrower shall cause the Release Lot and the unreleased portion of the Security Property to each be assessed as a separate tax lot with respect to all property taxes and assessments.

(v) Special Assessments. Except as disclosed in the title insurance policy, there are no pending or, to the knowledge of Borrower, proposed special or other assessments for public improvements or otherwise affecting the Security Property, nor, to the knowledge of the Borrower, are there any contemplated improvements to the Security Property that may result in such special or other assessments.

(w) Flood Zone. The Security Property is not located in a flood hazard area as defined by the Federal Insurance Administration.

(x) Misstatements of Fact. No statement of fact made in the Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading. There is no fact presently known to the Borrower which has not been disclosed which adversely affects, nor as far as the Borrower can foresee, might adversely affect the business, operations or condition (financial or otherwise) of the representing party.

(y) Condition of Improvements. The Security Property has not been damaged by fire, water, wind or other cause of loss or any previous damage to the Security Property has been fully restored.

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Standstill Agreement on the Subordinate Lender’s rights under the Subordinate Loan Documents, the Loan will not render the Borrower nor any member of Borrower insolvent. Giving effect to the Loan contemplated by the Loan Documents, including the effect of Section 5 of the Subordination and Standstill Agreement on the Subordinate Lender’s rights under the Subordinate Loan Documents, Borrower is and will remain solvent and Borrower will pay its debts and liabilities (including, as applicable, shared personnel and overhead expenses) from its assets as the same shall become due. As used herein, the term “insolvent” means that the sum total of all of an entity’s liabilities (whether secured or unsecured, contingent or fixed, or liquidated or unliquidated) is in excess of the value of all such entity’s non-exempt assets, i.e., all of the assets of the entity that are available to satisfy claims of creditors.

(aa) No Condemnation. No part of any property subject to this Security Instrument has been taken in condemnation or other like proceeding to an extent which would impair the value of the Security Property, this Security Instrument or the Loan or the usefulness of such property for the purposes contemplated by the loan application and/or the loan commitment relating to the Loan, nor is any proceeding pending, threatened or known to be contemplated for the partial or total condemnation or taking of the Security Property.

(bb) No Labor or Materialmen Claims. All parties furnishing labor and materials have been paid in full and, except for such liens or claims insured against by the policy of title insurance to be issued in connection with the Loan, there are no mechanics’, laborers’ or materialmen’s liens or claims outstanding for work, labor or materials affecting the Security Property, whether prior to, equal with or subordinate to the lien of this Security Instrument.

(cc) No Purchase Options. No tenant, person, party, firm, corporation or other entity has an option to purchase the Security Property, any portion thereof or any interest therein.

(dd) Leases. The Security Property is not subject to any Leases other than the Leases described in the rent roll delivered to Lender in connection with this Security Instrument. No person has any possessory interest in the Security Property or right to occupy the same except under and pursuant to the provisions of the Leases. As of the date hereof, (i) the Borrower is the owner and holder of the landlord’s interest under each Lease; (ii) there are no prior assignments of any Lease or any portion of Rents which are presently outstanding and have priority over the Assignment of Leases and Rents (the “Assignment of Leases and Rents”), dated the date hereof, given by Borrower to Lender and intended to be duly recorded; (iii) the Leases have not been modified or amended, except as disclosed to Lender in writing on the date hereof; (iv) each Lease is in full force and effect; (v) other than disclosed on Exhibit B attached hereto, neither Borrower nor any tenant under any Lease is in default beyond any applicable cure period under any of the terms, covenants or provisions of the Lease, and Borrower knows of no event which, but for the passage of time or the giving of notice or both, would constitute an event of default under any Lease; (vi) to the best of Borrower’s knowledge, there are no offsets or defenses to the payment of any portion of the Rents; and (vii) all Rents due and payable under each Lease have been paid in full and no said Rents have been paid more than one (1) month in advance of the due dates thereof.

(ee) Boundary Lines. Except as set forth on Lender’s policy of title insurance for the Security Property, all of the Improvements which were included in determining the

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appraised value of the Security Property lie wholly within the boundaries and building restriction lines of the Security Property, and no improvements on adjoining properties encroach upon the Security Property, and no easements or other encumbrances upon the Premises encroach upon any of the Improvements, so as to affect the value or marketability of the Security Property except those which are insured against by title insurance.

(ff) Survey. The survey of the Security Property delivered to Lender in connection with this Security Instrument has been performed by a duly licensed surveyor or registered professional engineer in the jurisdiction in which the Security Property is situated, is certified to the Lender, its successors and assigns and the title insurance company, is in accordance with the most current minimum standards for title surveys as determined by the American Land Title Association, with the signature and seal of a licensed engineer or surveyor affixed thereto, and does not fail to reflect any material matter affecting the Security Property or the title thereto.

(gg) Forfeiture. There has not been and shall never be committed by Borrower or any other person in occupancy of or involved with the operation or use of the Security Property any act or omission affording the federal government or any state or local government the right of forfeiture as against the Security Property or any part thereof or any monies paid in performance of Borrower’s obligations under any of the Loan Documents. Borrower hereby covenants and agrees not to commit, permit or suffer to exist any act, omission or circumstance affording such right of forfeiture. In furtherance thereof, Borrower hereby indemnifies Lender and agrees to defend and hold Lender harmless from and against any loss, damage or injury incurred by Lender as a result of any default by Borrower which affords the federal government or any state or local government the right of forfeiture as against the Security Property or any part thereof or any monies paid in performance of Borrower’s obligations under any of the Loan Documents. Without limiting the generality of the foregoing, the filing of formal charges or the commencement of proceedings against Borrower or all or any part of the Security Property under any federal or state law for which forfeiture of the Security Property or any part thereof or of any monies paid in performance of Borrower’s obligations under the Loan Documents is a potential result, shall, at the election of Lender, constitute an Event of Default hereunder without notice or opportunity to cure.

(hh) Adequate Capitalization. Borrower is adequately capitalized and will maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations.

(ii) Management Agreement. The Management Agreement dated December 29, 2006 (the “Management Agreement”) between Borrower and PRIME GROUP MANAGEMENT, L.L.C. (“Manager”) pursuant to which Manager operates the Security Property is in full force and effect and there is no default or violation by any party thereunder. The fee due under the Management Agreement, and the terms and provisions of the Management Agreement, are subordinate to this Security Instrument and Manager shall attorn to Lender. Borrower shall not terminate, cancel, modify, renew or extend the Management Agreement, or enter into any agreement relating to the management or operation of the Security Property with Manager or any other party, except as expressly permitted by the Amended and Restated Assignment and Subordination Management Agreement by and among Borrower, Lender and

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Manager dated as of even date hereof, without the express written consent of Lender, which consent shall not be unreasonably withheld. If at any time Lender consents to the appointment of a new Manager, such new Manager and Borrower shall, as a condition of Lender’s consent, execute a Consent and Agreement of Manager in the form then used by Lender.

(jj) No Broker. No financial advisors, brokers, underwriters, placement agents, agents or finders have been dealt with by the Borrower in connection with the Loan, except for DRAPER AND KRAMER, INC. (“Broker”). Pursuant to a separate agreement between Borrower and Broker, a brokerage commission is due and payable on the date hereof. Borrower shall pay such commission in addition to any sums payable to Lender by Borrower hereunder or under any of the other Loan Documents. In no event shall Lender be responsible for the payment of any such commission. Broker is not a third party beneficiary hereunder and has no right to require that either Borrower or Lender amend this Security Instrument or any of the other Loan Documents in any manner.

(kk) Subordinate Loan Status. As of the date hereof, (a) the current unpaid balance of the Subordinate Debt is $46,701,459.00, and (b) there are no past due payments under the Subordinate Debt, nor does there exist any breach of any of the terms and provisions of any of the Subordinate Loan Documents.

(ll) Subordinate Loan Amendments. Except as otherwise expressly provided in Section 10, Borrower shall not consent to any amendment or modification of the Subordinate Loan Documents without the prior written consent of Lender.

12. Single Purpose Entity/Separateness. Borrower represents, warrants and covenants as of the date of hereof and (except for items (f) and (m), which are representations made only as of the date hereof, and are not continuing covenants) until such time as the Debt is paid in full as follows:

(a) Borrower does not own and will not own any asset or property other than (i) the Security Property, and (ii) incidental personal property necessary for the ownership or operation of the Security Property.

(b) Borrower has not engaged in and will not engage in any business other than the ownership, management and operation of the Security Property and Borrower will conduct and operate its business as presently conducted and operated.

(c) Borrower will not enter into any contract or agreement with any affiliate of the Borrower, any constituent party of Borrower, any guarantor (a “Guarantor”) of the Debt or any part thereof or any affiliate of any constituent party or Guarantor, except the Management Agreement and otherwise except upon terms and conditions that are intrinsically fair and substantially similar to those that would be available on an arms-length basis with third parties other than any such party.

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provisions of Section 31 hereof) with trade creditors and in amounts as are normal and reasonable under the circumstances, but, in no event, to exceed three percent (3%) of original principal balance, (iii) debt incurred in the financing of equipment and other personal property used on the Premises, but, in no event, to exceed $72,000.00, and (iv) the Subordinate Debt. No indebtedness other than the Debt and the Subordinate Debt may be secured (subordinate or pari passu) by the Security Property.

(e) Borrower has not made and will not make any loans or advances to any third party (including any affiliate or constituent party, any Guarantor or any affiliate of any constituent party or Guarantor), and shall not acquire obligations or securities of its affiliates.

(f) After giving effect to the Loan contemplated by the Loan Documents, including the effect of Section 5 of the Subordination and Standstill Agreement on Subordinate Lender’s rights under the Subordinate Loan Documents, Borrower is solvent and reasonably expects to be able to pay its debts from its assets as the same shall become due.

(g) Borrower has done or caused to be done and will do all things necessary to observe organizational formalities and preserve its existence, and Borrower will at all times have provisions in its organizational documents imposing on it substantially the same requirements as are specified in this Section 12, and will not, nor will any partner, member, shareholder, trustee, Lender, or principal amend, modify or otherwise change any provision of such party’s organizational documents which pertains to the subject matter of this Section 12.

(h) Borrower shall continuously maintain its existence and right to do business in the state where the Security Property is located.

(i) Borrower will conduct and operate its business as presently conducted and operated.

(j) Borrower will maintain all of its books, records, financial statements and bank accounts separate from those of its affiliates and any constituent party and Borrower will file its own tax returns unless required otherwise by applicable law. Borrower shall maintain its books, records, resolutions and agreements as official records.

(k) Borrower will be, and at all times will hold itself out to the public as, a legal entity separate and distinct from any other entity (including any affiliate of Borrower, any constituent party of Borrower, any Guarantor or any affiliate of any constituent party or Guarantor), shall correct any known misunderstanding regarding its status as a separate entity, shall conduct business in its own name, shall not identify itself or any of its affiliates as a division or part of the other and shall maintain and utilize a separate invoices and checks.

(l) Neither Borrower nor any constituent party will seek the dissolution, winding up, liquidation, consolidation or merger in whole or in part, of the Borrower.

(m) Borrower has and reasonably expects to maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations.

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(n) Borrower will not commingle the funds and other assets of Borrower with those of any affiliate or constituent party, any Guarantor, or any affiliate of any constituent party of Guarantor, or any other person.

(o) Borrower has and will maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any affiliate or constituent party, any Guarantor, or any affiliate of any constituent party or Guarantor, or any other person.

(p) Borrower does not and will not guarantee, become obligated for, or hold itself out to be responsible for the debts or obligations of any other person or entity or the decisions or actions respecting the daily business or affairs of any other person or entity.

(q) Borrower will not permit any affiliate or constituent party (other than Manager) independent access to its bank accounts.

(r) Borrower shall pay the salaries of its own employees and maintain a sufficient number of employees, if any, in light of its contemplated business operations.

(s) If Borrower is a limited partnership or a limited liability company, the general partner or managing member (the “SPC Entity”) shall be a limited liability company whose sole asset is its interest in Borrower and the SPC Entity will at all times comply, and will cause Borrower to comply, with each of the representations, warranties, and covenants contained in this Section 12 as if such representation, warranty or covenant was made directly by such general partner or managing member.

(t) Borrower shall at all times cause there to be at least one duly appointed member of the board of directors or manager (an “Independent Director”) of the SPC Entity reasonably satisfactory to Lender who shall not have been at the time of such individual’s appointment, and may not have been at any time during the preceding five years (i) a shareholder of, or an officer, director, attorney, counsel, partner or employee of, Borrower, Guarantor or any of its shareholders, subsidiaries or affiliates, (ii) a customer of, or supplier to, Borrower, Guarantor or any of its shareholders, subsidiaries or affiliates, (iii) a person or other entity controlling or under common control with any such shareholder, partner, supplier or customer, or (iv) a member of the immediate family of any such shareholder, officer, director, partner, employee, supplier or customer of any other director of Borrower or Guarantor. As used herein, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person or entity, whether through ownership of voting securities, by contract or otherwise.

(u) Borrower shall not cause or permit the managers of the SPC Entity to take any action which, under the terms of any certificate of organization or operating agreement with respect to any membership, requires a vote of the managers of the SPC Entity unless at the time of such action there shall be at least one member or manager who is an Independent Director.

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proceedings against it or Borrower; file a petition seeking, or consent to, reorganization or relief under any applicable federal or state law relating to bankruptcy; consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) for itself or Borrower or a substantial part of its or Borrower’s property; make any assignment for the benefit of creditors; or admit in writing its inability to pay its debts generally as they become due.

(w) SPC Entity shall not, without the unanimous consent of its managers (including the Independent Manager), for itself or for Borrower (i) liquidate or dissolve, in whole or in part; (ii) consolidate, merge or enter into any form of consolidation with or into any other person or entity, nor convey, transfer or lease its or Borrower’s assets substantially as an entirety to any person or entity nor permit any person or entity to consolidate, merge or enter into any form of consolidation with or into itself or Borrower; or (iii) amend any provisions of its or Borrower’s organizational documents containing provisions similar to those contained in this Section 12.

(x) Borrower shall conduct its business so that the assumptions made with respect to Borrower and its affiliates in the opinions of their legal counsel that have been delivered to Lender in connection with the Loan at all times shall be true and correct in all respects.

13. Estoppel Certificates and No Default Affidavits. After request by Lender, Borrower shall within ten (10) days furnish Lender with a statement, duly acknowledged and certified, setting forth (i) the amount of the original principal amount of the Note, (ii) the unpaid principal amount of the Note, (iii) the rate of interest of the Note, (iv) the date installments of interest and/or principal were last paid, (v) any offsets or defenses to the payment of the Debt, if any, (vi) that the Note, this Security Instrument and the other Loan Documents are valid, legal and binding obligations and have not been modified or if modified, giving particulars of such modification; and (vii) reaffirming all representations and warranties of Borrower set forth herein and in the other Loan Documents as of the date requested by Lender or, to the extent of any changes to any such representations and warranties, so stating such changes.

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comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder or thereunder. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the Debt shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Debt until payment in full so that the rate or amount of interest on account of the Debt does not exceed the maximum lawful rate from time to time in effect and applicable to the Debt for so long as the Debt is outstanding. Notwithstanding anything to the contrary contained herein or in any of the other Loan Documents, it is not the intention of Lender to accelerate the maturity of any interest that has not accrued at the time of such acceleration or to collect unearned interest at the time of such acceleration.

15. Changes in Laws Regarding Taxation. If any law is enacted or adopted or amended after the date of this Security Instrument which deducts the Debt from the value of the Security Property for the purpose of taxation or which imposes a tax, either directly or indirectly, on the Debt or Lender’s interest in the Security Property, Borrower will pay such tax, with interest and penalties thereon, if any. In the event Lender is advised by counsel chosen by it that the payment of such tax or interest and penalties by Borrower would be unlawful or taxable to Lender or unenforceable or provide the basis for a defense of usury, then in any such event, Lender shall have the option, by written notice of not less than one hundred eighty (180) days, to declare the Debt immediately due and payable without any prepayment consideration.

16. No Credits on Account of the Debt. Borrower will not claim or demand or be entitled to any credit or credits on account of the Debt for any part of the Taxes or Other Charges assessed against the Security Property, or any part thereof, and no deduction shall otherwise be made or claimed from the assessed value of the Security Property, or any part thereof, for real estate tax purposes by reason of this Security Instrument or the Debt. In the event such claim, credit or deduction shall be required by law, Lender shall have the option, by written notice of not less than one hundred eighty (180) days, to declare the Debt immediately due and payable without any prepayment consideration.

17. Documentary Stamps. If at any time the United States of America, any State thereof or any subdivision of any such State shall require revenue or other stamps to be affixed to the Note or this Security Instrument, or impose any other tax or charge on the same, Borrower will pay for the same, with interest and penalties thereon, if any.

18.

Books and Records.

(a) The financial statements, rent rolls, operating statements and balance sheets heretofore furnished to Lender are, as of the dates specified therein, complete and correct and fairly present the financial condition of the Borrower and any other persons or entities that are the subject of such financial statements, and are prepared in accordance with generally accepted accounting principles. Since the date of such financial statements, there has been no materially adverse change in the financial condition, operation or business of Borrower from that set forth in said financial statements. Borrower hereby represents and warrants that no information material to the financial condition of the Borrower, any Guarantor or Security Property has been withheld or otherwise not delivered to Borrower.

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(b) Borrower will maintain full and accurate books of accounts and other records reflecting the results of the operations of the Security Property and will furnish to Lender on or before forty-five (45) days after the end of each calendar quarter the following items, each certified by Borrower as being true and correct: (i) a written statement (rent roll) dated as of the last day of each such calendar quarter identifying each of the Leases by the term, space occupied, rental required to be paid, the expiration date of each lease, security deposit paid, any rental concessions, and identifying any defaults or payment delinquencies thereunder; (ii) monthly and year to date operating statements prepared for each calendar month during each such calendar quarter, noting income and expenses, and including an itemization of actual (not pro forma) capital and other information necessary and sufficient under generally accepted accounting practices to fairly represent the financial position and results of operation of the Security Property during such calendar month, all in form satisfactory to Lender; (iii) a property balance sheet for each such calendar quarter. Until a Securitization has occurred, the Borrower shall furnish monthly each of the items listed in the immediately preceding sentence within twenty (20) days after the end of such month. Within forty-five (45) days following the end of each calendar quarter and within one hundred twenty (120) days following the end of each calendar year, Borrower shall furnish statements of its financial affairs and condition including a balance sheet and a statement of profit and loss for the Borrower in such detail as Lender may reasonably request, and setting forth the financial condition and the income and expenses for the Security Property for the immediately preceding calendar year or quarter, as applicable, which statements shall be prepared by Borrower. All information required to be provided herein shall be accompanied by a certificate executed by the chief financial officer of Borrower, the managing member or the general partner of Borrower, as applicable, stating that each such statement or item of information presents fairly the financial condition of the Security Property being reported upon and shall be audited by a “Big Five” accounting firm or other independent certified public accountant acceptable to Lender. Lender acknowledges that the accounting firm of Grant Thornton LLP is an accounting firm acceptable to Lender. Each such quarterly and annual financial statement shall be prepared in accordance with generally accepted accounting principles consistently applied. At any time and from time to time Borrower shall deliver to Lender or its agents such other financial data as Lender or its agents shall reasonably request with respect to the ownership, maintenance, use and operation of the Security Property.

19. Performance of Other Agreements. Borrower shall observe and perform in all material respects the terms to be observed or performed by Borrower pursuant to the terms of any agreement or recorded instrument affecting or pertaining to the Security Property.

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below. Borrower, on demand, will execute and deliver and hereby authorizes Lender to execute in the name of Borrower or without the signature of Borrower to the extent Lender may lawfully do so, one or more financing statements, chattel mortgages or other instruments, to evidence more effectively the security interest of Lender in the Security Property. Upon foreclosure, the appointment of a receiver or any other relevant action, Borrower will, at the cost of Borrower and without expense to Lender, cooperate fully and completely to effect the assignment or transfer of any license, permit, agreement or any other right necessary or useful to the operation of or the Security Property. Borrower grants to Lender an irrevocable power of attorney coupled with an interest for the purpose of exercising and perfecting any and all rights and remedies available to Lender at law and in equity, including, without limitation, such rights and remedies available to Lender pursuant to this Section.

21. Recording of Security Instrument, Etc. Borrower forthwith upon the execution and delivery of this Security Instrument and thereafter, from time to time, will cause this Security Instrument, and any security instrument creating a lien or security interest or evidencing the lien hereof upon the Security Property and each instrument of further assurance to be filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect the lien or security interest hereof upon, and the interest of Lender in, the Security Property. Borrower will pay all filing, registration or recording fees, and all expenses incident to the preparation, execution and acknowledgment of this Security Instrument, any mortgage, deed of trust or similar instrument supplemental hereto, any security instrument with respect to the Security Property and any instrument of further assurance, and all federal, state, county and municipal, taxes, duties, imposts, assessments and charges arising out of or in connection with the execution and delivery of this Security Instrument, any mortgage, deed of trust or similar instrument supplemental hereto, any security instrument with respect to the Security Property or any instrument of further assurance, except where prohibited by law so to do. Borrower shall hold harmless and indemnify Lender, its successors and assigns, against any liability incurred by reason of the imposition of any tax on the making and recording of this Security Instrument.

22. Reporting Requirements. Borrower agrees to give prompt notice to Lender of the insolvency or bankruptcy filing of Borrower or the death, insolvency or bankruptcy filing of any Guarantor.

23. Events of Default. The Debt shall become immediately due and payable at the option of Lender upon the happening of any one or more of the following events of default (each an “Event of Default”):

(a) failure of Borrower to pay (i) any scheduled payment (whether such amount is interest, principal, Reserves, or otherwise) owing to Lender as and when the same is due under the Note (taking into account any applicable grace period expressly set forth in Section 2.01 of the Note), this Security Instrument or any of the other Loan Documents, or (ii) any other amount from time to time owing to Lender under the Note, this Security Instrument or any of the other Loan Documents within five business days following written notice that the same is due;

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(b) subject to Borrower’s right to contest as provided herein, if any of the Taxes or Other Charges are not paid when the same are due and payable (unless sums equaling the amount of Taxes and Other Charges then due and payable have been delivered to Lender in accordance with Section 6 hereof);

(d) if Borrower transfers or encumbers any portion of the Security Property without Lender’s prior written consent, except as may be otherwise permitted under Sections 10 and 31;

(e) if any representation or warranty of Borrower, or of any Guarantor, made herein or in any other Loan Document or in any certificate, report, financial statement or other instrument or document furnished to Lender shall have been false or misleading in any material respect when made and Borrower fails to correct such statement, instrument, or document within thirty (30) days after Borrower first becomes aware of the need for such correction;

(f) if Borrower, any principal, managing member or general partner in Borrower or any Guarantor shall make an assignment for the benefit of creditors or if Borrower shall generally not be paying its debts as they become due;

(g) if a receiver, liquidator or trustee of Borrower, any principal, managing member or general partner in Borrower or of any Guarantor shall be appointed or if Borrower, any principal, managing member or general partner in Borrower or any Guarantor shall be adjudicated a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by, Borrower, any principal, managing member or general partner in Borrower or any Guarantor or if any proceeding for the dissolution or liquidation of Borrower, any principal, managing member or general partner in Borrower or of any Guarantor shall be instituted; however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by Borrower, any principal, managing member or general partner in Borrower or such Guarantor, upon the same not being discharged, stayed or dismissed within sixty (60) days;

(h) if Borrower shall be in default beyond any applicable cure period under any other deed of trust, mortgage or security agreement covering any part of the Security Property whether it be superior or junior in lien to this Security Instrument;

(i) subject to Borrower’s right to contest as provided herein, if the Security Property becomes subject to any mechanic’s, materialman’s or other lien and such lien is not removed of record or insured over in a manner reasonably acceptable to Lender within thirty (30) days after Borrower becomes aware of the filing or recording of such lien (except a lien for local real estate taxes and assessments not then due and payable);

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reasonably susceptible of cure, but not within such thirty (30) day period, then Borrower may be permitted up to an additional sixty (60) days to cure such default or such additional time period as may be required by applicable law.

(k) except as permitted in this Security Instrument, the alteration, improvement, demolition or removal of any of the Improvements without the prior consent of Lender;

(l) if Borrower shall continue to be in default under any term, covenant, or provision of the Note or any of the other Loan Documents, beyond applicable cure periods contained in those documents;

(m) if without Lender’s prior written consent, (i) the Management Agreement is terminated, (ii) the ownership, management or control of Manager is transferred, (iii) there is a material change in the Management Agreement, (iv) if there shall be a material default by Borrower under the Management Agreement; or (v) the management of the Security Property is transferred to an entity other than Manager (except as expressly permitted by the Assignment and Subordination of Management Agreement by and among Borrower, Lender, and Manager dated as of even date hereof);

(n) if Borrower ceases to continuously operate the Security Property or any material portion thereof as an office building for any reason whatsoever (other than temporary cessation in connection with any repair or renovation thereof undertaken with the consent of Lender); or

(o) if Borrower fails to cure a default under any other term, covenant or provision of this Security Instrument within thirty (30) days after Borrower first receives notice of any such default; provided, however, if such default is reasonably susceptible of cure, but not within such thirty (30) day period, then Borrower may be permitted up to an additional ninety (90) days to cure such default provided that Borrower diligently and continuously pursues such cure.

(p) The occurrence of any Event of Default pursuant to the Amended and Restated Mortgage, Security Agreement and Fixture Financing Statement (the “Other Mortgage”) dated of even date herewith executed by Other Borrower for the benefit of Lender, which said Other Mortgage amends and restates the Original Mortgage (as defined in Section 65 hereof) relative to the property described on Exhibit C attached hereto and incorporated herein by reference (the “Other Property”).

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delinquent payment, and such amount shall be secured by this Security Instrument. Borrower recognizes that its default in making, when due, any payment under this Note will require Lender to incur additional expense in servicing and administering the Loan and in loss to Lender of the use of the money due and in frustration to Lender in meeting its other financial and loan commitments. Borrower additionally acknowledges that the damages caused thereby would be extremely difficult and impractical to ascertain. Borrower agrees (a) that an amount equal to the late charge plus the accrual of interest at the Default Interest Rate (as defined in the Note) is a reasonable estimate of the damage to Lender in the event of a late payment, and (b) that the accrual of interest at the Default Interest Rate following any other Event of Default is a reasonable estimate of the damage to Lender in the event of such other Event of Default, regardless of whether there has been an acceleration of the Loan.

25. Right To Cure Defaults. Upon the occurrence and during the continuance of any Event of Default or if Borrower fails to make any payment (including, without limitation, any required payments for taxes, insurance or to discharge any liens with respect to the Security Property) or to do any act as herein provided, Lender may, but without any obligation to do so and without notice to or demand on Borrower and without releasing Borrower from any obligation hereunder, make or do the same in such manner and to such extent as Lender may deem necessary to protect the security hereof. Lender is authorized to enter upon the Security Property for such purposes or appear in, defend, or bring any action or proceeding to protect its interest in the Security Property or to foreclose this Security Instrument or collect the Debt, and the cost and expense thereof (including reasonable attorneys’ fees and disbursements to the extent permitted by law), with interest at the Default Interest Rate (as defined in the Note) for the period after notice from Lender that such cost or expense was incurred to the date of payment to Lender, shall constitute a portion of the Debt, shall be secured by this Security Instrument and the other Loan Documents and shall be due and payable to Lender upon demand.

26.

Additional Remedies.

(a) Upon the occurrence and during the continuance of any Event of Default, Lender may take such action, without notice or demand, as it deems advisable to protect and enforce its rights against Borrower and in and to the Security Property, including, without limitation, the following actions, each of which may be pursued concurrently or otherwise, at such time and in such order as Lender may determine, in its sole discretion, without impairing or otherwise affecting the other rights and remedies of Lender:

(i)

declare the entire Debt to be immediately due and payable;

(ii) institute a proceeding or proceedings, judicial or nonjudicial, by advertisement or otherwise, for the complete foreclosure of this Security Instrument in which case the Security Property or any interest therein may be sold for cash or upon credit in one or more parcels or in several interests or portions and in any order or manner;

(iii) with or without entry, to the extent permitted and pursuant to the procedures provided by applicable law, institute proceedings for the partial foreclosure of this Security Instrument for the portion of the Debt then due and payable, subject to the continuing lien of this Security Instrument for the balance of the Debt not then due;

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(iv) sell for cash or upon credit the Security Property or any part thereof and all estate, claim, demand, right, title and interest of Borrower therein and rights of redemption thereof, at one or more sales, as an entirety or in parcels, at such time and place, upon such terms and after such notice thereof as may be required or permitted by law;

(v) institute an action, suit or proceeding in equity for the specific performance of any covenant, condition or agreement contained herein, or in any of the other Loan Documents;

(vi) recover judgment on the Note either before, during or after any proceedings for the enforcement of this Security Instrument;

(vii) apply for the appointment of a trustee, receiver, liquidator or conservator of the Security Property, without notice and without regard for the adequacy of the security for the Debt and without regard for the solvency of the Borrower, any Guarantor or of any person, firm or other entity liable for the payment of the Debt;

(viii) enforce Lender’s interest in the Leases and Rents and enter into or upon the Security Property, either personally or by its agents, nominees or attorneys and dispossess Borrower and its agents and servants therefrom, and thereupon Lender may (A) use, operate, manage, control, insure, maintain, repair, restore and otherwise deal with all and every part of the Security Property and conduct the business thereat; (B) complete any construction on the Security Property in such manner and form as Lender deems advisable; (C) make alterations, additions, renewals, replacements and improvements to or on the Security Property; (D) exercise all rights and powers of Borrower with respect to the Security Property, whether in the name of Borrower or otherwise, including, without limitation, the right to make, cancel, enforce or modify Leases, obtain and evict tenants, and demand, sue for, collect and receive all Rents; and (E) apply the receipts from the Security Property to the payment of Debt, after deducting therefrom all expenses (including reasonable attorneys’ fees and disbursements) incurred in connection with the aforesaid operations and all amounts necessary to pay the taxes, assessments insurance and other charges in connection with the Security Property, as well as just and reasonable compensation for the services of Lender, its counsel, agents and employees;

(ix) require Borrower to pay monthly in advance to Lender, or any receiver appointed to collect the Rents, the fair and reasonable rental value for the use and occupation of any portion of the Security Property occupied by Borrower and require Borrower to vacate and surrender possession to Lender of the Security Property or to such receiver and, in default thereof, evict Borrower by summary proceedings or otherwise; or

(x) pursue such other rights and remedies as may be available at law or in equity or under the Uniform Commercial Code including without limitation the right to receive and/or establish a lock box for all Rents proceeds from the Intangibles and any other receivables or rights to payments of Borrower relating to the Security Property.

In the event of a sale, by foreclosure or otherwise, of less than all of the Security Property, this Security Instrument shall continue as a lien on the remaining portion of the Security Property.

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(b) The proceeds of any sale made under or by virtue of this Section, together with any other sums which then may be held by Lender under this Security Instrument, whether under the provisions of this Section or otherwise, shall be applied by Lender to the payment of the Debt in such priority and proportion as Lender in its sole discretion shall deem proper.

(c) Lender may adjourn from time to time any sale by it to be made under or by virtue of this Security Instrument by announcement at the time and place appointed for such sale or for such adjourned sale or sales; and, except as otherwise provided by any applicable provision of law, Lender, without further notice or publication, may make such sale at the time and place to which the same shall be so adjourned.

(d) Upon the completion of any sale or sales pursuant hereto, Lender, or an officer of any court empowered to do so, shall execute and deliver to the accepted purchaser or purchasers a good and sufficient instrument, or good and sufficient instruments, conveying, assigning and transferring all estate, right, title and interest in and to the property and rights sold. Lender is hereby irrevocably appointed the true and lawful attorney of Borrower, in its name and stead, to make all necessary conveyances, assignments, transfers and deliveries of the Security Property and rights so sold and for that purpose Lender may execute all necessary instruments of conveyance, assignment and transfer, and may substitute one or more persons with like power, Borrower hereby ratifying and confirming all that its said attorney or such substitute or substitutes shall lawfully do by virtue hereof. Any sale or sales made under or by virtue of this Section, whether made under or by virtue of judicial proceedings or of a judgment or decree of foreclosure and sale, shall operate to divest all the estate, right, title, interest, claim and demand whatsoever, whether at law or in equity, of Borrower in and to the properties and rights so sold, and shall be a perpetual bar both at law and in equity against Borrower and against any and all persons claiming or who may claim the same, or any part thereof from, through or under Borrower.

(e) Upon any sale made under or by virtue of this Section, whether made under or by virtue of judicial proceedings or of a judgment or decree of foreclosure and sale, Lender may bid for and acquire the Security Property or any part thereof and in lieu of paying cash therefor may make settlement for the purchase price by crediting upon the Debt the net sales price after deducting therefrom the actual, out-of-pocket expenses of the sale and costs of the action and any other sums which Lender is authorized to deduct under this Security Instrument.

(f) No recovery of any judgment by Lender and no levy of an execution under any judgment upon the Security Property or upon any other property of Borrower shall affect in any manner or to any extent the lien of this Security Instrument upon the Security Property or any part thereof, or any liens, rights, powers or remedies of Lender hereunder, but such liens, rights, powers and remedies of Lender shall continue unimpaired as before.

(g) Lender may terminate or rescind any proceeding or other action brought in connection with its exercise of the remedies provided in this Section at any time before the conclusion thereof, as determined in Lender’s sole discretion and without prejudice to Lender.

(h) Lender may resort to any remedies and the security given by the Note, this Security Instrument or the Loan Documents in whole or in part, and in such portions and in such

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order as determined by Lender’s sole discretion. No such action shall in any way be considered a waiver of any rights, benefits or remedies evidenced or provided by the Note, this Security Instrument or any of the other Loan Documents. The failure of Lender to exercise any right, remedy or option provided in the Note, this Security Instrument or any of the other Loan Documents shall not be deemed a waiver of such right, remedy or option or of any covenant or obligation secured by the Note, this Security Instrument or the other Loan Documents. No acceptance by Lender of any payment after the occurrence of any Event of Default and no payment by Lender of any obligation for which Borrower is liable hereunder shall be deemed to waive or cure any Event of Default with respect to Borrower, or Borrower’s liability to pay such obligation. No sale of all or any portion of the Security Property, no forbearance on the part of Lender, and no extension of time for the payment of the whole or any portion of the Debt or any other indulgence given by Lender to Borrower, shall operate to release or in any manner affect the interest of Lender in the remaining Security Property or the liability of Borrower to pay the Debt. No waiver by Lender shall be effective unless it is in writing and then only to the extent specifically stated. All actual, out-of-pocket costs and expenses of Lender in exercising the rights and remedies under this Section 26 (including reasonable attorneys’ fees and disbursements to the extent permitted by law), shall be paid by Borrower immediately upon notice from Lender, with interest at the Default Interest Rate for the period after notice from Lender and such costs and expenses shall constitute a portion of the Debt and shall be secured by this Security Instrument.

(i) The interests and rights of Lender under the Note, this Security Instrument or in any of the other Loan Documents shall not be impaired by any indulgence, including (i) any renewal, extension or modification which Lender may grant with respect to any of the Debt, (ii) any surrender, compromise, release, renewal, extension, exchange or substitution which Lender may grant with respect to the Security Property or any portion thereof; or (iii) any release or indulgence granted to any maker, endorser, Guarantor or surety of any of the Debt.

(j) Upon the occurrence and during the continuance of any breach, default, or Event of Default, Lender shall not be obligated to render any performance to Borrower under the Loan Documents.

(k) Anything to the contrary herein or elsewhere notwithstanding, except as specifically provided otherwise by law, without the prior written consent of Lender, which may be withheld or conditioned in Lender’s sole and absolute discretion, Borrower shall have no right to cure any Event of Default (and no right to cure shall be implied) and Lender shall have no obligation to accept the cure of, or to waive, any Event of Default, regardless of tender of delinquent payments or other performance by Borrower, or any other event or condition whatsoever. Borrower hereby (i) acknowledges that Lender may refuse (in its sole and absolute discretion for any reason whatsoever) any cure of any Event of Default, and notwithstanding any purported cure of such Event of Default, Lender may exercise any and/or all rights and remedies available to it; and (ii) waives any and all rights to cure any Event of Default.

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date hereof), are occupying or using the Security Property, or any part thereof, then, to the extent not prohibited by applicable law, each and all shall, at the option of Lender or the purchaser at such sale, as the case may be, immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day-to-day, terminable at the will of either landlord or tenant, at a reasonable rental per day based upon the value of the Security Property occupied or used, such rental to be due daily to the purchaser. Further, to the extent permitted by applicable law, in the event the tenant fails to surrender possession of the Security Property upon the termination of such tenancy, the purchaser shall be entitled to institute and maintain an action for unlawful detainer of the Security Property in the appropriate court of the county in which the Premises is located.

27. Right of Entry. In addition to any other rights or remedies granted under this Security Instrument, Lender and its agents, during the Term, shall have the right to enter and inspect the Security Property upon reasonable prior notice during normal business hours. The cost of such inspections or audits shall be borne by Borrower should Lender determine that an Event of Default exists, including the cost of all follow up or additional investigations or inquiries deemed reasonably necessary by Lender. The cost of such inspections, if not paid for by Borrower following demand, may be added to the principal balance of the sums due under the Note and this Security Instrument and shall bear interest thereafter until paid at the Default Interest Rate.

28.

Security Agreement.

(a) This Security Instrument is both a real property lien instrument and a “security agreement” within the meaning of the Uniform Commercial Code. The Security Property includes both real and personal property and all other rights and interests, whether tangible or intangible in nature, of Borrower in the Security Property. Borrower by executing and delivering this Security Instrument has granted and hereby grants to Lender, as security for the Debt, a security interest in the Security Property to the full extent that the Security Property may be subject to the Uniform Commercial Code (said portion of the Security Property so subject to the Uniform Commercial Code being called in this Section the “Collateral”). This Security Instrument covers all items of the Collateral that are or are to become fixtures. Information concerning the security interest herein granted may be obtained from the parties at the addresses of the parties set forth in the first paragraph of this Security Instrument. The record owner of the Security Property is Borrower.

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Any notice of sale, disposition or other intended action by Lender with respect to the Collateral sent to Borrower in accordance with the provisions hereof at least five (5) days prior to such action, shall constitute commercially reasonable notice to Borrower. The proceeds of any disposition of the Collateral, or any part thereof, may be applied by Lender to the payment of the Debt in such priority and proportions as Lender in its sole discretion shall deem proper. In the event of any change in name, identity or structure of any Borrower, such Borrower shall notify Lender thereof and promptly after request shall execute, file and record such Uniform Commercial Code forms as are necessary to maintain the priority of Lender’s lien upon and security interest in the Collateral, and shall pay all expenses and fees in connection with the filing and recording thereof. If Lender shall require the filing or recording of additional Uniform Commercial Code forms or continuation statements, Borrower shall, promptly after request, execute, file and record such Uniform Commercial Code forms or continuation statements as Lender shall deem necessary, and shall pay all actual, out-of-pocket expenses and fees in connection with the filing and recording thereof, it being understood and agreed, however, that no such additional documents shall increase Borrower’s obligations under the Note, this Security Instrument and any of the other Loan Documents. Borrower hereby irrevocably appoints Lender as its attorney-in-fact, coupled with an interest, to file with the appropriate public office on its behalf any financing or other statements signed only by Lender, as secured party, in connection with the Collateral covered by this Security Instrument.

29. Actions and Proceedings. Lender has the right to appear in and defend any action or proceeding brought with respect to the Security Property and to bring any action or proceeding, in the name and on behalf of Borrower, which Lender, in its sole discretion, decides should be brought to protect their interest in the Security Property. Lender shall, at its option, be subrogated to the lien of any deed of trust, mortgage or other security instrument discharged in whole or in part by the Debt, and any such subrogation rights shall constitute additional security for the payment of the Debt.

30. Waiver of Setoff and Counterclaim. All amounts due under this Security Instrument, the Note and the other Loan Documents shall be payable without setoff, counterclaim or any deduction whatsoever. Borrower hereby waives the right to assert a setoff, counterclaim (other than a mandatory or compulsory counterclaim) or deduction in any action or proceeding in which Lender is a participant, or arising out of or in any way connected with this Security Instrument, the Note, any of the other Loan Documents, or the Debt.

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trade creditor claim, plus a reasonable additional sum to pay all costs, interest and penalties that may be imposed or incurred in connection therewith, to assure payment of the matters under contest and to prevent any sale or forfeiture of the Security Property or any part thereof; (d) Borrower shall promptly upon final determination thereof pay the amount of any such Taxes, Other Charges or claim so determined, together with all costs, interest and penalties which may be payable in connection therewith; (e) the failure to pay the Taxes, Other Charges, mechanic’s or materialman’s lien claim, or trade creditor claim does not constitute a default under any other deed of trust, mortgage or security interest covering or affecting any part of the Security Property; and (f) notwithstanding the foregoing, Borrower shall immediately upon request of Lender pay (and if Borrower shall fail so to do, Lender may, but shall not be required to, pay or cause to be discharged or bonded against) any such Taxes, Other Charges or claim notwithstanding such contest, if in the opinion of Lender, the Security Property or any part thereof or interest therein may be in danger of being sold, forfeited, foreclosed, terminated, cancelled or lost. Lender may pay over any such cash deposit or part thereof to the claimant entitled thereto at any time when, in the judgment of Lender, the entitlement of such claimant is established.

32. Recovery of Sums Required to be Paid. Lender shall have the right from time to time to take action to recover any sum or sums which constitute a part of the Debt as the same become due, without regard to whether or not the balance of the Debt shall be due, and without prejudice to the right of Lender thereafter to bring an action of foreclosure, or any other action, for a default or defaults by Borrower existing at the time such earlier action was commenced.

33. Marshalling and Other Matters. Borrower hereby waives, to the extent permitted by law, the benefit of all appraisement, valuation, stay, extension, reinstatement and redemption laws now or hereafter in force and all rights of marshalling in the event of any sale hereunder of the Security Property or any part thereof or any interest therein. Further, Borrower hereby expressly waives any and all rights and periods of redemption from sale under 735 ILCS 5/15-1601(b) or any other applicable law or any other order or decree of foreclosure of this Security Instrument on behalf of Borrower, and on behalf of each and every person acquiring any interest in or title to the Security Property subsequent to the date of this Security Instrument and on behalf of all persons to the extent permitted by applicable law.

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the foregoing laws whether presently in force or coming into being and/or effectiveness hereafter (collectively, “Environmental Laws”); (b) the Security Property is not subject to any private or governmental lien or judicial or administrative notice or action or inquiry, investigation or claim relating to hazardous and/or toxic, dangerous and/or regulated, substances, wastes, materials, raw materials which include hazardous constituents, pollutants or contaminants including without limitation, petroleum, tremolite, anthlophylie, actinolite or polychlorinated biphenyls and any other substances or materials which are included under or regulated by Environmental Laws or which are considered by scientific opinion to be otherwise dangerous in terms of the health, safety and welfare of humans (collectively, “Hazardous Substances”); (c) no Hazardous Substances are or have been (including the period prior to Borrower’s acquisition of the Security Property) discharged, generated, treated, disposed of or stored on, incorporated in, or removed or transported from the Security Property other than in compliance with all Environmental Laws; (d) no Hazardous Substances are present in, on or under any nearby real property which could migrate to or otherwise affect the Security Property; and (e) no underground storage tanks exist on any of the Security Property. So long as Borrower owns or is in possession of the Security Property, Borrower (i) shall keep or cause the Security Property to be kept free from Hazardous Substances except for those substances used by Borrower or tenants in the ordinary course of their businesses and in compliance with all Environmental Laws, (ii) shall promptly notify Lender if Borrower shall become aware of any Hazardous Substances on or near the Security Property and/or if Borrower shall become aware that the Security Property is in direct or indirect violation of any Environmental Laws and/or if Borrower shall become aware of any condition on or near the Security Property which shall pose a threat to the health, safety or welfare of humans, and (iii) Borrower shall remove such Hazardous Substances and/or cure such violations and/or remove such threats, as applicable, as required by law (or as shall be required by Lender in the case of removal which is not required by law, but in response to the opinion of a licensed hydrogeologist, licensed environmental engineer or other qualified consultant engaged by Lender (“Lender’s Consultant”)), promptly after Borrower becomes aware of same, at Borrower’s sole expense. Notwithstanding anything to the contrary in this Section, the Borrower and/or tenants on the Security Property may use and store immaterial amounts of Hazardous Substances at the Security Property if such use or storage is in connection with the ordinary cleaning and maintenance of the Security Property so long as such use and storage (A) does not violate any applicable Environmental Laws and (B) is not the subject of any specific recommendations in the Phase I Report. Nothing herein shall prevent Borrower from recovering such expenses from any other party that may be liable for such removal or cure. The obligations and liabilities of Borrower under this Section 34 shall survive any termination, satisfaction, or assignment of this Security Instrument and the exercise by Lender of any of its rights or remedies hereunder, including, without limitation, the acquisition of the Security Property by foreclosure or a conveyance in lieu of foreclosure.

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ordinances, rules and regulations with respect to Asbestos, and shall keep the Security Property free and clear of any liens imposed pursuant to such laws, ordinances, rules or regulations. In the event that Borrower receives any notice or advice from any governmental agency or any source whatsoever with respect to Asbestos on, affecting or installed on the Security Property, Borrower shall immediately notify Lender. The obligations and liabilities of Borrower under this Section 35 shall survive any termination, satisfaction, or assignment of this Security Instrument and the exercise by Lender of any of its rights or remedies hereunder, including but not limited to, the acquisition of the Security Property by foreclosure or a conveyance in lieu of foreclosure.

36. Environmental Monitoring. Borrower shall give prompt written notices to Lender of: (a) any proceeding or inquiry by any party with respect to the presence of any Hazardous Substance or Asbestos on, under, from or about the Security Property, (b) all claims made or threatened by any third party against Borrower or the Security Property relating to any loss or injury resulting from any Hazardous Substance or Asbestos, and (c) Borrower’s discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Security Property that could cause the Security Property to be subject to any investigation or cleanup pursuant to any Environmental Law. Borrower shall permit Lender to join and participate in, as a party if it so elects, any legal proceedings or actions initiated with respect to the Security Property in connection with any Environmental Law or Hazardous Substance, and Borrower shall pay all attorneys’ fees and disbursements incurred by Lender in connection therewith. Upon Lender’s written request, at any time after the occurrence of or during the continuance of an Event of Default or at such other time Lender has determined (in the exercise of its good faith judgment but in no event more than one (1) time in any consecutive twelve (12) month period absent the occurrence and continuance of an Event of Default) that reasonable cause exists for the performance of an environmental inspection or audit of the Security Property, Borrower shall provide at Borrower’s sole expense, (i) an inspection or audit of the Security Property prepared by a licensed hydrogeologist or licensed environmental engineer reasonably approved by Lender indicating the presence or absence of Hazardous Substances on, in or near the Security Property, and (ii) an inspection or audit of the Security Property prepared by a duly qualified engineering or consulting firm reasonably accepted to Lender, indicating the presence or absence of Asbestos on the Security Property. If Borrower fails to provide such inspection or audit within sixty (60) days after such request Lender may, upon not less than ten (10) days prior written notice to Borrower, order same, and Borrower hereby grants to Lender and its employees and agents access to the Security Property and a license to undertake such inspection or audit. The cost of such inspection or audit may be added to the Debt and shall bear interest thereafter until paid at the Default Interest Rate. If no Event of Default has occurred and is continuing and Lender requests any such inspection or audit more than one (1) time in any consecutive twelve (12) month period, Lender shall have the right to obtain such additional audit or inspection at Lender’s sole cost and expense. In the event that any environmental site assessment report prepared in connection with such inspection or audit recommends that an operations and maintenance plan be implemented for Asbestos or any Hazardous Substance, Borrower shall cause such operations and maintenance plan to be prepared and implemented at Borrower’s expense upon request of Lender. In the event that any investigation, site monitoring, containment cleanup, removal, restoration, or other work of any kind is reasonably necessary or desirable under an applicable Environmental Law (the “Remedial Work”), Borrower shall commence and thereafter diligently prosecute to completion all such Remedial Work within ninety (90) days after written demand by Lender for performance thereof (or any such shorter period of time as

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may be required under applicable law). All Remedial Work shall be performed by contractors approved in advance by Lender, and under the supervision of a consulting engineer approved by Lender. All costs and expenses of such Remedial Work shall be paid by Borrower including, without limitation, Lender’s reasonable attorneys’ fees and disbursements incurred in connection with monitoring or review of such Remedial Work. In the event Borrower shall fail to timely commence, or cause to be commenced, or fail to diligently prosecute to completion, such Remedial Work, Lender may, but shall not be required to, cause such Remedial Work to be performed, and all costs and expenses thereof, or incurred in connection therewith, may be added to the Debt and shall bear interest thereafter until paid at the Default Interest Rate.

37.

Handicapped Access.

(a) Borrower agrees that the Security Property shall at all times strictly comply to the extent applicable with the requirements of the Americans with Disabilities Act of 1990, the Fair Housing Amendments Act of 1988 (if applicable), all state and local laws and ordinances related to handicapped access and all rules, regulations, and orders issued pursuant thereto including, without limitation, the Americans with Disabilities Act Accessibility Guidelines for Buildings and Facilities (collectively “Access Laws”).

(b) Notwithstanding any provisions set forth herein or in any other document regarding Lender’s approval of alterations of the Security Property, Borrower shall not alter the Security Property in any manner which would increase Borrower’s responsibilities for compliance with the applicable Access Laws without the prior written approval of Lender. The foregoing shall apply to tenant improvements constructed by Borrower or by any of its tenants. Lender may condition any such approval upon receipt of a certificate of Access Law compliance from an architect, engineer, or other person acceptable to Lender.

(c) Borrower agrees to give prompt notice to Lender of the receipt by Borrower of any complaints related to violation of any Access Laws and of the commencement of any proceedings or investigations which relate to compliance with applicable Access Laws.

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disposal, escape, seepage, leakage, spillage, discharge, emission, release, or threatened release of any Hazardous Substance or Asbestos on, from, or affecting the Security Property first arising prior to the date Lender or its successors or assignees or a purchaser at a foreclosure or a grantee of a deed in lieu of foreclosure takes title to the Security Property by foreclosure, deed in lieu of foreclosure, or otherwise; (g) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to such Hazardous Substance or Asbestos (prior to the date Lender or its successors or assignees or a purchaser at a foreclosure or a grantee of a deed in lieu of foreclosure takes title to the Security Property by foreclosure, deed in lieu, or otherwise); (h) any lawsuit brought or threatened, settlement reached, or government order relating to such Hazardous Substance or Asbestos if and to the extent due to the actions of Lender or its successors or assignees or a purchaser at a foreclosure or a grantee of a deed in lieu of foreclosure or its successors or assigns after a foreclosure, or deed in lieu of a foreclosure; (i) any violation of the Environmental Laws, which are based upon or in any way related to such Hazardous Substance or Asbestos including, without limitation, the costs and expenses of any Remedial Work, attorney and consultant fees and disbursements, investigation and laboratory fees, court costs, and litigation expenses; (j) any failure of the Security Property to comply with any Access Laws (prior to the date Lender or its successors or assignees or a purchaser at a foreclosure or a grantee of a deed in lieu of foreclosure takes title to the Security Property by foreclosure, deed in lieu of foreclosure, or otherwise); (k) any representation or warranty made in the Note, this Security Instrument or any of the other Loan Documents being false or misleading in any material respect as of the date such representation or warranty was made; (l) any claim by brokers, finders or similar persons claiming to be entitled to a commission in connection with the Loan, any Lease or other transaction involving the Security Property or any part thereof under any legal requirement or any liability asserted against Lender with respect thereto relating to events occurring prior to the date Lender or its successors or assignees or a purchaser at a foreclosure or a grantee of a deed in lieu of foreclosure takes title to the Security Property by foreclosure, deed in lieu of foreclosure, or otherwise; and (m) the claims of any lessee of any or any portion of the Security Property or any person acting through or under any lessee or otherwise arising under or as a consequence of any Lease relating to events occurring prior to the date Lender or its successors or assignees or a purchaser at a foreclosure or a grantee of a deed in lieu of foreclosure takes title to the Security Property by foreclosure, deed in lieu of foreclosure, or otherwise. Any amounts payable to Lender by reason of the application of this Section shall be secured by this Security Instrument and shall become immediately due and payable and shall bear interest at the Default Interest Rate from the date loss or damage is sustained by Lender until paid. The obligations and liabilities of Borrower under this Section 38 shall survive and termination, satisfaction, or assignment of this Security Instrument and the exercise by Lender of any of its rights or remedies hereunder, including, but not limited to, the acquisition of the Security Property by foreclosure or a conveyance in lieu of foreclosure.

39. Notices. Any notice, report, demand or other instrument authorized or required to be given or furnished (“Notices”) shall be in writing and shall be given as follows: (a) by hand delivery; (b) by deposit in the United States mail as first class certified mail, return receipt requested, postage paid; (c) by overnight nationwide commercial courier service; or (d) by telecopy transmission (other than for notices of default) with a confirmation copy to be delivered by duplicate notice in accordance with any of clauses (a)-(c) above, in each case, addressed to the party intended to receive the same at the following address(es):

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Lender:

Wells Fargo Bank, N.A., as trustee for the registered holders of Cobalt CMBS Commercial Mortgage Trust 2006-C1, Commercial Mortgage Pass-Through Certificates, Series 2006-C1

c/o CWCapital LLC

One Charles River Place

63 Kendrick Street

Needham, Massachusetts 02494

Attention: Legal Division

Telecopier:

(781) 707-9397

Re:

Continental Towers,

Rolling Meadows, Illinois

with copies to:

Wells Fargo Bank, N.A., as trustee for the registered holders of Cobalt CMBS Commercial Mortgage Trust 2006-C1, Commercial Mortgage Pass-Through Certificates, Series 2006-C1

c/o CWCapital LLC

One Charles River Place

63 Kendrick Street

Needham, Massachusetts 02494

Attention: Loan Administration

Telecopier:

(781) 707-9498

Re:

Continental Towers,

Rolling Meadows, Illinois

Borrower:

At the address set forth in the introductory paragraph of this Security Instrument with one notice sent to the attention of Jeffrey Patterson and a second sent to James Hoffman.

with copies to:

Winston & Strawn LLP

35 W. Wacker Drive

Chicago, Illinois 60601-9703

Attention: Christine Graff

Any party may change the address to which any such Notice is to be delivered, by furnishing ten (10) days written notice of such change to the other parties in accordance with the provisions of this Section 39. Notices shall be deemed to have been given on the date they are actually received; provided, that the inability to deliver Notices because of a changed address of which no Notice was given, or rejection or refusal to accept any Notice offered for delivery shall be deemed to be receipt of the Notice as of the date of such inability to deliver or rejection or refusal to accept delivery. Notice for either party may be given by its respective counsel. Additionally, notice from Lender may also be given by the Servicer. Borrower hereby requests that a copy of any Notice of Default or Notice of Sale be mailed to Borrower at the address provided herein.

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40.

Authority.

(a) Borrower (and the undersigned representative of Borrower, if any) represent and warrant that it (or they, as the case may be) has full power, authority and right to execute, deliver and perform its obligations pursuant to this Security Instrument, and to deed, mortgage, give, grant, bargain, sell, alien, enfeoff, convey, confirm, warrant, pledge, hypothecate and assign the Security Property pursuant to the terms hereof and to keep and observe all of the terms of this Security Instrument on Borrower’s part to be performed.

(b) Borrower represents and warrants that Borrower is not a “foreign person” within the meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended and the related Treasury Department regulations, including temporary regulations.

41. Waiver of Notice. Borrower shall not be entitled to any notices of any nature whatsoever from Lender except with respect to matters for which this Security Instrument specifically and expressly provides for the giving of notice by Lender to Borrower and except with respect to matters for which Lender is required by applicable law to give notice, and Borrower hereby expressly waives the right to receive any notice from Lender with respect to any matter for which this Security Instrument does not specifically and expressly provide for the giving of notice by Lender to Borrower.

42. Remedies of Borrower. In the event that a claim or adjudication is made that Lender has acted unreasonably or unreasonably delayed acting in any case where by law or under the Note, this Security Instrument or any of the other Loan Documents, it has an obligation to act reasonably or promptly, Lender, so long as it has acted in good faith, shall not be liable for any monetary damages, and Borrower’s remedies shall be limited to injunctive relief or declaratory judgment.

43. Sole Discretion of Lender. Wherever pursuant to this Security Instrument, Lender exercises any right given to it to consent or not consent or approve or disapprove, or any arrangement or term is to be satisfactory to Lender, the decision of Lender to consent or not consent, to approve or disapprove or to decide that arrangements or terms are satisfactory or not satisfactory shall be in the sole discretion of Lender and shall be final and conclusive, except as may be otherwise expressly and specifically provided herein.

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thereafter to foreclosure this Security Instrument. The rights and remedies of Lender under this Security Instrument shall be separate, distinct and cumulative and none shall be given effect to the exclusion of the others. No act of Lender shall be construed as an election to proceed under any one provision herein to the exclusion of any other provision. Lender shall not be limited exclusively to the rights and remedies herein stated but shall be entitled to every right and remedy now or hereafter afforded at law or in equity.

45. No Oral Change. This Security Instrument, and any provisions hereof, may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought.

46. Liability. If Borrower consists of more than one person, the obligations and liabilities of each such person hereunder shall be joint and several. Subject to the provisions hereof requiring Lender’s consent to any transfer of the Security Property, this Security Instrument shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns forever.

47. Inapplicable Provisions. If any term, covenant or condition of the Note or this Security Instrument is held to be invalid, illegal or unenforceable in any respect, the Note and this Security Instrument shall be construed without such provision.

48. Headings, Etc. The headings and captions of various provisions of this Security Instrument are for convenience of reference only and are not to be construed as defining or limiting, in any way, the scope or intent of the provisions hereof.

49. Duplicate Originals. This Security Instrument may be executed in any number of duplicate originals and each such duplicate original shall be deemed to be an original.

50. Definitions. Unless the context clearly indicates a contrary intent or unless otherwise specifically provided herein, words used in this Security Instrument may be used interchangeably in singular or plural form and the word “Borrower” shall mean “each Borrower and any subsequent owner or owners of the Security Property or any part thereof or any interest therein,” the word “Lender” shall mean “Lender and any subsequent holder of the Note,” the word “Note” shall mean “the Note and any other evidence of indebtedness secured by this Security Instrument and the Other Mortgage,” the word “person” shall include an individual, corporation, partnership, trust, unincorporated association, government, governmental authority, and any other entity, and the words “Security Property” shall include any portion of the Security Property and any interest therein and the words “attorneys’ fees” shall include any and all reasonable attorneys’ fees, paralegal and law clerk fees, including, without limitation, fees at the pre-trial, trial and appellate levels incurred or paid by Lender in protecting its interest in the Security Property and Collateral and enforcing its rights hereunder. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa.

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51. Homestead. Borrower hereby waives and renounces all homestead and exemption rights provided by the Constitution and the laws of the United States and of any state, in and to the Security Property as against the collection of the Debt, or any part hereof.

52. Assignments. Lender shall have the right to assign or transfer its rights under this Security Instrument without limitation. Any assignee or transferee shall be entitled to all the benefits afforded Lender under this Security Instrument.

53. Waiver of Jury Trial. BORROWER HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE NOTE, THIS SECURITY INSTRUMENT, OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER.

54. Recourse Provisions. Notwithstanding anything to the contrary contained in this Security Instrument, the liability of Borrower and its officers, directors, general partners, managers, members and principals for the indebtedness secured hereby and for the performance of the other agreements, covenants and obligations contained herein and in the other Loan Documents shall be limited as set forth in Section 2.04 of the Note.

55. Acceleration in Case of Insolvency. If Borrower shall voluntarily file a petition under Title 11 of the U.S. Code (the “Act”), as such Act may from time to time be amended, or under any similar or successor Federal statute relating to bankruptcy, insolvency, arrangements or reorganizations, or under any state bankruptcy or insolvency act, or file an answer in any involuntary proceeding admitting insolvency or inability to pay debts, or if Borrower or any Guarantor shall collude with any person or entity to file an involuntary petition under the Act as to which Borrower or any Guarantor is the debtor or as to which any property of any of them is property of the estate therein, or if in the absence of such collusion Borrower shall fail to use its best efforts to obtain vacation of involuntary proceedings brought for the reorganization, dissolution or liquidation of Borrower, then Lender may, at Lender’s option, declare all of the sums secured by this Security Instrument to be immediately due and payable without prior notice, and Lender may invoke any remedies permitted or provided for herein or in any of the Loan Documents or pursuant to applicable law. Any reasonable attorney’s fees and other reasonable out-of-pocket expenses incurred by Lender in connection with Borrower’s or any Guarantor’s bankruptcy or any of the other aforesaid events shall be additional indebtedness of Borrower secured by this Security Instrument.

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56.

[Reserved].

57.

[Reserved].

58.

Miscellaneous.

(a) Any consent or approval by Lender in any single instance shall not be deemed or construed to be Lender’s consent or approval in any like matter arising at a subsequent date, and the failure of Lender to promptly exercise any right, power, remedy, consent or approval provided herein or at law or in equity shall not constitute or be construed as a waiver of the same nor shall Lender be estopped from exercising such right, power, remedy, consent or approval at a later date. Any consent or approval requested of and granted by Lender pursuant hereto shall be narrowly construed to be applicable only to Borrower and the matter identified in such consent or approval and no third party shall claim any benefit by reason thereof, and any such consent or approval shall not be deemed to constitute Lender a venturer or partner with Borrower nor shall privity of contract be presumed to have been established with any such third party. If Lender deems it to be in its best interest to retain assistance of persons, firms or corporations (including, without limitation, attorneys, title insurance companies, appraisers, engineers and surveyors) with respect to a request for consent or approval, Borrower shall reimburse Lender for all costs reasonably incurred in connection with the employment of such persons, firms or corporations.

(b) Borrower covenants and agrees that during the Term, unless Lender shall have previously consented in writing, (a) Borrower will take no action that would cause it to become an “employee benefit plan” as defined in 29 C.F.R. Section 2510.3-101, or “assets of a governmental plan” subject to regulation under the state statutes, and (b) Borrower will not sell, assign or transfer the Security Property, or any portion thereof or interest therein, to any transferee that does not execute and deliver to Lender its written assumption of the obligations of this covenant. Borrower further covenants and agrees to protect, defend, indemnify and hold Lender harmless from and against all loss, cost, damage and expense (including without limitation, all attorneys’ fees and excise taxes, costs of correcting any prohibited transaction or obtaining an appropriate exemption) that Lender may incur as a result of Borrower’s breach of this covenant. This covenant and indemnity shall survive the extinguishment of the lien of this Security Instrument by foreclosure or action in lieu thereof.

(c) The Loan Documents contain the entire agreement between Borrower and Lender relating to or connected with the Loan. Any other agreements relating to or connected with the Loan not expressly set forth in the Loan Documents are null and void and superseded in their entirety by the provisions of the Loan Documents.

(d) Borrower acknowledges that, with respect to the Loan, Borrower is relying solely on its own judgment and advisors in entering into the Loan without relying in any manner on any statements, representations or recommendations of Lender or any parent, subsidiary or affiliate of Lender. Borrower acknowledges that Lender engages in the business of real estate financings and other real estate transactions and investments which may be viewed as adverse to or competitive with the business of the Borrower or its affiliates. Borrower acknowledges that it

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is represented by competent counsel and has consulted counsel before executing the Loan Documents.

(e) Borrower covenants and agrees to pay Lender upon receipt of written notice from Lender, all reasonable costs and expenses (including reasonable attorneys’ fees and disbursements) incurred by Lender in connection with (i) the preparation, negotiation, execution and delivery of this Security Instrument and the other Loan Documents; (ii) Borrower’s performance of and compliance with Borrower’s respective agreements and covenants contained in this Security Instrument and the other Loan Documents on its part to be performed or complied with after the date hereof; (iii) Lender’s performance and compliance with all agreements and conditions contained in this Security Instrument and the other Loan Documents on its part to be performed or complied with after the date hereof; (iv) the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications to this Security Instrument and the other Loan Documents; and (v) the filing and recording fees and expenses, title insurance fees and expenses, and other similar expenses incurred in creating and perfecting the lien in favor of Lender pursuant to this Security Instrument and the other Loan Documents.

(f) This Security Instrument shall be governed by and construed in accordance with the laws of the State in which the Premises are located and the applicable laws of the United States of America.

59. Management of the Security Property. Borrower shall maintain the Management Agreement for the operation of the Security Property in full force and effect and timely perform all of Borrower’s obligations thereunder and enforce performance of all obligations of the Manager thereunder, and not permit the termination or amendment of such Management Agreement unless the prior written consent of Lender is first obtained. Borrower will enter into and cause the Manager (whether such manager is an entity affiliated with Borrower or is a professional property management company) to enter into an assignment and subordination of such Management Agreement in recordable form satisfactory to Lender, assigning and subordinating the Manager’s interest in the Security Property and all fees and other rights of the manager pursuant to such Management Agreement to the rights of Lender. Upon (a) an Event of Default, or (b) the gross negligence, malfeasance, or willful misconduct of Manager with respect to the management of the Security Property, Borrower at Lender’s request, shall terminate the Management Agreement and replace the Manager with a Manager approved by Lender. Upon the default by Manager under the Management Agreement beyond any applicable cure period thereunder, Lender shall have the right to require the Manager to enter into a sub-management agreement with a Manager approved by Lender (which said agreement shall be acceptable to Lender in its sole discretion) such that the sub-manager shall have all of the rights, obligations and responsibilities of the Manager set forth in the Management Agreement from the effective date of such sub-management agreement until the indebtedness evidenced by the Note is paid in full; at which time the term of said sub-management agreement shall automatically expire. Unless otherwise approved in writing by Lender, at all times while any portion of the Debt is outstanding, Borrower shall cause the Manager of the Security Property and the entity designated as the property manager of the Other Property to be the identical entity.

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60. Sale of Notes and Securitization. Borrower acknowledges that Lender and its successors and assigns shall have the right to do any and all of the following: (i) sell this Security Instrument, the Note and other Loan Documents to one or more investors as a whole loan, (ii) participate the Loan secured by this Security Instrument to one or more investors, (iii) deposit this Security Instrument, the Note and other Loan Documents with a trust, which trust may sell certificates to investors evidencing an ownership interest in the trust assets, (iv) otherwise sell the Loan or interest therein to investors, or (v) cause the Note, this Security Instrument and the other Loan Documents to be split into two or more notes, parts or interests, in whatever proportion Lender deems appropriate, which may be in the form of pari passu interests, senior and junior interests, or other interests, and thereafter to sell, assign, participate, syndicate or securitize all or any part of either or both of such severed or split obligations and documents (the transactions referred to in clauses (i) through (v) are hereinafter each referred to as “Secondary Market Transaction” or “Securitization”, and any securities secured by or evidencing ownership interests in the Note and this Security Instrument or otherwise issued in connection with a Secondary Market Transaction may be referred to as “Securities”).

Borrower shall cooperate with Lender in effecting any such Secondary Market Transaction and shall cooperate to implement all requirements imposed by any Rating Agency involved in any Secondary Market Transaction. Without limitation, at the request of Lender Borrower shall:

(a) (i) provide such financial and other information with respect to the Security Property, the Borrower and the Manager, (ii) provide budgets relating to the Security Property, (iii) perform or permit or cause to be performed or permitted such site inspection, appraisals, market studies, environmental reviews and reports (Phase I’s and, if appropriate, Phase II’s), engineering reports and other due diligence investigations of the Security Property, as may be reasonably requested by the holder of the Note or the Rating Agencies or as may be necessary or appropriate in connection with the Secondary Market Transaction and (iii) make such representations and warranties as of the closing date of the Secondary Market Transaction with respect to the Security Property, Borrower, and the Loan Documents as are consistent with those contained herein and are customarily provided in securitization transactions and as may be reasonably requested by the holder of the Note or the Rating Agencies and consistent with the facts covered by such representations and warranties as they exist on the date thereof, including the representations and warranties made in the Loan Documents (collectively, the “Provided Information”), together, if customary, with appropriate verification and/or consents of the Provided Information through letters of auditors or opinions of counsel of independent attorneys acceptable to the Lender and the Rating Agencies;

(b) at Borrower’s expense (except with respect to Section 60(v) above, which shall be at Lender’s expense), cause counsel to render opinions consistent with those delivered as of the date hereof, which may be relied upon by the holder of the Note, the Rating Agencies and their respective counsel, agents and representatives, as to non-consolidation, fraudulent conveyance, and true sale or any other opinion customary in securitization transactions with respect to the Security Property and Borrower and its affiliates, which counsel and opinions shall be reasonably satisfactory to the holder of the Note and the Rating Agencies;

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(c) execute such amendments to the Loan Documents and organizational documents, enter into a lockbox or similar arrangement with respect to the Rents and establish and fund such reserve funds (including, without limitation, reserve funds for deferred maintenance and capital improvements) as may be requested by the holder of the Note or the Rating Agencies or otherwise to effect the Secondary Market Transaction. Borrower shall not be required to modify any documents evidencing or securing the Loan so as to modify (A) the interest rate payable under the Note, (B) the stated maturity of the Note, (C) the amortization of principal of the Note, (D) the non-recourse provisions of the Loan or (E) any other material economic term of the Loan. However, in the case of split notes, the interest rate and principal amortization may be changed, provided that for the combined obligations taken as an aggregate, the over-all interest rate and amortization of principal shall remain the same; and

(d) to the extent not already required to be provided by Borrower under this Agreement, Borrower shall use reasonable efforts to satisfy the market standards to which the holder of the Note customarily adheres or which may be reasonably required in the marketplace or by the Rating Agencies in connection with any Secondary Market Transaction.

All reasonable third party costs and expenses incurred by Lender in connection with Borrower’s complying with requests made under Section 60(i) through (iv) shall be paid by the Borrower. All reasonable actual third party costs and expenses incurred by Lender or Borrower in connection with Borrower’s complying with requests made under Section 60(v) shall be paid by the Lender.

In the event that the provisions of this Security Instrument or any Loan Documents require the receipt of written confirmation from each Rating Agency with respect to the ratings on the Certificates, or, in accordance with the terms of the transaction documents relating to a Secondary Market Transaction, such a rating confirmation is required in order for the consent of the Lender to be given, the Borrower shall pay all of the costs and expenses of the Lender, Servicer and each Rating Agency in connection therewith, and, if applicable, shall pay any fees imposed by any Rating Agency as a condition to the delivery of such confirmation.

61.

Securitization Indemnification.

(a) Borrower understands that certain of the Provided Information may be included in disclosure documents in connection with the Secondary Market Transaction, including, without limitation, a prospectus, prospectus supplement or private placement memorandum (each, a “Disclosure Document”) and may also be included in filings with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the “Securities Act”), or the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), or provided or made available to investors or prospective investors in the Securities, the Rating Agencies, and service providers relating to the Secondary Market Transaction. In the event that the Disclosure Document is required to be revised prior to the sale of all Securities, the Borrower will cooperate with the holder of the Note in updating the Disclosure Document by providing all current information necessary to keep the Disclosure Document accurate and complete in all material respects.

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62. Servicer. At the option of Lender, the Loan may be serviced by a servicer/trustee (the “Servicer”) selected by Lender and Lender may delegate all or any portion of its responsibilities under this Security Instrument and the other Loan Documents to the Servicer pursuant to a servicing agreement (the “Servicing Agreement”) between Lender and Servicer.

63. Partial Release. Subject to the provisions of this Section 63, Lender shall release (a “Partial Release”) one or more unimproved portions of the Security Property; the dimensions, location, and configuration of which shall be subject to Lender’s approval, which shall be granted or denied by Lender in Lender’s sole and absolute discretion (the “Release Lot”). Lender shall release the Release Lot upon satisfaction of each and every of the following conditions precedent (singularly and collectively referred to as the “Partial Release Conditions”):

(a) Any and all sums then due and payable to Lender under the Loan Documents shall be fully paid (including, without limitation, principal and interest under the Note and all sums constituting the Reserves and any other escrow required under the Loan Documents) and no Event of Default (as described in Section 23 hereof) shall exist and be continuing, nor shall Lender have given Borrower notice of any event or condition which, with the passage of time or the giving of notice (or both), could result in an Event of Default if not cured by Borrower.

(b) At least thirty (30) days prior to the effective date of any proposed Partial Release, Borrower shall prepare and deliver to Lender (at Borrower’s sole cost and expense) a proposed re-plat of the Release Lot and the unreleased portion of the Security Property and a survey plat and field notes for the Release Lot and for the remainder of the Security Property, all prepared by a licensed surveyor or engineer (which surveys and re-plats shall be, in form, consistent with surveys and re-plats for mortgage loans generally acceptable to prudent institutional commercial loan lenders undertaking similar review or exercising reasonable and similar discretion with respect to a property similar in nature and location to the Security Property (“Prudent Lender Standards”)) and shall depict the exact location of the Release Lot relative to the remainder of the Security Property and the location of all applicable title matters.

(c) Borrower must provide evidence, which would be deemed satisfactory pursuant to Prudent Lender Standards, to Lender of the following matters: (i) that the Release Lot and the balance of the Security Property shall comply with all federal, state and local environmental, land use and zoning laws (including, without limitation, minimum lot size, parking regulations, set-back lines, density requirements, lot coverage ratios, frontage, subdivision, site plan approval and access to a public right-of-way); (ii) that all required notices have been given and consents obtained in connection with the proposed Partial Release, including (without limitation) the consent of any governmental entity and any indemnitor; (iii) that access to the remainder of the Security Property following the Partial Release to any previously dedicated streets and utilities shall not be impaired and that the construction of any future improvements on the Release Lot shall not impair the visibility or use of the remainder of the Security Property; and (iv) that the future uses of the Release Lot will not violate any exclusivity provision in any Lease pertaining to the Security Property nor any covenant, restriction, condition or other title matter then encumbering the Security Property.

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(d) Lender must have been provided complete information with respect to the proposed parking arrangement for the unreleased portion of the Security Property both immediately following the Partial Release and thereafter, which such proposed parking arrangement must be legally adequate for the remainder of the Security Property, must be deemed satisfactory pursuant to Prudent Lender Standards, and must include, to the extent Lender deems necessary or desirable, (i) a temporary parking arrangement reasonably convenient to the unreleased portion of the Security Property during the pendency of any construction on the Release Lot, (ii) a final parking arrangement after completion of any anticipated Improvements on the Release Lot, (iii) an insurable easement arrangement with respect to both the temporary and permanent parking arrangement, which parking facility will be without cost or expense to the owner of the unreleased portion of the Security Property, and (iv) a new loan policy of title insurance (or an endorsement to the existing loan policy of title insurance) providing title coverage to Lender with respect to such easement estate without exception and without any exception for liens.

(e) Prior to the effective date of the proposed Partial Release, and to the extent Lender deems necessary or desirable, Borrower shall encumber the Release Lot with a recorded development or similar agreement (which must be deemed satisfactory pursuant to Prudent Lender Standards) covering such matters as mutual parking and access, maintenance, shared utilities, drainage and other similar issues and containing appropriate restrictions on the type, construction, location, height and use of any improvements then existing or thereafter to be constructed on the Release Lot.

(f) Lender shall have received evidence in writing from the Rating Agency to the effect that the proposed Partial Release will not result in a requalification, reduction, downgrade or withdrawal of any rating initially assigned or to be assigned in a Secondary Market Transaction (hereinafter defined) or, if no such rating has been issued such Partial Release shall not have an adverse affect on the level of rating attainable in connection with the Loan.

(g) The Release Lot shall be conveyed, contemporaneously with the Partial Release, such that Borrower shall continue to satisfy each of the requirements described in Section 12 hereof following such Partial Release. Without limiting the generality of the foregoing, Borrower acknowledges and agrees that, after the provision of the Partial Release, Borrower shall own no other asset other than the Security Property (excluding the Release Lot) but including the new easement rights to be provided to Borrower as described in this Section 63.

(h) No proposed Partial Release shall (i) deny any unreleased portion of the Security Property reasonable access to public streets, roads or utilities, (ii) unreasonably divide any portion or tract of the remainder of the Security Property into strips or parcels, or (iii) otherwise negatively impact in any manner whatsoever (whether due to the configuration of the Release Lot, any proposed Improvements thereof or otherwise) the remainder of the Security Property.

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including a lot and block or metes and bounds description of the Release Lot, the name and address of the title insurance company to whose attention the Partial Release Instrument should be directed, numbers that reference the Partial Release Instrument (i.e., tax parcel numbers, title company order numbers, release numbers, etc.), the date when the Partial Release is to become effective, the name and address of the prospective purchaser of the Release Lot and such other documents and information as Lender may reasonably request in order to process the Partial Release Instrument. The Partial Release Instrument shall be delivered, in escrow, by Lender to the title company so designated, to be held, released, delivered and recorded in accordance with Lender’s escrow instructions requiring the satisfaction of all Partial Release Conditions. In no event shall the execution and delivery of a Partial Release Instrument affect any of Lender’s obligations under this Mortgage or the other Loan Documents.

(j) Borrower shall deliver to Lender (i) an endorsement to Lender’s policy of title insurance for the Security Property bringing the date of such policy to the date of the Partial Release and evidencing the continued first lien priority of the Mortgage (and with no such additional title matters) subject, however, to the Partial Release and additional easement coverage described hereinabove, or (ii) a new policy of title insurance, other endorsements or other information as Lender may require.

(k) Borrower shall deliver to Lender a written agreement, in form and substance acceptable to Lender, providing that in the event any affiliate of Borrower owns or manages the Release Lot, Borrower shall agree, and shall cause such affiliate to agree, not to offer to any existing tenant at the Security Property any incentives or discounts of any type not offered to all other potential tenants to entice or otherwise encourage any such tenant to terminate its lease at the Security Property and lease space at the Release Lot. Said written agreement shall be delivered, in escrow, by Lender to the title company so designated, to be held, released, delivered and recorded in accordance with Lender’s escrow instructions requiring the satisfaction of all Partial Release Conditions.

(l) All reasonable costs and expenses actually incurred by Lender (and any servicer of the Loan) in connection with the completion (and verification of completion) of all Partial Release Conditions, payment of all required fees of any Rating Agency and relative to the review, approval and execution of any Partial Release, shall be paid by Borrower prior to and as a condition of the execution of any Partial Release Instrument, including (but not limited to) reasonable attorneys’ fees, all costs and expenses of Lender (and any servicer of the Loan) incurred in connection with obtaining any engineering reports, opinions and consents, Rating Agency letters and any endorsement to Lender’s policy of title insurance. All recording fees and taxes are to be paid by Borrower.

(m) The satisfaction of such other conditions precedent to satisfy Prudent Lender Standards, including but not limited to obtaining (i) an updated appraisal acceptable to Lender of each proposed Release Lot and of the remainder of the Security Property and (ii) a tax opinion from Borrower’s counsel, in form and substance acceptable to Lender, opining that the proposed Partial Release will not violate any REMIC rules, regulations, or requirements from a tax perspective.

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(n) In no event shall the fair market value, as determined by an updated appraisal acceptable to Lender, of all of the Release Lots, in the aggregate, equal or exceed ten percent (10%) of the fair market value of the Security Property as of the date of the proposed Partial Release.

64. Survival. All representations and warranties made by Borrower herein shall survive the execution hereof.

65. Amendment and Restatement. This Amended and Restated Mortgage, Security Agreement and Fixture Financing Statement, together with the Other Mortgage, shall amend and restate, but shall not replace, the Mortgage, Security Agreement and Fixture Financing Statement executed by Borrower and Other Borrower for the benefit of CWCapital LLC, a Massachusetts limited liability company (“CWC”), dated November 21, 2006 and recorded at Document Number 0633134007 in the Cook County, Illinois Recorder’s Office (the “Original Mortgage”). CWC assigned the entirety of its interest in the Original Mortgage to Lender pursuant to the Assignment of Mortgage, Security Agreement and Fixture Financing Statement dated as of December 21, 2006 and executed by CWC for the benefit of Lender. CWC also assigned the entirety of its interest in the other Loan Documents to Lender as of December 21, 2006. All terms, conditions and obligations of the Original Mortgage shall remain in full force and effect as assigned to Lender and as restated herein and in the Other Mortgage and amended hereby and by the Other Mortgage, and all rights and remedies provided for therein shall be preserved to the Lender. Nothing contained herein or done pursuant hereto shall affect or be construed to affect the priority of the lien or security interest created by the Original Mortgage over the priority of other liens, charges, encumbrances or other security interests. Borrower does hereby confirm, ratify and reaffirm the obligations contained in the Original Mortgage, as assigned to Lender and as amended and restated hereby and by the Other Mortgage. This Amended and Restated Mortgage, Security Agreement and Fixture Financing Statement is an amendment and restatement only and not a novation; and except as herein provided and in the Other Mortgage, all of the terms and conditions of the Original Mortgage shall remain in full force and effect until payment of the Debt in full.

PART II

STATE SPECIFIC PROVISIONS

66. Business Loan. Borrower certifies and agrees that the proceeds of the loans secured by this Mortgage will be held for the purposes specified in Section 4 of the Illinois Interest Act (815 ILCS 205/1 et seq.), and that the principal obligation secured hereby constitutes a “business loan” within the definition and purview of said Section.

67. Not Residential or Agricultural Real Estate. Borrower hereby acknowledges that the Premises does not constitute agricultural real estate or residential real estate, as such terms are defined in the Act.

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hereof. In the event any provision of the Act which is specifically referred to herein may be repealed, Lender shall have the benefit of such provision as most recently existing prior to such repeal, as though the same were incorporated herein by express reference.

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IN WITNESS WHEREOF, Borrower has executed this Security Instrument the day and year first above written.

CONTINENTAL TOWERS ASSOCIATES III, LLC, a Delaware limited liability company

By: CONTINENTAL TOWERS ASSOCIATES II, LLC, a Delaware limited liability company,
its sole member

By: CTA GENERAL PARTNER, LLC,
a Delaware limited liability company,
its managing member

By: CTA MEMBER, INC.,
a Delaware corporation,
its managing member

By: [s] Paul G. Del Vecchio

Name: Yochanan Danziger, by
Paul G. Del Vecchio,
Attorney-In-Fact

Title: President

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STATE OF ILLINOIS

COUNTY OF COOK

[S E A L]

[s] Joella Malone

Notary Public, State of Illinois

My Commission Expires:

Joella Malone

07/10/09

Printed Name of Notary Public

Attachments

Exhibit A

Legal Description

Exhibit B

Lease Defaults

Exhibit C

Legal Description of Other Property

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EXHIBIT A

LEGAL DESCRIPTION

[Intentionally omitted]

EXHIBIT A, Legal Description – Solo Page

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EXHIBIT B

LEASE DEFAULTS

None.

EXHIBIT B, Required Repairs – Solo Page

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EXHIBIT C

OTHER PROPERTY

[Intentionally omitted]

EXHIBIT C, Other Property – Solo Page

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EX-10 14 exhibit-10_67.htm EXHIBIT 10.67

EXHIBIT 10.67

AMENDED AND RESTATED GUARANTY

This AMENDED AND RESTATED GUARANTY (“Guaranty”) is executed as of December 29, 2006, by PRIME GROUP REALTY, L.P., a Delaware limited partnership (whether one or more collectively referred to as “Guarantor”), for the benefit of WELLS FARGO BANK, N.A., as trustee for the registered holders of COBALT CMBS COMMERCIAL MORTGAGE TRUST 2006-C1, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2006-C1 (“Lender”).

W I T N E S S E T H:

WHEREAS, pursuant to that certain Amended and Restated Promissory Note, dated of even date herewith, executed by CONTINENTAL TOWERS ASSOCIATES III, LLC, a Delaware limited liability company (“Borrower”), and payable to the order of Lender in the original principal amount of $41,400,000.00 (together with all renewals, modifications, increases and extensions thereof, the “Note”), Borrower has become indebted, and may from time to time be further indebted, to Lender with respect to a loan (“Loan”) which is secured by the lien and security interest of an Amended and Restated Mortgage, Security Agreement and Fixture Financing Statement, of even date herewith (the “Mortgage”), and further evidenced, secured or governed by other instruments and documents executed in connection with the Loan, including an Amended and Restated Environmental and Hazardous Substance Indemnification Agreement (the “Environmental and Hazardous Substance Indemnification Agreement”) (the Note, Mortgage, the Environmental and Hazardous Substance Indemnification Agreement, and all other such documents and instruments executed in connection with the Loan may be referred to as the “Loan Documents”); and

WHEREAS, Lender is not willing to make the Loan, or otherwise extend credit, to Borrower unless Guarantor unconditionally guarantees payment and performance to Lender of the Guaranteed Obligations (as herein defined);

WHEREAS, PGRT Equity, L.L.C., a wholly owned subsidiary of Guarantor, and Lender are parties to that certain Amended and Restated Subordination and Standstill Agreement dated as of the date hereof; and

WHEREAS, Guarantor as the parent of Second Lender will directly benefit from Lender’s making the Loan to Borrower.

NOW, THEREFORE, as an inducement to Lender to make the Loan to Borrower, and to extend such additional credit as Lender may from time to time agree to extend under the Loan Documents, and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:

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•

NATURE AND SCOPE OF GUARANTY

• Guaranty of Obligation. Guarantor hereby irrevocably and unconditionally guarantees to Lender and its successors and assigns the payment and performance of the Guaranteed Obligations as and when the same shall be due and payable, whether by lapse of time, by acceleration of maturity or otherwise. Guarantor hereby irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Obligations as a primary obligor.

• Definition of Guaranteed Obligations. As used herein, the term “Guaranteed Obligations” means the obligations or liabilities of Borrower to Lender for any loss, damage, cost, expense, liability, claim or other obligation incurred by Lender (including attorneys’ fees and costs reasonably incurred) arising out of or in connection with the following:

(a) all amounts for which Borrower is liable under Sections 2.04(b) and (c) of the Note; and

(b) the payment and performance of all of the obligations of Borrower under the Environmental and Hazardous Substance Indemnification Agreement.

Notwithstanding anything to the contrary in any of the Loan Documents, Lender shall not be deemed to have waived any right which Lender may have under Section 506(a), 506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code to file a claim for the full amount of the Debt secured by the Mortgage or to require that all collateral shall continue to secure all of the Debt owing to Lender in accordance with the Loan Documents.

• Nature of Guaranty. This Guaranty is an irrevocable, absolute, continuing guaranty of payment and performance and not a guaranty of collection. This Guaranty may not be revoked by Guarantor and shall continue to be effective with respect to any Guaranteed Obligations arising or created after any attempted revocation by Guarantor and after (if Guarantor is a natural person) Guarantor’s death (in which event this Guaranty shall be binding upon Guarantor’s estate and Guarantor’s legal representatives and heirs). The fact that at any time or from time to time the Guaranteed Obligations may be increased or reduced shall not release or discharge the obligation of Guarantor to Lender with respect to the Guaranteed Obligations. This Guaranty may be enforced by Lender and any subsequent holder of the Note and shall not be discharged by the assignment or negotiation of all or part of the Note.

• Guaranteed Obligations Not Reduced by Offset. The Guaranteed Obligations and the liabilities and obligations of Guarantor to Lender hereunder, shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of Borrower, or any other party, against Lender or against payment of the Guaranteed Obligations, whether such offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise.

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• Payment By Guarantor. If all or any part of the Guaranteed Obligations shall not be punctually paid when due, whether at demand, maturity, acceleration or otherwise, Guarantor shall, immediately upon demand by Lender, and without presentment, protest, notice of protest, notice of non-payment, notice of intention to accelerate the maturity, notice of acceleration of the maturity, or any other notice whatsoever, pay in lawful money of the United States of America, the amount due on the Guaranteed Obligations to Lender at Lender’s address as set forth herein. Such demand(s) may be made at any time coincident with or after the time for payment of all or part of the Guaranteed Obligations, and may be made from time to time with respect to the same or different items of Guaranteed Obligations. Such demand shall be deemed made, given and received in accordance with the notice provisions hereof.

• No Duty To Pursue Others. It shall not be necessary for Lender (and Guarantor hereby waives any rights which Guarantor may have to require Lender), in order to enforce the obligations of Guarantor hereunder, first to (i) institute suit or exhaust its remedies against Borrower or others liable on the Loan or the Guaranteed Obligations or any other person, (ii) enforce Lender’s rights against any collateral which shall ever have been given to secure the Loan, (iii) enforce Lender’s rights against any other guarantors of the Guaranteed Obligations, (iv) join Borrower or any others liable on the Guaranteed Obligations in any action seeking to enforce this Guaranty, (v) exhaust any remedies available to Lender against any collateral which shall ever have been given to secure the Loan, or (vi) resort to any other means of obtaining payment of the Guaranteed Obligations. Lender shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Obligations.

• Waivers. Guarantor agrees to the provisions of the Loan Documents, and hereby waives notice of (i) any loans or advances made by Lender to Borrower, (ii) acceptance of this Guaranty, (iii) any amendment or extension of the Note, the Mortgage or of any other Loan Documents, (iv) the execution and delivery by Borrower and Lender of any other loan or credit agreement or of Borrower’s execution and delivery of any promissory notes or other documents arising under the Loan Documents or in connection with the Trust Property (as defined in the Mortgage), (v) the occurrence of any breach by Borrower or an Event of Default, (vi) Lender’s transfer or disposition of the Guaranteed Obligations, or any part thereof, (vii) sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Guaranteed Obligations, (viii) protest, proof of non-payment or default by Borrower, or (ix) any other action at any time taken or omitted by Lender, and, generally, all demands and notices of every kind in connection with this Guaranty, the Loan Documents, any documents or agreements evidencing, securing or relating to any of the Guaranteed Obligations and the obligations hereby guaranteed.

• Payment of Expenses. In the event that Guarantor should breach or fail to timely perform any provisions of this Guaranty, Guarantor shall, immediately upon demand by Lender, pay Lender all reasonable, out-of-pocket costs and expenses (including court costs and reasonable attorneys’ fees) incurred by Lender in the enforcement hereof or the preservation of Lender’s rights hereunder. The covenant contained in this Section shall survive the payment and performance of the Guaranteed Obligations.

• Effect of Bankruptcy. In the event that, pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law, or any judgment, order or decision

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thereunder, Lender must rescind or restore any payment, or any part thereof, received by Lender in satisfaction of the Guaranteed Obligations, as set forth herein, any prior release or discharge from the terms of this Guaranty given to Guarantor by Lender shall be without effect, and this Guaranty shall remain in full force and effect. It is the intention of Borrower and Guarantor that Guarantor’s obligations hereunder shall not be discharged except by Guarantor’s performance of such obligations and then only to the extent of such performance.

• Waiver of Subrogation, Reimbursement and Contribution. Notwithstanding anything to the contrary contained in this Guaranty, Guarantor hereby unconditionally and irrevocably waives, releases and abrogates until the end of the Waiver Period (as hereunder defined), any and all rights it may now or hereafter have under any agreement, at law or in equity (including, without limitation, any law subrogating Guarantor to the rights of Lender), to assert any claim against or seek contribution, indemnification or any other form of reimbursement from Borrower or any other party liable for payment of any or all of the Guaranteed Obligations for any payment made by Guarantor under or in connection with this Guaranty or otherwise. As used herein, “Waiver Period” shall mean ninety-one (91) days from the payment in full of the indebtedness secured by the Mortgage and Borrower’s failure within such ninety-one (91) day period to be subject to a bankruptcy action or otherwise in violation of Section 55 of the Mortgage.

• Borrower. The term “Borrower” as used herein shall include any new or successor corporation, association, partnership (general or limited), joint venture, trust or other individual or organization formed as a result of any merger, reorganization, sale, transfer, devise, gift or bequest of Borrower or any interest in Borrower.

• Indemnity. Guarantor shall indemnify, defend and hold harmless Lender and its successors and assigns from and against the following (which may be referred to herein as “Indemnified Matters”): any and all liabilities, obligations, claims, demands, damages, judgments, costs and expenses (including, without limitation, reasonable attorneys’ fees and disbursements), imposed upon or incurred by or asserted against Lender and/or its successors and assigns by reason of a default by Guarantor in the performance of any of the Guaranteed Obligations. The foregoing indemnity shall specifically not include any such costs to the extent incurred as the direct result of Lender’s gross negligence or willful misconduct.

•

Indemnification Procedures.

(a) If any action shall be brought against Lender based upon any of the matters for which Lender is indemnified hereunder, Lender shall notify Guarantor in writing thereof and Guarantor shall promptly assume the defense thereof, including, without limitation, the employment of counsel acceptable to Lender; provided, however, that any failure of Lender to notify Guarantor of such matter shall not impair or reduce the obligations of Guarantor hereunder. Lender shall have the right, at the expense of Guarantor (which expense shall be included in the Indemnified Matters), to employ separate counsel in any such action and to participate in the defense thereof. In the event Guarantor shall fail to discharge or undertake to defend Lender against any claim, loss or liability for which Lender is indemnified hereunder, Lender may, at its sole option and

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election, defend or settle such claim, loss or liability. The liability of Guarantor to Lender hereunder shall be conclusively established by such settlement, provided such settlement is made in good faith, the amount of such liability to include both the settlement consideration and the actual, out-of-pocket costs and expenses, including, without limitation, reasonable attorneys’ fees and disbursements, incurred by Lender in effecting such settlement. In such event, such settlement consideration, actual, out-of-pocket costs and expenses shall be included in the Indemnified Matters and Guarantor shall pay the same as hereinafter provided. Lender’s good faith in any such settlement shall be conclusively established if the settlement is made on the advice of independent legal counsel for Lender.

(b) Guarantor shall not, without the prior written consent of Lender: (i) settle or compromise any action, suit, proceeding or claim or consent to the entry of any judgment that does not include as an unconditional term thereof the delivery by the claimant or plaintiff to Lender of a full and complete written release of Lender (in form, scope and substance satisfactory to Lender in its sole discretion) from all liability in respect of such action, suit, proceeding or claim and a dismissal with prejudice of such action, suit, proceeding or claim; or (ii) settle or compromise any action, suit, proceeding or claim in any manner that may adversely affect Lender or obligate Lender to pay any sum or perform any obligation as determined by Lender in its sole discretion.

(c) All amounts owed by Guarantor to Lender that are Indemnified Matters shall be immediately reimbursable to Lender when and as such payment obligations are incurred by Lender and, in the event of any litigation, claim or other proceeding, without any requirement of waiting for the ultimate outcome of such litigation, claim or other proceeding, and Guarantor shall pay to Lender any and all amounts owed by Guarantor to Lender that are Indemnified Matters within ten (10) business days after written notice from Lender itemizing the amounts thereof incurred to the date of such notice. In addition to any other remedy available for the failure of Guarantor to periodically pay such amounts owed by Guarantor to Lender that are Indemnified Matters, such amounts, if not paid within said ten-day period, shall bear interest at the Default Interest Rate (as defined in the Note).

•

EVENTS AND CIRCUMSTANCES NOT REDUCING

OR DISCHARGING GUARANTOR’S OBLIGATIONS

Guarantor hereby consents and agrees to each of the following, and agrees that Guarantor’s obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and waives any common law, equitable, statutory or other rights (including without limitation rights to notice) which Guarantor might otherwise have as a result of or in connection with any of the following:

• Modifications. Any renewal, extension, increase, modification, alteration or rearrangement of all or any part of the Guaranteed Obligations, the Note, the Mortgage, the other

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Loan Documents, or any other document, instrument, contract or understanding between Borrower and Lender, or any other parties, pertaining to the Guaranteed Obligations or any failure of Lender to notify Guarantor of any such action.

• Adjustment. Any adjustment, indulgence, forbearance or compromise that might be granted or given by Lender to Borrower or any Guarantor.

• Condition of Borrower or Guarantor. The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of Borrower, Guarantor or any other party at any time liable for the payment of all or part of the Guaranteed Obligations; or any dissolution of Borrower or Guarantor, or any sale, lease or transfer of any or all of the assets of Borrower or Guarantor, or any changes in the shareholders, partners or members of Borrower or Guarantor; or any reorganization of Borrower or Guarantor.

• Invalidity of Guaranteed Obligations. The invalidity, illegality or unenforceability of all or any part of the Guaranteed Obligations, or any document or agreement executed in connection with the Guaranteed Obligations, for any reason whatsoever, including without limitation the fact that (i) the Guaranteed Obligations, or any part thereof, exceeds the amount permitted by law, (ii) the act of creating the Guaranteed Obligations or any part thereof is ultra vires, (iii) the officers or representatives executing the Note, the Mortgage or the other Loan Documents or otherwise creating the Guaranteed Obligations acted in excess of their authority, (iv) the Guaranteed Obligations violate applicable usury laws, (v) the Borrower has valid defenses, claims or offsets (whether at law, in equity or by agreement) unrelated to the willful misconduct or gross negligence of Lender or anyone acting by, through or under Lender which render the Guaranteed Obligations wholly or partially uncollectible from Borrower, (vi) the creation, performance or repayment of the Guaranteed Obligations (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Obligations or executed in connection with the Guaranteed Obligations, or given to secure the repayment of the Guaranteed Obligations) is illegal, uncollectible or unenforceable, or (vii) the Note, the Mortgage or any of the other Loan Documents have been forged or otherwise are irregular or not genuine or authentic through no willful misconduct or gross negligence of Lender or anyone acting by, through or under Lender, it being agreed that Guarantor shall remain liable hereon regardless of whether Borrower or any other person be found not liable on the Guaranteed Obligations or any part thereof for any reason.

• Release of Obligors. Any full or partial release of the liability of Borrower on the Guaranteed Obligations, or any part thereof, or of any co-guarantors, or any other person or entity now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Guaranteed Obligations, or any part thereof, it being recognized, acknowledged and agreed by Guarantor that Guarantor may be required to pay the Guaranteed Obligations in full without assistance or support of any other party, and Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that other parties will be liable to pay or perform the Guaranteed Obligations, or that Lender will look to other parties to pay or perform the Guaranteed Obligations.

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• Other Collateral. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed Obligations.

• Release of Collateral. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including without limitation negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security at any time existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Obligations.

• Care and Diligence. The failure of Lender or any other party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of such collateral, property or security, including but not limited to any neglect, delay, omission, failure or refusal of Lender (i) to take or prosecute any action for the collection of any of the Guaranteed Obligations or (ii) to foreclose, or initiate any action to foreclose, or, once commenced, prosecute to completion any action to foreclose upon any security therefor, or (iii) to take or prosecute any action in connection with any instrument or agreement evidencing or securing all or any part of the Guaranteed Obligations.

• Unenforceability. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Obligations, or any part thereof, shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by Guarantor that Guarantor is not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Guaranteed Obligations.

• Merger. The reorganization, merger or consolidation of Borrower into or with any other corporation or entity.

• Preference. Any payment by Borrower to Lender is held to constitute a preference under bankruptcy laws, or for any reason Lender is required to refund such payment or pay such amount to Borrower or someone else.

• Other Actions Taken or Omitted. Any other action taken or omitted to be taken with respect to the Loan Documents, the Guaranteed Obligations, or the security and collateral therefor, whether or not such action or omission prejudices Guarantor or increases the likelihood that Guarantor will be required to pay the Guaranteed Obligations pursuant to the terms hereof, it is the unambiguous and unequivocal intention of Guarantor that Guarantor shall be obligated to pay the Guaranteed Obligations when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, which obligation shall be deemed satisfied only upon the full and final payment and satisfaction of the Guaranteed Obligations.

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•

REPRESENTATIONS AND WARRANTIES

To induce Lender to enter into the Loan Documents and extend credit to Borrower, Guarantor represents and warrants to Lender as follows:

• Benefit. Guarantor is the parent of Second Lender, has received, or will receive, direct or indirect benefit from the making of this Guaranty with respect to the Guaranteed Obligations.

• Familiarity and Reliance. Guarantor is familiar with, and has independently reviewed books and records regarding, the financial condition of the Borrower and is familiar with the value of any and all collateral intended to be created as security for the payment of the Note or Guaranteed Obligations; however, Guarantor is not relying on such financial condition or the collateral as an inducement to enter into this Guaranty.

• No Representation By Lender. Neither Lender nor any other party has made any representation, warranty or statement to Guarantor in order to induce Guarantor to execute this Guaranty.

• Guarantor’s Financial Condition. As of the date hereof, and after giving effect to this Guaranty and the contingent obligation evidenced hereby, Guarantor is, and will be, solvent, and has and will have assets which, fairly valued, exceed its obligations, liabilities (including contingent liabilities) and debts, and has and will have property and assets sufficient to satisfy and repay its obligations and liabilities. Notwithstanding the foregoing, Guarantor shall at all times while the Amended and Restated Tax Indemnity Agreement between Guarantor and Richard A. Heise dated January 10, 2006, as amended by the First Amendment to Amended and Restated Tax Indemnity Agreement dated as of even date hereof, is in effect and the obligations of Guarantor therein remain outstanding, maintain a minimum net worth of no less than $50,000,000.00 (as reasonably determined by Lender) (the “Minimum Net Worth”). Guarantor shall furnish to Lender, on or before forty-five (45) days after the end of each calendar quarter and on or before ninety (90) days after the end of each calendar year, quarterly or annual, as applicable, current financial statements detailing the assets and liabilities of Guarantor. All such financial statements shall be (i) accompanied by a certificate executed by the general partner of Guarantor stating that such statements represent fairly the financial condition of Guarantor and (ii) audited by a “Big Five” accounting firm or other independent certified public accountant acceptable to Lender or, in the event the financial statements of Prime Group Realty Trust (“Trust”), a Maryland Trust, the general partner of Guarantor, include the requisite financial information of Guarantor, the financial statements of Trust shall be so audited and provided to Lender in lieu of audited financial statements of Guarantor. Lender acknowledges that the accounting firm of Grant Thornton LLP is an accounting firm acceptable to Lender. Lender’s determination of Guarantor’s net worth shall include as an add back for accumulated depreciation on consolidated and unconsolidated properties and joint ventures and properties held for sale. Notwithstanding anything herein to the contrary, in the event Guarantor fails at any time to maintain the Minimum Net Worth, such failure shall not constitute an Event of Default

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under this Guaranty or the Loan Documents. Any such failure shall, however, result in a Cash Restriction Condition (as defined in the Cash Management Agreement constituting a part of the Loan Documents), subject to the terms of the Cash Management Agreement constituting a part of the Loan Documents.

• Legality. The execution, delivery and performance by Guarantor of this Guaranty and the consummation of the transactions contemplated hereunder do not, and will not, contravene or conflict with any law, statute or regulation whatsoever to which Guarantor is subject or constitute a default (or an event which with notice or lapse of time or both would constitute a default) under, or result in the breach of, any indenture, mortgage, mortgage, charge, lien, or any contract, agreement or other instrument to which Guarantor is a party or which may be applicable to Guarantor. This Guaranty is a legal and binding obligation of Guarantor and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors’ rights.

• Survival. All representations and warranties made by Guarantor herein shall survive the execution hereof.

•

SUBORDINATION OF CERTAIN INDEBTEDNESS

• Subordination of All Guarantor Claims. As used herein, the term “Guarantor Claims” shall mean all debts and liabilities of Borrower to Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligations of Borrower thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the person or persons in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by Guarantor. The Guarantor Claims shall include without limitation all rights and claims of Guarantor against Borrower (arising as a result of subrogation or otherwise) as a result of Guarantor’s payment of all or a portion of the Guaranteed Obligations. Upon the occurrence and during the continuance of an Event of Default, prior to the repayment of the Loan, Guarantor shall not receive or collect, directly or indirectly, from Borrower or any other party any amount upon the Guarantor Claims.

• Claims in Bankruptcy. In the event of receivership, bankruptcy, reorganization, arrangement, debtor’s relief, or other insolvency proceedings involving Guarantor as debtor, Lender shall have the right to prove its claim in any such proceeding so as to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian dividends and payments which would otherwise be payable upon Guarantor Claims. Guarantor hereby assigns such dividends and payments to Lender. Should Lender receive, for application upon the Guaranteed Obligations, any such dividend or payment which is otherwise payable to Guarantor, and which, as between Borrower and Guarantor, shall constitute a credit upon the Guarantor Claims, then upon payment to Lender in full of the Guaranteed Obligations, Guarantor shall become subrogated to the rights of Lender to the extent that such payments to Lender on the Guarantor Claims have contributed toward the liquidation of the Guaranteed Obligations, and

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such subrogation shall be with respect to that proportion of the Guaranteed Obligations which would have been unpaid if Lender had not received dividends or payments upon the Guarantor Claims.

• Payments Held in Trust. In the event that, notwithstanding anything to the contrary in this Guaranty, Guarantor should receive any funds, payment, claim or distribution which is prohibited by this Guaranty, Guarantor agrees to hold in trust for Lender an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely no dominion over the amount of such funds, payments, claims or distributions so received except to pay them promptly to Lender, and Guarantor covenants promptly to pay the same to Lender.

• Liens Subordinate. Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon Borrower’s assets securing payment of the Guarantor Claims shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon Borrower’s assets securing payment of the Guaranteed Obligations, regardless of whether such encumbrances in favor of Guarantor or Lender presently exist or are hereafter created or attach. Without the prior written consent of Lender, Guarantor shall not (i) exercise or enforce any creditor’s right it may have against Borrower, or (ii) foreclose, repossess, sequester or otherwise take steps or institute any action or proceedings (judicial or otherwise, including without limitation the commencement of, or joinder in, any liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency proceeding) to enforce any liens, mortgages, deeds of trust, security interests, collateral rights, judgments or other encumbrances on assets of Borrower held by Guarantor.

•

MISCELLANEOUS

• Waiver. No failure to exercise, and no delay in exercising, on the part of Lender, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of Lender hereunder shall be in addition to all other rights provided by law. No modification or waiver of any provision of this Guaranty, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand.

• Notices. All notices given hereunder shall be in writing and shall be either hand delivered or mailed, by registered U.S. mail, Return Receipt Requested, first class postage prepaid, to the parties at their respective addresses below or at such other address for any party as such party may designate by notice to the other parties hereto:

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To Lender:

Wells Fargo Bank, N.A., as trustee for the registered holders of Cobalt CMBS Commercial Mortgage Trust 2006-C1, Commercial Mortgage Pass-Through Certificates, Series 2006-C1

c/o CWCapital LLC

One Charles River Place

63 Kendrick Street

Needham, Massachusetts 02494

Attention:

Legal Division

Telecopier:

(781) 707-9397

Re:

Continental Towers,

Rolling Meadows, Illinois

Wells Fargo Bank, N.A., as trustee for the registered holders of Cobalt CMBS Commercial Mortgage Trust 2006-C1, Commercial Mortgage Pass-Through Certificates, Series 2006-C1

c/o CWCapital LLC

One Charles River Place

63 Kendrick Street

Needham, Massachusetts 02494

Attention:

Servicing Division

Telecopier:

(781) 707-9498

or any other servicer of the Loan

Re:

Continental Towers,

Rolling Meadows, Illinois

To Guarantor:

Prime Group Realty, L.P.

c/o Prime Group Realty Trust

77 West Wacker Drive, Suite 3900

Chicago, Illinois 60601

Attention:

Jeffrey Patterson

Telecopier:

(312) 917-1684

Prime Group Realty, L.P.

c/o Prime Group Realty Trust

77 West Wacker Drive, Suite 3900

Chicago, Illinois 60601

Attention:

James Hoffman

Telecopier:

(312) 917-1684

with copies to:

Winston & Strawn LLP

Attention: Christine Graff

35 W. Wacker Drive

Chicago, Illinois 60601-9703

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• Governing Law. This Guaranty shall be governed by and construed in accordance with the laws of the State in which the real property encumbered by the Mortgage is located and the applicable laws of the United States of America.

• Invalid Provisions. If any provision of this Guaranty is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Guaranty, such provision shall be fully severable and this Guaranty shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Guaranty, and the remaining provisions of this Guaranty shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Guaranty, unless such continued effectiveness of this Guaranty, as modified, would be contrary to the basic understandings and intentions of the parties as expressed herein.

• Amendments. This Guaranty may be amended only by an instrument in writing executed by the party or an authorized representative of the party against whom such amendment is sought to be enforced.

• Parties Bound; Assignment; Joint and Several. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives; provided, however, that Guarantor may not, without the prior written consent of Lender, assign any of its rights, powers, duties or obligations hereunder. If Guarantor consists of more than one person or party, the obligations and liabilities of each such person or party shall be joint and several.

• Headings. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Guaranty.

• Recitals. The recital and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facie evidence of the facts and documents referred to therein.

• Counterparts. To facilitate execution, this Guaranty may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single instrument. It shall not be necessary in making proof of this Guaranty to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages.

• Rights and Remedies. If Guarantor becomes liable for any indebtedness owing by Borrower to Lender, by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby and the rights of Lender hereunder shall be cumulative of any and all other rights that Lender may ever have against Guarantor. The exercise by Lender of any right or remedy hereunder or under any other

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instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy.

• Other Defined Terms. Any capitalized term utilized herein shall have the meaning as specified in the Mortgage, unless such term is otherwise specifically defined herein.

• Entirety. THIS GUARANTY EMBODIES THE FINAL, ENTIRE AGREEMENT OF GUARANTOR AND LENDER WITH RESPECT TO GUARANTOR’S GUARANTY OF THE GUARANTEED OBLIGATIONS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTOR AND LENDER AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE OF DEALING BETWEEN GUARANTOR AND LENDER, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY AGREEMENT. THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTOR AND LENDER.

• Waiver of Right To Trial By Jury. GUARANTOR HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS GUARANTY, THE NOTE, THE MORTGAGE, OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY GUARANTOR, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS GUARANTY IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY GUARANTOR.

• Sale of Notes and Securitization. Guarantor acknowledges that Lender and its successors and assigns shall have the right to do any and all of the following: (i) sell the Security Instrument, the Note and other Loan Documents to one or more investors as a whole loan, (ii) participate the Loan secured by the Security Instrument to one or more investors, (iii) deposit the Security Instrument, the Note and other Loan Documents with a trust, which trust may sell certificates to investors evidencing an ownership interest in the trust assets, (iv) otherwise sell the Loan or interest therein to investors, or (v) cause the Note, the Security Instrument and the other Loan Documents to be split into two or more notes, parts or interests, in whatever proportion Lender deems appropriate, which may be in the form of pari passu interests, senior and junior interests, or other interests, and thereafter to sell, assign, participate, syndicate or securitize all or any part of either or both of such severed or split obligations and documents (the

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transactions referred to in clauses (i) through (v) are hereinafter each referred to as “Secondary Market Transaction” or “Securitization”, and any securities secured by or evidencing ownership interests in the Note and the Security Instrument or otherwise issued in connection with a Secondary Market Transaction may be referred to as “Securities”).

Guarantor shall cooperate with Lender in effecting any such Secondary Market Transaction and shall cooperate to implement all requirements imposed by any Rating Agency involved in any Secondary Market Transaction. Without limitation, at the request of Lender Guarantor shall:

(a) (i) provide such financial and other information with respect to the Security Property, the Guarantor and (ii) make such representations and warranties as of the closing date of the Secondary Market Transaction with respect to the Guarantor as are customarily provided in securitization transactions and as may be reasonably requested by the holder of the Note or the Rating Agencies and consistent with the facts covered by such representations and warranties as they exist on the date thereof, including the representations and warranties made in the Loan Documents (collectively, the “Provided Information”), together, if customary, with appropriate verification and/or consents of the Provided Information through letters of auditors or opinions of counsel of independent attorneys acceptable to the Lender and the Rating Agencies;

(b) execute such amendments to the Loan Documents as may be requested by the holder of the Note or the Rating Agencies or otherwise to effect the Secondary Market Transaction. Guarantor shall not be required to modify any documents evidencing or securing the Loan so as to modify (A) the interest rate payable under the Note, (B) the stated maturity of the Note, (C) the amortization of principal of the Note, (D) the non-recourse provisions of the Loan or (E) any other material economic term of the Loan. However, in the case of split notes, the interest rate and principal amortization may be changed, provided that for the combined obligations taken as an aggregate, the over-all interest rate and amortization of principal shall remain the same; and

(c) to the extent not already required to be provided by Guarantor under this Agreement, Guarantor shall use reasonable efforts to satisfy the market standards to which the holder of the Note customarily adheres or which may be reasonably required in the marketplace or by the Rating Agencies in connection with any Secondary Market Transaction.

All reasonable third party costs and expenses incurred by Lender in connection with Guarantor’s complying with requests made under Section 5.14 (i) and (iv) shall be paid by the Guarantor. All reasonable actual third party costs and expenses incurred by Lender or Guarantor in connection with Guarantor’s complying with the requests made under Section 5.14(v) shall be paid by the Lender

In the event that the provisions of the Security Instrument or any Loan Documents require the receipt of written confirmation from each Rating Agency with respect to the ratings on the Certificates, or, in accordance with the terms of the transaction documents relating to a

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Secondary Market Transaction, such a rating confirmation is required in order for the consent of the Lender to be given, the Guarantor shall pay all of the costs and expenses of the Lender, Servicer and each Rating Agency in connection therewith, and, if applicable, shall pay any fees imposed by any Rating Agency as a condition to the delivery of such confirmation.

•

Securitization.

• Reinstatement in Certain Circumstances. If at any time any payment of the principal of or interest under the Note or any other amount payable by the Borrower under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, Guarantor’s obligations hereunder with respect to such payment shall be reinstated as though such payment has been due but not made at such time.

• Amendment and Restatement. This Amended and Restated Guaranty, together with that certain Amended and Restated Guaranty dated as of the date hereof executed by Guarantor for the benefit of Lender with respect to the Other Loan (as defined in the Mortgage) (the “Other Guaranty”), shall amend, restate and replace in its entirety that certain Guaranty dated as of November 21, 2006 executed by Guarantor for the benefit of CWCapital LLC, a Massachusetts limited liability company (“CWC”) (the “Original Guaranty”). CWC assigned the entirety of its interest in the Loan Documents (including the Original Guaranty) to Lender on December 21, 2006. All terms, conditions, guarantees and obligations of the Original Guaranty shall remain in full force and effect as assigned to Lender and as amended and restated herein and in the Other Guaranty in its entirety, and all rights and remedies provided for therein shall be preserved to Lender. Nothing contained herein or done pursuant hereto shall affect or be construed to affect the priority of the lien or security interest securing the Loan over the priority of other liens, charges, encumbrances or other security interests. Guarantor does hereby confirm, ratify and reaffirm the obligations contained in the Original Guaranty, as assigned to Lender and as amended and restated hereby and by the Other Guaranty in its entirety.

[Remainder of this page is intentionally left blank.]

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EXECUTED as of the day and year first above written.

GUARANTOR:

PRIME GROUP REALTY, L.P.,
a Delaware limited partnership

By: PRIME GROUP REALTY TRUST,
a Maryland real estate investment trust,
its General Partner

By: [s] Paul G. Del Vecchio

Name: Paul G. Del Vecchio

Title: Senior Vice President - Capital Markets

Attachment

Notarial Jurat

AMENDED AND RESTATED GUARANTY – Signature Page

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STATE OF ILLINOIS

COUNTY OF COOK

This instrument was ACKNOWLEDGED before me on December 28, 2006, by PAUL G. DEL VECCHIO, as Senior Vice President - Capital Markets of PRIME GROUP REALTY TRUST, a Maryland real estate investment trust, as General Partner of PRIME GROUP REALTY, L.P., a Delaware limited partnership, on behalf of said limited partnership.

[S E A L]

[s] Joella Malone

Notary Public, State of Illinois

My Commission Expires:

Joella Malone

07/10/09_________________

Printed Name of Notary Public

AMENDED AND RESTATED GUARANTY – Acknowledgment Page

(PRIME GROUP REALTY, L.P.)

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EX-10 15 exhibit-10_68.htm EXHIBIT 10.68

EXHIBIT 10.68

AMENDED AND RESTATED

ENVIRONMENTAL AND HAZARDOUS SUBSTANCE

INDEMNIFICATION AGREEMENT

THIS AMENDED AND RESTATED ENVIRONMENTAL AND HAZARDOUS SUBSTANCE INDEMNIFICATION AGREEMENT (this “Agreement”), made as of December 29, 2006, is by CONTINENTAL TOWERS ASSOCIATES III, LLC, a Delaware limited liability company, (the “Borrower”), whose address is c/o Prime Group Realty Trust, 77 West Wacker Drive, Suite 3900, Chicago, Illinois 60601, in favor of WELLS FARGO BANK, N.A., as trustee for the registered holders of COBALT CMBS COMMERCIAL MORTGAGE TRUST 2006-C1, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2006-C1 (together with its successors and assigns, “Lender”), having an address at c/o CWCapital LLC, One Charles River Place, 63 Kendrick Street, Needham, Massachusetts 02494.

W I T N E S S E T H:

WHEREAS, Lender has extended to Borrower a loan in the principal amount of FORTY-ONE MILLION FOUR HUNDRED THOUSAND AND NO/100 DOLLARS ($41,400,000.00) (the “Loan”); and

WHEREAS, the Loan is evidenced by an Amended and Restated Promissory Note dated of even date herewith (the “Note”), executed by Borrower and payable to the order of Lender in the principal amount of the Loan and is secured by an Amended and Restated Mortgage, Security Agreement and Fixture Financing Statement dated of even date herewith (the “Security Instrument”), made by Borrower in favor of Lender, encumbering the real property, buildings, structures and other improvements described therein (collectively, the “Property”) and by other documents and instruments (the Note, the Security Instrument and such other documents and instruments, as the same may from time to time be amended, consolidated, renewed or replaced, being collectively referred to herein as the “Loan Documents”); and

WHEREAS, as a condition to making the Loan, Lender has required that Borrower indemnifies Lender with respect to hazardous wastes on, in, under or affecting the Property as herein set forth.

NOW, THEREFORE, to induce Lender to extend the Loan to Borrower and in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower hereby covenants and agrees for the benefit of Lender, as follows:

1. Indemnity. Borrower hereby assumes liability for, and hereby agrees to pay, protect, defend (at trial and appellate levels) and with attorneys, consultants and experts

AMENDED AND RESTATED ENVIRONMENTAL AND HAZARDOUS SUBSTANCE

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acceptable to Lender, and save Lender harmless from and against, and hereby indemnifies Lender from and against any and all liens, damages, losses, liabilities, obligations, settlement payments, penalties, assessments, citations, directives, claims, litigation, demands, defenses, judgments, suits, proceedings, costs, disbursements and expenses of any kind or of any nature whatsoever (including, without limitation, reasonable attorneys’, consultants’ and experts’ fees and disbursements actually incurred in investigating, defending, settling or prosecuting any claim, litigation or proceeding) (collectively “Costs”) which may at any time be imposed upon, incurred by or asserted or awarded against Lender or the Property, and arising directly or indirectly from or out of: (i) the violation of any local, state or federal law, rule or regulation pertaining to environmental regulation, contamination or clean-up (collectively, “Environmental Laws”), including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. §9601 et seq. and 40 CFR §302.1 et seq.), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. §6901 et seq.), The Federal Water Pollution Control Act (33 U.S.C. §1251 et seq. and 40 CFR §116.1 et seq.), and the Hazardous Materials Transportation Act (49 U.S.C. §1801 et seq.), and the regulations promulgated pursuant to said laws, all as amended, relating to or affecting the Property, whether or not caused by or within the control of Borrower; (ii) the presence, release or threat of release of any hazardous, toxic or harmful substances, wastes, materials, pollutants or contaminants (including, without limitation, asbestos, polychlorinated biphenyls, petroleum products, flammable explosives, radioactive materials, infectious substances or raw materials which include hazardous constituents) or any other substances or materials which are included under or regulated by Environmental Laws (collectively, “Hazardous Substances”), on, in, under or effecting all or any portion of the Property or any surrounding areas, regardless of whether or not caused by or within the control of Borrower; (iii) the failure by Borrower to comply fully with the terms and conditions of this Agreement; (iv) the breach of any representation or warranty contained in this Agreement; or (v) the enforcement of this Agreement, including, without limitation, the cost of assessment, containment and/or removal of any and all Hazardous Substances from all or any portion of the Property or any surrounding areas, the cost of any actions taken in response to the presence, release or threat of release of any Hazardous Substances on, in, under or affecting any portion of the Property or any surrounding areas to prevent or minimize such release or threat of release so that it does not migrate or otherwise cause or threaten danger to present or future public health, safety, welfare or the environment, and costs incurred to comply with the Environmental Laws in connection with all or any portion of the Property or any surrounding areas. “Costs” as used in this Agreement shall also include (without double counting to the extent such diminution is already reflected in the costs covered above) any diminution in the value of the security afforded by the Property or any future reduction of the sales price of the Property by reason of any matter set forth in this Paragraph 1; provided, however, the costs attributable to diminution in value as described herein shall not exceed the outstanding indebtedness evidenced by the Note plus any costs incurred by Lender in disposing of the Property or the Loan and shall be payable if and only to the extent such diminution or reduction results in a damage or loss to Lender as a result of its inability to recover the outstanding indebtedness upon disposing of the Property or the Loan by Lender or an affiliated entity. The foregoing indemnity shall specifically not include any such costs relating to Hazardous Substances which are initially placed on, in or under the Property after foreclosure or

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other taking of title to the Property by Lender or its successors or assignee or a purchaser at a foreclosure or a grantee of a deed in lieu of foreclosure.

2. Representations Regarding Hazardous Substances. Borrower hereby represents and warrants to and covenants and agrees with Lender as follows:

(a) To the best of Borrower’s knowledge, information and belief, after due inquiry and investigation, and except as otherwise disclosed in the Phase I Report (as defined in the Security Instrument) the Property is not in violation of any Environmental Law;

(b) To the best of Borrower’s knowledge, information and belief, after due inquiry and investigation, and except as otherwise disclosed in the Phase I Report (as defined in the Security Instrument) no Hazardous Substances are located on or have been handled, generated, stored, processed or disposed of on or released or discharged from the Property (including underground contamination) except for those substances used in the ordinary course of business and in compliance with all Environmental Laws;

(c) The Property is not subject to any private or governmental lien or judicial or administrative notice or action relating to Hazardous Substances;

(d) To the best of Borrower’s knowledge and belief, after due inquiry and investigation, and except as otherwise disclosed in the Phase I Report, there are no existing or closed underground storage tanks or other underground storage receptacles for Hazardous Substances on the Property;

(e) Borrower has received no notice of, and to the best of Borrower’s knowledge and belief, there exists no investigation, action, proceeding or claim by any agency, authority or unit of government or by any third party which could result in any liability, penalty, sanction or judgment under any Environmental Laws with respect to any condition, use or operation of the Property nor does Borrower know of any basis for such a claim; and

(f) Borrower has received no notice that, and to the best of Borrower’s knowledge and belief, there has been no claim by any party that, any use, operation or condition of the Property has caused any nuisance or any other liability or adverse condition on any other property nor does Borrower know of any basis for such a claim.

Covenants of Borrower.

(a) Borrower shall keep or cause the Property to be kept free from Hazardous Substances (except those substances used and stored by Borrower or any tenant of the Property in the ordinary course of its business and in compliance with all Environmental Laws and, if applicable, its Lease), shall not install or use any underground storage tanks, shall expressly prohibit the use, generation, handling, storage, production, processing and disposal of Hazardous Substances by all tenants of space in the Improvements (except

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those substances used in the ordinary course of business and in compliance with all Environmental Laws and its Lease), and, without limiting the generality of the foregoing, during the term of this Agreement, shall not install in the Improvements or permit to be installed in the Improvements asbestos or any substance containing asbestos.

(b) Borrower shall promptly notify Lender should Borrower become aware of (i) any Hazardous Substances, or other potential environmental problem or liability, with respect to the Property, (ii) any lien, action or notice affecting the Property or Borrower resulting from any violation or alleged violation of the Environmental Law, (iii) the institution of any investigation, inquiry or proceeding concerning Borrower or the Property pursuant to any Environmental Law or otherwise relating to Hazardous Substances, or (iv) the discovery of any occurrence, condition or state of facts which would render any representation or warranty contained in this Agreement incorrect in any material respect if made at the time of such discovery. Borrower shall, promptly and when and as required and regardless of the source of the contamination, at their own expense, take all actions as shall be necessary or advisable for the clean-up of any and all portions of the Property or other affected property, including, without limitation, all investigative, monitoring, removal, containment and remedial actions in accordance with all applicable Environmental Laws (and in all events in a manner reasonably satisfactory to Lender), and shall further pay or cause to be paid, at no expense to Lender, all clean-up, administrative and enforcement costs of applicable governmental agencies which may be asserted against the Property. In the event Borrower fails to do so, Lender may, upon not less than ten (10) days prior written notice to Borrower, cause the Property or other affected property to be freed from any Hazardous Substances or otherwise brought into conformance with Environmental Laws and any reasonable out-of-pocket costs incurred in connection therewith shall be included in Costs and shall be paid by Borrower in accordance with the terms of Paragraph 4(c) hereof. In furtherance of the foregoing, Borrower hereby grants to Lender access to the Property and an irrevocable license to remove any items deemed by Lender to be Hazardous Substances and to do all things Lender shall reasonably deem necessary to bring the Property into conformance with Environmental Laws.

(c) Upon the written request of Lender, at any time and from time to time after the occurrence of and during the continuance of an Event of Default under this Agreement or the Loan Documents or at such other time as Lender has determined (in the exercise of its good faith judgment but in no event more than one (1) time in any consecutive twelve (12) month period absent the occurrence and continuance of an Event of Default) that reasonable grounds exist to believe that Hazardous Substances are or have been released, stored or disposed of on or around the Property in violation of the Environmental Laws, Borrower shall provide, at Borrower’s sole expense, an inspection or audit of the Property prepared by a hydrogeologist or environmental engineer or other appropriate consultant reasonably approved by Lender indicating the presence or absence of Hazardous Substances on the Property in violation of Environmental Laws or an inspection or audit of the improvements located on the Property prepared by an engineering or consulting firm reasonably acceptable to Lender indicating the presence or

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absence of friable asbestos or substances containing asbestos on the Property. If Borrower fails to provide such inspection or audit within sixty (60) days after such written request, Lender may, upon not less than ten (10) days prior written notice to Borrower, order the same, and Borrower hereby grants to Lender access to the Property and an irrevocable license to undertake such inspection or audit. The cost of such inspection or audit shall be included in Costs and shall be paid by Borrower in accordance with the terms of Paragraph 4(c) hereof. If no Event of Default has occurred and is continuing and in the event Lender requests any such inspection or audit more than one (1) time in any consecutive twelve (12) month period, Lender shall have the right to obtain such additional audit or inspection at Lender’s sole cost and expense.

Indemnification Procedures.

(a) If any action shall be brought against Lender based upon any of the matters for which Lender is indemnified hereunder, Lender shall notify Borrower in writing thereof and Borrower shall promptly assume the defense thereof, including, without limitation, the employment of counsel reasonably acceptable to Lender and the negotiation of any settlement; provided, however, that any failure of Lender to notify Borrower of such matter shall not impair or reduce the obligations of Borrower hereunder. Lender shall have the right, at the expense of Borrower (which expense shall be included in Costs), to employ separate counsel in any such action and to participate in the defense thereof. In the event Borrower shall fail to discharge or undertake to defend Lender against any claim, loss or liability for which Lender is indemnified hereunder, Lender may, at its sole option and election, defend or settle such claim, loss or liability. The liability of Borrower to Lender hereunder shall be conclusively established by such settlement, provided such settlement is made in good faith, the amount of such liability to include both the settlement consideration and the costs and expenses, including, without limitation attorneys’ fees and disbursements, incurred by Lender in effecting such settlement. In such event, such settlement consideration, costs and expenses shall be included in Costs and Borrower shall pay the same as hereinafter provided. Lender’s good faith in any such settlement shall be conclusively established if the settlement is made on the advice of independent legal counsel for Lender.

(b)

Borrower shall not, without the prior written consent of Lender:

(i) settle or compromise any action, suit, proceeding or claim or consent to the entry of any judgment that does not include as an unconditional term thereof the delivery by the claimant or plaintiff to Lender of a full and complete written release of Lender (in form, scope and substance satisfactory to Lender in its sole discretion) from all liability in respect of such action, suit, proceeding or claim and a dismissal with prejudice of such action, suit, proceeding or claim; or

(ii) settle or compromise any action, suit, proceeding or claim in any manner that may adversely affect Lender or obligate Lender to pay any sum or perform any obligation as determined by Lender in its sole discretion.

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(c) All Costs shall be immediately reimbursable to Lender when and as incurred and, in the event of any litigation, claim or other proceeding, without any requirement of waiting for the ultimate outcome of such litigation, claim or other proceeding, and Borrower shall pay to Lender any and all Costs within ten (10) business days after written notice from Lender itemizing the amounts thereof incurred to the date of such notice. In addition to any other remedy available for the failure of Borrower to periodically pay such Costs, such Costs, if not paid within said ten business day period, shall bear interest at the Default Interest Rate (as defined in the Note).

5. Reinstatement of Obligations. If at any time all or any part of any payment made by Borrower or received by Lender from Borrower under or with respect to this Agreement is or must be rescinded or returned for any reason whatsoever (including, but not limited to, the insolvency, bankruptcy or reorganization of Borrower), then the obligations of Borrower hereunder shall, to the extent of the payment rescinded or returned, be deemed to have continued in existence, notwithstanding such previous payment made by Borrower, or receipt of payment by Lender, and the obligations of Borrower hereunder shall continue to be effective or be reinstated, as the case may be, as to such payment, all as though such previous payment by Borrower had never been made.

6. Waivers by Borrower. To the extent permitted by law, Borrower hereby waives and agrees not to assert or take advantage of:

(a) Any right to require Lender to proceed against any other person or to proceed against or exhaust any security held by Lender at any time or to pursue any other remedy in Lender’s power or under any other agreement before proceeding against Borrower;

(b)

The defense of the statute of limitations in any action hereunder;

(c) Any defense that may arise by reason of the incapacity, lack of authority, death or disability of any other person or persons or the failure of Lender to file or enforce a claim against the estate (in administration, bankruptcy or any other proceeding) of any other person or persons;

(d) Demand, presentment for payment, notice of nonpayment, protest, notice of protest and all other notices of any kind, or the lack of any thereof, including, without limiting the generality of the foregoing, notice of the existence, creation or incurring of any new or additional indebtedness or obligation or of any action or non-action on the part of Lender, any endorser or creditor of Borrower or any other person whomsoever under this or any other instrument in connection with any obligation or evidence of indebtedness held by Lender;

(e)

Any defense based upon an election of remedies by Lender;

(f) Any right or claim of right to cause a marshalling of the assets of Borrower;

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(g) Any principle or provision of law, statutory or otherwise, which is or might be in conflict with the terms and provisions of this Agreement;

(h) Any duty on the part of Lender to disclose to Borrower any facts Lender may now or hereafter know about the Property, regardless of whether Lender has reason to believe that any such facts materially increase the risk beyond that which Borrower intends to assume or has reason to believe that such facts are unknown to Borrower or has a reasonable opportunity to communicate such facts to Borrower, it being understood and agreed that Borrower is fully responsible for being and keeping informed of the condition of the Property and of any and all circumstances bearing on the risk that liability may be incurred by Borrower hereunder;

(i) Any lack of notice of disposition or of manner of disposition of any collateral for the Loan;

(j) Any invalidity, irregularity or unenforceability, in whole or in part, of any one or more of the Loan Documents;

(k) Any lack of commercial reasonableness in dealing with the collateral for the Loan;

(l) Any deficiencies in the collateral for the Loan or any deficiency in the ability of Lender to collect or to obtain performance from any persons or entities now or hereafter liable for the payment and performance of any obligation hereby guaranteed;

(m) An assertion or claim that the automatic stay provided by 11 U.S.C. §362 (arising upon the voluntary or involuntary bankruptcy proceeding of Borrower) or any other stay provided under any other debtor relief law (whether statutory, common law, case law or otherwise) of any jurisdiction whatsoever, now or hereafter in effect, which may be or become applicable, shall operate or be interpreted to stay, interdict, condition, reduce or inhibit the ability of Lender to enforce any of its rights, whether now or hereafter required, which Lender may have against Borrower or the collateral for the Loan;

(n) Any modifications of the Loan Documents or any obligation of Borrower relating to the Loan by operation of law or by action of any court, whether pursuant to the Bankruptcy Reform Act of 1978, as amended, or any other debtor relief law (whether statutory, common law, case law or otherwise) of any jurisdiction whatsoever, now or hereafter in effect, or otherwise;

(o) All rights and remedies accorded by applicable law to Borrower or guarantors, except any rights of subrogation which Borrower may have, provided that the indemnity provided for hereunder shall neither be contingent upon the existence of any such rights of subrogation nor subject to any claims or defenses whatsoever which may be asserted in connection with the enforcement or attempted enforcement of such

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subrogation rights including, without limitation, any claim that such subrogation rights were abrogated by any acts of Lender; and

(p) Any action, occurrence, event or matter consented to by Borrower under Section 7(h) hereof, under any other provision hereof, or otherwise.

General Provisions.

(a) Fully Recourse. All of the terms and provisions of this Agreement are recourse obligations of Borrower and not restricted by any limitation on personal liability.

(b) Secured Obligations. This Agreement, the payment of all sums due hereunder and the performance and discharge of each and every obligation, covenant and agreement of Borrower contained herein, are, and shall be deemed to be, secured by the Security Instrument.

(c) Survival. This Agreement shall be deemed to be continuing in nature and shall remain in full force and effect and shall survive the payment of the indebtedness evidenced and secured by the Loan Documents and the exercise of any remedy by Lender under the Security Instrument or any of the other Loan Documents, including, without limitation, any foreclosure or deed in lieu thereof, even if, as a part of such remedy, the Loan is paid or satisfied in full.

(d) No Recourse Against Lender. Borrower shall not have any right of recourse against Lender by reason of any action Lender may take or omit to take under the provisions of this Agreement or under the provisions of any of the Loan Documents.

(e) Reservation of Rights. Nothing contained in this Agreement shall prevent or in any way diminish or interfere with any rights or remedies, including, without limitation, the right to contribution, which Lender may have against Borrower or any other party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (codified at Title 42 U.S.C. §9601 et seq.), as it may be amended from time to time, or any other applicable federal, state or local laws, all such rights being hereby expressly reserved.

(f) Financial Statements. Borrower hereby agrees, as a material inducement to Lender to make the Loan to Borrower, to furnish to Lender promptly upon demand by Lender current and dated financial statements certified by or on behalf of Borrower detailing the assets and liabilities of Borrower, in form and substance acceptable to Lender. Borrower hereby warrants and represents unto Lender that any and all balance sheets, net worth statements and other financial data which have heretofore been given or may hereafter be given to Lender with respect to Borrower did or will at the time of such delivery fairly and accurately present the financial condition of Borrower.

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(g) Rights Cumulative; Payments. Lender’s rights under this Agreement shall be in addition to all rights of Lender under the Note, the Security Instrument and the other Loan Documents. FURTHER, PAYMENTS MADE BY BORROWER UNDER THIS AGREEMENT SHALL NOT REDUCE IN ANY RESPECT BORROWER’S OBLIGATIONS AND LIABILITIES UNDER THE NOTE, THE MORTGAGE AND THE OTHER LOAN DOCUMENTS.

(h) No Limitation on Liability. Borrower hereby consents and agrees that Lender may at any time and from time to time without further consent from Borrower take any of the following actions, and the liability of Borrower under this Agreement shall be unconditional and absolute and shall in no way be impaired or limited by any of the following events, whether occurring with or without notice to Borrower or with or without consideration: (i) any extensions of time for performance required by any of the Loan Documents or extension or renewal of the Note; (ii) any sale, assignment or foreclosure of the Note, the Security Instrument or any of the other Loan Documents or any sale or transfer of the Property; (iii) any change in the composition of Borrower; (iv) the accuracy or inaccuracy of the representations and warranties made by Borrower herein or in any of the Loan Documents; (v) the release of Borrower or of any other person or entity from performance or observance of any of the agreements, covenants, terms or conditions contained in any of the Loan Documents by operation of law, Lender’s voluntary act or otherwise; (vi) the release or substitution in whole or in part of any security for the Loan; (vii) Lender’s failure to record the Security Instrument or to file any financing statement (or Lender’s improper recording or filing thereof) or to otherwise perfect, protect, secure or insure any lien or security interest given as security for the Loan; (viii) the modification of the terms of any one or more of the Loan Documents; or (ix) the taking or failure to take any action of any type whatsoever. No such action which Lender shall take or fail to take in connection with the Loan Documents or any collateral for the Loan, nor any course or dealing with Borrower or any other person, shall limit, impair or release Borrower’s obligations hereunder, effect this Agreement in any way or afford Borrower any recourse against Lender. Nothing contained in Section shall be construed to require Lender to take or refrain from taking any action referred to herein.

(i) Entire Agreement; Amendment; Severability. This Agreement contains the entire agreement between the parties respecting the matters herein set forth and supersedes (except as to the Security Instrument) all prior agreements, whether written or oral, between the parties respecting such matters. Any amendments or modifications hereto, in order to be effective, shall be in writing and executed by the parties hereto. A determination that any provision of this Agreement is unenforceable or invalid shall not affect the enforceability or validity of any other provision, and any determination that the application of any provision of this Agreement to any person or circumstance is illegal or unenforceable shall not affect the enforceability or validity of such provision as it may apply to any other persons or circumstances.

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(j) Governing Law; Binding Effect; Waiver of Acceptance. This Agreement shall be governed by and construed in accordance with the laws of the State in which the Property is located, except to the extent that the applicability of any of such laws may now or hereafter be preempted by Federal law, in which case such Federal law shall so govern and be controlling. This Agreement shall bind Borrower and the heirs, personal representatives, successors and assigns of Borrower and shall inure to the benefit of Lender and the officers, directors, shareholders, agents and employees of Lender and their respective heirs, successors and assigns. Notwithstanding the foregoing, subject to Borrower’s rights under the Security Instrument, Borrower shall not assign any of its rights or obligations under this Agreement without the prior written consent of Lender, which consent may be withheld by Lender in its sole discretion. Borrower hereby waives any acceptance of this Agreement by Lender, and this Agreement shall immediately be binding upon Borrower.

(k) Notice. All notices, demands, requests or other communications to be sent by one party to the other hereunder or required by law shall be in writing and shall be deemed to have been validly given or served by delivery of the same in person to the intended addressee, or by depositing the same with Federal Express or another reputable private courier service for next business day delivery to the intended addressee at the address designated in the Security Instrument for notices, or by depositing the same in the United States mail, postage prepaid, registered or certified mail, return receipt requested, addressed to the intended addressee at its address set forth on the first page of this Agreement or at such other address as may be designated by such party as herein provided. All notices, demands and requests shall be effective upon such personal delivery, or one (1) business day after being deposited with the private courier service, or two (2) business days after being deposited in the United States mail as required above. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given as herein required shall be deemed to be receipt of the notice, demand or request sent. By giving to the other party hereto at least fifteen (15) days’ prior written notice thereof in accordance with the provisions hereof, the parties hereto shall have the right from time to time to change their respective addresses and each shall have the right to specify as its address any other address within the United States of America.

(l) No Waiver; Time of Essence; Business Days. The failure of any party hereto to enforce any right or remedy hereunder, or to promptly enforce any such right or remedy, shall not constitute a waiver thereof nor give rise to any estoppel against such party nor excuse any of the parties hereto from their respective obligations hereunder. Any waiver of such right or remedy must be in writing and signed by the party to be bound. This Agreement is subject to enforcement at law or in equity, including actions for damages or specific performance. Time is of the essence hereof. The term “business day” as used herein shall mean a weekday, Monday through Friday, except a legal holiday or a day on which banking institutions in New York, New York are authorized by law to be closed.

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(m) Captions for Convenience. The captions and headings of the sections and paragraphs of this Agreement are for convenience of reference only and shall not be construed in interpreting the provisions hereof.

(n) Attorneys’ Fees. In the event it is necessary for Lender to retain the services of an attorney or any other consultants in order to enforce this Agreement, or any portion thereof, Borrower agrees to pay to Lender any and all actual, out-of-pocket costs and expenses, including, without limitation, reasonable attorneys’ fees, incurred by Lender as a result thereof and such actual, out-of-pocket costs, fees and expenses shall be included in Costs.

(o) Successive Actions. A separate right of action hereunder shall arise each time Lender acquires knowledge of any matter indemnified by Borrower under this Agreement. Separate and successive actions may be brought hereunder to enforce any of the provisions hereof at any time and from time to time. No action hereunder shall preclude any subsequent action, and Borrower hereby waives and covenants not to assert any defense in the nature of splitting of causes of action or merger of judgments.

(p) Joint and Several Liability. Notwithstanding anything to the contrary contained herein, if there are multiple Borrowers, the obligations and liabilities of each such person or entity hereunder shall be joint and several.

(q) Reliance. Lender would not make the Loan to Borrower without this Agreement. Accordingly, Borrower intentionally and unconditionally enters into the covenants and agreements as set forth above and understand that, in reliance upon and in consideration of such covenants and agreements, the Loan shall be made and, as part and parcel thereof, specific monetary and other obligations have been, are being and shall be entered into which would not be made or entered into but for such reliance.

(r) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be effective only upon delivery and thereafter shall be deemed an original, and all of which shall be taken to be one and the same instrument, for the same effect as if all parties hereto had signed the same signature page. Any signature page of this Agreement may be detached from any counterpart of this Agreement without impairing the legal effect of any signatures thereon and may be attached to another counterpart of this Agreement identical in form hereto but having attached to it one or more additional signature pages.

(s)

SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.

BORROWER, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, (A) SUBMITS TO PERSONAL JURISDICTION IN THE STATE OF ILLINOIS OVER ANY SUIT, ACTION OR PROCEEDING BY ANY PERSON ARISING FROM OR RELATING TO THIS AGREEMENT,

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(B) AGREE THAT ANY SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN COOK COUNTY, ILLINOIS, (C) SUBMIT TO THE JURISDICTION OF SUCH COURTS, AND, (D) TO THE FULLEST EXTENT PERMITTED BY LAW, AGREE THAT NEITHER OF THEM WILL BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM (BUT NOTHING HEREIN SHALL AFFECT THE RIGHT OF LENDER TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM). BORROWER FURTHER CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID, TO THE BORROWER AT THE ADDRESS FOR NOTICES DESCRIBED IN SECTION 7(k) HEREOF, AND CONSENT AND AGREE THAT SUCH SERVICE SHALL CONSTITUTE IN EVERY RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY LAW). NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, EITHER PARTY MAY REMOVE TO FEDERAL COURT, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY SUIT, ACTION, OR PROCEEDING FILED IN STATE COURT.

BORROWER, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, WAIVES, RELINQUISHES AND FOREVER FORGOES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO THIS AGREEMENT OR ANY CONDUCT, ACT OR OMISSION OF LENDER OR BORROWER, OR ANY OF ITS DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, IN EACH OR THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.

(t) Waiver by Borrower. Borrower covenants and agrees that upon the commencement of a voluntary or involuntary bankruptcy proceeding by or against Borrower, Borrower shall not seek a supplemental stay or otherwise, pursuant to 11 U.S.C. §105 or any other provision of the Bankruptcy Reform Act of 1978, as amended, or any other debtor relief law (whether statutory, common law, case law, or otherwise) of any jurisdiction whatsoever, now or hereafter in effect, which may be or become applicable, to stay, interdict, condition, reduce or inhibit the ability of Lender to enforce any rights of Lender against Borrower by virtue of this Agreement or otherwise.

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(u) Amendment and Restatement. This Amended and Restated Environmental and Hazardous Substances Indemnification Agreement, together with that certain Amended and Restated Environmental and Hazardous Substances Indemnification Agreement dated as of the date hereof executed by Guarantor for the benefit of Lender with respect to the Other Loan (as defined in the Security Instrument) (the “Other Agreement”), shall amend, restate, and replace in its entirety that certain Environmental and Hazardous Substances Indemnification Agreement dated as of November 21, 2006 executed by Borrower and Continental Towers, L.L.C., a Delaware limited liability company, for the benefit of CWC Capital LLC, a Massachusetts limited liability company (“CWC”) (the “Original Agreement”). CWC assigned the entirety of its interest in the Loan Documents (including the Original Agreement) to Lender on December 21, 2006. All terms, conditions and obligations of the Original Agreement shall remain in full force and effect as assigned to Lender and as amended and restated herein and in the Other Agreement in its entirety, and all rights and remedies provided for therein shall be preserved to Lender. Nothing contained herein or done pursuant hereto shall affect or be construed to affect the priority of the lien or security interest securing the Loan over the priority of other liens, charges, encumbrances or other security interests. Borrower does hereby confirm, ratify and reaffirm the obligations contained in the Original Agreement, as assigned to Lender and as amended and restated hereby and by the Other Agreement in its entirety.

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IN WITNESS WHEREOF, Borrower have executed this Environmental and Hazardous Substance Indemnification Agreement as of the day and year first above written.

BORROWER:

CONTINENTAL TOWERS ASSOCIATES III, LLC,
a Delaware limited liability company

By: CONTINENTAL TOWERS ASSOCIATES II, LLC,
a Delaware limited liability company,
its sole member

By: CTA GENERAL PARTNER, LLC,
a Delaware limited liability company,
its managing member

By: CTA MEMBER, INC.,
a Delaware corporation,
its managing member

By: [s] Paul G. Del Vecchio

Name: Yochanan Danziger,
by Paul G. Del Vecchio,
Attorney-In-Fact

Title: President

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EX-10 16 exhibit-10_69.htm EXHIBIT 10.69

EXHIBIT 10.69

AMENDED AND RESTATED PROMISSORY NOTE

$73,600,000.00

December 29, 2006

FOR VALUE RECEIVED, the undersigned, CONTINENTAL TOWERS, L.L.C., a Delaware limited liability company (“Borrower”), whose address is c/o Prime Group Realty Trust, 77 West Wacker Drive, Suite 3900, Chicago, Illinois 60601, promises to pay to the order of WELLS FARGO BANK, N.A., as trustee for the registered holders of COBALT CMBS COMMERCIAL MORTGAGE TRUST 2006-C1, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2006-C1 (“Lender”), at the office of Lender at c/o CWCapital LLC, One Charles River Place, 63 Kendrick Street, Needham, Massachusetts 02494, or at such other place as Lender may designate to Borrower in writing from time to time, the principal sum of SEVENTY-THREE MILLION SIX HUNDRED THOUSAND NO/100 DOLLARS ($73,600,000.00) together with interest on so much thereof as is from time to time outstanding and unpaid, from the date of the advance of the principal evidenced hereby, at the rate of Five and Eight Hundred Sixty-Four Thousandths percent (5.864%) per annum (the “Note Rate”), in lawful money of the United States of America, which shall at the time of payment be legal tender in payment of all debts and dues, public and private.

ARTICLE I

TERMS AND CONDITIONS

1.02 Payment of Principal and Interest. Payments in federal funds immediately available in the place designated for payment received by Lender prior to 3:00 p.m. local time on a day on which Lender is open for business at said place of payment shall be credited prior to close of business, while other payments may, at the option of Lender, not be credited until immediately available to Lender in federal funds at the place designated for payment prior to 3:00 p.m. local time at said place of payment on a Business Day. Interest only payments computed at the Note Rate and due in arrears, shall be due and payable beginning on the first day of the second full calendar month following the date of this Note (or on the first day of the first full calendar month following the date hereof, in the event the advance of the principal amount evidenced by this Note is the first day of a calendar month)(the “First Payment Date”), and continuing on the first day of each and every month thereafter through and including December 1, 2016 (the “Maturity Date”), at which time the entire outstanding principal balance hereof, together with all accrued but unpaid interest thereon, shall be due and payable in full.

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The date each month on which payment of interest is due hereunder may be referred to as the “Payment Date.” Lender shall have the right, to be exercised not more than once during the term of the Loan, by not less than 30 days’ written notice to Borrower, to change the Payment Date for each month thereafter to a date other than the first day of each month. The amount of interest due on each Payment Date as so rescheduled shall be the same as the amount of interest that shall have been due on each Payment Date as originally scheduled, except that for the month in which the first rescheduled Payment Date occurs, the payment due also shall include interest for the period from and including the first day of such month to the first rescheduled Payment Date. If the Payment Date is changed in accordance with the foregoing, then the Maturity Date shall be extended to the day in the month in which the Maturity Date originally was scheduled which corresponds with the Payment Date.

1.05

Prepayment; Defeasance.

(a) This Note may not be prepaid, in whole or in part (except as otherwise specifically provided herein or in the other Loan Documents), at any time. In the event that Borrower wishes to have the Security Property (as hereinafter defined) released from the lien of the Security Instrument (as hereinafter defined), Borrower’s sole option shall be a Defeasance (as hereinafter defined) upon satisfaction of the terms and conditions set forth in Subsection 1.05(c) hereof. Notwithstanding anything contained herein to the contrary, this Note may be prepaid in whole but not in part, without premium or penalty on or after the date which is within three (3) months prior to the Maturity Date provided (i) written notice of such prepayment is received by Lender not more than ninety (90) days and not less than thirty (30) days prior to the anticipated date of such prepayment (and Lender does not receive a written rescission of such notice from Borrower), (ii) such prepayment is accompanied by all interest accrued hereunder through and including the date of such prepayment and all other sums due hereunder or under the other Loan Documents, provided however that if such prepayment occurs on any day other than a scheduled Payment Date, then such prepayment shall be accompanied by all interest that would have accrued hereunder until the next scheduled Payment Date (or until the Maturity Date, if there is no scheduled Payment Date remaining) as if such prepayment had not occurred, and (iii) the Other Loan (as defined in the Borrower Security Instrument) is simultaneously paid in full. If, upon any such permitted prepayment occurring within the three (3) months prior to the Maturity Date, the aforesaid prior written notice has not been timely received by Lender, there shall be due a prepayment fee in an amount equal to the lesser of (i) thirty (30) days’ interest computed at the Note Rate on the outstanding principal balance of this Note so prepaid and (ii) interest computed at the Note Rate on the outstanding principal balance of this Note so prepaid that

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would have been payable for the period from, and including, the date of prepayment through the Maturity Date of this Note as though such prepayment had not occurred.

(b) Except as described above, partial or entire prepayments of this Note shall not be permitted, except for partial and entire prepayments resulting from Lender’s election to apply insurance or condemnation proceeds to reduce the outstanding principal balance of this Note as provided in the Borrower Security Instrument or as a result of Lender’s acceleration of the Debt (as defined in the Borrower Security Instrument) pursuant to Section 15 or 16 of the Borrower Security Instrument, in which event no prepayment fee or premium shall be due, provided that with respect to any such entire prepayment of this Note, the entirety of the Other Loan shall be simultaneously paid in full. No notice of prepayment shall be required under the circumstances specified in the preceding sentence. No principal amount repaid may be reborrowed. Any such partial prepayments of principal shall be applied to the unpaid principal balance evidenced hereby. Except as otherwise expressly provided in this Section 1.05, the prepayment fees provided in the immediate following paragraph shall be due, to the extent permitted by applicable law, under any and all circumstances where all or any portion of this Note is paid prior to the Maturity Date, whether such prepayment is voluntary or involuntary, including, without limitation, if such prepayment results from Lender’s exercise of its rights upon Borrower’s default and acceleration of the Maturity Date of this Note (irrespective of whether foreclosure proceedings have been commenced), and shall be in addition to any other sums due hereunder or under any of the other Loan Documents. No tender of a prepayment of this Note with respect to which a prepayment fee is due shall be effective unless such prepayment is accompanied by the applicable prepayment fee.

If, prior to the third anniversary of the First Payment Date (the “Lockout Expiration Date”), the indebtedness evidenced by this Note shall have been declared due and payable by Lender pursuant to Article II hereof or the provisions of any other Loan Document due to an Event of Default, then, in addition to the indebtedness evidenced by this Note being immediately due and payable, there shall also then be immediately due and payable a sum equal to the interest which would have accrued on the principal balance of this Note at the Note Rate from the date of such acceleration to the Lock-out Expiration Date, together with a prepayment fee in an amount equal to the Yield Maintenance Premium (as hereinafter defined) based on the entire indebtedness outstanding on the date of such acceleration. If such acceleration is on or following the Lockout Expiration Date, the Yield Maintenance Premium shall also then be immediately due and payable as though Borrower were prepaying the entire indebtedness on the date of such acceleration. In addition to the amounts described in the two preceding sentences, in the event any such acceleration or tender of payment of such indebtedness occurs or is made on or prior to the Lockout Expiration Date, there shall also then be immediately due and payable an additional prepayment fee equal to one percent (1%) of the principal balance of this Note. The term “Yield Maintenance Premium” shall mean an amount equal to the greater of (A) one percent (1.0%) of the principal amount being prepaid, and (B) the present value of a series of payments each equal to the Payment Differential (as hereinafter defined) and payable on each Payment Date over the remaining original term of this Note and on the Maturity Date, discounted at the Reinvestment Yield (as hereinafter defined) for the number of months remaining as of the date of such prepayment to each such Payment Date and the Maturity Date. The term “Payment Differential” shall mean an amount equal to (i) the Note Rate less the Reinvestment Yield, divided by (ii) twelve (12) and multiplied by (iii) the principal sum outstanding under this Note

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after application of the constant monthly payment due under this Note on the date of such prepayment, provided that the Payment Differential shall in no event be less than zero. The term “Reinvestment Yield” shall mean an amount equal to the lesser of (i) the yield on the U.S. Treasury issue (primary issue) with a maturity date closest to the Maturity Date, or (ii) the yield on the U.S. Treasury issue (primary issue) with a term equal to the remaining average life of the indebtedness evidenced by this Note, with each such yield being based on the bid price for such issue as published in The Wall Street Journal on the date that is fourteen (14) days prior to the date of such prepayment set forth in the notice of prepayment (or, if such bid price is not published on that date, the next preceding date on which such bid price is so published) and converted to a monthly compounded nominal yield. In the event that any prepayment fee is due hereunder, Lender shall deliver to Borrower a statement setting forth the amount and determination of the prepayment fee, and, provided that Lender shall have in good faith applied the formula described above, Borrower shall not have the right to challenge the calculation or the method of calculation set forth in any such statement in the absence of manifest error, which calculation may be made by Lender on any day during the fifteen (15) day period preceding the date of such prepayment. Lender shall not be obligated or required to have actually reinvested the prepaid principal balance at the Reinvestment Yield or otherwise as a condition to receiving the prepayment fee.

(c) (i) At any time after the earlier of (x) the Lockout Expiration Date, and (y) the date which is two (2) years after the “startup day,” within the meaning of Section 860G(a)(9) of the Internal Revenue Code of 1986, as amended from time to time or any successor statue (the “Code”), of the “real estate mortgage investment conduit,” within the meaning of Section 860D of the Code that holds the last portion of the Loan to be securitized, provided no Event of Default has occurred and is continuing hereunder or under any of the other Loan Documents, Lender shall cause the release of the Security Property from the lien of the Security Instrument and the other Loan Documents (a “Defeasance”) upon the satisfaction of the following conditions:

(A) Borrower shall give not more than ninety (90) days or less than thirty (30) days prior written notice to Lender specifying the date Borrower intends for the Defeasance to be consummated (the “Release Date”), which date shall be a Payment Date.

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(i) a sum of money in immediately available funds (the “Defeasance Deposit”) equal to the outstanding principal balance of this Note plus an amount, if any, which together with the outstanding principal balance of this Note, shall be sufficient to enable Lender to purchase, through means and sources customarily employed and available to Lender, for the account of Borrower, direct, non-callable obligations of the United States of America that provide for payments prior, but as close as possible, to all successive monthly Payment Dates occurring after the Release Date and to the Maturity Date, with each such payment being equal to or greater than the amount of the corresponding installment of principal and/or interest required to be paid under this Note (including, but not limited to, all amounts due on the Maturity Date) for the balance of the term hereof (the “Defeasance Collateral”), each of which shall be duly endorsed by the holder thereof as directed by Lender or accompanied by a written instrument of transfer in form and substance satisfactory to Lender in its sole discretion (including, without limitation, such instruments as may be required by the depository institution holding such securities or the issuer thereof, as the case may be, to effectuate book-entry transfers and pledges through the book-entry facilities of such institution) in order to perfect upon the delivery of the Defeasance Security Agreement (as hereinafter defined) the first priority security interest in the Defeasance Collateral in favor of Lender in conformity with all applicable state and federal laws governing granting of such security interests.

(ii) A pledge and security agreement, in form and substance satisfactory to Lender in its sole discretion, creating a first priority security interest in favor of Lender in the Defeasance Collateral (the “Defeasance Security Agreement”), which shall provide, among other things, that any excess received by Lender from the Defeasance Collateral over the amounts payable by Borrower hereunder shall be refunded to Borrower promptly after each monthly Payment Date.

(iii) A certificate of Borrower certifying that all of the requirements set forth in this Section 1.05(c)(i) have been satisfied.

(iv) An opinion of counsel for Borrower in form and substance and delivered by counsel satisfactory to Lender in its reasonable discretion stating, among other things, that (x) Lender has a perfected first priority security interest in the Defeasance Collateral and that the Defeasance Security Agreement is enforceable against Borrower in accordance with its terms, and (y) that any REMIC Trust formed pursuant to a securitization will not fail to maintain its status as a “real estate mortgage investment conduit” within the meaning of Section 860D of the Code as a result of such defeasance.

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(vi) A certificate from a firm of independent public accountants acceptable to Lender certifying that the Defeasance Collateral is sufficient to satisfy the provisions of paragraph (1) above.

(vii) Such other certificates, documents or instruments as Lender may reasonably require.

(viii) Payment of all reasonable out-of-pocket fees, costs, expenses and charges incurred by Lender in connection with the Defeasance of the Security Property and the purchase of the Defeasance Collateral, including, without limitation, reasonable legal fees and all reasonable out-of-pocket costs and expenses incurred by Lender or its agents in connection with release of the Security Property, review of the proposed Defeasance Collateral and preparation of the Defeasance Security Agreement and related documentation, any revenue, documentary, stamp, intangible or other taxes, charges or fees due in connection with transfer of the Note, assumption of the Note, or substitution of collateral for the Security Property. Without limiting Borrower’s obligations with respect thereto, Lender shall be entitled to deduct all such fees, costs, expenses and charges from the Defeasance Deposit to the extent of any excess of the Defeasance Deposit.

(ii) Upon compliance with the requirements of Section 1.05(c)(i), the Security Property shall be released from the lien of the Security Instrument and the other Loan Documents, and the Defeasance Collateral shall constitute collateral which shall secure this Note, the Other Note (as defined in the Borrower Security Instrument), and all other obligations under the Loan Documents. Lender will, at Borrower’s expense, execute and deliver any agreements reasonably requested by Borrower to release the lien of the Security Instrument from the Security Property.

(iii) Upon the release of the Security Property in accordance with this Subsection 1.05(c), Borrower shall assign all its obligations and rights under this Note, together with the pledged Defeasance Collateral, to a newly created entity which complies with the terms of Section 12 of the Security Instrument designated by Borrower and approved by Lender in its sole discretion. Such successor entity shall execute an assumption agreement in form and substance satisfactory to Lender in its sole discretion pursuant to which it shall assume Borrower’s obligations under this Note and the Defeasance Security Agreement. As conditions to such assignment and assumption, Borrower shall (x) deliver to Lender an opinion of counsel in form and substance and delivered by counsel satisfactory to Lender in its sole discretion stating, among other things, that such assumption agreement is enforceable against Borrower and such successor entity in accordance with its terms and that this Note and the Defeasance Security

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(iv) Borrower shall pay to Lender upon demand all reasonable out-of-pocket costs and expenses incurred by Lender in connection with any proposed Defeasance (including without limitation the fees and expenses of attorneys, accountants and rating agencies), whether or not such Defeasance actually occurs. At Lender’s option, payment of such costs and expenses shall be a condition to any Defeasance.

(E) Contemporaneous Defeasance election being undertaken and completed relative to the Other Loan and pursuant to the terms of the Other Note (as defined in the Borrower Security Instrument).

1.06 Security. The indebtedness evidenced by this Note and the obligations created hereby are secured by, among other things, those two (2) certain Amended and Restated Mortgage, Security Agreement and Fixture Financing Statements (collectively, the “Security Instrument”) more particularly described as follows: (i) that certain Amended and Restated Mortgage, Security Agreement and Fixture Financing Statement from Borrower for the benefit of Lender, dated as of the date hereof, concerning property located in Rolling Meadows, Cook County, Illinois (“Borrower Security Instrument”); and (ii) that certain Amended and Restated Mortgage, Security Agreement and Fixture Financing Statement from Continental Towers Associates III, LLC, a Delaware limited liability company (“Other Borrower”), for the benefit of Lender, dated as of the date hereof, concerning property located in Rolling Meadows, Cook County, Illinois. The Security Instrument together with this Note, the Other Note, and all other documents to or of which Lender is a party or beneficiary now or hereafter evidencing, securing, guarantying, modifying or otherwise relating to the indebtedness evidenced hereby, are herein referred to collectively as the “Loan Documents”. All property, rights and interests encumbered by the Security Instrument may be referred to herein as the “Security Property.” All Security Property, together with any other security that may be pledged or otherwise granted to Lender under the Loan Documents may be referred to as the “Collateral.” All of the terms and provisions of the Loan Documents are incorporated herein by reference.

ARTICLE II

DEFAULT

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occur under any other Loan Document, then an event of default (an “Event of Default”) shall exist hereunder, and in such event the indebtedness evidenced hereby, including all sums advanced or accrued hereunder or under any other Loan Document, and all unpaid interest accrued thereon, shall, at the option of Lender and without notice to Borrower, at once become due and payable and may be collected forthwith, whether or not there has been a prior demand for payment and regardless of the stipulated date of maturity.

2.02 Late Charges and Default Interest Rate. In the event that any scheduled payment other than any payment due on the Maturity Date (whether of principal, interest, principal and interest, reserves or otherwise) is not received by Lender on the date when due, or within five (5) days thereafter, or any other payment is not received within five (5) days following written notice that the same is due, then in addition to any default interest payments due hereunder, Borrower shall also pay to Lender a late charge in an amount equal to the lesser of (a) five percent (5.0%) of the amount of such overdue payment or (b) the maximum late charge that can be collected from Borrower under applicable law. So long as any Event of Default has occurred and is continuing, regardless of whether or not there has been an acceleration of the indebtedness evidenced hereby, and at all times after maturity of the indebtedness evidenced hereby (whether by acceleration or otherwise), interest shall accrue on the outstanding principal balance of this Note from the date of default at a rate per annum equal to the lesser of (x) five percent (5.0%) in excess of the Note Rate, or (y) the maximum rate of interest, if any, which may be charged or collected from Borrower under applicable law (the “Default Interest Rate”), and such default interest shall be immediately due and payable. Borrower acknowledges that it would be extremely difficult or impracticable to determine Lender’s actual damages resulting from any late payment or default, and such late charges and default interest are reasonable estimates of those damages and do not constitute a penalty.

2.03 Cumulative Remedies. The remedies of Lender in this Note or in the Loan Documents, or at law or in equity, shall be cumulative and concurrent, and may be pursued singly, successively or together in Lender’s discretion. In the event this Note, or any part hereof, is collected by or through an attorney-at-law, Borrower agrees to pay all reasonable out-of-pocket costs of collection including, but not limited to, reasonable attorneys’ fees.

2.04 Exculpation. Notwithstanding anything in the Loan Documents to the contrary, but subject to the qualifications hereinbelow set forth:

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(b) Notwithstanding anything to the contrary in Subsection 2.04(a), Borrower shall be fully and personally liable for payment and performance of all obligations set forth in the Loan Documents, including the payment of all principal, interest, and other amounts under this Note, in the event of (i) any assignment, encumbrance, transfer or conveyance of the Security Property or any interest therein in violation of Section 10 of the Borrower Security Instrument, (ii) an Event of Default under Subsections (a), (b), (c), (d), (e), (g), (h), (j), (l), (n), (p), (s), (t), (u), (v), (w), (x), or (y) of Section 12 of the Borrower Security Instrument, or (iii) the occurrence of any event or condition described in Section 55 of the Borrower Security Instrument.

(c) Further, notwithstanding anything to the contrary in Subsection 2.04(a), Borrower shall be fully and personally liable and subject to legal action to the extent of any loss, damage, cost, expense, liability, claim or other obligation actually incurred by Lender (including reasonable attorneys’ fees and costs incurred) arising out of or in connection with the following: (i) for fraud or intentional misrepresentation in connection with obtaining the indebtedness evidenced by this Note by or on behalf of Borrower or by any guarantor of (or indemnitor with respect to) any obligations under the Loan Documents (in either case, a “Guarantor”), (ii) for insurance proceeds, condemnation awards, or other sums or payments attributable to the Security Property not applied in accordance with the provisions of the Loan Documents (except to the extent that such application of such funds is prevented by bankruptcy, receivership, or similar judicial proceeding in which Borrower is legally prevented from directing the application of such funds), (iii) for all rents, profits, issues, products and income of the Security Property paid following any Event of Default and not applied to payment of principal and interest due under this Note, and the payment of actual and reasonable operating expenses of the Security Property, as they become due or payable (except to the extent that such application of such funds is prevented by bankruptcy, receivership, or similar judicial proceeding in which Borrower is legally prevented from directing the disbursement of such funds), (iv) for misappropriation (including failure to turn over to Lender upon request after the occurrence or during the continuance of an Event of Default) of tenant security deposits and all rents collected in advance, (v) for waste of the Security Property, and for damage to the Security Property as a result of the intentional misconduct or gross negligence of Borrower or any Guarantor or by any authorized agent, authorized employee or other person authorized to act on behalf of Borrower or any Guarantor with respect to the Security Property, or any removal of any Security Property in violation of the Loan Documents, (vi) for criminal acts by Borrower, or any Guarantor, or by any authorized agent of Borrower or any Guarantor with respect to the Security Property resulting in forfeiture, seizure or loss of any portion of the Security Property, (vii) for Borrower’s failure to pay transfer fees and charges due Lender under this Note or the Security Instrument in connection with any subordinate financing or any transfer of all or any part of the Security Property, or any interest in Borrower (if Borrower is not a natural person or persons but is a corporation, partnership, trust or other legal entity), (viii) for failure by Borrower, any general partner of Borrower, or any Guarantor to comply with the covenants, obligations, liabilities, warranties and representations contained in the Guaranty Agreement and Environmental and

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Hazardous Substances Indemnification Agreement of even date herewith or otherwise pertaining to environmental matters, (ix) for a breach or default under Subsections (f), (i), (k), (o), (q), or (r) of Section 12 of the Security Instrument, (x) so long as Borrower is Continental Towers, L.L.C., a Delaware limited liability company, for any act by any member or manager of Borrower, or by any owner, member, or manager of any constituent party of Borrower, not done in accordance with the Loan Documents or which (A) materially and adversely affects the fair value market value, physical condition, tenant-mix, use, reputation, income, expenses, or operations of the Security Property, (B) prohibits or materially and adversely affects the ability of the Manager (as defined in the Borrower Security Instrument) (or any successor or assignee of Manager) to perform its obligations under the Management Agreement (as defined in the Borrower Security Instrument) or (C) prohibits or materially and adversely affects the ability of Subordinate Lender (as defined in the Security Instrument) to complete a Foreclosure (as defined in the Borrower Security Instrument) of the Security Property in accordance with the terms and conditions of the Subordinate Loan Documents (as defined in the Borrower Security Instrument) and as permitted by the Borrower Security Instrument, (xi) any claim, allegation, notice, or citation against Lender issued by the Internal Revenue Service or any other federal agency claiming or alleging that Lender is in any manner in violation of federal tax laws in connection with the Loan as a direct or indirect result of Borrower’s relationship to Guarantor, Other Borrower, Manager, and Subordinate Lender; (xii) for all amounts for which Other Borrower is liable under Subsections (b) and (c) of Section 2.04 of the Other Note; and (xiii) for the actual third party costs (including reasonable attorneys’ fees and costs), incurred by Lender in recovering any amounts owing pursuant to this Section.

ARTICLE III

GENERAL CONDITIONS

3.01 No Waiver: Amendment. No failure to accelerate the debt evidenced hereby by reason of default hereunder, acceptance of a partial or past due payment, or indulgences granted

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from time to time shall be construed (a) as a novation of this Note or as a reinstatement of the indebtedness evidenced hereby or as a waiver of such right of acceleration or of the right of Lender thereafter to insist upon strict compliance with the terms of this Note, or (b) to prevent the exercise of such right of acceleration or any other right granted hereunder or by any applicable laws; and Borrower hereby expressly waives the benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the foregoing. No extension of the time for the payment of this Note or any installment due hereunder, made by agreement with any person now or hereafter liable for the payment of this Note shall operate to release, discharge, modify, change or affect the original liability of Borrower under this Note, either in whole or in part unless Lender agrees otherwise in writing. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought.

3.03 Limit of Validity. The provisions of this Note and of all agreements between Borrower and Lender, whether now existing or hereafter arising and whether written or oral, are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of demand or acceleration of the maturity of this Note or otherwise, shall the amount paid, or agreed to be paid (“Interest”), to Lender for the use, forbearance or detention of the money loaned under this Note exceed the maximum amount permissible under applicable law. If, from any circumstance whatsoever, performance or fulfillment of any provision hereof or of any agreement between Borrower and Lender shall, at the time performance or fulfillment of such provision shall be due, exceed the limit for Interest prescribed by law or otherwise transcend the limit of validity prescribed by applicable law, then ipso facto the obligation to be performed or fulfilled shall be reduced to such limit and if, from any circumstance whatsoever, Lender shall ever receive anything of value deemed Interest by applicable law in excess of the maximum lawful amount, an amount equal to any excessive Interest shall be applied to the reduction of the principal balance owing under this Note in the inverse order of its maturity (whether or not then due) or at the option of Lender be paid over to Borrower, and not to the payment of Interest. All Interest (including, but not limited to, any amounts or payments deemed to be Interest) paid or agreed to be paid to Lender shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full period until payment in full of the principal balance of this Note so that the Interest thereof for such full period will not exceed the maximum amount permitted by applicable law. This Section 3.03 will control all agreements between Borrower and Lender.

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3.06 Miscellaneous. This Note shall be interpreted, construed and enforced according to the laws of the State of Illinois. The terms and provisions hereof shall be binding upon and inure to the benefit of Borrower and Lender and their respective heirs, executors, legal representatives, successors, successors-in-title and assigns, whether by voluntary action of the parties or by operation of law. As used herein, the terms “Borrower” and “Lender” shall be deemed to include their respective heirs, executors, legal representatives, successors, successors-in-title and assigns, whether by voluntary action of the parties or by operation of law. If Borrower consists of more than one person or entity, each shall be jointly and severally liable to perform the obligations of Borrower under this Note. All personal pronouns used herein, whether used in the masculine, feminine or neuter gender, shall include all other genders; the singular shall include the plural and vice versa. Titles of articles and sections are for convenience only and in no way define, limit, amplify or describe the scope or intent of any provisions hereof. Time is of the essence with respect to all provisions of this Note. This Note and the other Loan Documents contain the entire agreements between the parties hereto relating to the subject matter hereof and thereof and all prior agreements relative hereto and thereto which are not contained herein or therein are terminated.

3.07 Amendment and Restatement. This Amended and Restated Promissory Note and the Other Note shall amend, restate and replace in its entirety that certain Promissory Note (the “Original Note”) dated as of November 21, 2006 in the original principal amount of One Hundred Fifteen Million and No/100 Dollars ($115,000,000.00) made by Borrower and Other Borrower, payable to the order of CWCapital LLC, a Massachusetts limited liability company (“CWC”). CWC assigned and endorsed the Note, and assigned the entirety of its interest in the Loan Documents, to Lender on December 21, 2006. All terms, conditions and obligations of the Original Note shall remain in full force and effect as assigned and endorsed to Lender and as amended and restated herein and in the Other Note in its entirety, and all rights and remedies provided for therein shall be preserved to Lender. Nothing contained herein or done pursuant hereto shall affect or be construed to affect the priority of the lien or security interest securing this Note over the priority of other liens, charges, encumbrances or other security interests. Borrower does hereby confirm, ratify and reaffirm the obligations contained in the Original Note, as assigned and endorsed to Lender and as amended and restated hereby and by the Other

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Note in its entirety. This Note is an amendment and restatement only and not a novation; and except as herein provided and as provided in the Other Note, all other terms and conditions of the Original Note shall remain in full force and effect until payment of the Debt in full. The Original Note is being retained by Lender with a notation placed on the face thereof indicating that such Original Note has been amended and restated by this Note and the Other Note.

Borrower’s Tax Identification No.: 20-5911070

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IN WITNESS WHEREOF, Borrower has executed this Note under seal as of the date first above written.

CONTINENTAL TOWERS, L.L.C.,
a Delaware limited liability company

By: CTA GENERAL PARTNER, LLC,
a Delaware limited liability company,
its sole member

By: CTA MEMBER, INC.,
a Delaware corporation,
its managing member

By: [s] Paul G. Del Vecchio

Name:  Yochanan Danziger,
                by Paul G. Del Vecchio,
                Attorney-In-Fact
Title:     President

Attachment

Notarial Jurat

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STATE OF ILLINOIS

COUNTY OF COOK

This instrument was ACKNOWLEDGED before me on December 28, 2006 by PAUL G. DEL VECCHIO, Attorney-In-Fact for YOCHANAN DANZIGER, the President of CTA MEMBER, INC., a Delaware corporation, as managing member of CTA GENERAL PARTNER, LLC, a Delaware limited liability company, as sole member of CONTINENTAL TOWERS, L.L.C., a Delaware limited liability company, on behalf of said limited liability company.

[S E A L]

[s] Joella Malone

Notary Public, State of Illinois

My Commission Expires:

Joella Malone

07/10/09______________

Printed Name of Notary Public

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EX-10 17 exhibit-10_70.htm EXHIBIT 10.70

EXHIBIT 10.70

CONTINENTAL TOWERS, L.L.C.

(Mortgagor or Borrower)

WELLS FARGO BANK, N.A., as trustee for the registered holders of

COBALT CMBS COMMERCIAL MORTGAGE TRUST 2006-C1,

COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES,

SERIES 2006-C1

(Mortgagee or Lender)

This Mortgage, Security Agreement and Fixture Financing Statement

also constitutes a Fixture Financing Statement.

AMENDED AND RESTATED

MORTGAGE, SECURITY AGREEMENT AND FIXTURE FINANCING STATEMENT

Dated: As of December 29, 2006

PROPERTY LOCATION:

Permanent Tax Identification Numbers: 08-16-100-034, 08-16-100-035, and 08-16-100-036

1701 Golf Road

Rolling Meadows, Cook County, Illinois

DOCUMENT PREPARED BY AND WHEN RECORDED RETURN TO:

WINSTEAD SECHREST & MINICK P.C.

5400 Renaissance Tower

1201 Elm Street

Dallas, Texas 75270

Attention: Christopher T. Nixon, Esq.

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THIS AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT AND FIXTURE FINANCING STATEMENT (this “Mortgage” or “Security Instrument”), made as of December 29, 2006, by CONTINENTAL TOWERS, L.L.C., a Delaware limited liability company (“Mortgagor” or “Borrower”), having its principal place of business at c/o Prime Group Realty Trust, 77 West Wacker Drive, Suite 3900, Chicago, Illinois 60601, and to WELLS FARGO BANK, N.A., as trustee for the registered holders of COBALT CMBS COMMERCIAL MORTGAGE TRUST 2006-C1, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2006-C1, c/o CWCAPITAL LLC, a Massachusetts limited liability company, having its principal office at One Charles River Place, 63 Kendrick Street, Needham, Massachusetts 02494 (“Mortgagee” or “Lender”).

W I T N E S S E T H:

To secure the payment of (i) the indebtedness evidenced by those certain Amended and Restated Promissory Notes as described below (such Promissory Notes together with all extensions, renewals or modifications thereof hereinafter collectively called the “Note”, and the indebtedness evidenced by the Note hereinafter being referred to as the “Loan”): (A) that certain Promissory Note (singularly, the “Borrower Note”) of even date of this Mortgage, made by Borrower and payable to the order of Lender in the original principal sum of SEVENTY-THREE MILLION SIX HUNDRED THOUSAND AND NO/100 DOLLARS ($73,600,000.00), lawful money of the United States of America, to be paid with interest at a rate per annum of 5.864% and having a maturity date of December 1, 2016 (the indebtedness evidenced by the Borrower Note hereinafter being referred to as the “Borrower Loan”), and (B) that certain Promissory Note (singularly, the “Other Note”) of even date of this Mortgage, made by CONTINENTAL TOWERS ASSOCIATES III, LLC, a Delaware limited liability company (“Other Borrower”), and payable to the order of Lender in the original principal sum of FORTY-ONE MILLION FOUR HUNDRED THOUSAND AND NO/100 DOLLARS ($41,400,000.00), lawful money of the United States of America, to be paid with interest at a rate per annum of 5.864% and having a maturity date of December 1, 2016 (the indebtedness evidenced by the Other Note hereafter being referred to as the “Other Loan”), and all other sums due hereunder, under the Other Mortgage (hereinafter defined), under the other Loan Documents (hereinafter defined) and under the Note; (ii) any and all future or additional advances (whether or not obligatory) made by Lender to protect or preserve the Security Property or the lien or security interest created hereby on the Security Property, or for taxes, assessments or insurance premiums as hereinafter provided or for performance of any of Borrower’s obligations hereunder or under the other Loan Documents or for any other purpose provided herein or in the other Loan Documents (whether or not the original Borrower remains the owner of the Security Property at the time of such advances) together with interest thereon at the Default Interest Rate (as defined in the Note) such advances to be secured to the same extent as if such future advances were made on the date hereof and although there may be no indebtedness outstanding at the time any advance is made; and (iii) ANY AND ALL OTHER INDEBTEDNESS NOW OWING OR WHICH MAY HEREAFTER BE OWING BY BORROWER OR OTHER BORROWER TO LENDER HEREUNDER, UNDER THE OTHER MORTGAGE, UNDER THE NOTE AND THE OTHER LOAN DOCUMENTS, HOWEVER AND WHENEVER INCURRED OR EVIDENCED, WHETHER EXPRESS OR IMPLIED, DIRECT OR INDIRECT, ABSOLUTE OR CONTINGENT, OR DUE OR TO BECOME DUE, AND ALL RENEWALS, MODIFICATIONS, AMENDMENTS,

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GRANTING CLAUSE ONE

GRANTING CLAUSE TWO

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GRANTING CLAUSE THREE

GRANTING CLAUSE FOUR

GRANTING CLAUSE FIVE

GRANTING CLAUSE SIX

GRANTING CLAUSE SEVEN

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GRANTING CLAUSE EIGHT

TO HAVE AND TO HOLD the above granted and described Security Property unto and to the use and benefit of Lender, forever;

AND Borrower represents and warrants to and covenants and agrees with Lender as follows:

PART I

GENERAL PROVISIONS

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Insurance.

(b) Borrower, at its sole cost and expense, for the mutual benefit of Borrower and Lender, shall also obtain and maintain during the Term the following policies of insurance:

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(v) If the Security Property includes commercial property, worker’s compensation insurance with respect to any employees of Borrower, as required by any governmental authority or legal requirement.

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Casualty.

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shall become part of the Debt and be secured hereby and shall be reimbursed by Borrower to Lender upon demand.

(b) In case of loss or damages covered by any of the Policies, the following provisions shall apply:

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Tax and Insurance Impound Fund; Other Reserves.

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(b) Replacement Escrow Fund. At Closing, Borrower and Other Borrower shall reserve from the proceeds of the Loan an aggregate amount equal to $15,548.00; $9,950.72 of which shall be reserved by Borrower and $5,597.28 of which shall be reserved by Other Borrower. Borrower and Other Borrower shall also pay to Lender on the Payment Date in each calendar month an amount equal to $15,548.00 ($9,950.72 of which shall be reserved by Borrower and $5,597.28 of which shall be reserved by Other Borrower) which shall be deposited with and held by Lender in an interest-bearing account for the purposes specified in this Subsection. Funds paid to Lender pursuant to this Subsection, together with any interest thereon and additions thereto, may be referred to herein as the “Replacement Escrow Fund”. Borrower’s and Other Borrower’s obligation to pay the monthly amount for deposit into the Replacement Escrow Fund shall be suspended during any time when the balance in the Replacement Escrow Fund equals or exceeds $554,583.00. At such time as the balance is less than $554,583.00, then Borrower’s and Other Borrower’s obligation to make such monthly payments shall resume, subject to subsequent suspension and resumption in accordance with the foregoing. Borrower and Other Borrower shall utilize funds drawn from the Replacement Escrow Fund for the purchase, replacement and repairs of furnishings, fixtures and equipment required to be made to the Security Property or the Other Property and for any other work reasonably approved by Lender, provided such costs and expenses (i) are not incurred for routine maintenance at the Security Property or the Other Property , (ii) are not for items as to which other Reserves are established hereunder, and (iii) are categorized under generally accepted accounting principles as capital costs and not as operating expense. By means of example and not as a limitation, the Replacement Escrow Fund may be used for the following replacements: roofing, HVAC systems, window systems, flooring, landscaping, paving and appliances. Upon written application of Borrower and Other Borrower, Borrower and Other Borrower shall be entitled to draw upon the Replacement Escrow Fund to pay for costs for which such Reserve has been established after such costs shall have been incurred by Borrower and Other Borrower and invoiced, provided that the Disbursement Conditions shall have been satisfied. It is expressly agreed and understand that the Replacement Escrow Fund referenced in this Mortgage is the very same Replacement Escrow Fund which is identically referenced in the Other Mortgage. The Replacement Escrow Fund in both this Mortgage and the Other Mortgage shall be maintained in the aggregate by Lender with disbursement to Borrower or Other Borrower or otherwise as Lender may elect consistent with the terms and provisions of this Section 6(b) in the corresponding Section 6(b) of the Other Mortgage.

(c) Leasing Escrow Fund. Borrower and Other Borrower shall pay to Lender on the Payment Date in each calendar month an amount equal to $65,647.00, ($42,014.08 of which shall be paid by Borrower and $23,632.92 of which shall be paid by Other Borrower), which shall be deposited with and held by Lender in an interest-bearing account for the purposes specified in this Subsection. Funds paid to Lender pursuant to this Subsection, together with any interest thereon and additions thereto, may be referred to herein as the “Leasing Escrow Fund”. In addition, Borrower and Other Borrower shall pay to Lender for deposit in the Leasing Escrow Fund all funds received by Borrower or Other Borrower from or on behalf of tenants or lease guarantors in connection with the termination of any Lease, including, but not limited to, any settlement amounts, cancellation fees, penalties, drawings under letters of credit, debits to security deposits, and funds for tenant improvements, leasing commissions or other charges (collectively, “Lease Settlement Payments”). Borrower’s and Other Borrower’s obligation to pay the monthly amount for deposit into the Leasing Escrow Fund shall be suspended during any

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(d) Abatement Escrow Fund. At Closing, Borrower shall pay to Lender an amount equal to $2,058,000.00 which shall be deposited with and held by Lender for the purposes specified in this Subsection. Funds paid to Lender pursuant to this Subsection, together with any additions thereto, may be referred to herein as the “Abatement Escrow Fund”. The amount of such payment applied to the Abatement Escrow Funds equals the amount of rent abatement incentives previously offered to tenants of the Security Property and which are outstanding as of the effective date of this Mortgage. Upon written application of Borrower and upon providing sufficient evidence to Lender of the application by a respective tenant at the Security Property of any such available rent abatement, Borrower shall be entitled to draw upon the Abatement Escrow Fund, once per month, in an amount equal to the aggregate amount of the applied rent abatements for that month, until all such rent abatements have been applied, provided that items (i), (ii), (vi), (vii), (viii), and (ix) of the Disbursement Conditions shall have been satisfied.

(e) Security Interest. Borrower hereby pledges to Lender and grants to Lender a security interest in any and all monies now or hereafter deposited in the Tax and Insurance Impound Fund, the Replacement Escrow Fund, the Leasing Escrow Fund and the Abatement Escrow Fund (each a “Reserve” and collectively “Reserves”) and all proceeds thereof as security for the payment of the Debt and performance of all obligations secured by this Security Instrument. Upon the occurrence and during the continuance of an Event of Default, (i) Lender shall have no obligation to disburse any amounts from any of the Reserves to the Borrower or otherwise, (ii) Lender is hereby authorized and shall be entitled to do any one or more of the following, at Lender’s election (1) continue to hold any moneys in any of the Reserves as security, (2) pay or apply any such moneys for the purposes of the applicable Reserve irrespective of the default, or (3) pay or apply any such moneys against any obligation of

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Borrower under the Loan Documents (including full or partial payment of the Debt) in any order that Lender may determine in its sole discretion.

(f) Disbursement Conditions. Where this Security Instrument provides that the “Disbursement Conditions” shall be satisfied, the same are as follows: (i) no Event of Default shall have occurred and continue without cure, (ii) Borrower shall provide to Lender a draw request on Lender’s standard form, together with such documentation and certifications as Lender may reasonably request, (iii) Borrower shall provide Lender with all invoices, receipts, lien waivers and other documentation of lawful and workmanlike progress or completion and lien-free status, all as may be reasonably requested by Lender, (iv) Borrower shall provide Lender such evidence as may be reasonably satisfactory to Lender that, after payment of the requested disbursement, the funds remaining in the applicable Reserve (together with deposits that are required to be made therein, if applicable) shall be sufficient to pay for the remainder of the work for which the Reserve was established, (v) Lender shall have completed such field inspections as it deems necessary, and Borrower shall pay any actual, out-of-pocket costs and expenses incurred by Lender in connection with the same, (vi) disbursements from each Reserve shall be requested no more frequently than once each month (except for the Tax and Insurance Impound Fund if Taxes and Insurance Premiums are due in the same month), and in the case of work to be performed and reimbursed pursuant to the Leasing Escrow Fund or the Replacement Escrow Fund, disbursement shall occur only after completion of the work except as provided in subsection 6(h) below, (vii) disbursement shall not be requested in amounts less than $1,000, and (viii) all documents and information provided under this provision shall be in form and substance satisfactory to Lender in its reasonable discretion.

(g) Partial Disbursements from the Leasing Escrow Fund and the Replacement Escrow Fund. If (1) the cost of a particular item of work to which any such request for disbursement from the Leasing Escrow Fund or the Replacement Escrow Fund (each, a “Work Reserve”) relates shall exceed $150,000 (“Work”), (2) the contractor performing such item of Work requires periodic payments pursuant to the terms of a written contract, and (3) Lender has approved in writing in advance such periodic payments (such approval not to be unreasonably withheld or delayed), a request for disbursement from such Work Reserve may be made after completion of a portion of the Work under such contract, provided (v) such contract requires payment upon completion of such portion of the Work, (w) the materials for which the request is made are on site at the Security Property or the Other Property, as applicable, and are properly secured or have been installed in the Security Property or the Other Property, as applicable, and (x) items (i), (ii), (iii), (iv), (v), (viii) and (ix) of the Disbursement Conditions have been satisfied.

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advanced as part of the final disbursement. No funds will be advanced for materials stored at any Security Property or the Other Property, as applicable, unless such materials are properly stored and secured at the Security Property or the Other Property, as applicable, in accordance with the Borrower’s and Other Borrower’s customary procedures and sound construction practices as reasonably determined by Lender. The retainage shall not be released until the applicable contractor or the Approved Architect certifies to Lender that the portion of the Work applicable to such retainage has been completed substantially in accordance with the provisions of this Section 6(i) and that all material approvals for that portion of the Work have been obtained from all appropriate governmental authorities, and Lender receives evidence reasonably satisfactory to Lender that the costs of the Work have been paid in full or will be paid in full out of the retainage.

(ii) The amount of all invoices in connection with the Work with respect to which a periodic payment disbursement from a Work Reserve is requested and which has been approved by Lender shall be disbursed by Lender either directly to Borrower or Other Borrower, as applicable (in which event, Borrower or Other Borrower, as applicable, covenants and agrees to promptly pay such invoices) or, if an Event of Default has occurred and is continuing, at Lender’s option and in Lender’s sole and absolute discretion, directly to the contractor, supplier, materialman, mechanic or subcontractor indicated on said invoices unless already paid by Borrower or Other Borrower and Lender has received satisfactory evidence of such payment in which case Lender shall reimburse Borrower or Other Borrower, as applicable. In the event that Borrower or Other Borrower requests that any amounts be disbursed directly to Borrower or Other Borrower pursuant to the foregoing sentence, Borrower or Other Borrower, as applicable, shall be required to deliver evidence reasonably acceptable to Lender of payment of all invoices for which disbursements were previously made to Borrower or Other Borrower, as applicable, as a condition to such requested disbursement.

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Other Borrower, as applicable, has delivered to Lender an estoppel certificate or letter executed by the applicable tenant certifying that all applicable Work has been completed (except for minor or insubstantial details of construction that remain to be performed (i.e., so-called “punch list” items)) by Borrower or Other Borrower, as applicable, in accordance with the applicable Lease and that such tenant has accepted the premises covered thereby.

(h) General Provisions Regarding Reserves. Borrower’s and Other Borrower’s obligations to make deposits into each Reserve are separate from Borrower’s and Other Borrower’s obligations to make deposits into each other Reserve, and from its obligations to pay as and when due all principal, interest, and other amounts evidenced and secured by the Loan Documents. The Reserves shall be held in Lender’s name at one or more financial institutions selected by Lender in its reasonable discretion. Interest earned on each of the Reserves other than the Tax and Insurance Impound Fund shall be added to the applicable Reserve, and may be held, disbursed and applied in the same manner as other moneys in such Reserve; provided, however, by notice to Lender, Borrower and Other Borrower may collectively allocate interest accruals on the Leasing Escrow Fund amongst themselves and Lender will report such interest consistent with that designation. Lender shall have no obligation to produce any specific rate of return on any of the Reserves. Provided that Lender shall hold (and invest if applicable) the Reserves in accordance with the customary standards used by holders of such funds in connection with rated debt or rated pools of debt, Lender shall not be responsible for any loss. The Reserves are not and shall not be trust funds. Lender is authorized to commingle moneys held in the Reserves among the Reserves and with other moneys held by Lender. Nothing in this Section 6 shall excuse Borrower’s or Other Borrower’s performance of any obligation set forth elsewhere in this Security Instrument or in the Loan Documents.

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(b) In the event of any Condemnation where the Award is in an aggregate amount less than the lesser of (i) $1,600,000.00 or (ii) ten percent (10%) of the then outstanding original principal balance of the Note, and if, in the reasonable judgment of Lender, the Security Property can be restored within nine (9) months of the Condemnation and no later than six (6) months prior to the Maturity Date to an economic unit not less valuable (including an assessment of the impact of the termination of any Leases due to such Condemnation) and not less useful than the same was prior to the Condemnation, and after such restoration will adequately secure the outstanding balance of the Debt, then, if no Event of Default shall have occurred and be then continuing, the proceeds of the Award (after reimbursement of any actual, out-of-pocket expenses incurred by Lender) shall be applied to reimburse Borrower for the cost of restoring, repairing, replacing or rebuilding the Security Property or part thereof subject to Condemnation, in the manner set forth below. Borrower hereby covenants and agrees to commence and diligently to prosecute such restoring, repairing, replacing or rebuilding; provided always, that Borrower shall pay all costs (and if required by Lender, Borrower shall deposit the total thereof with Lender in advance) of such restoring, repairing, replacing or rebuilding in excess of the Award made available pursuant to the terms hereof.

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statements, title insurance endorsements, bonds, plats of survey and such other evidences of costs, payment and performance as Lender may reasonably require and approve; and Lender may, in any event, require that all plans and specifications for such restoration, repair, replacement and rebuilding be submitted to and reasonably approved by Lender prior to commencement of work. No payment made prior to the final completion of the restoration, repair, replacement and rebuilding shall exceed ninety percent (90%) of the value of the work performed up to the completion of fifty percent (50%) of the work and thereafter ninety-five percent (95%) of the value of the work performed from time to time; funds other than proceeds of the Award shall be disbursed prior to disbursement of such proceeds; and at all times, the undisbursed balance of such proceeds remaining in hands of Lender, together with funds deposited for that purpose or irrevocably committed to the reasonable satisfaction of Lender by or on behalf of Borrower for that purpose, shall be at least sufficient in the reasonable judgment of Lender to pay for the costs of completion of the restoration, repair, replacement or rebuilding, free and clear of all liens or claims for lien. Any surplus which may remain out of the Award received by Lender after payment of such costs of restoration, repair, replacement or rebuilding shall, in the sole and absolute discretion of Lender, be retained by Lender and applied to payment of the Debt.

Leases and Rents.

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shall take priority over any conflicting provisions in this Section or elsewhere in the Loan Documents, other than provisions granting to Lender any rights following and during the continuance of a default or an Event of Default.

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(iii) shall use commercially reasonable efforts to enforce all the material terms, covenants and conditions contained in the Leases upon the part of the lessee thereunder to be observed or performed, short of termination thereof; (iv) shall not collect any of the Rents more than one (1) month in advance; (v) shall not execute any other assignment of the lessor’s interest in the Leases or the Rents other than any such assignment set forth specifically in the Subordinate Loan Documents; (vi) shall deliver to Lender, upon Lender’s reasonable request, tenant estoppel certificates from each commercial tenant at the Security Property in form and substance reasonably satisfactory to Lender, provided that Borrower shall not be required to deliver such certificates more frequently than one (1) time in any calendar year (except in the event an Event of Default has occurred and remains uncured); and (vii) shall execute and deliver at the reasonable request of Lender all such further assurances, confirmations and assignments in connection with the Security Property as Lender shall from time to time reasonably require.

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10.

Transfer or Encumbrance of the Security Property.

(a) Borrower acknowledges that Lender has examined and relied on the creditworthiness and experience of Borrower in owning and operating properties such as the Security Property in agreeing to make the Loan, and that Lender will continue to rely on Borrower’s ownership of the Security Property as a means of maintaining the value of the Security Property as security for repayment of the Debt. Borrower acknowledges that Lender has a valid interest in maintaining the value of the Security Property so as to ensure that, should Borrower default in the repayment of the Debt, Lender can recover the Debt by a sale of the Security Property. Except as otherwise expressly permitted pursuant to this Section 10 or Section 31, Borrower shall not, without the prior written consent of Lender, sell, convey, alienate, mortgage, encumber, pledge or otherwise transfer the Security Property or any part thereof, or permit the Security Property or any part thereof to be sold, conveyed, alienated, mortgaged, encumbered, pledged or otherwise transferred. During the six month period after Closing, any transfer for which Lender’s consent is required under this Section 10 shall be conditioned upon, among other things requested by lender, written confirmation from Lender that such transfer shall not affect or impair Lender’s underwritten loan to value requirements.

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provision shall apply to every sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer of the Security Property in violation of this Section 10 regardless of whether voluntary or not, or whether or not Lender has consented to any previous sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer of the Security Property.

(f) Lender’s consent to the sale or transfer of the Security Property will not be unreasonably withheld or delayed after consideration of all relevant factors, provided that:

(i) No Event of Default or event which with the giving of notice or the passage of time would constitute an Event of Default shall have occurred and remain uncured;

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and the other Loan Documents, together with such legal opinions and title insurance endorsements as may be reasonably requested by Lender;

(vii) Subject to the provisions of Section 2.04 of the Note, such sale or transfer is not construed so as to relieve Borrower of any personal liability under the Note or any of the other Loan Documents for any acts or events occurring or obligations arising prior to or simultaneously with the closing of such sale or transfer and Borrower executes, without any cost or expense to Lender, such documents and agreements as Lender shall reasonably require to evidence and effectuate the ratification of said personal liability. Borrower shall be released from and relieved of any personal liability under the Note or any of the other Loan Documents for any acts or events occurring or obligations arising after the closing of such sale or transfer which are not caused by or arising out of any acts or events occurring or obligations arising prior to or simultaneously with the closing of such sale or transfer;

(x) Such sale or transfer shall occur only with the simultaneous sale or transfer of the Other Property to the identical Transferee in accordance with the terms of the Other Mortgage.

(g)

Intentionally deleted.

(h) Notwithstanding anything to the contrary contained herein, so long as Borrower is Continental Towers, L.L.C., a Delaware limited liability company, Borrower is permitted to incur, and shall contemporaneously herewith amend and restate, the subordinate

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debt outstanding as of the date of this Mortgage (the “Subordinate Debt”) in the amount of $83,024,815.00 from PGRT Equity, LLC, a Delaware limited liability company (the “Subordinate Lender”) a wholly-owned subsidiary of Prime Group Realty, L.P., a Delaware limited partnership, subject to Borrower’s strict compliance with the following requirements:

(i) No Event of Default shall have occurred and remain uncured (excluding specifically any default under the Subordinate Loan Documents);

(ii) The proposed Transferee is Prime (hereinafter defined) or an affiliate of Prime that is directly or indirectly owned and controlled entirely by Prime;

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(iv) The proposed Transferee shall have an organizational structure and documentation reasonably acceptable to Lender;

(x) The Foreclosure of the Subordinate Debt shall not occur until the maturity date, or upon a default by Borrower, of the Subordinate Debt;

(xii) Borrower shall reimburse Lender for all reasonable costs and expenses (including all reasonable attorneys’ fees and costs) actually incurred by Lender in connection with any such transfer;

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(xiii) No action is taken by the Subordinate Lender to force or place Borrower into bankruptcy and the proposed Transferee assumes or satisfies in full all permitted liabilities of Borrower; and

(j) Notwithstanding anything in this Section 10 to the contrary, without requiring Lender’s consent or the payment of any application, assumption or transfer fees, so long as Borrower is Continental Towers, L.L.C., a Delaware limited liability company, Yochanan Danziger shall have the right to transfer (directly or indirectly) the entirety (but expressly not only a portion) of his ownership interest in CTA Member, Inc., a Delaware corporation (“CTAM”) and the entirety (but expressly not only a portion) of his non-managing membership interest in CTA General Partner, LLC, a Delaware limited liability company (“CTAGP”) to either (A) Prime Group Realty, L.P., a Delaware limited liability company (“Prime”), (B) an affiliate of Prime that is directly or indirectly owned and controlled entirely by Prime, or (C) an executive officer of Prime; subject to the following conditions precedent:

(i) No Event of Default or event which with the giving of notice or the passage of time would constitute an Event of Default shall have occurred and remain uncured;

(ii) Borrower provides to Lender thirty (30) days prior notice of any such transfer;

(iii) If the proposed Transferee is an entity or person other than Prime, the proposed Transferee shall be reasonably acceptable to Lender, considering all relevant factors;

(vi) Prime is, and continues upon such transfer to be, an indemnitor under the Guaranty for the benefit of Lender dated as of even date herewith; and

(vii) Borrower shall reimburse Lender for all reasonable costs and expenses (including all reasonable attorneys’ fees and costs) actually incurred by Lender in connection with any such transfer.

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(A)(1) the transfer of any general partnership interests in Guarantor made to Prime Group Realty Trust, a Maryland Trust (“PGRT”) in connection with the issuance and sale of any equity securities by PGRT; (2) the issuance and exchange of any equity securities of PGRT for (x) limited partnership interests in Guarantor or (y) shares of any outstanding class of equity securities of PGRT, or

(i)

No Event of Default shall have occurred and remain uncured;

(ii) Borrower provides to Lender thirty (30) days prior notice of any such transfer;

(iv) Lender shall have received reimbursement for, all reasonable costs and expenses actually incurred by Lender (including reasonable attorneys’ fees and costs) in connection with such transfer.

(l) For purposes of Section 10(k) above, “Permitted Transferee” shall mean any of the following entities:

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11. Representations and Covenants Concerning the Borrower and Security Property. Borrower represents, warrants and covenants as follows:

(c) Valid Execution and Delivery. All of the Loan Documents requiring execution by Borrower have been duly and validly executed and delivered by Borrower.

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(n) ERISA. Borrower has made and shall continue to make all required contributions to all employee benefit plans, if any, and Borrower has no knowledge of any material liability which has been incurred by Borrower which remains unsatisfied for any taxes or penalties with respect to any employee benefit plan or any multi-employer plan, and each such plan has been administered in compliance with its terms and the applicable provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and any other federal or state law.

(o) Contingent Liabilities. Borrower has no known material contingent liabilities.

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small capital to carry out its business as conducted or as proposed to be conducted. Borrower does not intend to, and does not believe that it will, incur debts and liabilities (including, without limitation, contingent liabilities and other commitments) beyond its ability to pay such debts as they mature (taking into account the timing and amounts to be payable on or in respect of obligations of Borrower).

(w) Flood Zone. The Security Property is not located in a flood hazard area as defined by the Federal Insurance Administration.

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the Borrower which has not been disclosed which adversely affects, nor as far as the Borrower can foresee, might adversely affect the business, operations or condition (financial or otherwise) of the representing party.

(y) Condition of Improvements. The Security Property has not been damaged by fire, water, wind or other cause of loss or any previous damage to the Security Property has been fully restored.

(z) No Insolvency or Judgment. Neither Borrower nor any member of Borrower, nor any guarantor of the Loan is currently (a) the subject of or a party to any completed or pending bankruptcy, reorganization or insolvency proceeding; or (b) the subject of any judgment unsatisfied of record or docketed in any court of the state in which the Security Property is located or in any other court located in the United States. Giving effect to the Loan contemplated by the Loan Documents, including the effect of Section 5 of the Subordination and Standstill Agreement on the Subordinate Lender’s rights under the Subordinate Loan Documents, the Loan will not render the Borrower nor any member of Borrower insolvent. Giving effect to the Loan contemplated by the Loan Documents, including the effect of Section 5 of the Subordination and Standstill Agreement on the Subordinate Lender’s rights under the Subordinate Loan Documents, Borrower is and will remain solvent and Borrower will pay its debts and liabilities (including, as applicable, shared personnel and overhead expenses) from its assets as the same shall become due. As used herein, the term “insolvent” means that the sum total of all of an entity’s liabilities (whether secured or unsecured, contingent or fixed, or liquidated or unliquidated) is in excess of the value of all such entity’s non-exempt assets, i.e., all of the assets of the entity that are available to satisfy claims of creditors.

(cc) No Purchase Options. No tenant, person, party, firm, corporation or other entity has an option to purchase the Security Property, any portion thereof or any interest therein.

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Assignment of Leases and Rents (the “Assignment of Leases and Rents”), dated the date hereof, given by Borrower to Lender and intended to be duly recorded; (iii) the Leases have not been modified or amended, except as disclosed to Lender in writing on the date hereof; (iv) each Lease is in full force and effect; (v) other than disclosed on Exhibit B attached hereto, neither Borrower nor any tenant under any Lease is in default beyond any applicable cure period under any of the terms, covenants or provisions of the Lease, and Borrower knows of no event which, but for the passage of time or the giving of notice or both, would constitute an event of default under any Lease; (vi) to the best of Borrower’s knowledge, there are no offsets or defenses to the payment of any portion of the Rents; and (vii) all Rents due and payable under each Lease have been paid in full and no said Rents have been paid more than one (1) month in advance of the due dates thereof.

(ee) Boundary Lines. Except as set forth on Lender’s policy of title insurance for the Security Property, all of the Improvements which were included in determining the appraised value of the Security Property lie wholly within the boundaries and building restriction lines of the Security Property, and no improvements on adjoining properties encroach upon the Security Property, and no easements or other encumbrances upon the Premises encroach upon any of the Improvements, so as to affect the value or marketability of the Security Property except those which are insured against by title insurance.

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(kk) Subordinate Loan Status. As of the date hereof, (a) the current unpaid balance of the Subordinate Debt is $83,024,815.00, and (b) there are no past due payments under the Subordinate Debt, nor does there exist any breach of any of the terms and provisions of any of the Subordinate Loan Documents.

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(d) Borrower has not incurred and will not incur any indebtedness, secured or unsecured, direct or indirect, absolute or contingent (including guaranteeing any obligation), other than (i) the Debt, (ii) unsecured trade and operational debt and lease obligations incurred in the ordinary course of business not outstanding for more than sixty (60) days (subject to the provisions of Section 31 hereof) with trade creditors and in amounts as are normal and reasonable under the circumstances, but, in no event, to exceed three percent (3%) of original principal balance, (iii) debt incurred in the financing of equipment and other personal property used on the Premises, but, in no event, to exceed $128,000.00, and (iv) the Subordinate Debt. No indebtedness other than the Debt and the Subordinate Debt may be secured (subordinate or pari passu) by the Security Property.

(h) Borrower shall continuously maintain its existence and right to do business in the state where the Security Property is located.

(i) Borrower will conduct and operate its business as presently conducted and operated.

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(l) Neither Borrower nor any constituent party will seek the dissolution, winding up, liquidation, consolidation or merger in whole or in part, of the Borrower.

(q) Borrower will not permit any affiliate or constituent party (other than Manager) independent access to its bank accounts.

(r) Borrower shall pay the salaries of its own employees and maintain a sufficient number of employees, if any, in light of its contemplated business operations.

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(iv) a member of the immediate family of any such shareholder, officer, director, partner, employee, supplier or customer of any other director of Borrower or Guarantor. As used herein, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person or entity, whether through ownership of voting securities, by contract or otherwise.

(v) SPC Entity shall not, without the unanimous consent of its manager (including the Independent Manager), institute proceedings for itself or Borrower to be adjudicated bankrupt or insolvent; consent to the institution of a bankruptcy or insolvency proceedings against it or Borrower; file a petition seeking, or consent to, reorganization or relief under any applicable federal or state law relating to bankruptcy; consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) for itself or Borrower or a substantial part of its or Borrower’s property; make any assignment for the benefit of creditors; or admit in writing its inability to pay its debts generally as they become due.

(y) The historical operations of Borrower have been wholly consistent with the terms and provisions of this Section 12.

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14. Controlling Agreement. It is expressly stipulated and agreed to be the intent of Borrower, and Lender at all times to comply with applicable state law or applicable United States federal law (to the extent that it permits Lender to contract for, charge, take, reserve, or receive a greater amount of interest than under state law) and that this Section 14 (and the similar provision contained in the Note) shall control every other covenant and agreement in this Security Instrument and the other Loan Documents. If the applicable law (state or federal) is ever judicially interpreted so as to render usurious any amount called for under the Note or under any of the other Loan Documents, or contracted for, charged, taken, reserved, or received with respect to the Debt, or if Lender’s exercise of the option to accelerate the maturity of the Note, or if any prepayment by Borrower results in Borrower having paid any interest in excess of that permitted by applicable law, then it is Borrower’s and Lender’s express intent that all excess amounts theretofore collected by Lender shall be credited on the principal balance of the Note and all other Debt (or, if the Note and all other Debt have been or would thereby be paid in full, refunded to Borrower), and the provisions of the Note and the other Loan Documents immediately be deemed reformed and the amounts thereafter collectible hereunder and thereunder reduced, without the necessity of the execution of any new documents, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder or thereunder. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the Debt shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Debt until payment in full so that the rate or amount of interest on account of the Debt does not exceed the maximum lawful rate from time to time in effect and applicable to the Debt for so long as the Debt is outstanding. Notwithstanding anything to the contrary contained herein or in any of the other Loan Documents, it is not the intention of Lender to accelerate the maturity of any interest that has not accrued at the time of such acceleration or to collect unearned interest at the time of such acceleration.

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18.

Books and Records.

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Lender or its agents such other financial data as Lender or its agents shall reasonably request with respect to the ownership, maintenance, use and operation of the Security Property.

20. Further Acts, Etc. Borrower will, at the cost of Borrower, and without expense to Lender, do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, mortgages, assignments, notices of assignment, Uniform Commercial Code financing statements or continuation statements, transfers and assurances as Lender shall, from time to time, reasonably require, for the better assuring, conveying, assigning, transferring, and confirming unto Lender the property and rights hereby deeded, mortgaged, given, granted, bargained, sold, alienated, enfeoffed, conveyed, confirmed, pledged, assigned and hypothecated or intended now or hereafter so to be, or which Borrower may be or may hereafter become bound to convey or assign to Lender, or for carrying out the intention or facilitating the performance of the terms of this Security Instrument or for filing, registering or recording this Security Instrument or for facilitating the sale of the Loan and the Loan Documents as described herein below. Borrower, on demand, will execute and deliver and hereby authorizes Lender to execute in the name of Borrower or without the signature of Borrower to the extent Lender may lawfully do so, one or more financing statements, chattel mortgages or other instruments, to evidence more effectively the security interest of Lender in the Security Property. Upon foreclosure, the appointment of a receiver or any other relevant action, Borrower will, at the cost of Borrower and without expense to Lender, cooperate fully and completely to effect the assignment or transfer of any license, permit, agreement or any other right necessary or useful to the operation of or the Security Property. Borrower grants to Lender an irrevocable power of attorney coupled with an interest for the purpose of exercising and perfecting any and all rights and remedies available to Lender at law and in equity, including, without limitation, such rights and remedies available to Lender pursuant to this Section.

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22. Reporting Requirements. Borrower agrees to give prompt notice to Lender of the insolvency or bankruptcy filing of Borrower or the death, insolvency or bankruptcy filing of any Guarantor.

(d) if Borrower transfers or encumbers any portion of the Security Property without Lender’s prior written consent, except as may be otherwise permitted under Sections 10 and 31;

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or general partner in Borrower or such Guarantor, upon the same not being discharged, stayed or dismissed within sixty (60) days;

(j) if Borrower fails to cure properly any violations of laws or ordinances affecting or which may be interpreted to affect the Security Property within thirty (30) days after Borrower first receives notice of any such violations; provided, however, if such default is reasonably susceptible of cure, but not within such thirty (30) day period, then Borrower may be permitted up to an additional sixty (60) days to cure such default or such additional time period as may be required by applicable law.

(k) except as permitted in this Security Instrument, the alteration, improvement, demolition or removal of any of the Improvements without the prior consent of Lender;

(l) if Borrower shall continue to be in default under any term, covenant, or provision of the Note or any of the other Loan Documents, beyond applicable cure periods contained in those documents;

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24. Late Payment Charge. If any scheduled payment on the Debt is not paid on or before the date on which such payment is due (other than any payment due on the Maturity Date) (taking into account any applicable grace period expressly set forth in Section 2.02 of the Note), or if any other payment secured hereby is not paid within five days following written notice that the same is due, then Borrower shall pay to Lender upon demand an amount equal to the lesser of five percent (5%) of such unpaid portion of the Debt or the maximum amount permitted by applicable law in order to defray a portion of the expenses incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment, and such amount shall be secured by this Security Instrument. Borrower recognizes that its default in making, when due, any payment under this Note will require Lender to incur additional expense in servicing and administering the Loan and in loss to Lender of the use of the money due and in frustration to Lender in meeting its other financial and loan commitments. Borrower additionally acknowledges that the damages caused thereby would be extremely difficult and impractical to ascertain. Borrower agrees (a) that an amount equal to the late charge plus the accrual of interest at the Default Interest Rate (as defined in the Note) is a reasonable estimate of the damage to Lender in the event of a late payment, and (b) that the accrual of interest at the Default Interest Rate following any other Event of Default is a reasonable estimate of the damage to Lender in the event of such other Event of Default, regardless of whether there has been an acceleration of the Loan.

26.

Additional Remedies.

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limitation, the following actions, each of which may be pursued concurrently or otherwise, at such time and in such order as Lender may determine, in its sole discretion, without impairing or otherwise affecting the other rights and remedies of Lender:

(i)

declare the entire Debt to be immediately due and payable;

(v) institute an action, suit or proceeding in equity for the specific performance of any covenant, condition or agreement contained herein, or in any of the other Loan Documents;

(vi) recover judgment on the Note either before, during or after any proceedings for the enforcement of this Security Instrument;

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In the event of a sale, by foreclosure or otherwise, of less than all of the Security Property, this Security Instrument shall continue as a lien on the remaining portion of the Security Property.

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price after deducting therefrom the actual, out-of-pocket expenses of the sale and costs of the action and any other sums which Lender is authorized to deduct under this Security Instrument.

(h) Lender may resort to any remedies and the security given by the Note, this Security Instrument or the Loan Documents in whole or in part, and in such portions and in such order as determined by Lender’s sole discretion. No such action shall in any way be considered a waiver of any rights, benefits or remedies evidenced or provided by the Note, this Security Instrument or any of the other Loan Documents. The failure of Lender to exercise any right, remedy or option provided in the Note, this Security Instrument or any of the other Loan Documents shall not be deemed a waiver of such right, remedy or option or of any covenant or obligation secured by the Note, this Security Instrument or the other Loan Documents. No acceptance by Lender of any payment after the occurrence of any Event of Default and no payment by Lender of any obligation for which Borrower is liable hereunder shall be deemed to waive or cure any Event of Default with respect to Borrower, or Borrower’s liability to pay such obligation. No sale of all or any portion of the Security Property, no forbearance on the part of Lender, and no extension of time for the payment of the whole or any portion of the Debt or any other indulgence given by Lender to Borrower, shall operate to release or in any manner affect the interest of Lender in the remaining Security Property or the liability of Borrower to pay the Debt. No waiver by Lender shall be effective unless it is in writing and then only to the extent specifically stated. All actual, out-of-pocket costs and expenses of Lender in exercising the rights and remedies under this Section 26 (including reasonable attorneys’ fees and disbursements to the extent permitted by law), shall be paid by Borrower immediately upon notice from Lender, with interest at the Default Interest Rate for the period after notice from Lender and such costs and expenses shall constitute a portion of the Debt and shall be secured by this Security Instrument.

(j) Upon the occurrence and during the continuance of any breach, default, or Event of Default, Lender shall not be obligated to render any performance to Borrower under the Loan Documents.

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(l) In the event there is a foreclosure or comparable sale or sales hereunder and at the time of such sale or sales, Borrower or Borrower’s representatives, successors or assigns, or any other persons claiming any interest in the Security Property by, through or under Borrower (except tenants of space in the Improvements subject to leases entered into prior to the date hereof), are occupying or using the Security Property, or any part thereof, then, to the extent not prohibited by applicable law, each and all shall, at the option of Lender or the purchaser at such sale, as the case may be, immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day-to-day, terminable at the will of either landlord or tenant, at a reasonable rental per day based upon the value of the Security Property occupied or used, such rental to be due daily to the purchaser. Further, to the extent permitted by applicable law, in the event the tenant fails to surrender possession of the Security Property upon the termination of such tenancy, the purchaser shall be entitled to institute and maintain an action for unlawful detainer of the Security Property in the appropriate court of the county in which the Premises is located.

28.

Security Agreement.

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concerning the security interest herein granted may be obtained from the parties at the addresses of the parties set forth in the first paragraph of this Security Instrument. The record owner of the Security Property is Borrower.

(b) If an Event of Default shall occur, Lender, in addition to any other rights and remedies which it may have, shall have and may exercise immediately and without demand, any and all rights and remedies granted to a secured party upon default under the Uniform Commercial Code, including, without limiting the generality of the foregoing, the right to take possession of the Collateral or any part thereof, and to take such other measures as Lender may deem necessary for the care, protection and preservation of the Collateral. After the occurrence, and during the continuance, of an Event of Default, upon request or demand of Lender, Borrower shall at its expense assemble the Collateral and make it available to Lender at a convenient place acceptable to Lender. Borrower shall pay to Lender on demand any and all actual out-of-pocket expenses, including attorneys’ fees and disbursements, incurred or paid by Lender in protecting the interest in the Collateral and in enforcing the rights hereunder with respect to the Collateral. Any notice of sale, disposition or other intended action by Lender with respect to the Collateral sent to Borrower in accordance with the provisions hereof at least five (5) days prior to such action, shall constitute commercially reasonable notice to Borrower. The proceeds of any disposition of the Collateral, or any part thereof, may be applied by Lender to the payment of the Debt in such priority and proportions as Lender in its sole discretion shall deem proper. In the event of any change in name, identity or structure of any Borrower, such Borrower shall notify Lender thereof and promptly after request shall execute, file and record such Uniform Commercial Code forms as are necessary to maintain the priority of Lender’s lien upon and security interest in the Collateral, and shall pay all expenses and fees in connection with the filing and recording thereof. If Lender shall require the filing or recording of additional Uniform Commercial Code forms or continuation statements, Borrower shall, promptly after request, execute, file and record such Uniform Commercial Code forms or continuation statements as Lender shall deem necessary, and shall pay all actual, out-of-pocket expenses and fees in connection with the filing and recording thereof, it being understood and agreed, however, that no such additional documents shall increase Borrower’s obligations under the Note, this Security Instrument and any of the other Loan Documents. Borrower hereby irrevocably appoints Lender as its attorney-in-fact, coupled with an interest, to file with the appropriate public office on its behalf any financing or other statements signed only by Lender, as secured party, in connection with the Collateral covered by this Security Instrument.

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proceeding in which Lender is a participant, or arising out of or in any way connected with this Security Instrument, the Note, any of the other Loan Documents, or the Debt.

31. Contest of Certain Claims. Notwithstanding the provisions of Sections 5 and 12(d)(ii) hereof, Borrower shall not be in default for failure to pay or discharge Taxes, Other Charges or mechanic’s or materialman’s lien asserted against the Security Property, or unsecured or operational debt with trade creditors if, and so long as, (a) Borrower shall have notified Lender of same promptly after obtaining knowledge thereof; (b) Borrower shall diligently and in good faith contest the same by appropriate legal proceedings which shall operate to prevent the enforcement or collection of the same and the sale of the Security Property or any part thereof, to satisfy the same; (c) Borrower shall provide to Lender title insurance over such items in a manner reasonably acceptable to Lender (with respect to Taxes, Other Charges or mechanic’s or materialman’s lien) or shall have furnished to Lender a cash deposit, or an indemnity bond satisfactory to Lender with a surety reasonably satisfactory to Lender, in an amount equal to 125% of the amount of the Taxes, Other Charges, mechanic’s or materialman’s lien claim, or trade creditor claim, plus a reasonable additional sum to pay all costs, interest and penalties that may be imposed or incurred in connection therewith, to assure payment of the matters under contest and to prevent any sale or forfeiture of the Security Property or any part thereof; (d) Borrower shall promptly upon final determination thereof pay the amount of any such Taxes, Other Charges or claim so determined, together with all costs, interest and penalties which may be payable in connection therewith; (e) the failure to pay the Taxes, Other Charges, mechanic’s or materialman’s lien claim, or trade creditor claim does not constitute a default under any other deed of trust, mortgage or security interest covering or affecting any part of the Security Property; and (f) notwithstanding the foregoing, Borrower shall immediately upon request of Lender pay (and if Borrower shall fail so to do, Lender may, but shall not be required to, pay or cause to be discharged or bonded against) any such Taxes, Other Charges or claim notwithstanding such contest, if in the opinion of Lender, the Security Property or any part thereof or interest therein may be in danger of being sold, forfeited, foreclosed, terminated, cancelled or lost. Lender may pay over any such cash deposit or part thereof to the claimant entitled thereto at any time when, in the judgment of Lender, the entitlement of such claimant is established.

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34. Hazardous Substances. Borrower hereby represents and warrants to Lender that, to the best of Borrower’s knowledge, after due inquiry and investigation except as disclosed in the environmental report delivered to Lender in connection with the Loan (the “Phase I Report”): (a) the Security Property is not in direct or indirect violation of any local, state, federal or other governmental authority, statute, ordinance, code, order, decree, law, rule or regulation pertaining to or imposing liability or standards of conduct concerning environmental regulation, contamination or clean-up including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, as amended (“CERCLA”), the Resource Conservation and Recovery Act, as amended (“RCRA”), the Emergency Planning and Community Right-to-Know Act of 1986, as amended, the Hazardous Substances Transportation Act, as amended, the Solid Waste Disposal Act, as amended, the Clean Water Act, as amended, the Clean Air Act, as amended, the Toxic Substance Control Act, as amended, the Safe Drinking Water Act, as amended, the Occupational Safety and Health Act, as amended, any state super-lien and environmental clean-up statutes and all rules and regulations adopted in respect to the foregoing laws whether presently in force or coming into being and/or effectiveness hereafter (collectively, “Environmental Laws”); (b) the Security Property is not subject to any private or governmental lien or judicial or administrative notice or action or inquiry, investigation or claim relating to hazardous and/or toxic, dangerous and/or regulated, substances, wastes, materials, raw materials which include hazardous constituents, pollutants or contaminants including without limitation, petroleum, tremolite, anthlophylie, actinolite or polychlorinated biphenyls and any other substances or materials which are included under or regulated by Environmental Laws or which are considered by scientific opinion to be otherwise dangerous in terms of the health, safety and welfare of humans (collectively, “Hazardous Substances”); (c) no Hazardous Substances are or have been (including the period prior to Borrower’s acquisition of the Security Property) discharged, generated, treated, disposed of or stored on, incorporated in, or removed or transported from the Security Property other than in compliance with all Environmental Laws; (d) no Hazardous Substances are present in, on or under any nearby real property which could migrate to or otherwise affect the Security Property; and (e) no underground storage tanks exist on any of the Security Property. So long as Borrower owns or is in possession of the Security Property, Borrower (i) shall keep or cause the Security Property to be kept free from Hazardous Substances except for those substances used by Borrower or tenants in the ordinary course of their businesses and in compliance with all Environmental Laws, (ii) shall promptly notify Lender if Borrower shall become aware of any Hazardous Substances on or near the Security Property and/or if Borrower shall become aware that the Security Property is in direct or indirect violation of any Environmental Laws and/or if Borrower shall become aware of any condition on or near the Security Property which shall pose a threat to the health, safety or welfare of humans, and (iii) Borrower shall remove such Hazardous Substances and/or cure such violations and/or remove such threats, as applicable, as required by law (or as shall be required by Lender in the case of removal which is not required by law, but in response to the opinion of a licensed hydrogeologist, licensed environmental engineer or other qualified consultant engaged by Lender (“Lender’s Consultant”)), promptly after Borrower becomes aware of same, at Borrower’s sole expense. Notwithstanding anything to the contrary in this Section, the Borrower and/or tenants on the Security Property may use and store immaterial amounts of Hazardous Substances at the Security Property if such use or storage is in connection with the ordinary cleaning and maintenance of the Security Property so long as such use and storage (A) does not violate any applicable Environmental Laws and (B) is not the subject of any specific recommendations in the

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Phase I Report. Nothing herein shall prevent Borrower from recovering such expenses from any other party that may be liable for such removal or cure. The obligations and liabilities of Borrower under this Section 34 shall survive any termination, satisfaction, or assignment of this Security Instrument and the exercise by Lender of any of its rights or remedies hereunder, including, without limitation, the acquisition of the Security Property by foreclosure or a conveyance in lieu of foreclosure.

35. Asbestos. Borrower represents and warrants that, to the best of Borrower’s knowledge, after due inquiry and investigation, no asbestos or any substance or material containing friable asbestos (“Asbestos”) is located on the Security Property except as may have been disclosed in the Phase I Report delivered to Lender in connection with the Loan. Borrower shall not install in the Security Property, nor permit to be installed in the Security Property, Asbestos and shall remove any Asbestos promptly upon discovery to the satisfaction of Lender, at Borrower’s sole expense. Borrower shall in all instances comply with, and ensure compliance by all occupants of the Security Property with, all applicable federal, state and local laws, ordinances, rules and regulations with respect to Asbestos, and shall keep the Security Property free and clear of any liens imposed pursuant to such laws, ordinances, rules or regulations. In the event that Borrower receives any notice or advice from any governmental agency or any source whatsoever with respect to Asbestos on, affecting or installed on the Security Property, Borrower shall immediately notify Lender. The obligations and liabilities of Borrower under this Section 35 shall survive any termination, satisfaction, or assignment of this Security Instrument and the exercise by Lender of any of its rights or remedies hereunder, including but not limited to, the acquisition of the Security Property by foreclosure or a conveyance in lieu of foreclosure.

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Borrower, order same, and Borrower hereby grants to Lender and its employees and agents access to the Security Property and a license to undertake such inspection or audit. The cost of such inspection or audit may be added to the Debt and shall bear interest thereafter until paid at the Default Interest Rate. If no Event of Default has occurred and is continuing and Lender requests any such inspection or audit more than one (1) time in any consecutive twelve (12) month period, Lender shall have the right to obtain such additional audit or inspection at Lender’s sole cost and expense. In the event that any environmental site assessment report prepared in connection with such inspection or audit recommends that an operations and maintenance plan be implemented for Asbestos or any Hazardous Substance, Borrower shall cause such operations and maintenance plan to be prepared and implemented at Borrower’s expense upon request of Lender. In the event that any investigation, site monitoring, containment cleanup, removal, restoration, or other work of any kind is reasonably necessary or desirable under an applicable Environmental Law (the “Remedial Work”), Borrower shall commence and thereafter diligently prosecute to completion all such Remedial Work within ninety (90) days after written demand by Lender for performance thereof (or any such shorter period of time as may be required under applicable law). All Remedial Work shall be performed by contractors approved in advance by Lender, and under the supervision of a consulting engineer approved by Lender. All costs and expenses of such Remedial Work shall be paid by Borrower including, without limitation, Lender’s reasonable attorneys’ fees and disbursements incurred in connection with monitoring or review of such Remedial Work. In the event Borrower shall fail to timely commence, or cause to be commenced, or fail to diligently prosecute to completion, such Remedial Work, Lender may, but shall not be required to, cause such Remedial Work to be performed, and all costs and expenses thereof, or incurred in connection therewith, may be added to the Debt and shall bear interest thereafter until paid at the Default Interest Rate.

37.

Handicapped Access.

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38. Indemnification. In addition to any other indemnifications provided herein or in the other Loan Documents, Borrower shall protect, defend, indemnify and save harmless Lender from and against all liabilities, obligations, claims, demands, damages, penalties, causes of action, losses, fines, costs and expenses (including, without limitation, reasonable attorneys’ fees and disbursements), imposed upon or incurred by or asserted against Lender by reason of (a) ownership of this Security Instrument, the Security Property (prior to the date Lender or its successors or assignees or a purchaser at a foreclosure or a grantee of a deed in lieu of foreclosure takes title to the Security Property by foreclosure, deed in lieu of foreclosure, or otherwise) or any interest therein or receipt of any Rents; (b) any accident, injury to or death of persons or loss of or damage to property occurring in, on or about the Security Property or any part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (c) any use, nonuse or condition in, on or about the Security Property or any part thereof or on adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (d) any failure on the part of Borrower to perform or comply with any of the terms of this Security Instrument; (e) performance of any labor or services or the furnishing of any materials or other property in respect of the Security Property or any part thereof; (f) the presence, disposal, escape, seepage, leakage, spillage, discharge, emission, release, or threatened release of any Hazardous Substance or Asbestos on, from, or affecting the Security Property first arising prior to the date Lender or its successors or assignees or a purchaser at a foreclosure or a grantee of a deed in lieu of foreclosure takes title to the Security Property by foreclosure, deed in lieu of foreclosure, or otherwise; (g) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to such Hazardous Substance or Asbestos (prior to the date Lender or its successors or assignees or a purchaser at a foreclosure or a grantee of a deed in lieu of foreclosure takes title to the Security Property by foreclosure, deed in lieu, or otherwise); (h) any lawsuit brought or threatened, settlement reached, or government order relating to such Hazardous Substance or Asbestos if and to the extent due to the actions of Lender or its successors or assignees or a purchaser at a foreclosure or a grantee of a deed in lieu of foreclosure or its successors or assigns after a foreclosure, or deed in lieu of a foreclosure; (i) any violation of the Environmental Laws, which are based upon or in any way related to such Hazardous Substance or Asbestos including, without limitation, the costs and expenses of any Remedial Work, attorney and consultant fees and disbursements, investigation and laboratory fees, court costs, and litigation expenses; (j) any failure of the Security Property to comply with any Access Laws (prior to the date Lender or its successors or assignees or a purchaser at a foreclosure or a grantee of a deed in lieu of foreclosure takes title to the Security Property by foreclosure, deed in lieu of foreclosure, or otherwise); (k) any representation or warranty made in the Note, this Security Instrument or any of the other Loan Documents being false or misleading in any material respect as of the date such representation or warranty was made; (l) any claim by brokers, finders or similar persons claiming to be entitled to a commission in connection with the Loan, any Lease or other transaction involving the Security Property or any part thereof under any legal requirement or any liability asserted against Lender with respect thereto relating to events occurring prior to the date Lender or its successors or assignees or a purchaser at a foreclosure or a grantee of a deed in lieu of foreclosure takes title to the Security Property by foreclosure, deed in lieu of foreclosure, or otherwise; and (m) the claims of any lessee of any or any portion of the Security Property or any person acting through or under any lessee or otherwise arising under or as a consequence of any Lease relating to events occurring prior to the date Lender or its successors or assignees or a purchaser at a foreclosure or a grantee of a deed in

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lieu of foreclosure takes title to the Security Property by foreclosure, deed in lieu of foreclosure, or otherwise. Any amounts payable to Lender by reason of the application of this Section shall be secured by this Security Instrument and shall become immediately due and payable and shall bear interest at the Default Interest Rate from the date loss or damage is sustained by Lender until paid. The obligations and liabilities of Borrower under this Section 38 shall survive and termination, satisfaction, or assignment of this Security Instrument and the exercise by Lender of any of its rights or remedies hereunder, including, but not limited to, the acquisition of the Security Property by foreclosure or a conveyance in lieu of foreclosure.

Lender:

Wells Fargo Bank, N.A., as trustee for the registered holders of Cobalt CMBS Commercial Mortgage Trust 2006-C1, Commercial Mortgage Pass-Through Certificates, Series 2006-C1

c/o CWCapital LLC

One Charles River Place

63 Kendrick Street

Needham, Massachusetts 02494

Attention: Legal Division

Telecopier:

(781) 707-9397

Re:

Continental Towers,

Rolling Meadows, Illinois

with copies to:

Wells Fargo Bank, N.A., as trustee for the registered holders of Cobalt CMBS Commercial Mortgage Trust 2006-C1, Commercial Mortgage Pass-Through Certificates, Series 2006-C1

c/o CWCapital LLC

One Charles River Place

63 Kendrick Street

Needham, Massachusetts 02494

Attention: Loan Administration

Telecopier:

(781) 707-9498

Re:

Continental Towers,

Rolling Meadows, Illinois

Borrower:

At the address set forth in the introductory paragraph of this Security Instrument with one notice sent to the attention of Jeffrey Patterson and a second sent to James Hoffman.

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with copies to:

Winston & Strawn LLP

35 W. Wacker Drive

Chicago, Illinois 60601-9703

Attention: Christine Graff

40.

Authority.

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consent, to approve or disapprove or to decide that arrangements or terms are satisfactory or not satisfactory shall be in the sole discretion of Lender and shall be final and conclusive, except as may be otherwise expressly and specifically provided herein.

44. Non-Waiver. The failure of Lender to insist upon strict performance of any term hereof shall not be deemed to be a waiver of any term of this Security Instrument. Borrower shall not be relieved of Borrower’s obligations hereunder by reason of (a) the failure of Lender to comply with any request of Borrower or Guarantor to take any action to foreclose this Security Instrument or otherwise enforce any of the provisions hereof or of the Note, or the other Loan Documents, (b) the release, regardless of consideration, of the whole or any part of the Security Property, or of any person liable for the Debt or any portion thereof, or (c) any agreement or stipulation by Lender extending the time of payment or otherwise modifying or supplementing the terms of the Note, this Security Instrument or any of the other Loan Documents. Lender may resort for the payment of the Debt to any other security held by Lender in such order and manner as Lender, in its sole discretion, may elect. Lender may take action to recover the Debt, or any portion thereof, or to enforce any covenant hereof without prejudice to the right of Lender thereafter to foreclosure this Security Instrument. The rights and remedies of Lender under this Security Instrument shall be separate, distinct and cumulative and none shall be given effect to the exclusion of the others. No act of Lender shall be construed as an election to proceed under any one provision herein to the exclusion of any other provision. Lender shall not be limited exclusively to the rights and remedies herein stated but shall be entitled to every right and remedy now or hereafter afforded at law or in equity.

49. Duplicate Originals. This Security Instrument may be executed in any number of duplicate originals and each such duplicate original shall be deemed to be an original.

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involuntary proceeding admitting insolvency or inability to pay debts, or if Borrower or any Guarantor shall collude with any person or entity to file an involuntary petition under the Act as to which Borrower or any Guarantor is the debtor or as to which any property of any of them is property of the estate therein, or if in the absence of such collusion Borrower shall fail to use its best efforts to obtain vacation of involuntary proceedings brought for the reorganization, dissolution or liquidation of Borrower, then Lender may, at Lender’s option, declare all of the sums secured by this Security Instrument to be immediately due and payable without prior notice, and Lender may invoke any remedies permitted or provided for herein or in any of the Loan Documents or pursuant to applicable law. Any reasonable attorney’s fees and other reasonable out-of-pocket expenses incurred by Lender in connection with Borrower’s or any Guarantor’s bankruptcy or any of the other aforesaid events shall be additional indebtedness of Borrower secured by this Security Instrument.

56.

[Reserved].

57.

[Reserved].

58.

Miscellaneous.

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(f) This Security Instrument shall be governed by and construed in accordance with the laws of the State in which the Premises are located and the applicable laws of the United States of America.

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cure period thereunder, Lender shall have the right to require the Manager to enter into a sub-management agreement with a Manager approved by Lender (which said agreement shall be acceptable to Lender in its sole discretion) such that the sub-manager shall have all of the rights, obligations and responsibilities of the Manager set forth in the Management Agreement from the effective date of such sub-management agreement until the indebtedness evidenced by the Note is paid in full; at which time the term of said sub-management agreement shall automatically expire. Unless otherwise approved in writing by Lender, at all times while any portion of the Debt is outstanding, Borrower shall cause the Manager of the Security Property and the entity designated as the property manager of the Other Property to be the identical entity.

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61.

Securitization Indemnification.

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Act”), or provided or made available to investors or prospective investors in the Securities, the Rating Agencies, and service providers relating to the Secondary Market Transaction. In the event that the Disclosure Document is required to be revised prior to the sale of all Securities, the Borrower will cooperate with the holder of the Note in updating the Disclosure Document by providing all current information necessary to keep the Disclosure Document accurate and complete in all material respects.

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that access to the remainder of the Security Property following the Partial Release to any previously dedicated streets and utilities shall not be impaired and that the construction of any future improvements on the Release Lot shall not impair the visibility or use of the remainder of the Security Property; and (iv) that the future uses of the Release Lot will not violate any exclusivity provision in any Lease pertaining to the Security Property nor any covenant, restriction, condition or other title matter then encumbering the Security Property.

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(iii) otherwise negatively impact in any manner whatsoever (whether due to the configuration of the Release Lot, any proposed Improvements thereof or otherwise) the remainder of the Security Property.

(i) Borrower shall submit a prepared partial release instrument (the “Partial Release Instrument”), which must be deemed satisfactory pursuant to Prudent Lender Standards, and any information necessary for Lender to process the Partial Release Instrument, including a lot and block or metes and bounds description of the Release Lot, the name and address of the title insurance company to whose attention the Partial Release Instrument should be directed, numbers that reference the Partial Release Instrument (i.e., tax parcel numbers, title company order numbers, release numbers, etc.), the date when the Partial Release is to become effective, the name and address of the prospective purchaser of the Release Lot and such other documents and information as Lender may reasonably request in order to process the Partial Release Instrument. The Partial Release Instrument shall be delivered, in escrow, by Lender to the title company so designated, to be held, released, delivered and recorded in accordance with Lender’s escrow instructions requiring the satisfaction of all Partial Release Conditions. In no event shall the execution and delivery of a Partial Release Instrument affect any of Lender’s obligations under this Mortgage or the other Loan Documents.

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64. Survival. All representations and warranties made by Borrower herein shall survive the execution hereof.

65. Amendment and Restatement. This Amended and Restated Mortgage, Security Agreement and Fixture Financing Statement, together with the Other Mortgage, shall amend and restate, but shall not replace, the Mortgage, Security Agreement and Fixture Financing Statement executed by Borrower and Other Borrower for the benefit of CWCapital LLC, a Massachusetts limited liability company (“CWC”) dated November 21, 2006 and recorded at Document Number 0633134007 in the Cook County, Illinois Recorder’s Office (the “Original Mortgage”). CWC assigned the entirety of its interest in the Original Mortgage to Lender pursuant to the Assignment of Mortgage, Security Agreement and Fixture Financing Statement dated as of December 21, 2006 and executed by CWC for the benefit of Lender. CWC also assigned the entirety of its interest in the other Loan Documents to Lender as of December 21, 2006. All terms, conditions and obligations of the Original Mortgage shall remain in full force and effect as assigned to Lender and as restated herein and in the Other Mortgage and amended hereby and by the Other Mortgage, and all rights and remedies provided for therein shall be preserved to the Lender. Nothing contained herein or done pursuant hereto shall affect or be construed to affect the priority of the lien or security interest created by the Original Mortgage over the priority of other liens, charges, encumbrances or other security interests. Borrower does hereby confirm, ratify and reaffirm the obligations contained in the Original Mortgage, as assigned to Lender and as amended and restated hereby and by the Other Mortgage. This Amended and Restated Mortgage, Security Agreement and Fixture Financing Statement is an amendment and restatement only and not a novation; and except as herein provided and in the Other Mortgage, all of the terms and conditions of the Original Mortgage shall remain in full force and effect until payment of the Debt in full.

PART II

STATE SPECIFIC PROVISIONS

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68. Mortgagee Receives Benefit of Act. Lender shall have the benefit of all of the provisions of the Illinois Mortgage Foreclosure Act, 735 ILCS 5/15-1101 et seq. (the “Act”), including all amendments thereto which may become effective from time to time after the date hereof. In the event any provision of the Act which is specifically referred to herein may be repealed, Lender shall have the benefit of such provision as most recently existing prior to such repeal, as though the same were incorporated herein by express reference.

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IN WITNESS WHEREOF, Borrower has executed this Security Instrument the day and year first above written.

CONTINENTAL TOWERS, L.L.C.,
a Delaware limited liability company

By: CTA GENERAL PARTNER, LLC,
a Delaware limited liability company,
its sole member

By: CTA MEMBER, INC.,
a Delaware corporation,
its managing member

By: [s] Paul G. Del Vecchio

Name:     Yochanan Danziger,
   by Paul G. Del Vecchio,
                   Attorney-In-Fact
Title:       President

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STATE OF ILLINOIS

COUNTY OF COOK

[S E A L]

[s] Joella Malone

Notary Public, State of Illinois

My Commission Expires:

Joella Malone

07/10/09_________________

Printed Name of Notary Public

Attachments

Exhibit A

Legal Description

Exhibit B

Lease Defaults

Exhibit C

Legal Description of Other Property

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EXHIBIT A

LEGAL DESCRIPTION

[Intentionally omitted]

EXHIBIT A, Legal Description – Solo Page

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EXHIBIT B

LEASE DEFAULTS

[Intentionally omitted]

EXHIBIT B, Required Repairs – Solo Page

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EXHIBIT C

OTHER PROPERTY

[Intentionally omitted]

EXHIBIT C, Other Property – Solo Page

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EX-10 18 exhibit-10_71.htm EXHIBIT 10.71

EXHIBIT 10.71

AMENDED AND RESTATED GUARANTY

W I T N E S S E T H:

WHEREAS, pursuant to that certain Amended and Restated Promissory Note, dated of even date herewith, executed by CONTINENTAL TOWERS, L.L.C., a Delaware limited liability company (“Borrower”), and payable to the order of Lender in the original principal amount of $73,600,000.00 (together with all renewals, modifications, increases and extensions thereof, the “Note”), Borrower has become indebted, and may from time to time be further indebted, to Lender with respect to a loan (“Loan”) which is secured by the lien and security interest of an Amended and Restated Mortgage, Security Agreement and Fixture Financing Statement, of even date herewith (the “Mortgage”), and further evidenced, secured or governed by other instruments and documents executed in connection with the Loan, including an Amended and Restated Environmental and Hazardous Substance Indemnification Agreement (the “Environmental and Hazardous Substance Indemnification Agreement”) (the Note, Mortgage, the Environmental and Hazardous Substance Indemnification Agreement, and all other such documents and instruments executed in connection with the Loan may be referred to as the “Loan Documents”); and

WHEREAS, Guarantor as the parent of Second Lender will directly benefit from Lender’s making the Loan to Borrower.

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ARTICLE I

NATURE AND SCOPE OF GUARANTY

1.1 Guaranty of Obligation. Guarantor hereby irrevocably and unconditionally guarantees to Lender and its successors and assigns the payment and performance of the Guaranteed Obligations as and when the same shall be due and payable, whether by lapse of time, by acceleration of maturity or otherwise. Guarantor hereby irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Obligations as a primary obligor.

1.2 Definition of Guaranteed Obligations. As used herein, the term “Guaranteed Obligations” means the obligations or liabilities of Borrower to Lender for any loss, damage, cost, expense, liability, claim or other obligation incurred by Lender (including attorneys’ fees and costs reasonably incurred) arising out of or in connection with the following:

(a) all amounts for which Borrower is liable under Sections 2.04(b) and (c) of the Note; and

(b) the payment and performance of all of the obligations of Borrower under the Environmental and Hazardous Substance Indemnification Agreement.

1.3 Nature of Guaranty. This Guaranty is an irrevocable, absolute, continuing guaranty of payment and performance and not a guaranty of collection. This Guaranty may not be revoked by Guarantor and shall continue to be effective with respect to any Guaranteed Obligations arising or created after any attempted revocation by Guarantor and after (if Guarantor is a natural person) Guarantor’s death (in which event this Guaranty shall be binding upon Guarantor’s estate and Guarantor’s legal representatives and heirs). The fact that at any time or from time to time the Guaranteed Obligations may be increased or reduced shall not release or discharge the obligation of Guarantor to Lender with respect to the Guaranteed Obligations. This Guaranty may be enforced by Lender and any subsequent holder of the Note and shall not be discharged by the assignment or negotiation of all or part of the Note.

1.4 Guaranteed Obligations Not Reduced by Offset. The Guaranteed Obligations and the liabilities and obligations of Guarantor to Lender hereunder, shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of Borrower, or any other party, against Lender or against payment of the Guaranteed Obligations, whether such offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise.

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1.5 Payment By Guarantor. If all or any part of the Guaranteed Obligations shall not be punctually paid when due, whether at demand, maturity, acceleration or otherwise, Guarantor shall, immediately upon demand by Lender, and without presentment, protest, notice of protest, notice of non-payment, notice of intention to accelerate the maturity, notice of acceleration of the maturity, or any other notice whatsoever, pay in lawful money of the United States of America, the amount due on the Guaranteed Obligations to Lender at Lender’s address as set forth herein. Such demand(s) may be made at any time coincident with or after the time for payment of all or part of the Guaranteed Obligations, and may be made from time to time with respect to the same or different items of Guaranteed Obligations. Such demand shall be deemed made, given and received in accordance with the notice provisions hereof.

1.6 No Duty To Pursue Others. It shall not be necessary for Lender (and Guarantor hereby waives any rights which Guarantor may have to require Lender), in order to enforce the obligations of Guarantor hereunder, first to (i) institute suit or exhaust its remedies against Borrower or others liable on the Loan or the Guaranteed Obligations or any other person, (ii) enforce Lender’s rights against any collateral which shall ever have been given to secure the Loan, (iii) enforce Lender’s rights against any other guarantors of the Guaranteed Obligations, (iv) join Borrower or any others liable on the Guaranteed Obligations in any action seeking to enforce this Guaranty, (v) exhaust any remedies available to Lender against any collateral which shall ever have been given to secure the Loan, or (vi) resort to any other means of obtaining payment of the Guaranteed Obligations. Lender shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Obligations.

1.7 Waivers. Guarantor agrees to the provisions of the Loan Documents, and hereby waives notice of (i) any loans or advances made by Lender to Borrower, (ii) acceptance of this Guaranty, (iii) any amendment or extension of the Note, the Mortgage or of any other Loan Documents, (iv) the execution and delivery by Borrower and Lender of any other loan or credit agreement or of Borrower’s execution and delivery of any promissory notes or other documents arising under the Loan Documents or in connection with the Trust Property (as defined in the Mortgage), (v) the occurrence of any breach by Borrower or an Event of Default, (vi) Lender’s transfer or disposition of the Guaranteed Obligations, or any part thereof, (vii) sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Guaranteed Obligations, (viii) protest, proof of non-payment or default by Borrower, or (ix) any other action at any time taken or omitted by Lender, and, generally, all demands and notices of every kind in connection with this Guaranty, the Loan Documents, any documents or agreements evidencing, securing or relating to any of the Guaranteed Obligations and the obligations hereby guaranteed.

1.8 Payment of Expenses. In the event that Guarantor should breach or fail to timely perform any provisions of this Guaranty, Guarantor shall, immediately upon demand by Lender, pay Lender all reasonable, out-of-pocket costs and expenses (including court costs and reasonable attorneys’ fees) incurred by Lender in the enforcement hereof or the preservation of Lender’s rights hereunder. The covenant contained in this Section shall survive the payment and performance of the Guaranteed Obligations.

1.9 Effect of Bankruptcy. In the event that, pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law, or any judgment, order or decision

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1.10 Waiver of Subrogation, Reimbursement and Contribution. Notwithstanding anything to the contrary contained in this Guaranty, Guarantor hereby unconditionally and irrevocably waives, releases and abrogates until the end of the Waiver Period (as hereunder defined), any and all rights it may now or hereafter have under any agreement, at law or in equity (including, without limitation, any law subrogating Guarantor to the rights of Lender), to assert any claim against or seek contribution, indemnification or any other form of reimbursement from Borrower or any other party liable for payment of any or all of the Guaranteed Obligations for any payment made by Guarantor under or in connection with this Guaranty or otherwise. As used herein, “Waiver Period” shall mean ninety-one (91) days from the payment in full of the indebtedness secured by the Mortgage and Borrower’s failure within such ninety-one (91) day period to be subject to a bankruptcy action or otherwise in violation of Section 55 of the Mortgage.

1.11 Borrower. The term “Borrower” as used herein shall include any new or successor corporation, association, partnership (general or limited), joint venture, trust or other individual or organization formed as a result of any merger, reorganization, sale, transfer, devise, gift or bequest of Borrower or any interest in Borrower.

1.12 Indemnity. Guarantor shall indemnify, defend and hold harmless Lender and its successors and assigns from and against the following (which may be referred to herein as “Indemnified Matters”): any and all liabilities, obligations, claims, demands, damages, judgments, costs and expenses (including, without limitation, reasonable attorneys’ fees and disbursements), imposed upon or incurred by or asserted against Lender and/or its successors and assigns by reason of a default by Guarantor in the performance of any of the Guaranteed Obligations. The foregoing indemnity shall specifically not include any such costs to the extent incurred as the direct result of Lender’s gross negligence or willful misconduct.

1.13

Indemnification Procedures.

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ARTICLE II

EVENTS AND CIRCUMSTANCES NOT REDUCING

OR DISCHARGING GUARANTOR’S OBLIGATIONS

2.1 Modifications. Any renewal, extension, increase, modification, alteration or rearrangement of all or any part of the Guaranteed Obligations, the Note, the Mortgage, the other

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2.2 Adjustment. Any adjustment, indulgence, forbearance or compromise that might be granted or given by Lender to Borrower or any Guarantor.

2.3 Condition of Borrower or Guarantor. The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of Borrower, Guarantor or any other party at any time liable for the payment of all or part of the Guaranteed Obligations; or any dissolution of Borrower or Guarantor, or any sale, lease or transfer of any or all of the assets of Borrower or Guarantor, or any changes in the shareholders, partners or members of Borrower or Guarantor; or any reorganization of Borrower or Guarantor.

2.4 Invalidity of Guaranteed Obligations. The invalidity, illegality or unenforceability of all or any part of the Guaranteed Obligations, or any document or agreement executed in connection with the Guaranteed Obligations, for any reason whatsoever, including without limitation the fact that (i) the Guaranteed Obligations, or any part thereof, exceeds the amount permitted by law, (ii) the act of creating the Guaranteed Obligations or any part thereof is ultra vires, (iii) the officers or representatives executing the Note, the Mortgage or the other Loan Documents or otherwise creating the Guaranteed Obligations acted in excess of their authority, (iv) the Guaranteed Obligations violate applicable usury laws, (v) the Borrower has valid defenses, claims or offsets (whether at law, in equity or by agreement) unrelated to the willful misconduct or gross negligence of Lender or anyone acting by, through or under Lender which render the Guaranteed Obligations wholly or partially uncollectible from Borrower, (vi) the creation, performance or repayment of the Guaranteed Obligations (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Obligations or executed in connection with the Guaranteed Obligations, or given to secure the repayment of the Guaranteed Obligations) is illegal, uncollectible or unenforceable, or (vii) the Note, the Mortgage or any of the other Loan Documents have been forged or otherwise are irregular or not genuine or authentic through no willful misconduct or gross negligence of Lender or anyone acting by, through or under Lender, it being agreed that Guarantor shall remain liable hereon regardless of whether Borrower or any other person be found not liable on the Guaranteed Obligations or any part thereof for any reason.

2.5 Release of Obligors. Any full or partial release of the liability of Borrower on the Guaranteed Obligations, or any part thereof, or of any co-guarantors, or any other person or entity now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Guaranteed Obligations, or any part thereof, it being recognized, acknowledged and agreed by Guarantor that Guarantor may be required to pay the Guaranteed Obligations in full without assistance or support of any other party, and Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that other parties will be liable to pay or perform the Guaranteed Obligations, or that Lender will look to other parties to pay or perform the Guaranteed Obligations.

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2.6 Other Collateral. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed Obligations.

2.7 Release of Collateral. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including without limitation negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security at any time existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Obligations.

2.8 Care and Diligence. The failure of Lender or any other party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of such collateral, property or security, including but not limited to any neglect, delay, omission, failure or refusal of Lender (i) to take or prosecute any action for the collection of any of the Guaranteed Obligations or (ii) to foreclose, or initiate any action to foreclose, or, once commenced, prosecute to completion any action to foreclose upon any security therefor, or (iii) to take or prosecute any action in connection with any instrument or agreement evidencing or securing all or any part of the Guaranteed Obligations.

2.9 Unenforceability. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Obligations, or any part thereof, shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by Guarantor that Guarantor is not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Guaranteed Obligations.

2.10 Merger. The reorganization, merger or consolidation of Borrower into or with any other corporation or entity.

2.11 Preference. Any payment by Borrower to Lender is held to constitute a preference under bankruptcy laws, or for any reason Lender is required to refund such payment or pay such amount to Borrower or someone else.

2.12 Other Actions Taken or Omitted. Any other action taken or omitted to be taken with respect to the Loan Documents, the Guaranteed Obligations, or the security and collateral therefor, whether or not such action or omission prejudices Guarantor or increases the likelihood that Guarantor will be required to pay the Guaranteed Obligations pursuant to the terms hereof, it is the unambiguous and unequivocal intention of Guarantor that Guarantor shall be obligated to pay the Guaranteed Obligations when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, which obligation shall be deemed satisfied only upon the full and final payment and satisfaction of the Guaranteed Obligations.

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ARTICLE III

REPRESENTATIONS AND WARRANTIES

To induce Lender to enter into the Loan Documents and extend credit to Borrower, Guarantor represents and warrants to Lender as follows:

3.1 Benefit. Guarantor is the parent of Second Lender, has received, or will receive, direct or indirect benefit from the making of this Guaranty with respect to the Guaranteed Obligations.

3.2 Familiarity and Reliance. Guarantor is familiar with, and has independently reviewed books and records regarding, the financial condition of the Borrower and is familiar with the value of any and all collateral intended to be created as security for the payment of the Note or Guaranteed Obligations; however, Guarantor is not relying on such financial condition or the collateral as an inducement to enter into this Guaranty.

3.3 No Representation By Lender. Neither Lender nor any other party has made any representation, warranty or statement to Guarantor in order to induce Guarantor to execute this Guaranty.

3.4 Guarantor’s Financial Condition. As of the date hereof, and after giving effect to this Guaranty and the contingent obligation evidenced hereby, Guarantor is, and will be, solvent, and has and will have assets which, fairly valued, exceed its obligations, liabilities (including contingent liabilities) and debts, and has and will have property and assets sufficient to satisfy and repay its obligations and liabilities. Notwithstanding the foregoing, Guarantor shall at all times while the Amended and Restated Tax Indemnity Agreement between Guarantor and Richard A. Heise dated January 10, 2006, as amended by the First Amendment to Amended and Restated Tax Indemnity Agreement dated as of even date hereof, is in effect and the obligations of Guarantor therein remain outstanding, maintain a minimum net worth of no less than $50,000,000.00 (as reasonably determined by Lender) (the “Minimum Net Worth”). Guarantor shall furnish to Lender, on or before forty-five (45) days after the end of each calendar quarter and on or before ninety (90) days after the end of each calendar year, quarterly or annual, as applicable, current financial statements detailing the assets and liabilities of Guarantor. All such financial statements shall be (i) accompanied by a certificate executed by the general partner of Guarantor stating that such statements represent fairly the financial condition of Guarantor and (ii) audited by a “Big Five” accounting firm or other independent certified public accountant acceptable to Lender or, in the event the financial statements of Prime Group Realty Trust (“Trust”), a Maryland Trust, the general partner of Guarantor, include the requisite financial information of Guarantor, the financial statements of Trust shall be so audited and provided to Lender in lieu of audited financial statements of Guarantor. Lender acknowledges that the accounting firm of Grant Thornton LLP is an accounting firm acceptable to Lender. Lender’s determination of Guarantor’s net worth shall include as an add back for accumulated depreciation on consolidated and unconsolidated properties and joint ventures and properties held for sale. Notwithstanding anything herein to the contrary, in the event Guarantor fails at any time to maintain the Minimum Net Worth, such failure shall not constitute an Event of Default

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3.5 Legality. The execution, delivery and performance by Guarantor of this Guaranty and the consummation of the transactions contemplated hereunder do not, and will not, contravene or conflict with any law, statute or regulation whatsoever to which Guarantor is subject or constitute a default (or an event which with notice or lapse of time or both would constitute a default) under, or result in the breach of, any indenture, mortgage, mortgage, charge, lien, or any contract, agreement or other instrument to which Guarantor is a party or which may be applicable to Guarantor. This Guaranty is a legal and binding obligation of Guarantor and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors’ rights.

3.6 Survival. All representations and warranties made by Guarantor herein shall survive the execution hereof.

ARTICLE IV

SUBORDINATION OF CERTAIN INDEBTEDNESS

4.1 Subordination of All Guarantor Claims. As used herein, the term “Guarantor Claims” shall mean all debts and liabilities of Borrower to Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligations of Borrower thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the person or persons in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by Guarantor. The Guarantor Claims shall include without limitation all rights and claims of Guarantor against Borrower (arising as a result of subrogation or otherwise) as a result of Guarantor’s payment of all or a portion of the Guaranteed Obligations. Upon the occurrence and during the continuance of an Event of Default, prior to the repayment of the Loan, Guarantor shall not receive or collect, directly or indirectly, from Borrower or any other party any amount upon the Guarantor Claims.

4.2 Claims in Bankruptcy. In the event of receivership, bankruptcy, reorganization, arrangement, debtor’s relief, or other insolvency proceedings involving Guarantor as debtor, Lender shall have the right to prove its claim in any such proceeding so as to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian dividends and payments which would otherwise be payable upon Guarantor Claims. Guarantor hereby assigns such dividends and payments to Lender. Should Lender receive, for application upon the Guaranteed Obligations, any such dividend or payment which is otherwise payable to Guarantor, and which, as between Borrower and Guarantor, shall constitute a credit upon the Guarantor Claims, then upon payment to Lender in full of the Guaranteed Obligations, Guarantor shall become subrogated to the rights of Lender to the extent that such payments to Lender on the Guarantor Claims have contributed toward the liquidation of the Guaranteed Obligations, and such subrogation shall be with respect to that proportion of the Guaranteed Obligations which

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would have been unpaid if Lender had not received dividends or payments upon the Guarantor Claims.

4.3 Payments Held in Trust. In the event that, notwithstanding anything to the contrary in this Guaranty, Guarantor should receive any funds, payment, claim or distribution which is prohibited by this Guaranty, Guarantor agrees to hold in trust for Lender an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely no dominion over the amount of such funds, payments, claims or distributions so received except to pay them promptly to Lender, and Guarantor covenants promptly to pay the same to Lender.

4.4 Liens Subordinate. Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon Borrower’s assets securing payment of the Guarantor Claims shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon Borrower’s assets securing payment of the Guaranteed Obligations, regardless of whether such encumbrances in favor of Guarantor or Lender presently exist or are hereafter created or attach. Without the prior written consent of Lender, Guarantor shall not (i) exercise or enforce any creditor’s right it may have against Borrower, or (ii) foreclose, repossess, sequester or otherwise take steps or institute any action or proceedings (judicial or otherwise, including without limitation the commencement of, or joinder in, any liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency proceeding) to enforce any liens, mortgages, deeds of trust, security interests, collateral rights, judgments or other encumbrances on assets of Borrower held by Guarantor.

ARTICLE V

MISCELLANEOUS

5.1 Waiver. No failure to exercise, and no delay in exercising, on the part of Lender, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of Lender hereunder shall be in addition to all other rights provided by law. No modification or waiver of any provision of this Guaranty, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand.

5.2 Notices. All notices given hereunder shall be in writing and shall be either hand delivered or mailed, by registered U.S. mail, Return Receipt Requested, first class postage prepaid, to the parties at their respective addresses below or at such other address for any party as such party may designate by notice to the other parties hereto:

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To Lender:

Wells Fargo Bank, N.A., as trustee for the registered holders of Cobalt CMBS Commercial Mortgage Trust 2006-C1, Commercial Mortgage Pass-Through Certificates, Series 2006-C1

c/o CWCapital LLC

One Charles River Place

63 Kendrick Street

Needham, Massachusetts 02494

Attention:

Legal Division

Telecopier:

(781) 707-9397

Re:

Continental Towers,

Rolling Meadows, Illinois

Wells Fargo Bank, N.A., as trustee for the registered holders of Cobalt CMBS Commercial Mortgage Trust 2006-C1, Commercial Mortgage Pass-Through Certificates, Series 2006-C1

c/o CWCapital LLC

One Charles River Place

63 Kendrick Street

Needham, Massachusetts 02494

Attention:

Servicing Division

Telecopier:

(781) 707-9498

or any other servicer of the Loan

Re:

Continental Towers,

Rolling Meadows, Illinois

To Guarantor:

Prime Group Realty, L.P.

c/o Prime Group Realty Trust

77 West Wacker Drive, Suite 3900

Chicago, Illinois 60601

Attention:

Jeffrey Patterson

Telecopier:

(312) 917-1684

Prime Group Realty, L.P.

c/o Prime Group Realty Trust

77 West Wacker Drive, Suite 3900

Chicago, Illinois 60601

Attention:

James Hoffman

Telecopier:

(312) 917-1684

with copies to:

Winston & Strawn LLP

Attention: Christine Graff

35 W. Wacker Drive

Chicago, Illinois 60601-9703

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5.3 Governing Law. This Guaranty shall be governed by and construed in accordance with the laws of the State in which the real property encumbered by the Mortgage is located and the applicable laws of the United States of America.

5.4 Invalid Provisions. If any provision of this Guaranty is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Guaranty, such provision shall be fully severable and this Guaranty shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Guaranty, and the remaining provisions of this Guaranty shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Guaranty, unless such continued effectiveness of this Guaranty, as modified, would be contrary to the basic understandings and intentions of the parties as expressed herein.

5.5 Amendments. This Guaranty may be amended only by an instrument in writing executed by the party or an authorized representative of the party against whom such amendment is sought to be enforced.

5.6 Parties Bound; Assignment; Joint and Several. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives; provided, however, that Guarantor may not, without the prior written consent of Lender, assign any of its rights, powers, duties or obligations hereunder. If Guarantor consists of more than one person or party, the obligations and liabilities of each such person or party shall be joint and several.

5.7 Headings. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Guaranty.

5.8 Recitals. The recital and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facie evidence of the facts and documents referred to therein.

5.9 Counterparts. To facilitate execution, this Guaranty may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single instrument. It shall not be necessary in making proof of this Guaranty to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages.

5.10 Rights and Remedies. If Guarantor becomes liable for any indebtedness owing by Borrower to Lender, by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby and the rights of Lender hereunder shall be cumulative of any and all other rights that Lender may ever have against Guarantor. The exercise by Lender of any right or remedy hereunder or under any other

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instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy.

5.11 Other Defined Terms. Any capitalized term utilized herein shall have the meaning as specified in the Mortgage, unless such term is otherwise specifically defined herein.

5.12 Entirety. THIS GUARANTY EMBODIES THE FINAL, ENTIRE AGREEMENT OF GUARANTOR AND LENDER WITH RESPECT TO GUARANTOR’S GUARANTY OF THE GUARANTEED OBLIGATIONS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTOR AND LENDER AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE OF DEALING BETWEEN GUARANTOR AND LENDER, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY AGREEMENT. THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTOR AND LENDER.

5.13 Waiver of Right To Trial By Jury. GUARANTOR HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS GUARANTY, THE NOTE, THE MORTGAGE, OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY GUARANTOR, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS GUARANTY IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY GUARANTOR.

5.14 Sale of Notes and Securitization. Guarantor acknowledges that Lender and its successors and assigns shall have the right to do any and all of the following: (i) sell the Security Instrument, the Note and other Loan Documents to one or more investors as a whole loan, (ii) participate the Loan secured by the Security Instrument to one or more investors, (iii) deposit the Security Instrument, the Note and other Loan Documents with a trust, which trust may sell certificates to investors evidencing an ownership interest in the trust assets, (iv) otherwise sell the Loan or interest therein to investors, or (v) cause the Note, the Security Instrument and the other Loan Documents to be split into two or more notes, parts or interests, in whatever proportion Lender deems appropriate, which may be in the form of pari passu interests, senior and junior interests, or other interests, and thereafter to sell, assign, participate, syndicate or securitize all or any part of either or both of such severed or split obligations and documents (the

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5.15

Securitization.

5.16 Reinstatement in Certain Circumstances. If at any time any payment of the principal of or interest under the Note or any other amount payable by the Borrower under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, Guarantor’s obligations hereunder with respect to such payment shall be reinstated as though such payment has been due but not made at such time.

5.17 Amendment and Restatement. This Amended and Restated Guaranty, together with that certain Amended and Restated Guaranty dated as of the date hereof executed by Guarantor for the benefit of Lender with respect to the Other Loan (as defined in the Mortgage) (the “Other Guaranty”), shall amend, restate and replace in its entirety that certain Guaranty dated as of November 21, 2006 executed by Guarantor for the benefit of CWCapital LLC, a Massachusetts limited liability company (“CWC”) (the “Original Guaranty”). CWC assigned the entirety of its interest in the Loan Documents (including the Original Guaranty) to Lender on December 21, 2006. All terms, conditions, guarantees and obligations of the Original Guaranty shall remain in full force and effect as assigned to Lender and as amended and restated herein and in the Other Guaranty in its entirety, and all rights and remedies provided for therein shall be preserved to Lender. Nothing contained herein or done pursuant hereto shall affect or be construed to affect the priority of the lien or security interest securing the Loan over the priority of other liens, charges, encumbrances or other security interests. Guarantor does hereby confirm, ratify and reaffirm the obligations contained in the Original Guaranty, as assigned to Lender and as amended and restated hereby and by the Other Guaranty in its entirety.

[Remainder of this page is intentionally left blank.]

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EXECUTED as of the day and year first above written.

GUARANTOR:

PRIME GROUP REALTY, L.P.,
a Delaware limited partnership

By: PRIME GROUP REALTY TRUST,
a Maryland real estate investment trust,
its General Partner

By: [s] Paul G. Del Vecchio

Name: Paul G. Del Vecchio

Title: Senior Vice President - Capital Markets

Attachment

Notarial Jurat

AMENDED AND RESTATED GUARANTY – Signature Page

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STATE OF ILLINOIS

COUNTY OF COOK

This instrument was ACKNOWLEDGED before me on December 28, 2006, 2006, by PAUL G. DEL VECCHIO, as Senior Vice President - Capital Markets of PRIME GROUP REALTY TRUST, a Maryland real estate investment trust, as General Partner of PRIME GROUP REALTY, L.P., a Delaware limited partnership, on behalf of said limited partnership.

[S E A L]

[s] Beverly T. Darling

Notary Public, State of Illinois

My Commission Expires:

Beverly T. Darling

03/16/10_________________

Printed Name of Notary Public

AMENDED AND RESTATED GUARANTY – Acknowledgment Page

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EX-10 19 exhibit-10_72.htm EXHIBIT 10.72

EXHIBIT 10.72

AMENDED AND RESTATED

ENVIRONMENTAL AND HAZARDOUS SUBSTANCE

INDEMNIFICATION AGREEMENT

THIS AMENDED AND RESTATED ENVIRONMENTAL AND HAZARDOUS SUBSTANCE INDEMNIFICATION AGREEMENT (this "Agreement"), made as of December 29, 2006, is by CONTINENTAL TOWERS, L.L.C., a Delaware limited liability company, (the "Borrower"), whose address is c/o Prime Group Realty Trust, 77 West Wacker Drive, Suite 3900, Chicago, Illinois 60601, in favor of WELLS FARGO BANK, N.A., as trustee for the registered holders of COBALT CMBS COMMERCIAL MORTGAGE TRUST 2006-C1, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2006-C1 (together with its successors and assigns, "Lender"), having an address at c/o CWCapital LLC, One Charles River Place, 63 Kendrick Street, Needham, Massachusetts 02494.

W I T N E S S E T H:

WHEREAS, Lender has extended to Borrower a loan in the principal amount of SEVENTY-THREE MILLION SIX HUNDRED THOUSAND AND NO/100 DOLLARS ($73,600,000.00) (the "Loan"); and

WHEREAS, the Loan is evidenced by an Amended and Restated Promissory Note dated of even date herewith (the "Note"), executed by Borrower and payable to the order of Lender in the principal amount of the Loan and is secured by an Amended and Restated Mortgage, Security Agreement and Fixture Financing Statement dated of even date herewith (the "Security Instrument"), made by Borrower in favor of Lender, encumbering the real property, buildings, structures and other improvements described therein (collectively, the "Property") and by other documents and instruments (the Note, the Security Instrument and such other documents and instruments, as the same may from time to time be amended, consolidated, renewed or replaced, being collectively referred to herein as the "Loan Documents"); and

WHEREAS, as a condition to making the Loan, Lender has required that Borrower indemnifies Lender with respect to hazardous wastes on, in, under or affecting the Property as herein set forth.

1. Indemnity. Borrower hereby assumes liability for, and hereby agrees to pay, protect, defend (at trial and appellate levels) and with attorneys, consultants and experts acceptable to Lender, and save Lender harmless from and against, and hereby indemnifies

AMENDED AND RESTATED ENVIRONMENTAL AND HAZARDOUS SUBSTANCE

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Lender from and against any and all liens, damages, losses, liabilities, obligations, settlement payments, penalties, assessments, citations, directives, claims, litigation, demands, defenses, judgments, suits, proceedings, costs, disbursements and expenses of any kind or of any nature whatsoever (including, without limitation, reasonable attorneys', consultants' and experts' fees and disbursements actually incurred in investigating, defending, settling or prosecuting any claim, litigation or proceeding) (collectively "Costs") which may at any time be imposed upon, incurred by or asserted or awarded against Lender or the Property, and arising directly or indirectly from or out of: (i) the violation of any local, state or federal law, rule or regulation pertaining to environmental regulation, contamination or clean-up (collectively, "Environmental Laws"), including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. §9601 et seq. and 40 CFR §302.1 et seq.), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. §6901 et seq.), The Federal Water Pollution Control Act (33 U.S.C. §1251 et seq. and 40 CFR §116.1 et seq.), and the Hazardous Materials Transportation Act (49 U.S.C. §1801 et seq.), and the regulations promulgated pursuant to said laws, all as amended, relating to or affecting the Property, whether or not caused by or within the control of Borrower; (ii) the presence, release or threat of release of any hazardous, toxic or harmful substances, wastes, materials, pollutants or contaminants (including, without limitation, asbestos, polychlorinated biphenyls, petroleum products, flammable explosives, radioactive materials, infectious substances or raw materials which include hazardous constituents) or any other substances or materials which are included under or regulated by Environmental Laws (collectively, "Hazardous Substances"), on, in, under or effecting all or any portion of the Property or any surrounding areas, regardless of whether or not caused by or within the control of Borrower; (iii) the failure by Borrower to comply fully with the terms and conditions of this Agreement; (iv) the breach of any representation or warranty contained in this Agreement; or (v) the enforcement of this Agreement, including, without limitation, the cost of assessment, containment and/or removal of any and all Hazardous Substances from all or any portion of the Property or any surrounding areas, the cost of any actions taken in response to the presence, release or threat of release of any Hazardous Substances on, in, under or affecting any portion of the Property or any surrounding areas to prevent or minimize such release or threat of release so that it does not migrate or otherwise cause or threaten danger to present or future public health, safety, welfare or the environment, and costs incurred to comply with the Environmental Laws in connection with all or any portion of the Property or any surrounding areas. "Costs" as used in this Agreement shall also include (without double counting to the extent such diminution is already reflected in the costs covered above) any diminution in the value of the security afforded by the Property or any future reduction of the sales price of the Property by reason of any matter set forth in this Paragraph 1; provided, however, the costs attributable to diminution in value as described herein shall not exceed the outstanding indebtedness evidenced by the Note plus any costs incurred by Lender in disposing of the Property or the Loan and shall be payable if and only to the extent such diminution or reduction results in a damage or loss to Lender as a result of its inability to recover the outstanding indebtedness upon disposing of the Property or the Loan by Lender or an affiliated entity. The foregoing indemnity shall specifically not include any such costs relating to Hazardous Substances which are initially placed on, in or under the Property after foreclosure or other taking of title to the Property by Lender or its successors or assignee or a purchaser at a foreclosure or a grantee of a deed in lieu of foreclosure.

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2. Representations Regarding Hazardous Substances. Borrower hereby represents and warrants to and covenants and agrees with Lender as follows:

(a) To the best of Borrower's knowledge, information and belief, after due inquiry and investigation, and except as otherwise disclosed in the Phase I Report (as defined in the Security Instrument) the Property is not in violation of any Environmental Law;

(b) To the best of Borrower's knowledge, information and belief, after due inquiry and investigation, and except as otherwise disclosed in the Phase I Report (as defined in the Security Instrument) no Hazardous Substances are located on or have been handled, generated, stored, processed or disposed of on or released or discharged from the Property (including underground contamination) except for those substances used in the ordinary course of business and in compliance with all Environmental Laws;

(c) The Property is not subject to any private or governmental lien or judicial or administrative notice or action relating to Hazardous Substances;

(d) To the best of Borrower's knowledge and belief, after due inquiry and investigation, and except as otherwise disclosed in the Phase I Report, there are no existing or closed underground storage tanks or other underground storage receptacles for Hazardous Substances on the Property;

(e) Borrower has received no notice of, and to the best of Borrower's knowledge and belief, there exists no investigation, action, proceeding or claim by any agency, authority or unit of government or by any third party which could result in any liability, penalty, sanction or judgment under any Environmental Laws with respect to any condition, use or operation of the Property nor does Borrower know of any basis for such a claim; and

(f) Borrower has received no notice that, and to the best of Borrower's knowledge and belief, there has been no claim by any party that, any use, operation or condition of the Property has caused any nuisance or any other liability or adverse condition on any other property nor does Borrower know of any basis for such a claim.

Covenants of Borrower.

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during the term of this Agreement, shall not install in the Improvements or permit to be installed in the Improvements asbestos or any substance containing asbestos.

(c) Upon the written request of Lender, at any time and from time to time after the occurrence of and during the continuance of an Event of Default under this Agreement or the Loan Documents or at such other time as Lender has determined (in the exercise of its good faith judgment but in no event more than one (1) time in any consecutive twelve (12) month period absent the occurrence and continuance of an Event of Default) that reasonable grounds exist to believe that Hazardous Substances are or have been released, stored or disposed of on or around the Property in violation of the Environmental Laws, Borrower shall provide, at Borrower's sole expense, an inspection or audit of the Property prepared by a hydrogeologist or environmental engineer or other appropriate consultant reasonably approved by Lender indicating the presence or absence of Hazardous Substances on the Property in violation of Environmental Laws or an inspection or audit of the improvements located on the Property prepared by an engineering or consulting firm reasonably acceptable to Lender indicating the presence or absence of friable asbestos or substances containing asbestos on the Property. If Borrower fails to provide such inspection or audit within sixty (60) days after such

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written request, Lender may, upon not less than ten (10) days prior written notice to Borrower, order the same, and Borrower hereby grants to Lender access to the Property and an irrevocable license to undertake such inspection or audit. The cost of such inspection or audit shall be included in Costs and shall be paid by Borrower in accordance with the terms of Paragraph 4(c) hereof. If no Event of Default has occurred and is continuing and in the event Lender requests any such inspection or audit more than one (1) time in any consecutive twelve (12) month period, Lender shall have the right to obtain such additional audit or inspection at Lender's sole cost and expense.

Indemnification Procedures.

(a) If any action shall be brought against Lender based upon any of the matters for which Lender is indemnified hereunder, Lender shall notify Borrower in writing thereof and Borrower shall promptly assume the defense thereof, including, without limitation, the employment of counsel reasonably acceptable to Lender and the negotiation of any settlement; provided, however, that any failure of Lender to notify Borrower of such matter shall not impair or reduce the obligations of Borrower hereunder. Lender shall have the right, at the expense of Borrower (which expense shall be included in Costs), to employ separate counsel in any such action and to participate in the defense thereof. In the event Borrower shall fail to discharge or undertake to defend Lender against any claim, loss or liability for which Lender is indemnified hereunder, Lender may, at its sole option and election, defend or settle such claim, loss or liability. The liability of Borrower to Lender hereunder shall be conclusively established by such settlement, provided such settlement is made in good faith, the amount of such liability to include both the settlement consideration and the costs and expenses, including, without limitation attorneys' fees and disbursements, incurred by Lender in effecting such settlement. In such event, such settlement consideration, costs and expenses shall be included in Costs and Borrower shall pay the same as hereinafter provided. Lender's good faith in any such settlement shall be conclusively established if the settlement is made on the advice of independent legal counsel for Lender.

(b)

Borrower shall not, without the prior written consent of Lender:

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6. Waivers by Borrower. To the extent permitted by law, Borrower hereby waives and agrees not to assert or take advantage of:

(a) Any right to require Lender to proceed against any other person or to proceed against or exhaust any security held by Lender at any time or to pursue any other remedy in Lender's power or under any other agreement before proceeding against Borrower;

(b)

The defense of the statute of limitations in any action hereunder;

(e)

Any defense based upon an election of remedies by Lender;

(f) Any right or claim of right to cause a marshalling of the assets of Borrower;

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(g) Any principle or provision of law, statutory or otherwise, which is or might be in conflict with the terms and provisions of this Agreement;

(i) Any lack of notice of disposition or of manner of disposition of any collateral for the Loan;

(j) Any invalidity, irregularity or unenforceability, in whole or in part, of any one or more of the Loan Documents;

(k) Any lack of commercial reasonableness in dealing with the collateral for the Loan;

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subrogation rights including, without limitation, any claim that such subrogation rights were abrogated by any acts of Lender; and

(p) Any action, occurrence, event or matter consented to by Borrower under Section 7(h) hereof, under any other provision hereof, or otherwise.

General Provisions.

(a) Fully Recourse. All of the terms and provisions of this Agreement are recourse obligations of Borrower and not restricted by any limitation on personal liability.

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(g) Rights Cumulative; Payments. Lender's rights under this Agreement shall be in addition to all rights of Lender under the Note, the Security Instrument and the other Loan Documents. FURTHER, PAYMENTS MADE BY BORROWER UNDER THIS AGREEMENT SHALL NOT REDUCE IN ANY RESPECT BORROWER'S OBLIGATIONS AND LIABILITIES UNDER THE NOTE, THE MORTGAGE AND THE OTHER LOAN DOCUMENTS.

(h) No Limitation on Liability. Borrower hereby consents and agrees that Lender may at any time and from time to time without further consent from Borrower take any of the following actions, and the liability of Borrower under this Agreement shall be unconditional and absolute and shall in no way be impaired or limited by any of the following events, whether occurring with or without notice to Borrower or with or without consideration: (i) any extensions of time for performance required by any of the Loan Documents or extension or renewal of the Note; (ii) any sale, assignment or foreclosure of the Note, the Security Instrument or any of the other Loan Documents or any sale or transfer of the Property; (iii) any change in the composition of Borrower; (iv) the accuracy or inaccuracy of the representations and warranties made by Borrower herein or in any of the Loan Documents; (v) the release of Borrower or of any other person or entity from performance or observance of any of the agreements, covenants, terms or conditions contained in any of the Loan Documents by operation of law, Lender's voluntary act or otherwise; (vi) the release or substitution in whole or in part of any security for the Loan; (vii) Lender's failure to record the Security Instrument or to file any financing statement (or Lender's improper recording or filing thereof) or to otherwise perfect, protect, secure or insure any lien or security interest given as security for the Loan; (viii) the modification of the terms of any one or more of the Loan Documents; or (ix) the taking or failure to take any action of any type whatsoever. No such action which Lender shall take or fail to take in connection with the Loan Documents or any collateral for the Loan, nor any course or dealing with Borrower or any other person, shall limit, impair or release Borrower's obligations hereunder, effect this Agreement in any way or afford Borrower any recourse against Lender. Nothing contained in Section shall be construed to require Lender to take or refrain from taking any action referred to herein.

(j) Governing Law; Binding Effect; Waiver of Acceptance. This Agreement shall be governed by and construed in accordance with the laws of the State in which the

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Property is located, except to the extent that the applicability of any of such laws may now or hereafter be preempted by Federal law, in which case such Federal law shall so govern and be controlling. This Agreement shall bind Borrower and the heirs, personal representatives, successors and assigns of Borrower and shall inure to the benefit of Lender and the officers, directors, shareholders, agents and employees of Lender and their respective heirs, successors and assigns. Notwithstanding the foregoing, subject to Borrower's rights under the Security Instrument, Borrower shall not assign any of its rights or obligations under this Agreement without the prior written consent of Lender, which consent may be withheld by Lender in its sole discretion. Borrower hereby waives any acceptance of this Agreement by Lender, and this Agreement shall immediately be binding upon Borrower.

(k) Notice. All notices, demands, requests or other communications to be sent by one party to the other hereunder or required by law shall be in writing and shall be deemed to have been validly given or served by delivery of the same in person to the intended addressee, or by depositing the same with Federal Express or another reputable private courier service for next business day delivery to the intended addressee at the address designated in the Security Instrument for notices, or by depositing the same in the United States mail, postage prepaid, registered or certified mail, return receipt requested, addressed to the intended addressee at its address set forth on the first page of this Agreement or at such other address as may be designated by such party as herein provided. All notices, demands and requests shall be effective upon such personal delivery, or one (1) business day after being deposited with the private courier service, or two (2) business days after being deposited in the United States mail as required above. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given as herein required shall be deemed to be receipt of the notice, demand or request sent. By giving to the other party hereto at least fifteen (15) days' prior written notice thereof in accordance with the provisions hereof, the parties hereto shall have the right from time to time to change their respective addresses and each shall have the right to specify as its address any other address within the United States of America.

(l) No Waiver; Time of Essence; Business Days. The failure of any party hereto to enforce any right or remedy hereunder, or to promptly enforce any such right or remedy, shall not constitute a waiver thereof nor give rise to any estoppel against such party nor excuse any of the parties hereto from their respective obligations hereunder. Any waiver of such right or remedy must be in writing and signed by the party to be bound. This Agreement is subject to enforcement at law or in equity, including actions for damages or specific performance. Time is of the essence hereof. The term "business day" as used herein shall mean a weekday, Monday through Friday, except a legal holiday or a day on which banking institutions in New York, New York are authorized by law to be closed.

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(n) Attorneys' Fees. In the event it is necessary for Lender to retain the services of an attorney or any other consultants in order to enforce this Agreement, or any portion thereof, Borrower agrees to pay to Lender any and all actual, out-of-pocket costs and expenses, including, without limitation, reasonable attorneys' fees, incurred by Lender as a result thereof and such actual, out-of-pocket costs, fees and expenses shall be included in Costs.

(s)

SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.

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(u) Amendment and Restatement. This Amended and Restated Environmental and Hazardous Substances Indemnification Agreement, together with that certain Amended and Restated Environmental and Hazardous Substances Indemnification Agreement dated as of the date hereof executed by Guarantor for the benefit of Lender with respect to the Other Loan (as defined in the Security Instrument) (the "Other Agreement") shall amend, restate, and replace in its entirety that certain Environmental and Hazardous Substances Indemnification Agreement dated as of November 21, 2006 executed by Borrower and Continental Towers Associates III, LLC, a Delaware limited liability company, for the benefit of CWC Capital LLC, a Massachusetts limited liability company ("CWC") (the "Original Agreement"). CWC assigned the entirety of its interest in the Loan Documents (including the Original Agreement) to Lender on December 21, 2006. All terms, conditions and obligations of the Original Agreement shall remain in full force and effect as assigned to Lender and as amended and restated herein and in the Other Agreement and in its entirety, and all rights and remedies provided for therein shall be preserved to Lender. Nothing contained herein or done pursuant hereto shall affect or be construed to affect the priority of the lien or security interest securing the Loan over the priority of other liens, charges, encumbrances or other security interests. Borrower does hereby confirm, ratify and reaffirm the obligations contained in the Original Agreement, as assigned to Lender and as amended and restated hereby and by the Other Agreement in its entirety.

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IN WITNESS WHEREOF, Borrower have executed this Environmental and Hazardous Substance Indemnification Agreement as of the day and year first above written.

BORROWER:

CONTINENTAL TOWERS, L.L.C.,
a Delaware limited liability company

By: CTA GENERAL PARTNER, LLC,
a Delaware limited liability company,
its sole member

By: CTA MEMBER, INC.,
a Delaware corporation,
its managing member

By:[s] Paul G. Del Vecchio

Name:      Yochanan Danziger,
                    by Paul G. Del Vecchio,
                    Attorney-In-Fact
Title:         President

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EX-10 20 exhibit-10_73.htm EXHIBIT 10.73

EXHIBIT 10.73

SECOND AMENDED AND RESTATED PROMISSORY NOTE

In the original principal amount of $46,701,459.00	Dated: October 1, 1991
	Amended and Restated as of the
	Effective Date December 29, 2006

FOR VALUE RECEIVED, CONTINENTAL TOWERS ASSOCIATES III, LLC, a Delaware limited liability company, whose mailing address is c/o CTA General Partner, L.L.C., 77 W. Wacker Drive, Suite 3900, Chicago, IL 60601 (“Borrower”) promises to pay to the order of PGRT EQUITY, L.L.C., a Delaware limited liability company, whose mailing address is 77 W. Wacker Drive, Suite 3900, Chicago, IL 60601 (“Holder”), or any subsequent holder of this Note, the principal sum of Forty Six Million Seven Hundred One Thousand Four Hundred Fifty Nine and 00/100 Dollars ($46,701,459.00), with interest on the unpaid balance of such amount from the date hereof at the rates of interest specified herein.

1. Certain Defined Terms. In addition to the terms defined elsewhere in this Note, as used herein, the following terms shall have the following meanings:

“Adjusted Net Operating Income” for any period shall mean Net Operating Income for such period less Basic Payments made during such period.

“Assignment” shall mean the Second Amended and Restated Assignment of Leases and Rents dated as of the date hereof executed by Borrower for the benefit of Holder.

“Base Interest Rate” shall have the meaning set forth in Section 2(a) hereof.

“Business Day” shall mean any day on which commercial banks are not authorized or required to close in Chicago, Illinois.

“Contingent Interest” shall have the meaning set forth in Section 4(a).

“Default Interest” shall be a rate of interest that is 4% above the Base Interest Rate and, if due, shall be in addition to Contingent Interest.

“Holder” shall mean PGRT Equity, L.L.C. and any subsequent holder of this Note.

“Mortgage” shall mean the Second Amended and Restated Mortgage of even date herewith, mortgaging certain real and personal property described therein situated in the City of Rolling Meadows, Illinois, upon which an office and commercial complex is constructed and may hereafter be constructed, given as security for the payment of this Note.

“Initial Disbursement Date” shall mean October 1, 1991.

“Loan” shall mean the loan made and disbursed as set forth in the Loan Agreement, evidenced by this Note.

“Loan Agreement” shall mean the Third Amended and Restated Loan Agreement dated of even date herewith.

“Loan Documents” shall mean this Note, the Mortgage, the Assignment, the Loan Agreement and all other documents, agreements and instruments evidencing, securing or in any way relating to the Loan, together with all amendments thereto which may hereafter exist.

“Loan Year” shall have the meaning defined in the Loan Agreement.

“Maturity Date” shall mean the earliest to occur of (a) the Scheduled Maturity Date, or (ii) the date to which Holder accelerates the payment of the Loan pursuant to the provisions of this Note, the Loan Agreement or the Mortgage.

“Maximum Amount” shall have the meaning defined in Section 15 hereof.

“Net Operating Income” shall have the meaning defined in the Loan Agreement.

“Note” shall mean this Promissory Note, together with all amendments hereto from time to time.

“Original Loan Agreement” shall mean have the meaning defined in the Loan Agreement.

“Outstanding Balance” shall mean the outstanding principal balance of the Note and all accrued interest thereon, whether or not capitalized, as of the date of calculation.

“Parties” shall mean Borrower and Holder.

“Premises” or “Property” shall have the meaning assigned in the Mortgage.

“Scheduled Maturity Date” shall mean January 5, 2013.

Calculation and Payment of Base Interest. From and after the date hereof:

(a)

Base Interest shall accrue at the rate of 6.5% per annum (“Base Interest Rate”).

(b) Borrower shall pay Base Interest from Adjusted Net Operating Income on the 20th day of each month.

(c) Net Operating Income and all components thereof shall be subject to audit and review by Holder and its auditors, at Borrower’s expense, and in any such audit and review, Holder’s auditors may adjust and reallocate items of income and expense, and the timing thereof, as they may deem necessary to accurately present Net Operating Income and the components thereof on a basis consistent from year to year or period to period.

(d) To the extent Base Interest accruing each month is not paid in full by the twentieth (20th) day of the following month, the same shall be capitalized and added to the principal balance of this Note as of the last day of the month in which it accrued, to accrue interest thereafter at the Base Interest Rate.

Calculation and Payment of Contingent Interest. From and after the date hereof:

(a) Contingent Interest shall accrue on the principal balance of this Note from time to time at the rate of 6% per annum and shall be paid from Adjusted Net Operating Income only after all Base Interest (including any which may have been capitalized) has been paid.

(b) To the extent Contingent Interest accruing each month is not paid in full by the twentieth (20th) day of the following month, the same shall be capitalized and added to the principal balance of this Note as of the last day of the month in which it accrued, to accrue interest thereafter at the Base Interest Rate.

4. Maturity. The entire Outstanding Balance hereof and other obligations payable pursuant to the Loan Agreement, the Mortgage or other Loan Documents shall be due and payable to Holder on the Maturity Date, whether occurring by lapse of time or acceleration.

5. Survival of Payment of Obligations. The obligations of Borrower hereunder shall be secured by the Mortgage and the other Loan Documents and Collateral (as defined in the Loan Agreement); and Holder shall be under no obligation to satisfy or otherwise release the Mortgage and the other recorded Loan Documents until the payment in full of all amounts payable to Holder under this Note and all other Loan Documents.

6. Payments. All payments on account of the Loan or this Note shall be made not later than noon (Chicago time) on the day when due in lawful money of the United States in same day or other immediately available funds and are payable at Holder’s office at 77 W. Wacker Drive, Suite 3900, Chicago, IL 60601, or at such other place as Holder shall notify the Borrower in writing.

7. Prepayment. Subject to the provisions of Section 8 hereof, this Note may be prepaid in whole or in part without premium or penalty; provided that any permitted prepayment shall be preceded by not less than thirty (30) days’ prior written notice from Borrower to Holder, except for any prepayment resulting from the application of insurance or condemnation proceeds, which may be made without prior notice.

Application of Payments.

(a) All payments received by Holder under the Loan shall be applied by Holder in the same order and manner set forth in Section 3.4 of the Loan Agreement for the application of Adjusted Net Operating Income; and

(b) Notwithstanding anything to the contrary herein contained, in the event that there shall have occurred an Event of Default under the Mortgage, Holder, in its discretion, may apply any payment under this Note in accordance with the provisions of the Mortgage or the Loan Agreement.

9. Late Payment. In the event Borrower fails to make any payment due under this Note, within five (5) days after the same shall become due, whether by acceleration of payment or otherwise, Holder, in addition to its rights set forth in Section 10 hereof, may at its option impose a late charge on Borrower, payable upon demand, equal to the greater of:

(a) The amount resulting from applying the rate of Default Interest, computed from the date such payment was due and payable to the date of receipt of such payment by Holder in good and immediately available funds, or

(b) An amount equal to Five Percent (5%) of the amount of such past due payment notwithstanding the date on which such payment is actually paid to Holder;

provided, however, that if any such delinquency charge under Subsections (a) or (b) of this Section 9 is not recognized as liquidated damages for the delinquency (as contemplated by Borrower and Holder), and is deemed to be interest in excess of the Maximum Amount, the amount actually collected by Holder in excess of such lawful amount shall be applied in accordance with the provisions of Section 16 hereof.

10. Acceleration of Indebtedness. If any payment required herein or in the Loan Agreement is not made when due in any month, the Holder may give written notice to the Borrower stating that Borrower will be in default if the delinquent amount is not paid within ten (10) Business Days. If Borrower does not pay the delinquent amount before the expiration of the stated period, it shall be deemed in default under this Note (a “Payment Default”). Upon a Payment Default or upon the happening of any “Event of Default” as defined in the Loan Agreement, Mortgage or any of the Loan Documents, then and in any such event, the Outstanding Balance evidenced hereby and all interest accrued thereon and all charges and fees which are part of the Loan and any other sums advanced by Holder under this Note and the other Loan Documents shall, at the option of Holder, and without notice, demand or presentment for payment to Borrower or any other person or entity, at once become due and payable and may be collected forthwith, regardless of the stipulated date of maturity, anything herein or in the other Loan Documents to the contrary notwithstanding, all without any relief whatever from any valuation or appraisement laws and payment thereof may be enforced and recovered in whole or in part at any time by one or more of the remedies provided to Holder in this Note, the Loan Agreement, the Mortgage, in any of the other Loan Documents, or by such other rights and remedies which Holder may have at law, equity or otherwise. Default Interest shall accrue on the Outstanding Balance from the date of any default hereunder (so long as such default shall continue), regardless of whether or not there shall have been an acceleration of the payment of principal as set forth herein.

11. Loan Agreement and Security. This Note evidences a loan with an Outstanding Balance as of December 29, 2006 of $46,701,459.00 made and disbursed to or for the benefit of the Borrower, as provided for and in accordance with the provisions of the Loan Agreement; and in connection therewith:

(a) The terms and provisions of the Loan Agreement are hereby incorporated herein by this reference as fully and with the same effect as if set forth herein at length;

(b) To the extent that any of the terms and provisions hereof conflict with any of the terms and provisions of the Loan Agreement, the terms and provisions of the Loan Agreement shall prevail; and

(c) Payment hereof and all obligations of Borrower and other parties (other than Holder) to the Loan Agreement are secured by the Mortgage and the other Loan Documents.

12. Expenses and Costs of Collection. Borrower shall pay all costs and expenses of collection incurred by Holder, in addition to principal, interest and late or delinquency charges (including, without limitation, court costs and reasonable attorneys’ fees and disbursements through and including any appellate proceedings and any special proceedings) and including all costs and expenses incurred in connection with the pursuit by Holder of any of its rights or remedies referred to herein or the protection of or realization of collateral or in connection with any of Holder’s collection efforts, whether or not suit on this Note, on any of the other Loan Documents or any foreclosure proceeding is filed, and all such costs and expenses shall be payable on demand and also shall be secured by the Mortgage and all other collateral at any time held by Holder as security for Borrower’s obligations to Holder.

13.

No Waiver or Oral Modification. It is agreed that:

(a) No failure on the part of Holder to exercise any right or remedy hereunder, whether before or after the happening of a default, shall constitute a waiver of such default, any future default or of any other default;

(b) No failure to accelerate the debt evidenced hereby by reason of default hereunder, or acceptance of a past due installment, or indulgence granted from time to time shall be construed to be a waiver of the right to insist upon prompt payment or to impose late or delinquency charges thereafter or to impose such charges retroactively, nor shall it be deemed to be a novation by Holder of this Note or as a reinstatement by Holder of the debt evidenced hereby or as a waiver of such right of acceleration or any other right, nor be construed so as to preclude the exercise of any right which Holder may have, whether by the laws of the state governing this Note, by agreement or otherwise, and Borrower and each endorser hereby expressly waives the benefit of any statute or rule of law or equity which would produce a result contrary to or in conflict with the foregoing; and

(c) This Note may not be changed orally, but only by an agreement in writing signed by the party against whom such agreement is sought to be enforced.

14. Waiver of Certain Notices. To the fullest extent permitted under applicable law, Borrower, for itself and its successors and assigns, and each endorser, if any, of this Note, for its heirs, successors and assigns, hereby waives presentment, protest, notice of protest, demand, diligence, notice of dishonor and of nonpayment, and waives and renounces all rights to the benefits of any statute of limitations and any moratorium, appraisement, exemption and homestead now provided or which may hereafter be provided by any federal or state statute, including, but not limited to, exemptions provided by or allowed under any federal or state bankruptcy or insolvency laws, both as to itself and as to all of its property, whether real or personal, against the enforcement and collection of the obligations evidenced by this Note and any and all extensions, renewals and modifications hereof.

15. Interest Not To Exceed Maximum Permitted By Law. It is the intention of the parties to conform strictly to the usury and other laws relating to interest from time to time in force, and all agreements between Borrower and Holder, whether now existing or hereafter arising and whether oral or written, are hereby expressly limited so that in no contingency or event whatsoever, whether by acceleration of maturity hereof or otherwise, shall the amount paid or agreed to be paid to Holder, or collected by Holder or for the use, forbearance or detention of the money to be loaned hereunder or otherwise, or for the payment or performance of any covenant or obligation contained herein, in the Mortgage or in the Assignment, in the Loan Agreement in any other Loan Documents or in any other security agreement given to secure the indebtedness of Borrower to Holder, or in any other document heretofore, now or hereafter evidencing, securing or pertaining to the indebtedness evidenced hereby, exceed the maximum amount permissible under applicable usury or such other laws (the “Maximum Amount”); and without limiting the foregoing:

(a) If under any circumstances whatsoever fulfillment of any provision hereof or of the Mortgage, or any of the other Loan Documents, at the time performance of such provision shall be due, shall involve transcending the Maximum Amount, then ipso facto, the obligation to be fulfilled shall be reduced to the Maximum Amount;

(b) For the purposes of calculating the actual amount of interest paid and/or payable hereunder, in respect of laws pertaining to usury or such other laws, all sums paid or agreed to be paid to the holder hereof for the use, forbearance or detention of the indebtedness of Borrower

evidenced hereby, outstanding from time to time shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread from the date of disbursement of the proceeds of this Note until payment in full of all of such indebtedness, so that the actual rate of interest on account of such indebtedness is uniform through the term hereof; and

(c) The terms and provisions of this Section 15 and Section 16 hereof shall control and supersede every other provision of all agreements between Borrower or any endorser and Holder.

16. Payment in Excess of Maximum Amount. If under any circumstances Holder shall ever receive an amount deemed interest by applicable law, which would exceed the Maximum Amount, such amount that would be excessive interest under applicable usury laws or such other laws shall be deemed a payment in reduction of the Outstanding Balance and shall be so applied or shall be applied to the principal amount of other indebtedness secured by the Mortgage and not the payment of interest, or if such excessive interest exceeds the Outstanding Balance, and any other indebtedness of Borrower in favor of Holder, the excess shall be deemed to have been a payment made by mistake and shall be refunded to Borrower or to any other person making such payment on Borrower’s behalf.

17. Governing Law and Consent to Jurisdiction. Borrower and Holder agree that, in all respects, including all matters of construction and performance, the obligations arising under this Note shall be governed by and construed in accordance with the laws of the State of Illinois. Borrower does hereby irrevocably and unconditionally submit to the personal jurisdiction of the courts of the State of Illinois and does further irrevocably and unconditionally stipulate and agree that the Federal Courts in the State of Illinois shall (in addition to any jurisdiction of courts of which Holder may elect to avail itself) have jurisdiction to hear and finally determine any dispute, claim, controversy or action arising out of or connected (directly or indirectly) with the Loan and the Loan Documents. Borrower does hereby agree that final judgments in any action or proceedings shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment or in any other manner provided by law. Nothing in this Note shall affect the right of Holder to bring an action or proceeding against the undersigned or its property in the courts of any other jurisdiction. To the extent that Borrower has or hereafter may acquire any immunity from jurisdiction of any court from legal process (whether through service or notice, attachment prior to judgment, attachment and aid of execution, execution or otherwise), with respect to the Borrower’s property, Borrower hereby unconditionally and irrevocably waives such immunity in respect of its obligations under the Loan and the Loan Documents. The foregoing consent, in advance, to the jurisdiction of the above-mentioned courts is a material inducement for Holder to make the Loan.

18. No Joint Venture; Indemnity. Borrower and Holder intend that the relationship created under this Note, the Mortgage, the Loan Agreement and all other Loan Documents be solely that of debtor and creditor or mortgagor and mortgagee, as the case may be. Nothing herein or in the Mortgage is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship among Borrower and Holder, nor to grant Holder any interest in the Premises other than that of creditor or mortgagee, it being the intent of the parties hereto that Holder shall have no liability whatsoever for any losses generated by or incurred with respect to the Premises nor shall Holder have any control over the day to day management for operations of the Premises. The terms and provisions of this Section shall control and supersede over every other provision and all other agreements among Borrower and Holder. Borrower hereby agrees to indemnify and hold Holder harmless and defend Holder against any loss or liability, cost or expense (including, without limitation, reasonable attorneys’ fees and disbursements) and all claims, actions, procedures and suits arising out of or in connection with any construction of the relationship of Borrower and Holder as that of joint venturers, partners, tenants in common, joint tenants or any relationship other than that of debtor and creditor, or any assertion that such a construction should be made, and arising out of a claim, assertion or litigation directly or indirectly brought by, or on behalf of

Borrower, its members or their members. The foregoing indemnity shall survive the repayment of this Note and the satisfaction of the Mortgage and shall continue so long as any liability for which the indemnity is given may exist or arise.

19. Time of Essence. Time is of the essence of this Note and of each provision in which time is an element.

20. Waiver of Jury Trial. BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY: THIS WAIVER BEING A MATERIAL INDUCEMENT FOR HOLDER TO ACCEPT THIS NOTE.

21. Date of Performance. If the date for the performance of any term, provision or condition (monetary or otherwise) under this Note shall happen to fall on a Saturday, Sunday or non-Business Day, the date for the performance of such term, provision or condition shall, at the option of Borrower or Holder, be extended to the next succeeding Business Day immediately thereafter occurring, with interest on the Outstanding Balance at the Base Interest Rate provided in this Note to such next succeeding Business Day if such term, provision or condition shall result in the extension of any monetary payment due to Holder.

22. Disbursement. Borrower hereby acknowledges receipt of and agrees that there is outstanding and evidenced hereby the entire $46,701,459.00 principal amount hereof.

23. Receipt of Payment. Any payment which is made by wire transfer or other immediately available funds and which is actually received by Holder prior to 2:00 p.m. shall be deemed to have been received and cleared by Holder on the date of receipt.

24. Binding upon Successors and Assigns. The provisions of this Note shall bind Borrower and its successors and assigns; provided, however, that nothing herein shall be construed as permitting Borrower to take any action in violation of the Mortgage.

25. Disclaimer. The Loan Documents are intended solely for the benefit of Borrower and Holder and their successors and assigns; no third party shall have any rights or interest in any provisions of the Loan Documents or as a result of any action or inaction of Holder in connection therewith. Any actions taken by Holder or any representative of Holder (to review plans and specifications, to inspect the Premises or otherwise) are solely for Holder’s protection and neither the Borrower nor any other person shall be entitled to rely upon any such action.

26. Prior Agreements. The Loan Documents supersede and cancel all prior loan applications, commitments, agreements and understandings, whether oral or written, with respect to the Loan, and all prior agreements and understandings are merged into the Loan Documents.

27. Interpretation. This Note shall be interpreted in accordance with the provisions of Sections 1.3 of the Loan Agreement.

28. Severability. Wherever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note shall be

prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note.

29. Consent to Extensions and Releases of Collateral. The Borrower and any endorsers, sureties, guarantors and all others who are or may become liable for the payment hereof (a) expressly consent to all extensions of time, renewals, postponements of time of payment of this Note or other modifications hereof from time to time (other than modifications which increase the amount of the Loan or cause Borrower to incur expenditures) prior to or after the Maturity Date without notice, consent or consideration to any of the foregoing, (b) expressly agree to any substitution, exchange, addition or release of any party or person primarily or secondarily liable hereon, and (c) expressly agree that Holder shall not be required first to institute any suit, or to exhaust its remedies against the undersigned or any other person or party to become liable hereunder or against the other Loan Documents in order to enforce the payment of this Note.

30.

Intentionally Deleted.

31.

Notices. Notices shall be given as provided for in the Loan Agreement.

32. Amendment and Restatement. This Second Amended and Restated Promissory Note, collectively with that certain Second Amended and Restated Promissory Note dated as of the date hereof executed by Continental Towers, L.L.C. in the original principal amount of Eighty Three Million Twenty Four Thousand Eight Hundred Fifteen and 00/100 Dollars ($83,024,815.00) (the “Other Note”) shall amend, restate and replace in their entirety that certain Amended and Restated Promissory Note (the “Original Note”) dated as of November 21, 2006 in the original principal amount of One Hundred Sixty Three Million One Hundred Three Thousand Ninety Nine and 24/100 Dollars ($163,103,099.24) made by Borrower and Continental Towers, L.L.C., payable to the order of Lender. All terms, conditions and obligations of the Original Note shall remain in full force and effect as amended and restated herein and in the Other Note in its entirety, and all rights and remedies provided for therein shall be preserved to Lender. Nothing contained herein or done pursuant hereto shall affect or be construed to affect the priority of the lien or security interest securing this Note over the priority of other liens, charges, encumbrances or other security interests. Borrower does hereby confirm, ratify and reaffirm the obligations contained in the Original Note, as amended and restated herein and in the Other Note in its entirety. This Note is an amendment and restatement only and not a novation; and except as herein provided, all other terms and conditions of the Original Note shall remain in full force and effect until payment of the Debt in full. The Original Note is being retained by Lender with a notation placed on the face thereof indicating that such Original Note has been amended and restated by this Note and the Other Note.

IN WITNESS WHEREOF, Borrower has executed this instrument by its duly authorized signatories on the date first above written.

CONTINENTAL TOWERS ASSOCIATES III, LLC, a Delaware limited liability company

By:

CONTINENTAL TOWERS ASSOCIATES II, LLC, a Delaware limited liability company, its sole member

By:

CTA GENERAL PARTNER, LLC, a Delaware limited liability company, its Manager

By:

CTA MEMBER, INC., a Delaware corporation, its Managing Member

By:

Name:

Yochanan Danziger, by Paul G.

Del Vecchio, Attorney-In-Fact

Title:

President

EX-10 21 exhibit-10_74.htm EXHIBIT 10.74

EXHIBIT 10.74

SECOND AMENDED AND RESTATED

ENVIRONMENTAL INDEMNIFICATION AGREEMENT

THIS ENVIRONMENTAL INDEMNIFICATION AGREEMENT (“Agreement”) made and entered into this 29th day of December, 2006, by CONTINENTAL TOWERS ASSOCIATES III, LLC, a Delaware limited liability company, whose mailing address is c/o CTA General Partner, L.L.C., 218 Flintlock Drive, Lakewood, NJ 08701 (“Borrower”) to, in favor of and for the benefit of PGRT EQUITY, L.L.C., a Delaware limited liability company, whose mailing address is 77 W. Wacker Drive, Suite 3900, Chicago, IL 60601 (“Lender”).

WITNESSETH:

WHEREAS, Lender, as successor in interest to General Electric Capital Corporation and Great Oak LLC, made a loan to Borrower and Continental Towers, L.L.C., as Delaware limited liability company (“CTLLC”), as successor in interest to Chicago Title Land Trust Company, as successor trustee under Trust No. 40935 established pursuant to a Trust Agreement dated July 26, 1977, which is evidenced by that certain 1997 Promissory Note having an effective date of December 12, 1997 (the “Original Note”). Borrower and CTLLC executed and delivered to Lender an Amended and Restated Promissory Note dated as of November 21, 2006 (the “2006 Note”) which amends and restates the Original Note in its entirety. Borrower has executed and delivered to Lender a Second Amended and Restated Promissory Note dated as of the date hereof (the “Note”) which, collectively with that certain Second Amended and Restated Promissory Note dated as of the date hereof executed by CTLLC (the “Other Note”) amends and restates the Original Note in its entirety. In the Note, Borrower promises to pay to the order of Lender the original principal sum of Forty Six Million Seven Hundred One Thousand Four Hundred Fifty Nine and 00/100 Dollars ($46,701,459.00) (the “Loan”). In the Other Note, CTLLC promises to pay to the order of Lender the original principal sum of Eighty Three Million Twenty Four Thousand Eight Hundred Fifteen and 00/100 Dollars ($83,024,815.00) (the “Other Loan”); and

WHEREAS, the Loan is secured by that certain Second Amended and Restated Mortgage and Security Agreement executed by Borrower to and in favor of Lender of even date herewith (the “Mortgage”) encumbering the real estate described on Exhibit A attached hereto and by reference made a part hereof, the improvements located thereon and certain other property, rights and interests more particularly described in the Mortgage (collectively, the “Premises”); and

WHEREAS, the Loan is also secured by certain other documents and instruments, including, without limitation, those listed and described on Exhibit B attached hereto and made a part hereof (the Note, the Mortgage and all other documents and instruments executed or delivered by Borrower to and in favor of Lender in connection with the Loan, including those listed and described on said Exhibit B are hereinafter collectively called the “Loan Documents”); and

WHEREAS, the Loan is secured by that certain Amended and Restated Hazardous Substances Indemnity Agreement dated as of November 21, 2006 (the “Original Environmental Indemnity Agreement”), and this Agreement, together with that certain Amended and Restated Hazardous Substances Indemnity Agreement dated as of the date hereof executed by CTLLC for the benefit of Lender, amends and restates the Original Environmental Indemnity Agreement in its entirety; and

WHEREAS, as a condition to its making and funding of the Loan, Lender has required that Borrower indemnify and save and hold Lender harmless from and against certain obligations and liabilities which may be incurred by Lender (whether as mortgagee, mortgagee in possession, or

successor-in-interest to Borrower by foreclosure or deed in lieu of foreclosure) by reason of the threat or presence of Hazardous Materials (hereinafter defined) at, on, under, over, about, or within the Premises.

NOW THEREFORE, in consideration of TEN DOLLARS ($10.00), and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower, intending to be legally bound, hereby agrees as follows:

1. Recitals. The recitals set forth above are true and correct and are by this reference incorporated herein.

2. Hazardous Materials. As used in this Agreement, the term “Hazardous Materials” means any hazardous or toxic substances, materials or wastes, including, but not limited to, those substances, materials and wastes listed in the United States Department of Transportation Hazardous Materials Table (49 C.F.R. § 172.101) and amendments thereto or designated by the United States Environmental Protection Agency as hazardous substances (40 C.F.R. Part 302) and such substances, materials and wastes which are or become regulated under any applicable local, state or federal law including, without limitation, any material, waste or substance which is: (i) petroleum; (ii) asbestos; (iii) polychlorinated biphenyls; (iv) defined as a “hazardous waste,” “extremely hazardous waste,” or “restricted hazardous waste” under any applicable federal, state or local law or regulation; (v) designated as a “hazardous substance” pursuant to Section 311 of the Clean Water Act, 33 U.S.C. § 1251 et seq. (33 U.S.C. § 1321) or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. § 1317); (vi) defined as a “hazardous waste” pursuant to Section 1004 of the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq. (42 U.S.C. § 6903); or (vii) defined as a “hazardous substance” pursuant to Section 101 of the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et seq. (42 U.S.C. § 9601).

3. Covenant. Borrower covenants and agrees, so long as this Agreement shall remain in effect not to cause or permit the presence, use, storage, sale, transportation, generation, manufacture, refining, treatment, release, discharge, or disposal of any Hazardous Materials at, on, over, under, about, within or to or from the Premises either by itself or by its employees, agents, assigns, tenants, or any other party or parties. Notwithstanding the foregoing covenant and agreement, Borrower shall be entitled in, or as an incident to, the ordinary course of its, or its tenants’ business at the Premises, to engage in or permit the presence, use, storage, sale or transportation of Hazardous Materials at, about, within or to or from the Premises provided that any and all of such activities involving Hazardous Materials are, at all times, and in all respects, in full compliance with all federal, state and local laws and regulations applicable to such activities. However, Borrower covenants and agrees to promptly remove from the Premises, if and as required by law and/or by Lender, any Hazardous Materials discovered at, about, within or on the Premises which is not at any time or in any respect in full compliance with such laws and regulations, and to promptly comply in all respects with all federal, state and local laws and regulations governing such removal.

4. Indemnification. Borrower agrees to exonerate, indemnify, pay and protect, defend (with counsel reasonably approved by Lender), and save and hold Lender and the directors, officers, shareholders, employees, and agents of Lender harmless from and against any claims (including, without limitation, third party claims for personal injury or real or personal property damage), actions, administrative proceedings (including informal proceedings), judgments, damages, punitive damages, penalties, fines, costs, liabilities (including sums paid in settlement of claims), interest, or losses, including reasonable attorneys’ and paralegals’ fees and expenses (including, without limitation, any such fees and expenses incurred in enforcing this Agreement or collecting any sums due hereunder), investigation and remediation costs, consultants’ fees and experts’ fees, together with all other costs and expenses of any kind or nature (collectively, the “Costs”) that arise directly or indirectly from or in

connection with the presence, suspected presence, release, or suspected release of any Hazardous Material on, in or into the air, soil, groundwater or surface water at, on, under, over, about or within the Premises, or any portion thereof, or elsewhere in connection with the transportation of Hazardous Materials to or from the Premises. The indemnification provided in this Paragraph 4 shall specifically apply to and include claims or actions brought by or on behalf of employees of Borrower. In the event Lender shall suffer or incur any such Costs, Borrower shall pay to Lender the total of all such Costs suffered or incurred by Lender upon demand by Lender. Without limiting the generality of the foregoing, the indemnification provided in this Paragraph 4 shall specifically cover Costs, including capital, operating, supervision and maintenance costs, incurred in connection with any investigation or monitoring of site conditions, any clean-up, containment, remediation, removal, or restoration work required or performed by any federal, state or local governmental agency or political subdivision or performed by any nongovernmental entity or person because of the presence, suspected presence, release or suspected release of any Hazardous Material on, in or into the air, soil, groundwater or surface water at, on, about, under, or within the Premises (or any portion thereof), or elsewhere in connection with the transportation of Hazardous Materials to or from the Premises and any claims of third parties for loss or damage due to such Hazardous Material.

5. Remedial Work. In the event any investigation or monitoring of site conditions or any clean-up, containment, restoration, removal, or other remedial work (collectively the “Remedial Work”) is required at the Premises under any applicable federal, state, or local law or regulation, by any judicial order, or by any governmental entity, or in order to comply with any agreements affecting the Premises because of, or in connection with, any occurrence or event described in Paragraph 4 above, Borrower shall perform or cause to be performed the required Remedial Work in compliance with such law, regulation, order, or agreement; provided, that Borrower may withhold such compliance pursuant to a good faith dispute regarding the application, interpretation or validity of the law, regulation, order, or agreement, subject to the requirements of Paragraph 6 below. All required Remedial Work shall be performed by one or more contractors, selected by Borrower and approved (such approval not to be unreasonably withheld or delayed) in advance in writing by Lender, and under the supervision of a consulting engineer, selected by Borrower and approved (such approval not to be unreasonably withheld or delayed) in advance in writing by Lender. All costs and expenses of such required Remedial Work shall be paid by Borrower including, without limitation, the charges of such contractor(s) and/or the consulting engineer, and Lender’s reasonable attorneys’ and paralegals’ fees and costs incurred in connection with monitoring or review of such Remedial Work. In the event Borrower shall fail to timely commence, or cause to be commenced, or fail to diligently prosecute to completion, such Remedial Work, Lender may, but shall not be required to, cause such Remedial Work to be performed, and all costs and expenses thereof, or incurred in connection therewith shall be Costs within the meaning of Paragraph 4 above. All such Costs shall be due and payable upon demand by Lender.

6. Permitted Contests. Notwithstanding any provision of this Agreement to the contrary, Borrower will be permitted to contest or cause to be contested, subject to compliance with the requirements of this Paragraph 6, by appropriate action any requirement for Remedial Work, and Lender shall not perform such Remedial Work on its behalf, so long as no Event of Default has occurred and is continuing under the Mortgage or other instruments evidencing and/or securing the Loan (the “Loan Documents”) and Borrower has given Lender written notice that Borrower is contesting or shall contest or cause to be contested the application, interpretation, or validity of the governmental law, regulation, order or agreement requiring or pertaining to such Remedial Work by appropriate proceedings conducted in good faith with due diligence; provided, such contest shall not subject Lender or any assignee of its interest (including any person having a beneficial interest) in the Loan or the Loan Documents to civil or criminal liability and does not jeopardize any such party’s lien upon or interest in the Premises or affect in any way the payment of any sums to be paid under the Loan Documents. Borrower shall give such security or assurances as may be reasonably required by Lender to ensure compliance with the legal

requirements pertaining to the Remedial Work (and payment of all costs, expenses, interest, and penalties in connection therewith) and to prevent any sale, forfeiture or loss of the Premises by reason of such nonpayment or noncompliance.

7. Notice of Claims. Borrower shall give notice to Lender of any claim, action, administrative proceeding (including, without limitation, informal proceedings), or other demand by any governmental agency or other third party involving matters which are the subject of indemnification pursuant to Paragraph 4 above at the time such claim or other demand first becomes known to Borrower. Receipt of any such notice shall not be deemed to create any obligation on Lender to defend or otherwise respond to any claim or demand of which it receives notice. All notices, approvals, consents, requests, and demands upon the respective parties hereto shall be in writing; sent by personal delivery (including, without limitation, nationally recognized courier services such as Federal Express), or by certified or registered mail, postage prepaid and return receipt requested; and addressed as follows:

To Lender:

PGRT Equity, L.L.C.

77 West Wacker Drive, Suite 3900

Chicago, Illinois 60601

Attention: Jeffrey Patterson

and

PGRT Equity, L.L.C.

77 West Wacker Drive, Suite 3900

Chicago, Illinois 60601

Attention: James Hoffman

To Borrower:

Continental Towers Associates III, LLC

c/o CTA General Partner, L.L.C.

218 Flintlock Drive

Lakewood, NJ 08701

or to such other address as may be furnished in writing for such purpose with a copy to one additional person each as Lender or the Borrower shall specify in writing.

8. Participation in Defense of Claims/Duty to Cooperate Notice of Claims. If for any reason, including, without limitation, foreclosure of the Mortgage by Lender, Lender becomes the owner of the Premises and any claim, action, administrative proceeding (including informal proceedings), or other demand is made by any governmental agency or other third party against Lender involving Costs, Borrower shall cooperate with Lender in any defense or other response to any such claim or other demand. Borrower shall have the right to participate in the defense or other response to any such claim or demand provided that Lender shall have the right, but not the obligation, to direct and control the defense or response to any such claim or demand. Borrower’s right to participate in the defense or response to any such claim or demand shall not be deemed to limit or otherwise modify Borrower’s obligations under this Agreement. Lender shall give notice to Borrower of any claim or demand governed by this Paragraph 8 at the time such claim or other demand first becomes known to Lender.

9. Subrogation of Indemnity Rights. If Borrower fails to perform its obligations under Paragraph 5 above and Lender performs in its stead, Lender shall be subrogated to any rights Borrower may have under any indemnifications from any present, future or former owners, tenants, or other occupants or users of the Premises (or any portion thereof) relating to the matters covered by this Agreement.

10. Assignment by Lender. No consent by Borrower shall be required for any assignment or reassignment of the rights of Lender hereunder to one or more purchasers of the Loan or the Loan Documents, or any portion thereof.

11. Merger, Consolidation, or Sale of Assets. In the event of a dissolution of Borrower or other disposition involving Borrower or all or substantially all of the assets of Borrower to one or more persons or other entities during the term of this Agreement, the surviving entity or transferee of such assets, as the case may be, shall deliver to Lender an acknowledged instrument in recordable form assuming all covenants, agreements, responsibilities, liabilities and obligations of Borrower under this Agreement.

12. Independent Obligations: Survival. The obligations of Borrower under this Agreement shall survive the consummation of the Loan transaction described above and the satisfaction of the Mortgage, whether by reason of the repayment of the Loan in full, the foreclosure of the Mortgage or Lender’s acceptance of a deed in lieu of foreclosure of the Mortgage. The obligations of Borrower under this Agreement are separate and distinct from the obligations of Borrower under the Loan Documents. This Agreement may be enforced by Lender without regard to any other rights and remedies Lender may have against Borrower under the Loan Documents and without regard to any limitations on Lender’s recourse as may be provided in the Loan Documents. Enforcement of this Agreement shall not be deemed to constitute an action for recovery of the Loan indebtedness nor for recovery of a deficiency judgment against Borrower following foreclosure of the Mortgage.

13. Default Interest. Any Costs and other payments required to be paid by Borrower to Lender under this Agreement which are not paid on demand therefor shall thereupon be considered “Delinquent”. In addition to all other rights and remedies of Lender against Borrower as provided herein, or under applicable law, Borrower shall pay to Lender, immediately upon demand therefor, Default Interest (as defined below) on any such payments which are or have become Delinquent. Default Interest shall be paid by Borrower from the date such Payment becomes Delinquent through and including the date of payment of such Delinquent sums. As used herein, “Default Interest” shall be a per annum interest rate equal to five percent (5%) in excess of the Note Rate (as defined in the Note).

14. Miscellaneous. If any term of this Agreement or any application thereof shall be invalid, illegal, or unenforceable, the remainder of this Agreement and any other application of such term shall not be affected thereby. No delay or omission in exercising any right hereunder shall operate as a waiver of such right or any other right. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by Borrower and Lender, and their respective successors and assigns, including, without limitation, any assignee or purchaser of all or any portion of the Lender’s interest in: (I) the Loan, (ii) the documents evidencing or securing the Loan, or (iii) the Premises. This Agreement shall be governed and construed in accordance with the laws of the State of Illinois.

15. Liability. If Borrower consists of more than one person, the obligations and liabilities of each such person hereunder shall be joint and several.

IN WITNESS WHEREOF, Borrower has caused this Agreement to be executed as of the day and year first above written.

CONTINENTAL TOWERS ASSOCIATES III, LLC, a Delaware limited liability company

CONTINENTAL TOWERS ASSOCIATES II, LLC, a Delaware limited liability company, its sole member

By:

CTA GENERAL PARTNER, LLC, a Delaware limited liability company, its Manager

By:

CTA MEMBER, INC., a Delaware corporation, its Managing Member

By: [s] Paul G. Del Vecchio

Name:

Yochanan Danziger, by Paul G.

Del Vecchio, Attorney-In-Fact

Title:

President

STATE OF ILLINOIS

COUNTY OF COOK

[S E A L]

[s] Barbara M. DeVitto

Notary Public, State of Illinois

My Commission Expires:

Barbara M. DeVitto

11/09/2008

Printed Name of Notary Public

EXHIBIT A

LEGAL DESCRIPTION OF PROPERTY

REAL PROPERTY IN THE CITY OF ROLLING MEADOWS, COUNTY OF COOK, STATE OF ILLINOIS, DESCRIBED AS FOLLOWS:

Parcel 1:

Parcel 2:

Parcel 3:

Parcel 4:

Reciprocal Easement Agreement dated December ____, 2006 and recorded _____________, as Document _____________ made by and between Continental Towers, L.L.C. and Continental Towers Associates III, LLC for vehicular and pedestrian ingress and egress and use of parking area.

Common address: Continental Towers, 1701 Golf Road, Rolling Meadows, Illinois

PINS: 08-16-100-034 (part) and 08-16-100-036

EXHIBIT B

LOAN DOCUMENTS

1.	Second Amended and Restated Promissory Note dated as of the date executed by Borrower for the benefit of Lender.

2.	Third Amended and Restated Loan Agreement dated as of the date hereof by and among Borrower, Richard A. Heise, and Lender.

3.	Second Amended and Restated Mortgage dated as of the date hereof by and among CTLLC and Lender.

4.	Second Amended and Restated Assignment of Rents and Leases dated as of the date hereof executed by Borrower for the benefit of Lender.

5.	Second Amended and Restated Environmental Indemnity Agreement dated as of the date hereof executed by Borrower for the benefit of Lender.

6.	Amended and Restated Promissory Note dated as of November 21, 2006 executed by Borrower and CTLLC for the benefit of Lender.

7.	Second Amended and Restated Loan Agreement dated as of November 21, 2006 by and among Borrower, CTLLC, Richard A. Heise, and Lender.

8.	Amended and Restated Mortgage dated as of November 21, 2006 by and among Borrower, CTLLC and Lender.

9.	Amended and Restated Assignment of Rents and Leases dated as of November 21, 2006 executed by Borrower and CTLLC for the benefit of Lender.

10.	Amended and Restated Environmental Indemnity Agreement dated as of November 21, 2006 executed by Borrower and CTLLC for the benefit of Lender.

11.

Amended and Restated First Mortgage dated October 1, 1991, and recorded on January 2, 1992, as Document Number 92001888, from American National Bank and Trust Company of Chicago, as Trustee under Trust Agreement dated July 26, 1977, and known as Trust 40935 to General Electric Capital Corporation to secure an indebtedness in the amount of $152,106,073.00.

12.	First Amendatory Agreement dated April 30, 1993, and recorded June 9, 1993, as Document Number 93434372, between American National Bank and Trust Company of Chicago, as Trustee, Continental Towers Associates – I, General Electric Capital Corporation and other parties.

13.	Second Amendatory Agreement dated November 1, 1994, and recorded December 30, 1994, as Document Number 04084292, between American National Bank and Trust Company of Chicago, as Trustee, Continental Towers Associates – I, General Electric Capital Corporation and other parties.

14.	Loan Modification and Amended and Restated Loan Agreement dated June 1, 1995, and recorded August 17, 1995, as Document Number 95545031, between American National Bank and Trust

Company of Chicago, as Trustee, Continental Towers Associates – I, General Electric Capital Corporation and other parties.

15.

Supplemental First Mortgage and Security Agreement dated June 1, 1995, and recorded August 17, 1995, as Document Number 95545032, between First Bank, N.A., as Successor Trustee to National Boulevard Bank of Chicago, not personally but solely as Trustee under Trust Agreement dated September 27, 1976, and known as Trust Number 5602 and General Electric Capital Corporation to secure an indebtedness in the amount of $156,306,073.00.

16.

First Amendment to Loan Modification and Amended and Restated Loan Agreement dated December 12, 1997, and recorded December 17, 1997, as Document Number 97947240, between American National Bank and Trust Company of Chicago, as Trustee, General Electric Capital Corporation, Continental Towers Associates-I and First Bank, N.A. as Trustee.

17.	Assignment of Liens and Documents dated December 12, 1997, and recorded December 17, 1997, as Document Number 97947241, from General Electric Capital Corporation to Prime Group Realty, L.P.

18.	Assignment of Liens and Documents dated December 15, 1997, and recorded December 17, 1997, as Document Number 97947243, from Prime Group Realty, L.P. to BankBoston, N.A.

19.	Reassignment of Liens and Documents dated May 4, 1998, and recorded May 18, 1998, as Document Number 98407007, from BankBoston, N.A. to Prime Group Realty, L.P.

20.

Assignment of Rents and Leases dated October 1, 1991, and recorded January 2, 1992, as Document Number 92001889, from American National Bank and Trust Company of Chicago, as Trustee under Trust 40935 to General Electric Capital Corporation. (Reassignment in item 9 above applies to this Assignment of Rents and Leases as well.)

21.	First Mortgage dated December 27, 1985, and recorded December 30, 1985, as Document 85342789, made by American National Bank and Trust Company, as Trustee under Trust 40935, to General Electric Capital Corporation, to secure an indebtedness of $105,000,000.00.

22.	Third Loan Modification Agreement (modifying item 11 above), dated December 1, 1988, and recorded January 10, 1989, as Document 89013686.

23.	Fourth Loan Modification Agreement (modifying item 11 above), dated December 1, 1989, and recorded January 25, 1990, as Document 90041713.

24.	Fifth Loan Modification Agreement (modifying item 11 above), dated December 1, 1990, and recorded March 8, 1991, as Document 91105421. (Reassignment in item 9 above applies to this Mortgage as well.)

25.

Assignment of Rents and Leases made by American National Bank and Trust Company, as Trustee under Trust 40935 to General Electric Capital Corporation dated December 27, 1985, and recorded December 30, 1985, as Document Number 85342790. (The reassignment in item 9 above and the Modification Agreements in items 12, 13 and 14 above apply to this Assignment of Rents and Leases as well.)

26.	1997 Promissory Note dated October 1, 1991, with an amended and restated effective date of December 12, 1997, in the original principal amount of $163,103,099.24 made by American

National Bank and Trust Company of Chicago, as Trustee of Trust 40935, in favor of General Electric Capital Corporation.

27.

Lock Box Agreement dated as of July 27, 1995, by and among The Northern Trust Company, Trust 40935, Beneficiary and GECC as amended by First Amendment to Lock Box Agreement dated as of September 13, 1995, or a replacement of the foregoing with a different bank reasonably acceptable to holder pursuant to an agreement consistent with the foregoing (either as applicable, the “Lock Box Agreement”).

28.	Hazardous Substances Indemnity Agreement dated as of October 1, 1991, as amended by the Loan Agreement.

29.	All UCC Financing Statements executed in connection with any of the foregoing.

30.

Assumption Agreement between Prime Group Realty, L.P., Chicago Title Land Trust Company, as successor trustee under Trust No. 40935, Chicago Title Land Trust Company, as successor trustee under Trust No. 5602, Continental Towers Associates-I, L.P., Continental Towers, L.L.C., Richard A. Heise and Roland E. Casati.

EX-10 22 exhibit-10_75.htm EXHIBIT 10.75

EXHIBIT 10.75

THIRD AMENDED AND RESTATED LOAN AGREEMENT

DATED AS OF DECEMBER 29, 2006

by and between

PGRT EQUITY, LLC,

as Holder,

and

CONTINENTAL TOWERS ASSOCIATES III, LLC,

as Borrower

SECURED BY CONTINENTAL TOWERS, ROLLING MEADOWS, ILLINOIS

TABLE OF CONTENTS

Page

ARTICLE I GENERAL PROVISIONS

1.1

Definition of Terms.

1.2

Other Terms..

1.3

Construction and Interpretation

1.4

Incorporation of Recitals..

1.5

Conditions Precedent.

Loan

Note.

Interest..

Security for the Loan.

Release.

Costs and Expenses.

Basic Payments.

Maturity Date..

Payment of Adjusted Net Operating Income.

3.4

Application of Adjusted Net Operating Income.

3.5

Application Upon Event of Default

ARTICLE IV REPRESENTATIONS AND WARRANTIES

4.1

Representations and Warranties.

4.2

Tenant In Common Agreement.

4.3

Securities Laws Compliance.

4.4

Continuance of Representations and Warranties..

ARTICLE V COVENANTS

5.1

Payment and Performance.

5.3

Leasing Guidelines.

5.4

Management and Contracts

5.5

Books and Records.

5.6

Special Undertaking

5.7

Financial Statements and Reports

5.8

Tenant In Common Agreement.

5.9

Rent Account Arrangements.

ARTICLE VI EVENTS OF DEFAULT

6.1

Event of Default.

6.2

Notice to Holder

6.3

Rights of and Limitations on Holder.

6.4

Rights Cumulative.

6.5

Holder Performance of Obligations

6.6

Grace Periods.

ARTICLE VII REAFFIRMATION

7.1

Reaffirmation

ARTICLE VIII MISCELLANEOUS

8.1

Approvals To Be In Writing

8.2

Governing Law.

8.3

Indemnification Against Commissions..

Notices.

Assignability.

Binding Effect.

Severability.

Time of the Essence..

8.9

Survival.

8.10

No Joint Venture: Indemnity.

8.11

Conflict.

8.12

Contribution Among Borrower.

8.13

Joint and Several

8.15

Exculpation of Controlling Entities.

iii

THIRD AMENDED AND RESTATED LOAN AGREEMENT

THIS THIRD AMENDED AND RESTATED LOAN AGREEMENT is made and entered into as of December 29, 2006 (the “Effective Date”), by and among CONTINENTAL TOWERS ASSOCIATES III, LLC, a Delaware limited liability company, whose mailing address is c/o CTA General Partner, L.L.C., 77 W. Wacker Drive, Suite 3900, Chicago, IL 60601 (“Borrower”), RICHARD A. HEISE (“Heise”) and PGRT EQUITY, L.L.C., a Delaware limited liability company, whose mailing address is 77 W. Wacker Drive, Suite 3900, Chicago, IL 60601 (“Holder”).

RECITALS

American National Bank And Trust Company Of Chicago, a national banking association, not personally but solely as Trustee under Trust Agreement dated July 26, 1977 and known as Trust No. 40935 (“Original Borrower”), Continental Towers Associates-I, L.P. (“CTAI”), Richard A. Heise, Roland E. Casati, the Casati-Heise Partnership and General Electric Capital Corporation (“Original Lender”) executed and delivered that certain Loan Modification and Amended and Restated Loan Agreement dated as of June 1, 1995 and recorded August 17, 1995 as Document Number 95545031, as amended by that certain First Amendment to Loan Modification and Amended and Restated Loan Agreement dated as of December 12, 1997 and recorded December 17, 1997 as Document Number 97947240 and as amended and restated by that certain Second Amended and Restated Loan Agreement dated as of November 21, 2006 executed by Borrower and Continental Towers, L.L.C. (“CTLLC”) (as so amended, the “Original Loan Agreement”) relating to a loan (the “Loan”) in the aggregate stated principal sum not to exceed $163,103,099.24.

B.	Original Borrower executed and delivered to Original Lender and Great Oak LLC, collectively as holder, that certain 1997 Promissory Note (the “Original Note”) dated December 12, 1997 in the original principal amount of $163,103,099.24.

C.	The Original Note is secured by the following documents:

That certain First Mortgage dated as of December 27, 1985 and recorded in the office of the Recorder of Deeds of Cook County on December 30, 1985, as Document Number 85342789 made by Original Borrower in favor of Original Lender, as amended by that certain Third Loan Modification Agreement dated December 1, 1988 and recorded January 10, 1989 as Document Number 89013686, that certain that certain Fourth Loan Modification Agreement dated December 1, 1989 and recorded January 25, 1990 as Document Number 90041713 and that certain Fifth Loan Modification dated December 1, 1990 and recorded March 8, 1991 as Document Number 91105421; as amended and restated by that certain Amended and Restated First Mortgage dated October 1, 1991 and recorded January 2, 1992 as Document Number 92001888, as amended by that certain First Amendatory Agreement dated as of April 30, 1993 and recorded June 9, 1993 as Document Number 93434372, that certain Second Amendatory Agreement dated as of November 1, 1994 and recorded December 30, 1994 as Document Number 04084292, that certain Loan Modification and Amended and Restated Loan Agreement dated as of June 1, 1995 and recorded August 17, 1995 as Document Number 95545031, that certain First Amendment to Loan Modification and Amended and Restated Loan Agreement dated as of December 12, 1997 and recorded December 17, 1997 as Document Number 97947240 (collectively, the “Original Mortgage”), from Original Borrower as mortgagor in favor of Original Lender as assignee; and

That certain Assignment of Rents and Leases dated as of December 27, 1985 and recorded December 30, 1085 as Document Number 85342790 and that certain Assignment of Rents and Leases dated as of October 1, 1991 and recorded on January 2, 1992 as Document Number 92001889 (collectively, the “Original Assignment of Rents”), from Original Borrower as assignor in favor of Original Lender as assignee; and

That certain Supplemental First Mortgage and Security Agreement dated June 1, 1995 and recorded on August 17, 1995 as Document Number 95545032 (the “Supplemental Mortgage”), from First Bank, N.A., as Successor Trustee to National Boulevard Bank of Chicago, not personally but solely as Trustee under Trust Agreement dated September 27, 1976 and known as Trust No. 5602 (“Trust 5602”) to Original Lender.

That certain Hazardous Substances Indemnity Agreement dated as of October 1, 1991 (the “Original Environmental Indemnity”) executed by Continental Towers Associates-I, L.P., as indemnitor, for the benefit of Original Lender.

The Original Mortgage, Original Assignment of Rents, the Supplemental Mortgage and the Original Environmental Indemnity are collectively called the “Original Security Documents.” The Note, the Original Security Documents and all other agreements securing, evidencing, or relating to Original Borrower’s obligations under the Loan as heretofore or hereafter modified, including, but not limited to, the documents listed on Schedule A attached hereto (and by this referenced incorporated herein) are collectively called the “Original Loan Documents.”

E.	Original Lender assigned all of its right, title and interest in and to the Original Loan Documents to Prime Group Realty, L.P. pursuant to that certain Assignment of Liens and Documents dated as of December 12, 1997 and recorded December 17, 1997 as Document Number 97947241.

Continental Towers Associates I, L.P. (“CTA”), as the sole beneficiary of Trust No. 5602 and Original Borrower (the “Land Trusts”), terminated each of the Land Trusts and caused the trustees thereof to convey the Entire Property (as hereinafter defined) directly to Continental Towers Associates I, L.P.; and immediately assigned and conveyed an undivided 64% interest in and to the Property to Continental Towers, L.L.C. (“CTLLC”) as a tenant in common under that certain Co-Ownership Agreement dated as of January 10, 2006 and recorded January 13, 2006 as Document Number 0601341113 (the “Tenant in Common Agreement”).

G.	CTA and CTLLC jointly and severally assumed all of Original Borrower’s obligations under the Loan and agreed to certain modifications thereof pursuant to that certain Assumption Agreement dated as of January 10, 2006 and recorded January 13, 2006 as Document Number 0601341117.

H.	Prime Group Realty, L.P. assigned all of its right, title and interest in and to the Original Loan Documents to PGRT Equity, LLC pursuant to that certain Assignment of Mortgage and Other Loan Documents dated as of January 10, 2006 and recorded January 13, 2006 as Document Number 0601341121.

I.	On November 21, 2006, CTAI transferred all of its right, title and interest in and to the Premises, being an undivided 36% interest in the Premises, to Borrower, and Borrower, CTLLC, Heise (as applicable) and Holder (as applicable) entered into:

that certain Amended and Restated Promissory Note which amends and restates the Original Note in its entirety;

that certain Second Amended and Restated Loan Agreement which amended and restated the Original Loan Agreement in its entirety,

that certain Amended and Restated Mortgage and Security Agreement which amends and restates the Original Mortgage and the Supplemental Mortgage in their entirety (the mortgaged property described on Exhibit A to the Amended and Restated Mortgage and Security Agreement is hereinafter referred to as the “Entire Property”);

that certain Amended and Restated Assignment of Leases and Rents which amends and restates the Original Assignment in its entirety; and

that certain Amended and Restated Environmental Indemnity Agreement which amends and restates the Original Environmental Indemnity in its entirety

(collectively, the “Amended and Restated Loan Documents”).

On or before the date hereof, CTLLC and Borrower will collectively convey (a) 36% of the Entire Property to Borrower, and (b) 64% of the Entire Property to CTLLC and, in connection therewith, Borrower and CTLLC will enter into amendments of each of the Amended and Restated Loan Documents as required to document the bifurcation of the Entire Property and the Loan. Holder has agreed to consent to the bifurcation of the Entire Property and the Loan, subject to the terms, covenants and conditions of this Agreement and the other Loan Documents.

The Parties desire that this instrument, together with the Third Amended and Restated Loan Agreement dated as of the date hereof by and between CTLLC and Holder (the “CTLLC Loan Agreement”), shall constitute an amendment and restatement in its entirety of the Second Amended and Restated Loan Agreement.

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth, and for Ten Dollars and other good and valuable considerations in hand paid by each party hereto to the other, the receipt and sufficiency of all of which is hereby acknowledged, the Parties hereby covenant and agree as follows:

ARTICLE I

GENERAL PROVISIONS

1.1

Definition of Terms. The following terms shall have the following meanings:

“Adjusted Net Operating Income” for any period shall mean Net Operating Income for such period less Basic Payments made during such period.

“Affiliated Entities” shall mean, collectively, Continental Towers Associates II, LLC, CTA General Partner, LLC, CTA Member, Inc. and any of the partners, members or shareholders of any partnership, limited liability company, corporation or other entity which, directly or indirectly, through corporations, partnerships, limited liability companies or other entities controlled by them is a member of Borrower; provided that (a) any one of the foregoing Affiliated Entities is individually called an “Affiliated Entity”; and (b) the term Affiliated Entity shall specifically include Heise and his spouse, blood and adopted relatives, ancestors and descendants.

“Ancillary Security Documents” shall have the meaning set forth in Section 2.4.

“Assignment of Rents” shall mean that certain Second Amended and Restated Assignment of Leases and Rents dated as of the date hereof executed by Borrower for the benefit of Holder.

“Bankruptcy Laws” shall have the meaning set forth in Section 6.1(f)(i) hereof.

“Basic Payments” shall have the meaning set forth in Section 3.1 hereof.

“Borrower” shall mean Continental Towers Associates III, LLC, a Delaware limited liability company.

“Borrowing Group” shall mean Borrower, Continental Towers Associates II, LLC, CTA General Partner, L.L.C., CTA Member, Inc., and Heise.

“Business Day” shall mean any day on which commercial banks are not authorized or required to close in Chicago, Illinois.

“Collateral” shall have the meaning set forth in Section 2.4 hereof, and shall include the proceeds of realization thereon.

“Conditions Precedent” shall have the meaning set forth in Section 1.5 hereof.

“Controlling Entities” shall mean Continental Towers Associates II, LLC, CTA General Partner, L.L.C., CTA Member, Inc., and Heise, collectively; and “Controlling Entity” shall mean generally one of such Persons.

“Current Management Agreement” shall mean that certain Management Agreement dated as of the date hereof by and between Borrower and Prime Group Management, L.L.C.

“Current Manager” shall mean Prime Group Management, L.L.C.

“Effective Date” shall have the meaning set forth in the Recitals.

“Environmental Indemnity Agreement” shall mean that certain Second Amended and Restated Environmental Indemnity Agreement dated as of the date hereof executed by Borrower for the benefit of Holder.

“Event of Default” shall have the meaning set forth in Section 6.1 hereof.

“Governmental Authorities” shall mean any and include any and all federal, state, county and municipal governmental bodies, courts, administrative commissions, agencies and authorities.

“Governmental Regulations” shall mean all laws, ordinances, regulations, orders, adjudications and decrees of Governmental Authorities.

“Gross Revenues” for any period shall mean the sum of the gross rental receipts and all other receipts and revenues generated during such period by and from the use and operation of the Premises or any part thereof, including, base rental income, percentage rental income, items of expense (including real estate taxes) passed through and charged to, and/or collected from, tenants, membership fees, dues, vending machine income, any non-refundable security deposits, charges for space occupancy, parking revenues, Lease Termination Payments and the proceeds of

any insurance proceeds specifically paid to reimburse Borrower for loss of business or rental income and not applied by Holder in reduction of the unpaid principal balance of the Loan; and in connection with the calculation and determination of Gross Revenues:

(a) Gross Revenues shall be determined in accordance with the cash basis method of accounting, except that rents for the month of January which are paid in the preceding December shall be included in Gross Revenues for the month of January to which they apply; and

(b) There shall be excluded from the determination of Gross Revenues (i) the proceeds of the Loan, (ii) proceeds of casualty insurance or condemnation, and (iii) proceeds of any other indebtedness encumbering the Premises or encumbering other Collateral.

“Heise” shall mean Richard A. Heise, a party hereto.

“Holder” shall mean the holder of the Note from time to time.

“Incipient Default” shall mean any event, condition, act or omission which involves non-payment of money on the due date thereof (without reference to any period of grace) or which, requisite notice having been given, would with the passage of time, constitute an Event of Default.

“Leases” shall have the meaning set forth in Section 5.2 hereof.

“Loan” shall mean the loan outstanding from time to time after the Effective Date pursuant to this Loan Agreement, as evidenced, secured and governed by the Loan Documents.

“Loan Agreement” shall mean this Third Amended and Restated Loan Agreement.

“Loan Documents” shall mean the instruments evidencing, securing, governing and/or guarantying the Loan, including this Loan Agreement, the Note, the Mortgage, the Assignment of Rents, the Environmental Indemnity Agreement and the Ancillary Security Instruments.

“Loan Year” shall mean (a) in the case of the First Loan Year, the period from October 1, 1991 through December 31, 1992, and (b) for all periods commencing on and after January 1, 1993, the calendar year (the Second Loan Year being the calendar year commencing January 1, 1993), except that the Loan Year commencing on January 1, 2013 shall end on the Maturity Date.

“Maturity Date” shall mean January 5, 2013.

“Mortgage” shall mean that certain Second Amended and Restated Mortgage and Security Agreement dated as of the date hereof executed by Borrower for the benefit of Holder.

“Net Operating Income” for any period shall mean the amount, if any, by which Gross Revenues for such period exceed Operating Costs for such period.

“Note” shall mean that certain Second Amended and Restated Promissory Note dated as of the date hereof executed by Borrower for the benefit of Holder.

“Operating Costs” for any period shall mean the normal and customary operating costs of the Premises paid during such period by or for the account of Borrower, all as determined in accordance with the cash basis method of accounting; provided that:

(a) If the charges are not usual and customary then, to constitute an allowable Operating Cost, such items must be approved by Holder as being permitted Operating Costs for purposes of calculating Net Operating Income;

(b) Operating Costs shall include, among other things, bona fide management fees in direct conjunction with services actually rendered;

(c) If the period for which Operating Costs is being determined is other than a full year, annual costs, such as insurance premiums and like costs shall be allocated ratably to such period;

(d)

Operating Costs shall not include:

(i) Any principal, interest or other amounts paid under any notes secured by liens encumbering the Premises or other Collateral, including, the Notes;

(ii) Nonrecurring capital items except as provided for in clause (h) below;

(iii)

Income taxes;

(iv)

Non-cash items, such as depreciation or amortization;

(v) Real estate taxes upon the Premises except to the extent that accumulated tax reserves required pursuant to the Mortgage or the Senior Loan Documents shall be insufficient to pay the same; or

(vi) Costs paid directly by tenants, except to the extent the amount thereof is included in Gross Revenues;

(e) For the purposes of computing Operating Costs (except as permitted in Section 5.4), no fees, commissions, charges, expenses or other amounts paid to any Affiliated Entity shall constitute an Operating Cost unless such fees, commissions or other amounts are bona fide costs and are approved by Holder as a permitted Operating Cost; and specifically, but without limitation, the term Operating Costs shall not include without the express written approval of Holder (i) salaries or other compensation directly or indirectly paid to Affiliated Entities other than as expressly provided herein, (ii) any allocation of expenses of employees, agents or independent contractors that render services to or with respect to properties other than the Premises, nor (iii) any expense that is paid for from proceeds of the Loan or out of reserves established out of Gross Revenues or otherwise, the amount of which were deducted as Operating Costs; and

(f) Capital expenditures approved by Holder and not paid for from the Loan Proceeds.

“Permitted Exceptions” shall mean:

(a)

The lien of current real estate taxes not due and payable; and

(b)

Items set forth in Schedule B of the Title Policy.

“Parties” shall have the meaning defined in the introductory paragraph hereof which precedes the Recitals.

“Permitted Investments” shall mean (a) direct obligations of the United States of America having maturities as determined by Holder in its sole discretion, (b) Commercial Paper issued by Holder having maturities as determined by Holder in its sole discretion, and (c) other investments designated by the Persons having provided the funds being invested, and consented to by Holder.

“Permit” shall mean any license, permit or other authorization from a Governmental Authority required for a particular act or situation.

“Person” shall mean any individual, corporation, partnership (general or limited), trust or other legal entity.

“Premises” shall mean:

(a)

The Property;

(b) All improvements now or hereafter constructed or erected upon the Property; and

“Property” shall mean the real property described on Exhibit A attached hereto and made a part hereof.

“Senior Lender” means WELLS FARGO BANK, N.A., as trustee for the registered holders of COBALT CMBS COMMERCIAL MORTGAGE TRUST 2006-C1, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2006-C1.

“Senior Loan” means the mortgage loan made as of the date hereof by Senior Lender to Borrower in the original principal amount of $41,400,000.

“Tax Indemnity Agreement” shall mean that certain Amended and Restated Tax Indemnity Agreement dated as of January 10, 2006 among Prime Group Realty, L.P., Roland E. Casati, Richard A. Heise, CTA and CTLLC (which amends, releases and restates in its entirety the original Tax Indemnity Agreement dated as of November 17, 1997), as amended by that certain First Amendment dated as of November 21, 2006.

“Tenancy Costs” shall mean costs of tenant improvements, leasing commissions and other tenant inducement expenditures, furniture and equipment costs required in connection with leases, moving costs, lease assumption payments and cash payments to tenants, all relating to Leases approved by Holder.

“Title Company” shall mean First American Title Insurance Corporation.

1.2 Other Terms. Terms defined elsewhere in this Agreement other than in Section 1.1 hereof, when used in this Agreement, shall have the meanings so defined.

1.3 Construction and Interpretation. The provisions of this Agreement shall be construed and interpreted in accordance with the following provisions:

(a) Wherever in this Agreement it is provided that any Person• may do or perform any act or thing, the word “may” shall be deemed permissive and not mandatory, and it shall be construed that such Person may, but shall not be obligated, to do and perform any such act or thing;

(b) The phrase “at any time” shall be construed as meaning “at any time or from time to time”;

(d)

The words “will” and “shall” shall each be construed as mandatory;

(e) The words “herein”, “hereof”, “hereunder”, “hereinafter” and words of similar import shall refer to this Agreement as a whole but not to any paragraph, section or subsection, unless the context specifically refers thereto;

(f) Forms of words in the singular, plural, masculine, feminine or neuter shall be construed to include the other forms as the context may require; and

(g) The captions to the sections of this Agreement are for convenience only and shall not be deemed part of the text of the respective sections and shall not vary by implication or otherwise any of the provisions hereof.

1.4 Incorporation of Recitals. The Recitals form part of this Agreement and are incorporated herein as the mutual representations of the Parties.

1.5 Conditions Precedent. Notwithstanding anything to the contrary herein contained, the agreements of Holder hereunder and the effectiveness hereof and of the amendments to the Loan Documents effected hereby (including the amendment of the Second Amended and Restated Loan Agreement) are subject to and conditioned upon the satisfaction, on or prior to the Effective Date. of the following (herein called the “Conditions Precedent”):

(a) A complete counterpart of this Agreement executed and acknowledged by all of the Parties;

(b) Two Uniform Commercial Code Financing Statements executed by Borrower, in substantially the same form as the original UCCs and properly recorded in the appropriate local and state governmental offices;

either case, the “Title Policy”) shall insure the continued first priority lien of the Mortgage as affected by this Agreement, be written by a title insurance company acceptable to Holder, be effective as of the date this Agreement is recorded, and otherwise contain only those exceptions to the Title Policy which are acceptable to Holder and in the case of a New Loan Policy include the same endorsements as the Current Loan Policy;

(d) A certificate of insurance and a new policy or policies of insurance evidencing that the Property remains and is insured in accordance with all requirements of the Loan Documents and Holder, naming the Borrower as the insured owner and Holder as a mortgagee/loss payee, and otherwise in form and content acceptable to Holder;

(e) Evidence satisfactory to Holder that Borrower is a Delaware limited liability company, in good standing; that Borrower has authorized the execution of this Agreement, and that the persons executing this Agreement on behalf of Borrower has full power and authority to bind Borrower;

(f) A legal opinion of Borrower’s counsel, addressed to Holder and dated as of the date hereof, in form and substance satisfactory to Holder, opining that the execution, delivery and/or assumption of the Loan Documents have been duly authorized by all necessary parties (other than Holder), and addressing such other matters (including the good standing, authority and due execution and delivery by Borrower) as Holder may reasonably require; and

(g) As soon as the same shall become available, a copy of the recorded vesting deed that transfers title to the Property to Borrower.

ARTICLE II

LOAN

2.1 Loan. Borrower hereby acknowledges that the outstanding balance of the Loan as of December 29, 2006 is $46,701,459.00 and that this amount is evidenced and secured and governed in accordance with the terms and provisions hereof and of the other Loan Documents.

2.2

Note. The Loan shall be evidenced by the Note.

2.3

Interest. The Loan shall bear interest at the rates set forth in the Note.

2.4 Security for the Loan. From and after the Effective Date, the Loan shall be secured by the following (herein called the “Collateral”):

(a)

A lien upon the Premises created by the Mortgage;

(b)

A lien upon the CTLLC Premises created by the CTLLC Mortgage;

(c) The Assignment, assigning to Holder all of the rents, issues, profits and avails and leases of and from the Premises;

(d) A lien and security interest in all of the furniture, furnishings and equipment owned by Borrower comprised within the Premises;

(e)

The Environmental Indemnity Agreement; and

(f) Financing Statements and such other instruments (all herein generally called “Ancillary Security Instruments”) as Holder may from time to time require to reflect and perfect the liens and security interests in the Collateral and security required and/or intended hereby to secure the Loan.

2.5 Release. The Borrowing Group, and each member thereof, jointly and severally, hereby represents, covenants and agrees as follows:

(a) Each member of the Borrowing Group represents, acknowledges and agrees that Holder has duly and timely performed and observed all of the terms, conditions and obligations on its part to be performed and observed pursuant to the Loan Documents at all times to and including the date of execution and delivery thereof; and

(b) Each member of the Borrowing Group, on its own behalf and on behalf of all Persons claiming by, through or under it, hereby remises, discharges and acquits Holder and its shareholders, directors, agents and employees and its and their successors and assigns (herein called the “Released Parties”) of and from any and all claims, demands, actions, causes of action, obligations and liabilities of any kind and nature whatsoever which exist, may exist or may hereafter exist by reason of any action or inaction of the Released Parties on or prior to the date of execution and delivery hereof in connection with the Loan or the Loan Documents.

2.6 Costs and Expenses. Borrower hereby covenants an agrees to pay to Holder all reasonable costs and expenses (including legal fees and disbursements) paid or incurred by Holder in connection with the preparation of this Loan Agreement and of the Loan Documents, the consummation of the transactions contemplated herein and all title insurance charges and escrow fees and other costs contemplated herein to be paid to third parties.

ARTICLE III

PAYMENTS

3.1

Intentionally Deleted.

3.2 Maturity Date. In all events the entire outstanding principal balance of the Loan, including principal and interest and other sums required by the Loan Documents shall be due and payable on the Maturity Date, without notice or grace.

3.3 Payment of Adjusted Net Operating Income. On the 20th day of each month, Borrower shall remit to Holder (to the extent not received by Holder from the Rent Account) the sum of all Adjusted Net Operating Income accumulated during the Loan Year to date, net of amounts remitted to Holder earlier in the Loan year (excluding remittances related to prior Loan Years), subject to annual reconciliation, to be applied as set forth in Section 3.4 hereof.

3.4 Application of Adjusted Net Operating Income. So long as no Event of Default has occurred and is continuing, Holder shall apply amounts of Adjusted Net Operating Income which it shall receive with respect to any Loan Year in the following order of priority:

(a) First, to payments of all Base Interest which has accrued on the Note in the current Loan Year;

(b) Second, to payment of all Base Interest which accrued on the Note in the prior Loan Years and has been capitalized;

(c)

Third, to reduction of the outstanding principal balance of the Note; and

(d) Fourth, to payment of all Contingent Interest which has accumulated on the Note, plus any accrued interest thereon.

3.5 Application Upon Event of Default. Upon the occurrence of an Event of Default, Holder may apply Net Operating Income upon the Loan, both interest and principal, in such order and manner as Holder may deem appropriate; and in all events at any time when an Incipient Default or Event of Default shall have occurred and be continuing, Holder shall have no obligation to make any application of Net Operating Income contemplated by Section 3.4(a) hereof.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

4.1 Representations and Warranties. Borrower acknowledges and agrees as follows and represents and warrants to Holder as follows:

(a) There exists no defense, offset or counterclaim with respect to the payment of the Loan or with respect to the performance of any Party’s obligations under the Loan, this Agreement, the Note or any of the Loan Documents, including, without limitations, any claim for breach of contract, failure to act in good faith, lack of fair dealing, misrepresentation, breach of fiduciary duty, fraud, or negligence. No Party has any claim, defense, abatement, offset, or counterclaim against Holder or otherwise applicable to the Loan. If any such claims, defenses, abatements, offsets, or counterclaims, do presently exist, as additional consideration for this Agreement, each Party to this Agreement hereby waives and releases them to the fullest extent permitted by applicable law;

(b) Holder has not breached any duty to any Party in connection with the Loan. Holder has timely and fully performed all obligations which Holder may have had or now has to any Party in connection with the Loan;

(c) Holder has no obligation whatsoever to make any other loans or advances to or for the benefit of any Party or to grant any modifications or extensions in connection with the Loan, except as may be set forth specifically in the Loan Documents and this Agreement;

(d) Each Party to this Agreement has all requisite power and authority to enter into this Agreement and to perform all actions required or contemplated by any provision contained in this Agreement or the Loan Documents. This Agreement and the applicable Loan Documents are and shall be legal, valid, and binding obligations of each Party (subject to bankruptcy and principles of equity);

(e) Borrower has good, marketable and indefeasible fee simple title to the Property;

(f) There is no legal or other action, proceeding or investigation pending or threatened against any Party hereto or the Property before any court, administrative agency or arbitrator that might in any way adversely affect such Party’ ability to fulfill its obligations under this Agreement or any of the Loan Documents;

(g) This Agreement and the other Loan Documents constitute legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with their terms, subject to applicable bankruptcy law and the rights of creditors generally; and

(h) This Agreement is not intended for, and shall not be construed to be for, the benefit of any person or entity not a signatory hereto.

4.2

Intentionally Deleted.

4.3

Intentionally Deleted.

4.4 Continuance of Representations and Warranties. Each and all of the representations and warranties set forth in Sections 4.1, 4.2 and 4.3 hereof shall be true and correct on the Effective Date and shall survive the Effective Date.

ARTICLE V

COVENANTS

5.1 Payment and Performance. Borrower hereby covenants and agrees that it will duly, punctually and faithfully pay all payments required hereby, by the Notes and by each and all of the Loan Documents as and when the same become due and payable and will duly, punctually and faithfully perform and observe and will cause each other member of the Borrowing Group to perform and observe all of the covenants and agreements on the part of each member at the Borrowing Group to be performed and observed under and pursuant to this Loan Agreement, the Notes and the other Loan Documents.

5.2

Leases. Borrower hereby agrees, subject to the provisions of Section 5.3 hereof, that:

(a) All leases and rental arrangements with tenants of the Premises, including renewal leases (all herein generally called “Leases”) shall be subject to the approval of Holder as to form, content, economic terms (including concessions, tenant improvements and otherwise), and term, and once approved shall not be modified, amended or terminated without Holder’s prior written approval; provided that Holder will provide to Borrower its approval or disapproval of any Lease within 10 Business Days after it shall have been furnished with a copy thereof, a copy of all requisite credit information and other information regarding the tenant which Holder may reasonably acquire and plans, specifications and estimated Tenant Costs relating to such Lease, all in such detail as Holder may require;

(b) Prior to presenting to any proposed tenant a proposal with respect to any proposed lease, Borrower shall furnish to Holder notice of such proposal and of the terms and provisions to be contained therein, which proposal shall not be sent to such proposed tenant unless the same shall have been approved by Holder; provided that:

(i) Holder shall be deemed to have approved such proposal if it shall not object thereto within two Business Days after having been furnished with a request for approval thereof; and

(ii) No such approval or deemed approval by Holder of a proposal as aforesaid shall be deemed an approval by Holder of any proposed lease or limit Holder’s right pursuant to Subsection (a) above to approve any proposed lease prior to its execution, whether or not such proposed lease conforms to the proposal therefor; and

(c) Borrower hereby consents and agrees that it will not accept termination of any Lease, or accept any Lease Termination Payment in connection therewith, unless such termination and Lease Termination Payment has previously been approved in writing by Holder.

5.3 Leasing Guidelines. Holder hereby agrees that Holder will not withhold approval of any proposed Lease (subject to Holder’s approval of the tenant) if the same conforms to the requirements of the Senior Loan Documents.

5.4

Management and Contracts. Borrower hereby represents and agrees as follows:

(a) Borrower shall not enter into any contract or agreement with respect to the management, operation, leasing or construction of the Premises with any Affiliated Entity unless specifically provided for in this Agreement or otherwise agreed to by Holder;

(b) All contracts and agreements entered into in connection with the ownership, operation, maintenance, construction and leasing of the Premises shall be with reputable and competent Persons for a price not exceeding that which is obtainable from other reputable and competent Persons performing such services in the area in which the Premises are located; and

(c) If the Current Management Agreement shall be terminated for any reason, any substitute management agreement and/or substitute leasing agreement shall: (i) be subject to the provisions of Subsections (a) and (b) hereof to the reasonable approval of Holder as to form, content, economic provisions, compensation and contracting Person, and (iii) in all events be terminable at the election of Holder upon the occurrence of an Event of Default.

(d) So long as the Current Manager is an Affiliate of Holder, Holder agrees that to the extent that responsibility for performance of any obligation of any member of Borrowing Group under this Loan Agreement has been delegated to Current Manager, the failure of Current Manager to perform such obligation shall not be deemed to create a default under the Loan Agreement or any other Loan Document. This provision shall terminate and be of no further force and effect when Current Management ceases to be an Affiliate of Holder.

5.5 Books and Records. Borrower hereby covenants and agrees that they and each of them will:

(a) Afford Holder and its inspectors or auditors the right to inspect the Premises and the books and records of Borrower relating to the Premises at all reasonable times; and

(b) Will afford and facilitate to such Person access to the Premises and to all books and records for such purposes.

5.6 Special Undertaking. The Controlling Entities hereby agree that they, and each of them, shall be and become liable for:

(a) The Loan, if and to the extent such Controlling Entity is the subject of or the cause of any of the Events of Default specified in Section 6.1(f) hereof which shall have the effect of limiting the right of Holder to realize upon any of the Loan Documents, Collateral and/or any instrument executed by any of the Controlling Entities, provided that the aggregate liability of the Controlling Entities pursuant to this Subsection (a) and Subsection 5.6(a) of the CTLLC Loan Agreement shall be limited to $5,000,000; and

(b) Application as provided herein of all Net Operating Income from and after the occurrence of any Incipient Default and so long as any such Incipient Default (or Event of Default resulting therefrom) shall continue; provided that Controlling Entities shall have no liability hereunder for application of any part of the Gross Revenues made pursuant to court order;

and on the Closing Date, each Controlling Entity shall deliver to Holder such instruments as Holder may require to confirm the foregoing agreements.

5.7

Financial Statements and Reports. Borrower shall deliver to Holder:

(a) Monthly, within 25 days after the end of each month, financial and operating statements of the Premises (including statements of cash receipts and disbursements) for the preceding month disclosing for such month Gross Revenues, Operating Costs and Net Operating Income;

(b) Quarterly, within 25 days after the end of each quarter, financial statements of the Premises (including statements of cash receipts and disbursements) disclosing Net Operation Income and Adjusted Net Operating Income for the preceding quarter;

(c) Annual financial statements of Borrower (including an income statement, a balance sheet and a statement of cash flows) within 90 days after the end of each Loan Year which shall be subject to audit by an accountant satisfactory to Holder if and to the extent required by Holder;

(d) Within 45 days after the end of each of their fiscal years annual financial statements of Heise, certified by Heise; and

(e)

Other statements and reports as Holder may reasonably require,

all of which financial statements and reports required by this Section 5.7 to be in such form and detail as Holder may require; and the Controlling Entities shall permit and cause the other Persons above named to permit Holder and its agents and auditors to examine and audit their respective books and records relating to the Premises at such reasonable times as Holder may reasonably require; provided that Holder agrees to hold confidential the personal financial statements of Heise.

5.8

Intentionally Deleted.

5.9

Rent Account Agreement.

(a) Borrower and Holder acknowledge and agree that pursuant to that certain Amended and Restated Cash Management Agreement dated as of the date hereof by and between Borrower and Senior Lender (the “Cash Management Agreement”), all Gross Revenues of the Property received from and after the Effective Date are to be deposited into the Rent Account (as defined in the Cash Management Agreement) for disbursement as provided therein. Subject to the provisions of the Cash Management Agreement, all disbursements from the Rent Account are disbursed into Borrower’s account. Subject to the provisions of the Cash Management Agreement, Borrower covenants and agrees that all disbursements to Borrower’s account shall be disbursed from Borrower’s account as follows:

(i) to Senior Lender to pay all amounts due and payable to Senior Lender under the Senior Loan Documents (as defined in the Mortgage);

(ii)

to pay Operating Costs;

(iii) to Holder to apply the same upon the Loan in such order and manner as is provided for in the Loan Documents.

(b) Upon the occurrence of an Event of Default, subject to the provisions of the Cash Management Agreement and that certain Amended and Restated Subordination and Standstill Agreement dated as of the date hereof by and between Holder and Senior Lender, Holder shall be entitled to all disbursements to which Borrower is entitled to pursuant to the provisions of the Cash Management Agreement and shall apply the same upon the Loan in such order and manner as is provided for in the Loan Documents or as Holder may otherwise deem appropriate.

ARTICLE VI

EVENTS OF DEFAULT

6.1 Event of Default. The occurrence of any one or more of the following events shall constitute and “Event of Default” hereunder:

(a) If Borrower defaults in making due and punctual payment of the Notes, or any of them, or any payment required to be paid thereon, either principal or interest, if and when the same become due and payable, and such default continues after the expiration of any period of grace provided for in the respective Notes;

(b) If Borrower shall fail to perform and/or comply with the provisions of Section 5.9 hereof or shall fail to remit to Holder (or to deposit or cause to be deposited in the Rent Account) all Gross Revenues as specified in Section 5.9 hereof;

(c)

If any Event of Default shall exist under any of the other Loan Documents;

(d) If any representation or warranty made by any member at the Borrowing Group herein or in any instrument delivered pursuant hereto shall prove to be untrue in any material respect; or

(e) If any member of the Borrowing Group defaults in the performance or observance of any of the other terms, provisions, conditions and agreements on their part or on the part of any one or more of them to be performed and observed pursuant hereto and such default shall remain uncured for a period of five days in connection with any default in payment of money or 30 days after Holder shall have given notice thereof to the defaulting member in the case of a default other than in the payment of money; provided that if a default other than in the payment of money is not susceptible of cure within such 30-day period, such 30-day period shall be extended to the extent necessary to permit such cure if, but only if, (A) cure is commenced within such 30-day period and thereafter prosecuted to completion, diligently and without delay; (B) neither the Premises nor the lien of the Loan Documents shall be limited by or subject to any foreclosure, forfeiture, subordination or other adverse consequence on account of such default.

(f)

If any one or more of the following event shall occur:

(i) If any member of the Borrowing Group shall file a petition in bankruptcy or for relief under the Bankruptcy Code of the United States, or any Chapter thereof, or any similar law, state or federal, now or hereafter in effect (herein generally called the “Bankruptcy Laws”);

(ii) If any member of the Borrowing Group shall file an answer in any proceeding or execute any writing admitting insolvency or inability to pay its debts;

(iii) If there shall have been filed against any member of the Borrowing Group any insolvency proceeding under any Bankruptcy Law and such proceedings shall not have been vacated or stayed within 90 days after such filing;

(iv) any member of the Borrowing Group shall be adjudicated a bankrupt, or a trustee or receiver shall be appointed for any member of the Borrowing Group or for all or a major part of such member’s property or the Premises, or such member shall be appointed a debtor in possession in any insolvency proceeding under any Bankruptcy Law, or if any court shall have taken jurisdiction of all or a major part of such member’s property or the Premises in any insolvency proceeding under any Bankruptcy Law for the reorganization, dissolution, liquidation or winding up of such member and such trustee or receiver (or such member as debtor in possession) shall not be discharged or any such jurisdiction relinquished or forfeited or stayed on appeal or otherwise stayed within 90 days; and

(v) If any member of the Borrowing Group shall make an assignment for the benefit of creditors generally or shall consent to the appointment of a receiver, trustee or liquidator of all or a major portion of its property or of the Premises.

6.2 Notice to Holder. Borrower covenants and agrees that it will promptly (and in any event within three Business Days after it knows or should know of the same), give notice to Holder of the occurrence of an Event of Default or Incipient Default.

liable therefor all sums so due and payable and any damages. Notwithstanding the foregoing, Holder shall not cause a discharge or cancellation of all or any portion of the Loan or any event having the same effect for federal income tax purposes without the consent of Borrower, provided, however, this limitation shall not preclude Holder from foreclosing or accepting a deed in lieu of foreclosure with respect to the Loan without such consent.

6.4 Rights Cumulative. Each right, power and remedy conferred upon Holder herein, in the Notes and in the other Loan Documents is cumulative and in addition to each other right, power or remedy, express or implied, given now or hereafter existing at law or in equity, and each and every right, power and remedy herein, in the Notes and other Loan Documents set forth: or otherwise so existing may be exercised from time to time as often and in such order as may be deemed expedient by Holder; and exercise or beginning of the exercise of any one right, power or remedy (including institution of any proceeding, judicial or otherwise, under the Loan Documents shall not be waiver of the right at the same time or thereafter to exercise any other right, power or remedy (including institution of proceedings, judicial or otherwise, enforcing any rights under Loan Documents encumbering the Premises or other Collateral); and no delay or omission on the part of Holder in the exercise of any right, power or remedy accruing hereunder, under the Notes or under any other Loan Document or otherwise arising shall impede any right, power or remedy or be construed to be a waiver of any default or acquiescence therein.

6.5 Holder Performance of Obligations. Upon the occurrence of any Event of Default or Incipient Default, Holder may, but shall not be required, to make any payment or perform any act herein or in the Notes or in any of the Loan Documents required to be paid or performed by Borrower or any other Person (whether or not Borrower or such other Person is personally liable therefor) in any form or manner deemed expedient to Holder; and in connection therewith (but without limiting the generality of the foregoing):

(a) Holder may, but shall not be required to, make full or partial payments of principal or interest on liens encumbering the Premises or other Collateral, and purchase, discharge, compromise, and/or settle any tax lien or other lien or claim, or redeem from any tax sale or forfeiture or other foreclosure of any lien affecting any such Premises and other Collateral, or contest any tax assessment or claim relating to the Premises or other Collateral;

(b) Holder may, but shall not be required to, complete construction, furnishing and equipping of the Premises and (either itself or through agents or other Persons employed by Holder) rent, operate and manage the Premises and pay construction costs, costs of equipment and furnishings, personnel expenses and operating costs and expenses (including management and leasing fees and compensation) of every kind and nature in connection therewith, so that the Premises and the improvements thereon shall be operational and usable for their intended purpose, and open for business;

(c) All monies disbursed by Holder for any of the purposes herein authorized or authorized by the Note or other Loan Documents, and any expenses paid or incurred in connection therewith, including reasonable attorneys’ fees and any other funds advanced by Holder to protect the Premises or other Collateral shall be reimbursable from the Rent Account; and

(d) The provisions of this Section are in amplification of the provisions of the Notes and the other Loan Documents and shall not limit, affect or impair any provision of the Notes or other Loan Documents.

6.6 Grace Periods. Borrower and other members of the Borrowing Group shall be entitled to only one grace period in connection with any determination as to whether an Incipient Default has become an Event of Default; and accordingly:

(a) The provisions herein or in any other of the Loan Documents providing to Borrower the longest grace period with respect to any Incipient Default shall govern; and

(b) When the grace period referred to in Subsection (a) above shall have expired without cure with respect to a particular Incipient Default, such Incipient Default shall for all purposes be deemed to have become an Event of Default, and

no Person shall be entitled to or claim or have any right to claim any further period of grace with respect thereto.

ARTICLE VII

REAFFIRMATION

7.1 Reaffirmation. The parties hereto hereby covenant and agree and reaffirm that all of the Collateral securing the Original Loan shall be and remain Collateral for the Loan, whether or not specifically so provided herein.

ARTICLE VIII

MISCELLANEOUS

8.1 Approvals To Be In Writing. Any consent, approval or other action required or permitted to be made, given or taken by Holder pursuant hereto as to the Notes, Mortgage or other Loan Documents must be in writing and purported consent, approval or other action on the part of Holder shall not be effective or made, given or taken unless the same is evidenced by a writing duly executed by Holder.

8.2 Governing Law. This Loan Agreement, the Notes and the Loan Documents have been negotiated, executed and delivered in the State of Illinois and shall be governed by and construed in accordance with the laws of the State of Illinois.

8.3 Indemnification Against Commissions. The Controlling Entities jointly and severally hereby agree to and do hereby indemnify and hold harmless Holder against any brokerage commissions or finder’s fee claim or which may be claimed by any broker or other Person in connection with the transactions contemplated hereby.

8.4 Notices. Any notice, consent, or approval that Holder or Borrower may desire or be required to give to the other shall be in writing and shall be mailed or delivered to the intended recipient thereof at its address set forth below or at such other address as such intended recipient may, from time to time, by notice in writing, designate to the sender pursuant hereto. Any such notice, consent, or approval shall be deemed effective (a) if given by nationally recognized overnight courier for next day delivery, one (1) business day after delivery to such courier, or (b) if given by United States mail (registered or certified), five (5) business days after such communication is deposited in the mails or (c) if given in person, when written acknowledgment of receipt thereof is given. Except as otherwise specifically required herein, notice of the exercise of any right or option granted to Holder by this Loan Agreement is not required to be given.

(a)

If to Holder:

PGRT Equity, L.L.C.

Prime Group Realty Trust

77 West Wicker Drive

Suite 3900

Chicago, Illinois 60601

Attn: James F. Hoffman

With a copy to:

Winston & Strawn LLP

35 West Wacker Drive

Chicago, Illinois 60601

Attention: M. Christine Graff

(b)

If to Borrower:

Continental Towers Associates III, LLC

c/o CTA General Partner, LLC

c/o Prime Group Realty Trust

77 West Wacker Drive Suite 3900

Chicago, Illinois 60601

Attn: Jeffrey A. Patterson

With a copy to:

Prime Group Realty Trust

77 West Wacker Drive

Suite 3900

Chicago, Illinois 60601

Attn: James F. Hoffman

And a copy to:

Richard A. Heise

5317 West Cullom Avenue

Chicago, IL 60641

(c)

If to Heise:

Richard A. Heise

5317 West Cullom Avenue

Chicago, IL 60641

8.5 Assignability. The rights of any member of the Borrowing Group hereunder may not be assigned without the prior written consent of Holder.

8.6 Binding Effect. Subject to the provisions of Section 8.5 above, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

8.7 Severability. If any provision herein shall be held invalid or unenforceable, such holding shall not affect the validity or enforceability of any other provision hereof, all of which other provisions shall in such case remain in full force and effect.

8.8 Time of the Essence. The parties hereto agree that time is of the essence of this Agreement, the Notes and the other Loan Documents and all of the provisions hereof and thereof provided that if the date for performance of any obligation hereunder falls on a day other than a Business Day, the time for such performance shall be extended to the next succeeding Business Day.

8.9 Survival. All of the terms, provisions, covenants and agreements herein contained shall survive the Closing Date and the making and disbursing of the Loan.

8.10 No Joint Venture: Indemnity. All Parties intend that the relationship created by this Loan Agreement and all other Loan Documents be solely that of Borrower as debtor and Holder as creditor, or mortgagor and mortgagee, as the case may be; and in connection therewith:

(a) Nothing herein, in the Note or in the Mortgage is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship among Borrower and/or the Controlling Entities on the one hand and Holder, on the other hand, nor to grant Holder any interest in the Premises other than that of creditor or mortgagee; it being the intent of the parties hereto that Holder shall have no liability whatsoever for any losses generated by or incurred with respect to the Premises nor shall Holder have any control over the day to day management or operations of the Premises;

(b) The terms and provisions of this Section shall control and supersede over every other provision and all other agreements among Borrower, the Controlling Entities and other parties hereto;

(c) Borrower and the Controlling Entities, each as to itself but not as to any other party, hereby agree to indemnify and hold Holder harmless and defend Holder against any loss or liability, cost or expense (including, without limitation, reasonable attorneys’ fees and disbursements) and all claims, actions, procedures and suits arising out of or in connection with any construction of the relationship of Borrower, the Controlling Entities and Holder as that of joint venturers, partners, tenants in common, joint tenants or any relationship other than that of debtor and creditor, or any assertion that such a construction should be made, and arising out of a claim, assertion or litigation directly or indirectly brought by, or on behalf of Borrower or such Controlling Entity; and

(d) The foregoing indemnity shall survive the repayment of the Loan and the satisfaction of the Mortgage and shall continue so long as any liability for which the indemnity is given may exist or arise.

8.11 Conflict. In the event of any conflict between the terms and provisions contained in this Loan Agreement and the terms and provision contained in the Notes or in any of the other Loan Documents, the terms and provisions of this Agreement shall take precedence and shall control, except as otherwise herein specifically set forth.

8.12

Intentionally Deleted.

8.13

Intentionally Deleted.

8.14

Intentionally Deleted.

8.15 Exculpation of Controlling Entities. No Controlling Entity nor any Person comprising any Controlling Entity as a partner, shareholder, or otherwise, shall be personally liable for repayment of any of the principal of or interest on the Loan or for any deficiency judgment which Holder may obtain after foreclosure or other realization upon the collateral or for the performance of any of the covenants, agreements or payments herein or in the other Loan Documents contained or required, except as follows:

(a) Each Controlling Entity shall be liable for any loss, cost and damages incurred by Holder (including reasonable attorneys’ fees) by reason of any misrepresentation or breach of warranty of such Controlling Entity set forth in Article IV hereof;

(b) Each Controlling Entity shall be obligated upon and liable for all of the covenants, agreements and payments assumed by such Controlling Entity pursuant to any separate agreement;

(c) All of the Controlling Entities, jointly and severally, shall be obligated and liable to cause all Adjusted Net Operating Income to be paid over the Holder as provided for in Section 3.3 hereof to the extent not deposited into the Rent Account;

(d) The Controlling Entities shall be obligated upon and liable for the indemnities specified in Section 8.10 hereof;

and the foregoing provisions of this Section, limiting the exculpations of the Controlling Entities and confirming their respective obligations and liabilities shall supersede the exculpation of the Controlling Entities and each of them contained in any of the other Loan Documents.

IN WITNESS WHEREOF the parties hereto have caused this Loan Agreement to be duly executed all on and as of the day, month and year first above written.

CONTINENTAL TOWERS ASSOCIATES III, LLC, a Delaware limited liability company

By:

CONTINENTAL TOWERS ASSOCIATES II, LLC, a Delaware limited liability company, its sole member

By:

CTA GENERAL PARTNER, LLC, a Delaware limited liability company, its Manager

By:

CTA MEMBER, INC., a Delaware corporation, its Managing Member

By: [s] Paul G. Del Vecchio

Name:

Yochanan Danziger, by Paul G.

Del Vecchio, Attorney-In-Fact

Title:

President

[s] Richard A. Heise

Richard A. Heise

PGRT EQUITY, LLC, a Delaware limited liability company

By:

PRIME GROUP REALTY, L.P.

By:

Prime Group Realty Trust, its General Partner

By: [s] Paul G. Del Vecchio

Title: S.V.P. – Capital Markets

EXHIBIT A

LEGAL DESCRIPTION

REAL PROPERTY IN THE CITY OF ROLLING MEADOWS, COUNTY OF COOK, STATE OF ILLINOIS, DESCRIBED AS FOLLOWS:

Parcel 1:

Parcel 2:

Parcel 3:

Parcel 4:

Parcel 5:

Common address: Continental Towers, 1701 Golf Road, Rolling Meadows, Illinois

PINS: 08-16-100-034 (part) and 08-16-100-036

EX-10 23 exhibit-10_76.htm EXHIBIT 10.76

EXHIBIT 10.76

This instrument was prepared by

and upon recordation should be

returned to:

M. Christine Graff, Esq.

Winston & Strawn LLP

35 West Wacker Drive

Chicago, Illinois 60601

SECOND AMENDED AND RESTATED

MORTGAGE AND SECURITY AGREEMENT

THIS SECOND AMENDED AND RESTATED MORTGAGE AND SECURITY AGREEMENT (“Mortgage”) is made and executed as of December 29, 2006, by CONTINENTAL TOWERS, L.L.C., a Delaware limited liability company, whose mailing address is c/o CTA General Partner, L.L.C., 218 Flintlock Drive, Lakewood, NJ 08701 (“Mortgagor”) to, in favor of and for the benefit of PGRT EQUITY, L.L.C., a Delaware limited liability company, whose mailing address is 77 W. Wacker Drive, Suite 3900, Chicago, IL 60601 (“Lender”), and pertains to the real estate (“Real Estate”) described on Exhibit A attached hereto and made a part hereof.

ARTICLE ONE

RECITALS

1.1

Note.

Lender, as successor in interest to General Electric Capital Corporation and Great Oak LLC, made a loan to Mortgagor, as successor in interest to Chicago Title Land Trust Company, as successor trustee under Trust No. 40935 established pursuant to a Trust Agreement dated July 26, 1977, which is evidenced by that certain 1997 Promissory Note having an effective date of December 12, 1997 (the “Original Note”). Mortgagor and Continental Towers Associates III, LLC (“CTAIII”) collectively executed and delivered to Lender an Amended and Restated Promissory Note having an effective date of November 21, 2006 (the “2006 Note”) which amends and restates the Original Note in its entirety. Mortgagor has executed and delivered to Lender that certain Second Amended and Restated Promissory Note (the “Note”) of even date herewith which, collectively with that certain Second Amended and Restated Promissory Note of even date herewith executed by CTAIII (the “Other Note”), amends and restates the 2006 Note in its entirety. In the Note, Mortgagor promises to pay to the order of Lender the original principal sum of Eight Three Million Twenty Four Thousand Eight Hundred Fifteen and 00/100 Dollars ($83,024,815.00) (the “Loan”). In the Other Note, CTAIII promises to pay to the order of Lender the original principal sum of Forty Six Million Seven Hundred One Thousand Four Hundred Fifty Nine and 00/100 Dollars ($46,701,459.00) (the “Other Loan”). This Mortgage secures the Loan and the Other Loan. From date hereof the Loan and the Other Loan shall be repaid with interest thereon, in monthly installments as set forth in the Note and the Other Note, respectively, and the entire unpaid principal

balance and all accrued interest thereon shall be due and payable on January 5, 2013 (the “Maturity Date”). The terms and provisions of the Note and the Other Note are by this reference thereto incorporated herein and made a part hereof.

1.2

Indebtedness.

The indebtedness evidenced by the Note and the Other Note, including principal, interest and all other sums which may at any time be due, owing, or required to be paid under the Note, the Other Note, this Mortgage, and the other Loan Documents (as hereinafter defined) are herein called the “Indebtedness”.

1.3

Loan Documents.

The Original Note was secured by (1) that certain First Mortgage dated as of December 27, 1985 and recorded in the office of the Recorder of Deeds of Cook County on December 30, 1985, as Document Number 85342789 made by Original Borrower in favor of Original Lender, as amended by that certain Third Loan Modification Agreement dated December 1, 1988 and recorded January 10, 1989 as Document Number 89013686, that certain that certain Fourth Loan Modification Agreement dated December 1, 1989 and recorded January 25, 1990 as Document Number 90041713 and that certain Fifth Loan Modification dated December 1, 1990 and recorded March 8, 1991 as Document Number 91105421; as amended and restated by that certain Amended and Restated First Mortgage dated October 1, 1991 and recorded in the Office of the Recorder of Deeds of Cook County on January 2, 1992, as Document Number 92001888, which Amended and Restated First Mortgage was amended by a First Amendatory Agreement recorded in the Recorder’s Office as Document Number 93434372, a Second Amendment and the Loan Modification and Amended and Restated Loan Agreement recorded in the Recorder’s Office as Document Number 95545031, and a First Amendment to Loan Modification and Amended and Restated Loan Agreement recorded in the Recorder’s Office as Document Number 97947240 (as so amended, the “Original Mortgage”), and (2) that certain Supplemental First Mortgage and Security Agreement dated June 1, 1995 and recorded in the Recorder’s Office on August 17, 1995 as Document Number 95545032 (the “Supplemental Mortgage”). The Original Mortgage and the Supplemental Mortgage were amended and restated in their entirety by that certain Amended & Restated Mortgage and Security Agreement dated as of November 21, 2006 executed by Mortgagor and CTAIII (the “Amended Mortgage”).

This Mortgage and that certain Second Amended and Restated Mortgage and Security Agreement dated as of the date hereof executed by CTAIII (the “Other Mortgage”) amend and restate the Amended Mortgage in its entirety.

In addition to this Mortgage and the Note, there have been executed and delivered by Mortgagor to and in favor of Lender, as security for the payment of the Indebtedness, certain other loan documents more particularly described on Exhibit B attached hereto and by this reference thereto made a part hereof (the Note, this Mortgage, and all other documents and instruments described on said Exhibit B, whether now or hereafter existing, and as same may be hereafter amended, modified, or supplemented from time to time, are collectively referred to herein as the “Loan Documents”). In addition to the Other Mortgage and the Other Note, CTAIII has executed and delivered to and in favor of Lender, as security for the payment of the Indebtedness, those loan documents more particularly described on Exhibit C attached hereto and made a part hereof (as the same may be hereafter amended, modified or supplemented from time to time, collectively the “Other Loan Documents”).

ARTICLE TWO

THE GRANT

In order to secure the payment of the sums that are now or may hereafter become owing to Lender: (i) as the payments required in the Loan Documents and the Other Loan Documents, (ii) as a result of the non-performance of any of the terms, provisions, covenants, agreements, and obligations contained herein or under the Loan Documents and the Other Loan Documents, or (iii) as a result of a breach of the terms, provisions, covenants, agreements, representations, warranties and certifications made in the Loan Documents or the Other Loan Documents (collectively, the “Obligations”) (whether or not the Mortgagor is personally liable for such payment, performance, and observance), and in consideration of the sum of Ten and No/100 Dollars ($10.00), in hand paid by Lender to the Mortgagor, the Recitals hereinabove stated in Article One, and for other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, Mortgagor hereby grants, bargains, sells, assigns, warrants, releases, aliens, transfers, conveys and mortgages to Lender and its successors and assigns a present and continuing lien upon and security interest in and to all of the following rights, interests, claims, and property (collectively the “Premises”):

(a) all the Real Estate described in Exhibit A attached hereto and by this reference incorporated herein and made a part hereof;

(b) all buildings, structures, and other improvements now or hereafter constructed, erected, installed, placed or situated upon the Real Estate (collectively the “Improvements”);

(c) all estate, claim, demand, right, title, and interest of Mortgagor now owned or hereafter acquired, including without limitation, any after-acquired title, franchise, license, remainder or reversion, in and to (i) any land or vaults lying within the right-of-way of any street, avenue, way, passage, highway, or alley, open or proposed, vacated or otherwise, adjoining the Real Estate; (ii) any and all alleys, sidewalks, streets, avenues, strips and gores of land adjacent, belonging or appertaining to the Real Estate and Improvements; (iii) all rights of ingress and egress to and from the Real Estate and all adjoining property; (iv) storm and sanitary sewer, water, gas, electric, railway, telephone, and all other utility services relating to the Real Estate and Improvements; (v) all land use, zoning, developmental rights and approvals, all air rights, water, water rights, water stock, gas, oil, minerals, coal, and other substances of any kind or character underlying or relating to the Real Estate or any part thereof; and (vi) each and all of the tenements, hereditaments, easements, appurtenances, other rights, liberties, reservations, allowances, and privileges relating to the Real Estate or the Improvements or in any way now or hereafter appertaining thereto, including homestead and any other claim at law or in equity (collectively the “Appurtenances”);

(d) all leasehold estates and the right, title, and interest of the Mortgagor in, to and under any and all leases, subleases, management agreements, arrangements, concessions, or agreements, written or oral, relating to the use and occupancy of the Real Estate and Improvements or any portion thereof, now or hereafter existing or entered into, including the Credit Leases described in Section 3.18 (collectively the “Leases”);

(e) all rents, issues, profits, proceeds, income, revenues, royalties, advantages, avails, claims against guarantors, security and other deposits (whether in cash or other form), advance rentals, and any and all other payments or benefits now or hereafter derived, directly or indirectly, from the Real Estate and Improvements, whether under the Leases or otherwise (collectively the “Rents”); subject, however, to the right, power, and authority (the “License”) granted Mortgagor

in the Assignment of Rents and Leases executed by Mortgagor to and in favor of Lender of even date herewith to collect and apply the Rents as provided therein;

(f) all right, title, and interest of Mortgagor in and to any and all contracts, written or oral, express or implied, now existing or hereafter entered into or arising, in any manner related to the improvement, use, operation, sale, conversion or other disposition of any interest in the Premises, including without limitation all options to purchase or lease the Real Estate or Improvements or any portion thereof or interest therein, or any other rights, interests, or greater estates in the rights and properties comprising the Premises, now owned or hereafter acquired by the Mortgagor (collectively the “Contract Rights”);

(g) all general intangibles of Mortgagor, including without limitation, goodwill, trademarks, trade names, option rights, permits, licenses, insurance policies and proceeds therefrom, rights of action, and books and records relating to the Real Estate or Improvements (collectively the “Intangible Personal Property”);

(h) all right, title and interest of the Mortgagor in and to all fixtures, equipment and tangible personal property of every kind, nature or description attached or affixed to or situated upon or within the Real Estate or Improvements, or both, provided the same are used, usable, or intended to be used for or in connection with any present or future use, occupation, operation, maintenance, management or enjoyment of the Real Estate or Improvements (collectively the “Tangible Personal Property”);

(i) all proceeds of the conversion, voluntary or involuntary, of any of the Premises into cash or other liquidated claims, or that are otherwise payable for injury to, or the taking or requisitioning of the Premises, including all insurance and condemnation proceeds as provided in this Mortgage (collectively the “Proceeds”);

(j)

all Tax and Insurance Deposits (as hereinafter defined);

(k) all of the Mortgagor’s right, power, or privilege to further hypothecate or encumber all or any portion of the property, rights and interests described in this Article Two as security for any debt or obligation; it being intended by this provision to divest the Mortgagor of the right, power and privilege to hypothecate or encumber, or to grant a mortgage upon or security interest in any of the property hypothecated in or encumbered by this Mortgage as security for the payment of any debt or performance of any obligation without Lender’s prior written consent (the “Right to Encumber”); and

(l) all other property, rights, interests, estates, or claims of every name, kind, character or nature, both in law and in equity, which Mortgagor now has or may hereafter acquire in the Real Estate and Improvements and all other property, rights, interests, estates or claims of any name, kind, character or nature or properties now owned or hereafter acquired in the other properties and interests comprising the Premises (“Other Rights and Interests”).

Mortgagor agrees that without the necessity of any further act of the Mortgagor or Lender, the lien of and the security interest created in and by this Mortgage shall automatically extend to and include any and all renewals, replacements, substitutions, accessions, products or additions to and proceeds of the Premises and any real property acquired by the Mortgagor which may be contiguous or attached to the Premises and may be required by law or by a tenant of the Premises to be used in or as part of the direct operation of the Premises.

TO HAVE AND TO HOLD the Premises hereby mortgaged and conveyed or so intended, unto Lender, its successors and assigns, forever, free from all rights and benefits under and by virtue of the Homestead Exemption Laws or similar laws of the State or other jurisdiction in which the Premises are located (which rights and benefits are hereby expressly released and waived), for the uses and purposes herein set forth.

THE MORTGAGOR hereby covenants with and warrants to Lender and with the purchaser at any foreclosure sale that at the execution and delivery hereof, Mortgagor owns the Premises and has good, indefeasible estate therein, in fee simple; that the Premises are free from all encumbrances whatsoever (and any claim of any other person thereto) other than those approved and permitted by Lender (“Permitted Exceptions”) which are listed, described and set forth in Schedule B - Section 2 of First American Title Insurance Company’s Lender’s Title Insurance Policy NCS-195868 dated May 11, 2005, as updated by a date down endorsement dated as of November 20, 2006 and by a date down endorsement dated as of the date hereof, naming Lender as the proposed insured thereunder, including all endorsements thereto, approved by Lender (the “Loan Policy”); that it has good and lawful right to sell, convey, mortgage and encumber the Premises; and that Mortgagor and its successors and assigns shall forever warrant and defend the title to the Premises against all claims and demands whatsoever.

PROVIDED, HOWEVER, that if and when (a) Mortgagor has paid all of the Indebtedness, and has strictly performed and observed all of the agreements, terms, conditions, provisions, and warranties contained in this Mortgage and in all of the other Loan Documents, and (b) CTAIII has paid all of the Indebtedness, and has strictly performed and observed all of the agreements, terms, conditions, provisions, and warranties contained in the Other Loan Documents, and the estate, right, title, and interest of Lender in and to the Premises shall cease and shall be released at the cost of Mortgagor, but otherwise shall remain in full force and effect.

ARTICLE THREE

GENERAL AGREEMENTS

To protect the security of this Mortgage, the Mortgagor further covenants and agrees as follows:

3.1

Recitals.

The recitals set forth above are true and correct and are by reference incorporated herein.

3.2

Obligations.

Mortgagor shall pay promptly each and every sum due to Lender under the Loan Documents either as the payments due under any of the terms thereof, as sums due as a result of the nonperformance of any of the covenants, agreements, and obligations thereof, or as amounts due as a result of a breach of any of the representations, warranties, and certifications contained therein (including fees and charges), at the times and in the manner provided in the Loan Documents. All such sums payable by Mortgagor shall be paid without demand, counterclaim, offset, deduction, or defense. Mortgagor hereby waives all rights now or hereafter conferred by statute or otherwise to any such demand, counterclaim, offset, deduction, or defense.

3.3

Other Payments.

(a) Mortgagor shall deposit, in addition to the monthly installments of principal and interest required by the Note, monthly until the Indebtedness is fully paid the following sums (collectively, the “Tax and Insurance Deposits”):

(i) a sum equal to one-twelfth (1/12th) of the annual Taxes (as hereinafter defined) next due on the Premises, all as estimated by Lender (the “Tax Deposits”); and

(ii) a sum equal to one-twelfth (1/12th) of the annual premium or premiums next payable for the insurance hereinafter required to be maintained on or with respect to the Premises (the “Insurance Deposits”).

(iii) amounts paid as Tax and Insurance Deposits are herein called “Other Payments”.

(b) Should the total Tax and Insurance Deposits on hand not be sufficient to pay all of the Taxes and insurance premiums, together with all penalties and interest thereon, when the same become due and payable, then the Mortgagor shall pay to Lender promptly on demand any amount necessary to make up the deficiency. If the total of such Tax and Insurance Deposits exceeds the amount required to pay the Taxes and insurance premiums, such excess shall be credited on subsequent payments to be made for such items.

(c)

All such Tax and Insurance Deposits:

(i) shall be held by Lender or a depository designated by Lender, in trust, with no obligation to segregate such payments and without any obligation arising for the payment of any interest thereon;

(ii) shall be held in trust to be applied by Lender for the purposes for which made (as hereinabove provided) subject, however, to the security interest granted Lender therein pursuant to Article Two; and

(iii)

shall not be subject to the direction or control of the Mortgagor.

(d) Provided that no Event of Default (as hereinafter defined) exists and there are sufficient funds in the Tax and Insurance Deposits, Lender agrees to make the payment of the Taxes or insurance premiums with reasonable promptness following its receipt of appropriate tax and/or insurance bills therefor, or alternatively upon presentation by Mortgagor of receipted (i.e. paid) tax and/or insurance bills therefor, Lender shall reimburse the Mortgagor for such Taxes and insurance premium payments made by the Mortgagor.

(e) Upon the occurrence of an Event of Default (as hereinafter defined), Lender may, at its option, without being required to do so, apply any Tax and Insurance Deposits on hand on account of any of the Indebtedness, in such order and manner as Lender may elect. When the Indebtedness has been fully paid, then any remaining Tax and Insurance Deposits shall be paid to the Mortgagor.

3.4

Maintenance, Repair, Restoration, Prior Liens, Parking.

The Mortgagor shall and hereby agrees to:

(a) promptly repair, restore, replace, or rebuild any portion of the Improvements which may become damaged or destroyed, whether or not proceeds of insurance are available or sufficient for such purpose, with all replacements being at least equal in quality and condition as existed prior thereto, free from any security interest therein, encumbrances thereon, or reservation of title thereto;

(b) keep the Improvements in good condition and repair, without waste, and free from mechanics’, materialmen’s or like liens or claims or other liens or claims of lien;

(c) complete, within a reasonable time, any Improvements now or hereafter in the process of construction or erection upon the Real Estate;

(d) comply with all statutes, rules, regulations, orders, decrees, and other requirements of any governmental body, whether federal, state, or local, having jurisdiction over the Premises and the use thereof and observe and comply with any conditions and requirements necessary to preserve and extend any and all rights, licenses, permits (including without limitation zoning variances, special exceptions, and nonconforming uses), privileges, franchises, and concessions that are applicable to the Premises or its use and occupancy;

(e) make no material alterations in or to the Improvements, except as required in paragraph (d) hereof or otherwise with the written consent of Lender and in conformity with all applicable laws;

(f) not suffer nor permit any change in the general nature of the occupancy of the Improvements without Lender’s prior written consent;

(g)

pay when due all operating costs of the Improvements;

(h) not initiate nor acquiesce in any zoning reclassification with respect to the Premises without Lender’s prior written consent;

(i) provide, improve, grade, surface and thereafter maintain, clean, repair, and adequately light all parking areas upon the Real Estate of sufficient size to accommodate the greater of (a) the amount of standard-size vehicles required by law, ordinance, regulation, or (b) required by the terms of any lease which is subject to the Assignment of Rents and Leases made by Mortgagor to and in favor of Lender of even date herewith, together with any sidewalks, aisles, streets, driveways and sidewalk cuts and sufficient paved areas for ingress, egress and rights-of-way to and from the adjacent thoroughfares necessary or desirable for the use thereof; and

(j) forever warrant and defend its title to the Premises and the validity, enforceability and priority of the lien and security interests granted in and by this Mortgage and the other Loan Documents against the claims and demands of all persons.

3.5

Property Taxes and Contest of Liens.

Notwithstanding the Other Payments required by Section 3.3, Mortgagor shall be responsible for the payment, when first due and owing and before delinquency and before any penalty attaches, of all real estate and personal property taxes and assessments (general or special), water charges, sewer charges, and any other charges, fees, taxes, claims, levies, charges, expenses, liens, and assessments, ordinary or extraordinary, governmental or nongovernmental, statutory or otherwise, that may be asserted against the

Premises or any part thereof or interest therein (“Taxes”). Notwithstanding anything contained herein to the contrary, Mortgagor may, in good faith and with reasonable diligence, contest the validity or amount of any such Taxes as well as any mechanics’, materialmen’s, or other liens or claims of lien upon the Premises (collectively “Contested Liens”), provided that:

(a) such contest shall have the effect of preventing the collection of the Contested Liens and the sale or forfeiture of Premises or any part thereof or interest therein to satisfy the same; and

(b) Mortgagor shall first notify Lender in writing of the intention of Mortgagor to contest the same before any Contested Liens have been increased by any interest, penalties, or costs.

3.6

Tax and Lien Payments by Lender.

(a) Upon the failure of Mortgagor to pay the Tax Deposits as required in Section 3.3 or (in the event said payments are waived by Lender) to pay the Taxes required to be paid in Section 3.5 above, Lender is authorized, in its sole discretion, to make any payment of Taxes levied, assessed or asserted against the Premises, or any part thereof, in accordance with any tax bill or statement from the appropriate public office without inquiry into the accuracy or validity of any Taxes, sales, forfeiture, or title or claim relating thereto.

(b) Lender is also authorized, in the place and stead of Mortgagor, to make any payment relating to any apparent or threatened adverse title, lien, claim of lien, encumbrance, claim, charge, or payment otherwise relating to any other purpose but not enumerated in this Section, whenever, in Lender’s judgment and discretion, such advance seems necessary to protect the full security intended to be created by this Mortgage.

(c) All such advances authorized by this Section 3.6 shall constitute additional Indebtedness and shall be repaid by Mortgagor to Lender upon demand with interest at the Default Rate (as defined in the Note) from the date of such advance.

3.7

Insurance.

(a) The Mortgagor shall insure and keep insured the Premises and each and every part thereof against such perils and hazards as Lender may from time to time require, and in any event including:

(i) Property insurance against loss of and damage to the Improvements by all risks of physical loss or damage, including by fire, windstorm, flood, and other risks covered by the so-called extended endorsement in an amount equal to one hundred percent (100%) of the then current “full replacement cost” of all Improvements, fixtures and equipment from time to time on the Improvements without deduction for physical depreciation, with the deductible provided in the policy not to exceed $10,000;

(ii) Commercial general liability insurance on an occurrence basis to afford protection for death, bodily injury and property damage in an amount of not less than the greater of (i) One Million Dollars ($1,000,000.00) or (ii) the highest amount of coverage required to be carried by the landlord under the terms of the Credit Leases (as hereinafter defined) in the Premises with such limits as Lender may reasonably require;

(iii) Steam boiler, machinery and pressurized vessel insurance (if applicable to the Improvements);

(iv) Rent loss insurance in an amount sufficient to cover loss of rents from the Premises for a minimum of twelve (12) months;

(v) If any building or other structure on the Premises is located in a “Special Flood Hazard Area” designated as “Zone A” by the National Flood Protection Act, Flood Insurance in an amount equal to the principal amount of the Loan; and

(vi) The types and amounts of coverage as are customarily maintained by owners or operators of like properties.

(b)

Insurance policies required by this Section 3.7 shall:

(i) be in amounts and form and issued by companies satisfactory to Lender and shall comply with all provisions of this Mortgage;

(ii) contain endorsements naming Lender as first mortgagee under a standard mortgagee clause under the required property, steam boiler and rent loss insurance policies (and the flood insurance policy, if applicable) and as an additional insured for the commercial general liability insurance policy.

(iii) contain endorsements providing for not less than thirty (30) days’ written notice to Lender prior to any modification cancellation, non-renewal or termination;

(iv) permit Lender to pay any premium within fifteen (15) days after its receipt of notice stating that such premium has not been paid when due; and

(v) require that settlement of any claim under any of the referenced policies shall require Lender’s prior written approval;

(vi) provide for affirmative coverage for acts of terrorism under the required property and liability insurance or evidence that coverage for acts of terrorism is not excluded from said insurance, in either case, as reflected on certificates of insurance submitted to Lender; and

(vii) contain exclusions to coverage acceptable to Lender. The insurance premiums must be prepaid for one year for each coverage period.

(c) The policy or policies of such insurance or certificates of insurance evidencing the required coverage shall be delivered to Lender. The insurance premiums must be prepaid for one year for each coverage period.

(d) Mortgagor shall not purchase separate insurance policies concurrent in form or contributing in the event of loss with those policies required to be maintained under this Section 3.7.

3.8

Insurance Premium Payment by Lender.

(a) In the event the Mortgagor fails to make the Insurance Deposits as required by Section 3.3 or (if those payments have been waived) upon Lender’s receipt (i) of notice of an unpaid insurance premium, (ii) of notice of a termination or cancellation of any required insurance policy, or (iii) of notice that a required insurance policy is not to be renewed and Mortgagor fails to provide replacement coverage at least fifteen (15) days prior to the termination of existing coverage, Lender may, at its option, procure and substitute another policy of insurance in the amount required pursuant to the foregoing terms of this Mortgage with such companies as Lender may select, the cost of which shall be paid by Mortgagor upon demand should the amount available from the Insurance Deposit be insufficient to pay the premium therefor. All sums paid by Lender in procuring said insurance that are not promptly reimbursed by the Mortgagor shall be additional Indebtedness and shall be immediately due and payable without notice, with interest thereon at the Default Rate as defined in the Note.

(b) In the event of any insured damage to or destruction of the Improvements or any part thereof, Mortgagor shall promptly notify Lender and take such steps as necessary to preserve the undamaged portion of the Improvements. Subject to the provisions of the Senior Mortgage (as hereinafter defined) and the rights of the holder of the Senior Mortgage, in Lender’s sole discretion all insurance proceeds shall be applied: (i) to the installments of the Indebtedness in the inverse order of its maturity (provided, however, no premium or penalty shall be payable in connection with any prepayment of the Indebtedness from the insurance proceeds as aforesaid), or (ii) to the cost of restoring, repairing, replacing, or rebuilding (herein generally called “Restoration”) the Improvements or any part thereof. Provided however, if any Credit Lease, as described in Section 3.18(b), requires the Restoration of the Improvements, then so long as (i) no Event of Default is in existence on the date of such damage or destruction of the Improvements and no event has occurred as of such date which with the passage of time, the giving of notice or both, would constitute an Event of Default, and (ii) no tenant under any Credit Lease is in default thereof as of such date and no event has occurred which, with the passage of time or the giving of notice or both, would constitute a default by the tenant under any Credit Lease, such insurance proceeds, after deducting therefrom any expenses incurred protecting the undamaged portion of the Improvements and in the collection of the insurance proceeds, shall be disbursed by Lender to Mortgagor to reimburse Mortgagor for the cost of Restoration as set forth in Section 3.10.

3.9

Condemnation.

(a) The Mortgagor shall give Lender prompt notice of any proceedings, instituted or threatened, seeking condemnation or taking by eminent domain or any like process (a “Taking”) of all or any part of the Real Estate or Improvements including any easement thereon or appurtenance thereto (including severance of, consequential damage to, or change in grade of streets), and shall deliver to Lender copies of any and all papers served in connection with any such proceeding.

(b) Subject to the provisions of the Senior Mortgage (as hereinafter defined), Mortgagor hereby assigns, transfers, and sets over unto Lender the entire proceeds of any and all awards resulting from any Taking (the “Award”). Subject to the rights of holder of the Senior Mortgage, Lender is hereby authorized to collect and receive from the condemnation authorities the entire Award and is further authorized to give appropriate receipts and acquittances therefor.

(c) In the event of any such Taking, any and all such Award shall be applied, in Lender’s sole discretion: (I) to the installments of the Indebtedness in the inverse order of their

maturity (provided, however, no premium or penalty shall be payable in connection with any prepayment of the Indebtedness made out of such Award as aforesaid); or (ii) to the cost of Restoration of the Real Estate and Improvements or any part thereof. Provided however, if any Credit Lease, as described in Section 3.18(b), requires the Restoration of the Improvements, then so long as (i) no Event of Default is in existence on the date of such Taking and no event has occurred as of such date which with the passage of time, the giving of notice or both, would constitute an Event of Default, and (ii) no tenant under any Credit Lease is in default thereof as of such date and no event has occurred which, with the passage of time or the giving of notice or both, would constitute a default by the tenant under any Credit Lease, such Award, after deducting therefrom any expenses incurred in the collection of the Award, shall be used to reimburse Mortgagor for the cost of Restoration as set forth in Section 3.10.

3.10

Restoration Using Proceeds.

(a) In the event Lender elects to make any Proceeds available for Restoration of the Real Estate and/or Improvements, Mortgagor shall complete, in form and with supporting documentation reasonably required by Lender, an estimate of the cost to repair or to restore the Real Estate and Improvements to the condition at least equal to the condition in which they existed prior to such damage, destruction or Taking, free from any security interest in, lien or encumbrances on, or reservation of title to such Real Estate and Improvements.

(b) The Proceeds necessary to complete Restoration shall be held by Lender, or if Lender so desires, a disbursing agent selected by Lender. Said Proceeds may be invested using Mortgagor’s taxpayer identification number in an interest bearing account mutually acceptable to Mortgagor and Lender. The costs and expenses of administering disbursements shall be paid by Mortgagor. In the event the amount of the Proceeds are insufficient to cover the cost of Restoration, Mortgagor shall pay the cost of Restoration in excess of the Proceeds before being entitled to any reimbursement from the Proceeds.

(c) Subject to Lender’s right to limit the number of disbursements, the Proceeds shall be disbursed from time to time upon Lender’s being furnished with architect’s certificates, waivers of lien, contractor’s sworn statements, and such other evidences as Lender or any disbursing agent may reasonably require to verify the cost and fact of the completion of the Improvements included in said disbursement. Under no circumstances shall any portion of the Proceeds be released until Lender has been reasonably assured that the Proceeds remaining after the requested disbursement will be sufficient to complete Restoration. No Payment made prior to the final completion of Restoration shall exceed ninety percent (90%) of the value of the work performed from time to time. Any Proceeds remaining after Restoration shall be applied at Lender’s option against the Indebtedness in the inverse order of its maturity.

3.11

Restrictions on Transfer.

(a)

Without the prior written consent of Lender:

(i) Mortgagor shall not create, effect, contract for, commit or consent to, nor shall Mortgagor suffer or permit any sale, conveyance, transfer, assignment, collateral assignment, lien, other than Contested Liens as defined and permitted in Section 3.5 of this Mortgage, pledge, mortgage, security interest, or other hypothecation, encumbrance or alienation (or any agreement to do any of the foregoing) of the Premises, or any interest therein or title thereto, (excepting, however, the sale or other disposition of Collateral (as hereinafter defined) no longer useful in connection with the operation of

the Premises (“Obsolete Collateral”), provided, however, that prior to the sale or other disposition of Obsolete Collateral, such Obsolete Collateral shall have been replaced by Collateral of at least equal value and utility which is subject to the first and prior lien of this Mortgage; or

(ii) Mortgagor shall not fail to pay when the same shall become due all lawful claims and demands of mechanics, materialmen, laborers, and others which, if unpaid, might result in or permit the creation of a lien on the Real Estate or Improvements, or on the Rents arising therefrom; or

(iii) if the Mortgagor is a land trustee (“Trustee Mortgagor”), any beneficiary of the Mortgagor shall not create, effect, contract for, commit or consent to, or shall suffer or permit, any sale, conveyance, transfer, assignment, collateral assignment, lien, pledge, mortgage, security interest, or other hypothecation, encumbrance or alienation of such beneficiary’s beneficial interest in the Mortgagor; or

(iv) if the Mortgagor is a corporation or limited liability company, or if any corporation or limited liability company is a beneficiary of a Trustee Mortgagor, any shareholder of such corporation or limited liability company shall not create, effect, contract for, commit or consent to, or shall suffer or permit any sale, conveyance, transfer, assignment, collateral assignment, lien, pledge, mortgage, security interest, or other hypothecation, encumbrance or alienation of any such shareholder’s shares of such corporation or limited liability company (provided, however, that if such corporation or limited liability company is a corporation or limited liability company whose stock is publicly traded on a national securities exchange or on the “Over The Counter” market, then this subparagraph (iv) shall be inapplicable); or

(v) if the Mortgagor is a partnership or joint venture or if any beneficiary of a Trustee Mortgagor is a partnership or joint venture, any general partner or joint venturer in such partnership or joint venture shall not create, effect, contract for, commit or consent to, suffer, or permit any sale, conveyance, transfer, assignment, collateral assignment, lien, pledge, mortgage, security interest, or other hypothecation, encumbrance or alienation of any part of the partnership interest or joint venture interest, as the case may be, of such general partner or joint venturer; or

(vi) there shall not be any change in control (by way of transfers of stock ownership, partnership interests, or otherwise) in any corporation, limited liability company or partnership constituting or included within the Mortgagor which directly or indirectly controls any corporation, limited liability company or partnership constituting or included within the Mortgagor that results in a material change in the identity of the person(s) in control of such entity.

(b) It is expressly provided, however, that the foregoing provisions of this Section 3.11 shall not apply (i) to liens securing the Indebtedness, or (ii) to the lien of current Taxes not in default. The provisions of this Section 3.11 shall be operative with respect to, and shall be binding upon, any persons who, in accordance with the terms hereof or otherwise, shall acquire any part of or interest in or encumbrance upon the Premises, or such beneficial interest in, share of stock of, or partnership or joint venture interest in the Mortgagor or any beneficiary of a Trustee Mortgagor. Any waiver by Lender of the provisions of this Section 3.11 shall not be deemed to be a waiver of the right of Lender in the future to insist upon strict compliance with the provisions of this Section 3.11.

(c) Upon the sale or transfer of (i) all or any part of the Premises, or (ii) all or any part of the beneficial interest in Mortgagor (if Mortgagor is not a natural person or persons but is a corporation, limited liability company, partnership, trust or other legal entity) (the person or entity to whom or which all or any part of the Premises have been so sold or transferred, being the “Transferee”), without the prior written consent of Lender, Lender may, at Lender’s option, declare all of the sums secured by this Mortgage to be immediately due and payable.

3.12

Lender’s Dealings with Transferee.

In the event Lender gives its written consent to a sale or transfer, whether by operation of law, voluntarily, or otherwise, of all or any part of the Premises, Lender shall be authorized and empowered to deal with the Transferee with regard to the Premises, the Indebtedness, and any of the terms or conditions of this Mortgage as fully and to the same extent as it might with the original Mortgagor, without in any way releasing or discharging the original Mortgagor from any of its covenants under this Mortgage, and without waiving Lender’s right of acceleration of the maturity of the Indebtedness as provided in this Mortgage or the Note.

3.13

Change in Tax Laws.

In the event of the enactment of or change in (including a change in interpretation) any applicable law, in any manner changing or modifying the laws governing (i) the taxation of mortgages, deeds of trust or other security instruments or the debts secured thereby, or (ii) the manner of collecting such taxes, so as to adversely affect Lender, this Mortgage or any other Loan Document or the Indebtedness, Mortgagor shall promptly pay any such tax and otherwise compensate Lender to the extent of such detriment; provided, however, that if Mortgagor fails to make such payment or if any such law prohibits Mortgagor from making such payment or would penalize Lender in the event of such payment, Lender may elect, by notice in writing given to the Mortgagor, to declare all of the Indebtedness secured hereby to be and become due and payable, at par, within sixty (60) days from the giving of such notice.

3.14

Inspection of Premises.

Mortgagor hereby grants to Lender, its agents, employees, consultants and contractors the right to enter upon the Premises for the purpose of making any and all inspections, reports, tests, inquiries and reviews as Lender (in its sole and absolute discretion) deems necessary to assess the then current condition of the Premises, or for the purpose of performing any other acts which Lender is authorized to perform under this Mortgage or under the Environmental Indemnification Agreement. Mortgagor will cooperate with Lender to facilitate each such entry and the accomplishment of such purposes.

3.15

Certified Annual Operating Statements.

Within one hundred twenty (120) days after the close of each fiscal year of Mortgagor, Mortgagor shall furnish (i) annual operating statements showing all elements of income and expense of the Premises, and (ii) a current rent roll, showing all items set forth in the rent roll delivered to Lender in connection with the closing of the Loan, as well as gross sales of each tenant, if any, paying percentage rental. Mortgagor shall promptly furnish to Lender such other financial information concerning the condition of the Premises, and all other information concerning the Premises or the performance by Mortgagor of the Obligations, that Lender may reasonably request. All such statements and information shall be prepared in accordance with generally accepted accounting principles and shall otherwise be satisfactory to Lender and shall be certified by an authorized person, member, partner or officer of Mortgagor approved by Lender. Lender and its representatives shall have the right, at all reasonable times and upon reasonable notice, to examine and make copies of Mortgagor’s plans, books, records, income tax returns and all

supporting data concerning the Premises. Mortgagor will assist Lender and its representatives in conducting any such examination.

3.16

Declaration of Subordination.

At the option of Lender, this Mortgage shall become subject and subordinate, in whole or in part (but not with respect to priority of entitlement to insurance proceeds or any Award) to any and all Leases of all or any part of the Premises upon the execution by Lender and recording thereof, at any time hereafter and in the appropriate official records of the county wherein the Real Estate is situated, of a unilateral declaration to that effect.

3.17

Usury.

Lender intends that Mortgagor shall not be required to pay, and Lender shall not be entitled to receive or collect, interest in excess of the maximum legal rate permitted under applicable usury laws. In the event Lender or any court determines that any charge, fee or interest paid or agreed to be paid in connection with the Loan may, under applicable usury laws, cause the interest rate on the Loan to exceed the maximum rate permitted by law, then such charges, fees or interest shall be reduced to the maximum rate permitted by law and any amounts actually paid in excess of such maximum rate permitted by law shall, at Lender’s option, be applied by Lender to reduce the outstanding principal balance of the Loan or repaid by Lender directly to Mortgagor.

3.18

Lease Obligations.

(a) Mortgagor covenants and agrees to keep, observe and perform and to require all tenants of the Premises to keep, observe and perform all the covenants, agreements and provisions of any present or future Leases, including the Credit Leases described herein, of the Premises on their respective part to be kept, observed and performed. If Mortgagor shall neglect or refuse to so perform or fail to require such tenants to so perform, then Lender may, at its option, itself perform and comply or require performance or compliance by such tenants with any such lease covenants, agreements and provisions. Any sums expended by Lender in performance or compliance with such Leases or in enforcing performance or compliance with such Leases by the tenants, including costs and expenses and attorneys’ fees, shall be paid by Mortgagor upon demand with interest thereon at the Default Rate as defined in the Note and in the absence of such payment all such sums shall be deemed to be and become part of the Indebtedness secured by this Mortgage.

(b) Mortgagor, as further security for the payment of the Indebtedness, has, pursuant to this Mortgage and by separate Assignment of Rents and Leases of even date herewith, sold, transferred and assigned to Lender, its successors and assigns, all of Mortgagor’s right, title and interest, as landlord, in, to and under certain leases demising all or a portion of the Premises, together with the Rents provided therein, including, without limitation, those lease or leases (the “Credit Leases”) identified on Exhibit C attached hereto and made a part hereof.

Mortgagor expressly covenants and agrees that if Mortgagor, as landlord under the Credit Leases, fails to perform and fulfill any term, covenant, condition or provision in said Credit Leases on its part to be performed or fulfilled, at the times and in the manner in the Credit Leases provided, or if Mortgagor suffers or permits to occur any breach or default under the provisions of said Credit Leases, or if Mortgagor fails to fully protect, insure, preserve and cause continued performance or fulfillment of the terms, covenants or provisions in said Credit Leases required to be performed or fulfilled by any tenant therein or if Mortgagor, without Lender’s prior written consent, permits or approves an assignment by any

tenant under the Credit Leases or a subletting of all or any part of the Premises demised in the Credit Leases, then in any such event, at the option of Lender, and without notice to the Mortgagor, such breach or default shall constitute an Event of Default hereunder and at the option of Lender, all unpaid Indebtedness secured by this Mortgage shall, notwithstanding anything in the Note, this Mortgage or the other Loan Documents to the contrary, become due and payable as in case of other Events of Default.

3.19

Environmental Compliance.

Mortgagor hereby agrees to comply and cause all tenants of the Premises to comply with any and all Federal, state or local laws, rules and regulations relating to environmental protection including, but not limited to, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”), as amended by the Superfund Amendments and Reauthorization Act of 1986, and such other legislation, rules and regulations as are in, or may hereafter come into, effect and apply to Mortgagor, Lender, the Loan or the Premises or any occupancy users thereof, whether as lessees, tenants, licensees, or otherwise. Mortgagor shall defend, indemnify and save and hold Lender harmless from and against any and all claims, costs or expenses relating to such environmental protection provisions notwithstanding any exculpatory or limitation of liability provisions contained in this Mortgage and the other Loan Documents.

3.20

Further Assurances.

(a) Mortgagor shall do all acts necessary to keep valid and effective the lien and security interest created by this Mortgage and the security intended to be afforded by the Loan Documents and to carry into effect their objectives.

(b) Mortgagor shall, upon the request of Lender from time to time, and in the event all or any portion of the Premises is leased to a person or entity affiliated with an Exculpated Party (hereinafter defined in Section 7.13), Mortgagor will cause such person or entity to execute, acknowledge and deliver all such additional papers and instruments and perform all such further acts as may be reasonably necessary to perform the Obligations and, as Lender deems reasonably necessary, to evidence, perfect or confirm the liens and security interests, or the priority thereof, created by this Mortgage and the other Loan Documents.

(c) Without limiting the generality of the foregoing, Mortgagor will promptly and, insofar as not contrary to applicable law, at Mortgagor’s expense, execute, record, rerecord, file and refile in such offices, at such times and as often as may be necessary, this Mortgage, additional mortgages, security agreements, and every other instrument in addition to or supplemental hereto, including applicable financing statements, continuation statements, affidavits or certificates as may be necessary to create, perfect, maintain, continue, extend and/or preserve the liens, encumbrances and security interests intended to be granted and created in and by the Loan Documents and the rights and remedies of Lender and Mortgagor thereunder. Upon request of Lender, Mortgagor shall promptly supply evidence of fulfillment of the foregoing acts and further assurances.

3.21

Change of Name, Identity or Structure.

Except as may be expressly permitted by Lender in writing, Mortgagor shall not change its name, identity (including its trade name or names) or, if not an individual, its corporate, partnership, limited liability company or other structure without notifying Lender at least thirty (30) days prior to the effective date of such change and, in the case of a change in the Mortgagor’s structure, without first obtaining the prior written consent of Lender.

3.22

Future Advances.

This Mortgage is given to secure not only existing indebtedness but also future advances (whether obligatory or to be made at the option of Lender, or otherwise) made by Lender, to the same extent as if such future advances were made on the date of the execution of this Mortgage. The total amount of indebtedness that may be so secured may decrease or increase from time to time, but all indebtedness secured hereby shall in no event exceed an amount equal to two (2) times the original principal amount of the Note, as stated above.

ARTICLE FOUR

EVENTS OF DEFAULT

4.1

Defaults.

It shall constitute an event of default (“Event of Default”) of and under this Mortgage and, at the option of Lender under the other Loan Documents, if any of the following events shall occur:

(a) Mortgagor shall fail to perform on the dates or within the times required any of the Obligations involving the payment of money, including the payment of principal and/or interest under the Note;

(b) Mortgagor shall fail to timely observe, perform or discharge any of the non-monetary Obligations, other than a non-monetary obligation described in any other clause in this Article Four, and any such failure shall remain unremedied for thirty (30) days or such lesser period as may be otherwise specified in the applicable Loan Document (the “Grace Period”) after notice to Mortgagor of the occurrence of such failure; provided, however, that Lender may, at its option, extend any applicable Grace Period up to ninety (90) days if Lender determines in good faith that: (i) such default cannot reasonably be cured within such Grace Period but can be cured within ninety (90) days; (ii) no lien or security interest created by the Loan Documents shall be impaired prior to the anticipated completion of such cure; and (iii) Lender’s immediate exercise of any remedies provided in this Mortgage or by law is not necessary for the protection or preservation of the Premises or Lender’s security interest therein or lien thereon, and Mortgagor shall immediately commence and diligently pursue the cure of such default;

(d) Mortgagor, as landlord or sublandlord, as the case may be, shall assign or otherwise encumber the Rents or any interest therein without first obtaining the written consent of Lender;

(e) Should any representation or warranty made by Mortgagor in, under or pursuant to any of the Loan Documents be false or misleading in any material respect as of the date on which such representation or warranty was made or deemed remade;

(f) Should any of the Loan Documents cease to be in full force and effect or be declared null and void, or cease to constitute valid and subsisting liens and/or valid and perfected security interests in, to, or upon the Premises, or should Mortgagor contest or deny in writing any of its liabilities or Obligations under any of the Loan Documents;

(g) Should any violation of Section 3.11 (a) occur or should any other event occur which, under the terms of the Loan Documents, would permit Lender to accelerate the maturity of the Indebtedness;

(h) Should Mortgagor fail at any time to satisfy the requirements of Section 3.7 and such failure shall continue for fifteen (15) days after written notice thereof;

(i) Should any Exculpated Party commence any case, proceeding or other action seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it and its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking to have an order for relief entered against it as debtor, or seeking appointment of a Receiver for it or for all or any substantial part of its property (collectively, a “Proceeding”) and such events cause or result in a Material Adverse Change;

(j) Should any Exculpated Party take an action to authorize any of the actions set forth above in paragraph (h)of this Section 4.1;

(k) Should any Proceeding be commenced against any Exculpated Party, and such Proceeding results in the entry of an order for relief against it which is not fully stayed within seven (7) business days after the entry thereof or remains undismissed for a period of forty-five (45) days;

(l) Should (i) final judgment, other than a final judgment in connection with any condemnation, and including any judgment or other final determination of any contest permitted by Section 3.5 of this Mortgage, be entered against Mortgagor that (a) adversely affects the value, use, or operation of the Premises, or (b) adversely affects, or reasonably may tend to adversely affect, the validity, enforceability, or priority of the lien or security interests created in and by this Mortgage, or the other Loan Documents, or both, or (ii) execution or other final process issue thereon with respect to the Premises, and Mortgagor shall fail to discharge the same, or provide for its discharge in accordance with its terms, or procure a stay of execution thereon, in any event within thirty (30) days from entry, or shall not within such period, or such longer period during which execution on such judgment shall have been stayed, appeal therefrom or from the order, decree, or process upon or pursuant to which such judgment shall have been entered and cause its execution to be stayed during such appeal, or if on appeal such order, decree, or process shall be affirmed and Mortgagor shall not discharge such judgment or provide for its discharge in accordance with its terms within thirty (30) days after the entry of such order or decree of affirmation, or if any stay of execution on appeal is released or otherwise discharged; or

(m) should a default or event of default occur and remain uncured at the expiration of any applicable cure period under any mortgage, deed of trust, encumbrance, lien or security agreement encumbering all or any portion of the Premises which is subordinate or superior to the lien of this Mortgage or if any party under any such instrument shall commence a foreclosure or other collection or enforcement action in connection therewith, provided, however, that this provision shall not be deemed to be a waiver of the provisions of Section 3.11 prohibiting further encumbrances or of any other provision of this Mortgage, it being understood that it is an event of default under this Mortgage to permit any further mortgage, encumbrance, lien or security agreement to encumber all or any portion of the Mortgaged Property without the prior written consent of the Mortgagee.

ARTICLE FIVE

REMEDIES

5.1

Remedies.

(a) Upon the occurrence of an Event of Default, Lender, at its option, may at any time thereafter declare the entire Indebtedness to be immediately due and payable and the same shall thereupon become immediately due and payable, without any further presentment, demand, protest or notice of any kind being required and Lender, at its option and in its sole discretion (subject to the rights of the holder of the Senior Mortgage), shall also be entitled to do any of the following:

(i) in person, by agent, or by a Receiver, without regard to the adequacy of security, the solvency of Mortgagor or the condition of the Premises, without obligation to do so and without notice to or demand upon Mortgagor, enter upon and take possession of the Premises, or any part thereof, in its own name or in the name of a Trustee and do any acts which Lender deems necessary to preserve the value or marketability of the Premises; sue for or otherwise collect the Rents, and apply the same, less costs and expenses of operation and collection, including reasonable attorneys’ fees, against the Indebtedness and Obligations, all in such order as Lender may determine; appear in and defend any action or proceeding purporting to affect, in any manner whatsoever, the Obligations, the security hereof or the rights or powers of Lender; pay, purchase or compromise any encumbrance, charge or lien that in the judgment of Lender is prior or superior hereto; and in exercising any such powers, pay necessary expenses, employ counsel and pay reasonable attorneys’ fees;

(ii) as a matter of strict right and without notice to Mortgagor or anyone claiming under Mortgagor, and without regard to: (a) the solvency of Mortgagor, (b) whether there has been or may be any impairment of or diminution in the value of the Premises, or (c) whether the amount of the Indebtedness exceeds the then value of the Premises, apply ex parte to any court having jurisdiction to appoint a Receiver to enter upon and take possession of the Premises, and Mortgagor hereby waives notice of any application therefor, provided a hearing to confirm such appointment with notice to Lender is set within the time required by law (any such Receiver shall have all the powers and duties of Receivers in similar cases and all the powers and duties of Lender in case of entry as provided herein, and shall continue as such and exercise all such powers until the date of confirmation of sale, unless such Receivership is sooner terminated);

(iii) commence an action to foreclose this Mortgage in the manner provided in this Mortgage or by law; and

(iv) with respect to any Collateral, proceed as to both the real and personal property in accordance with Lender’s rights and remedies in respect of the Real Estate and Improvements, or proceed to sell said Collateral separately and without regard to the Real Estate and Improvements in accordance with Lender’s rights and remedies to the Collateral.

(b) In (i) any action to foreclose the lien of this Mortgage or enforce any other remedy of Lender under any of the Loan Documents, or (ii) any other proceeding whatsoever in connection with any of the Loan Documents or the Premises in which Lender is named as a party, there shall be allowed and included, as additional indebtedness in the judgment or decree for sale

resulting therefrom, all expenses paid or incurred in connection with such proceeding by or on behalf of Lender including, without limitation, attorneys’ and paralegals’ fees, appraisers’ fees, outlays for documentary and expert evidence, stenographers’ charges, publication costs, land and environmental survey costs, and costs (which may be estimated as to items to be expended after entry of such judgment or decree) of procuring all abstracts of title, title certificates, title searches and examinations, title insurance policies, Torrens certificates, and any similar data and assurances with respect to the title to the Premises as Lender may deem reasonably necessary either to prosecute or defend in such proceeding or to evidence to bidders at any sale pursuant to such decree the true condition of the title to or value of the Premises. All expenses and fees of the ongoing nature, and such expenses and fees as may be incurred in the protection of the Premises and the maintenance of the lien of this Mortgage thereon in any litigation affecting the Loan Documents, or the Premises, including probate and bankruptcy proceedings, or in preparation for the commencement or defense of any proceeding or threatened suit or proceeding in connection therewith, shall upon demand of Lender be immediately due and payable by Mortgagor with interest thereon at the Default Rate and shall become a part of the Indebtedness secured by this Mortgage.

(c) Unless otherwise provided herein, if Mortgagor shall at any time fail to perform or comply with any of the terms, covenants and conditions required on Mortgagor’s part to be performed and complied with under any of the Loan Documents or any other agreement that, under the terms of this Mortgage, Mortgagor is required to perform, then Lender may, at its option and in its sole discretion:

(i) make any payments hereunder or thereunder payable by Mortgagor; and/or

(ii) after the expiration of any applicable grace period and subject to Lender’s rights to contest certain obligations specifically granted in this Mortgage, perform any such other acts thereunder on part of the Mortgagor to be performed and enter upon the Premises for such purpose.

(d) In any foreclosure sale of the Premises to satisfy the Indebtedness, the Premises, including the Real Estate and Improvements, may be sold in one parcel (i.e. as a single entity) or in two or more parcels and, otherwise, in such manner or order as Lender, in its sole discretion, may elect or as the court having jurisdiction over such foreclosure sale may otherwise order or direct.

(e) The proceeds of any foreclosure sale of the Premises shall be distributed and applied in accordance with the applicable law of the State of Illinois or as otherwise directed by order of the court in which this Mortgage is foreclosed.

(f) All remedies of Lender provided for herein are cumulative and shall be in addition to any and all other rights and remedies provided in the other Loan Documents or by law, including any right of offset. The exercise of any right or remedy by Lender hereunder shall not in any way constitute a cure or waiver of any default or Event of Default hereunder or under the Loan Documents, or invalidate any act done pursuant to any notice of default, or prejudice Lender in the exercise of any of its rights hereunder or under the Loan Documents.

(g) To the extent permitted by law, Mortgagor hereby waives its right of redemption in the event of foreclosure.

(h) Notwithstanding the provisions of Article Five of this Mortgage, any foreclosure of all or any portion of the lien of this Mortgage shall be in accordance with the Illinois Mortgage Foreclosure Act, 735 ICLS 5/15-1101 et seq., as from time to time amended (the “Act”).

(i) Mortgagor acknowledges that the transaction of which this Mortgage is a part if a transaction which does not include either agricultural real estate (as defined in Section 15-1201 of the Act) or residential real estate (as defined in Section 15-1219 of the Act), and to the fullest extent permitted by law. Mortgagor hereby voluntarily and knowingly waives its rights to reinstatement and redemption as allowed under Section 15-1601(b) of the Act, and to the full extent permitted by law, the benefits of all present and future valuation, appraisement, homestead, exemption, stay, redemption and moratorium law, under any state or federal law.

ARTICLE SIX

SECURITY AGREEMENT AND FIXTURE FILING

6.1

Security Agreement.

Mortgagor hereby assigns and grants to Lender a present security interest in and to the Rents, Contract Rights, Intangible Personal Property, Tangible Personal Property, Proceeds, Right to Encumber and Other Rights and Interests described in Article Two and in and to any other part or component of the Premises which may not be deemed real property or which may not constitute a “fixture” (within the meaning of the Code (as hereinafter defined)), and all replacements, substitutions, and additions of, for and to the same, and the proceeds thereof (collectively, the “Collateral”) in order to secure payment of the Indebtedness and performance by the Mortgagor of the other Obligations. This Mortgage shall constitute a Security Agreement within the meaning of the Uniform Commercial Code (the “Code”) of the State in which the Real Estate is located.

6.2

Fixture Filing.

This Mortgage, upon recording or registration in the real estate records of the proper office, shall constitute a “fixture filing” within the meaning of the Code with respect to any and all Fixtures included within the foregoing description and definition of the Premises and any Collateral that may now be or hereafter become “fixtures” within the meaning of the Code.

6.3

Remedies.

If any Event of Default occurs under this Mortgage, Lender, in addition to its other rights and remedies provided under this Mortgage, shall have all the rights and remedies available to a secured party under the Code as well as all other rights and remedies available at law or in equity (subject to the rights of the holder of the Senior Mortgage). Mortgagor upon request by Lender, will assemble the Collateral and make it available to Lender, at a place Lender designates to allow Lender to take possession or dispose of the Collateral. Mortgagor agrees that five (5) days’ prior written notice of the time and place of the sale of the Collateral, sent to Mortgagor in the manner provided for the mailing of notices herein, is reasonable notice to Mortgagor. The sale of the Collateral may be conducted by an employee or agent of Lender and any Person, including both the Mortgagor and Lender, shall be eligible to purchase any part or all of the Collateral at the sale. The reasonable expenses of retaking, holding, preparing for sale, selling and the like incurred by Lender shall include, but not be limited to, attorneys’ and paralegals’ fees and legal expenses incurred by Lender, and shall be paid by Mortgagor.

6.4

Waivers.

Mortgagor waives any right to require Lender to (i) proceed against any Person, (ii) proceed against or exhaust any Collateral or (iii) pursue any other remedy in its power. Mortgagor further waives any defense arising by reason of any power and any defense arising by reason of any disability or other defense of Mortgagor or any other Person, or by reason of the cessation from any cause whatsoever of the liability of Mortgagor or any other Person. Until the Indebtedness shall have been paid in full, Mortgagor shall not have any right to subrogation, and Mortgagor waives any right to enforce any remedy which Mortgagor now has or may hereafter have against Lender or against any other Person and waives any benefit of and any right to participate in any Collateral or security whatsoever now or hereafter held by Lender for or with respect to the Indebtedness and/or the Obligations.

6.5

Authorization.

Mortgagor hereby authorizes Lender at any time and from time to time during the life of the Loan to file in any filing office in any Code jurisdiction any financing statements, amendments or addendums thereto and continuation statements (the “UCC Documents”) in order to perfect or continue the perfection of any security interest granted under this Mortgage or any of the other Loan Documents. Mortgagor agrees to provide any information needed to complete such UCC Documents to Lender promptly upon request.

Mortgagor shall pay to Lender, within five (5) business days of written demand, any and all costs and expenses incurred by Lender in connection with the preparation, processing and filing of any such UCC Documents, including reasonable attorneys’ fees and all disbursements. Such costs and expenses shall bear interest at the Default Rate from the date paid by Lender until the date repaid by Mortgagor and such costs and expenses, together with such interest, shall be part of the Indebtedness and shall be secured by this Mortgage.

6.6

Preservation of Mortgagor’s Existence.

Mortgagor shall do all things necessary to preserve and keep in full force and effect its existence, franchises, rights and privileges under the laws of the state of its formation and of the State of Illinois.

6.7

Notice of Change.

Without giving at least thirty (30) days’ prior written notice to Lender, Mortgagor shall not: (i) change its jurisdiction of organization; (ii) change the location of its place of business (or chief executive office if more than one place of business); or (iii) add to or change any location at which any of the Collateral (as defined in Section 6.1) is stored, held or located.

ARTICLE SEVEN

MISCELLANEOUS

7.1

Notices, Consents, and Approvals.

Any notice, consent, or approval that Lender or Mortgagor may desire or be required to give to the other shall be in writing and shall be mailed or delivered to the intended recipient thereof at its address set forth below or at such other address as such intended recipient may, from time to time, by notice in writing, designate to the sender pursuant hereto. Any such notice, consent, or approval shall be deemed

effective (a) if given by nationally recognized overnight courier for next day delivery, one (1) business day after delivery to such courier, or (b) if given by United States mail (registered or certified), two (2) business days after such communication is deposited in the mails or (c) if given in Person, when written acknowledgment of receipt thereof is given. Except as otherwise specifically required herein, notice of the exercise of any right or option granted to Lender by this Mortgage is not required to be given.

(a)

If to Lender:

PGRT Equity, L.L.C.

77 West Wacker Drive, Suite 3900

Chicago, Illinois 60601

Attention: Jeffrey Patterson

and

PGRT Equity, L.L.C.

77 West Wacker Drive, Suite 3900

Chicago, Illinois 60601

Attention: James Hoffman

(b)

If to Mortgagor:

Continental Towers, L.L.C.

c/o CTA General Partner, L.L.C.

77 West Wacker Drive, Suite 3900

Chicago, Illinois 60601

Attention: Jeffrey Patterson

7.2

Time of Essence.

It is specifically agreed that time is of the essence for all of the terms and provisions contained in this Mortgage.

7.3

Covenants of Mortgage Run with Title to the Real Estate.

The covenants and obligations set forth in this Mortgage are intended as, shall be deemed and are hereby declared to be covenants running with the title to the land which constitutes the Real Estate and any and all portions(s) thereof, and such covenants and obligations shall be binding upon, and enforceable by the owner and holder of this Mortgage personally against, the Mortgagor and any successor in title to the Mortgagor who or which shall acquire and/or hold title to the Real Estate while the same is subject to and encumbered by this Mortgage. Every person or entity who or which shall have, claim, own, hold, accept or otherwise acquire title to the Real Estate, whether or not such title is reflected in the Public Records of the State and County in which the Real Estate is located, shall be conclusively presumed and deemed to have consented and agreed to personally perform each and every covenant and obligation of the Mortgagor contained in this Mortgage, to the same extent as the original Mortgagor, whether or not any reference to this Mortgage is contained in the document or instrument pursuant to which such person or entity shall have acquired title to the Real Estate and whether or not such person or entity shall have expressly agreed in writing to assume or perform the covenants and obligations of the Mortgagor contained in this Mortgage.

7.4

Governing Law.

This Mortgage shall be governed by and construed in accordance with the laws of the state in which the Real Estate is located. To the extent that this Mortgage may operate as a security agreement under the Code, Lender shall have all rights and remedies conferred therein for the benefit of a Secured Party.

7.5

Severability.

If any provision of this Mortgage, or any paragraph, sentence, clause, phrase, or word, or the application thereof, in any circumstance, is held invalid, the validity of the remainder of this Mortgage shall be construed as if such invalid part were never included herein.

7.6

Headings.

The headings of articles, sections, paragraphs, and subparagraphs in this Mortgage are for convenience of reference only and shall not be construed in any way to limit or define the content, scope, or intent of the provisions hereof.

7.7

Grammar.

As used in this Mortgage, the singular shall include the plural, and masculine, feminine, and neuter pronouns shall be fully interchangeable, where the context so requires.

7.8

Deed in Trust.

If title to the Premises or any part thereof is now or hereafter becomes vested in a trustee, any prohibition or restriction contained herein against the creation of any lien on the Premises shall be construed as a similar prohibition or restriction against the creation of any lien on or security interest in the beneficial interest of such trust.

7.9

Successors and Assigns.

This Mortgage and all provisions hereof shall be binding upon and enforceable against Mortgagor, its successors, assigns, legal representatives, and all other persons or entities claiming under or through Mortgagor, and the word “Mortgagor” when used herein, shall include all such persons and entities and any others liable for the payment of the Indebtedness or any part thereof, whether or not they have executed the Note or this Mortgage. The word “Lender” when used herein, shall include Lender’s successors, assigns, and legal representatives, including all other holders, from time to time, of the Note.

7.10

No Oral Change.

This Mortgage may only be modified, amended or changed by an instrument in writing signed by the Mortgagor and Lender, and may only be released, discharged or satisfied of record by an instrument in writing signed by Lender. No waiver of any term, covenant, condition, or provision of this Mortgage shall be effective unless given in writing by Lender and if so given by Lender shall only be effective in the specific instance in which given.

7.11

Entire Agreement.

This Mortgage and the other Loan Documents supersede, in all respects, all prior written or oral agreements between the Mortgagor and Lender relating to the Loan, this Mortgage and the other Loan Documents and there are no agreements, understandings, warranties or representations between the parties except as set forth in this Mortgage and the other Loan Documents.

7.12

Construction.

Mortgagor acknowledges that Mortgagor and Mortgagor’s counsel have reviewed this Mortgage and the other Loan Documents and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party will not be employed in the construction or interpretation of this Mortgage or the other Loan Documents or any amendments or schedules to any of the foregoing.

7.13

Limitation of Liability.

In consideration of the security provided by the Mortgagor to Lender for repayment of the Indebtedness, including, without limitation, the liens on and security interests in the Premises granted pursuant to the Mortgage and the assignment of the Rents and Leases made pursuant to the Assignment of Rents and Leases, upon the occurrence of an Event of Default under the Mortgage or under any of the other Loan Documents, Lender agrees that it shall not, except as otherwise set forth in this Section, seek to enforce, nor shall Lender be entitled to enforce, any deficiency or monetary judgment against Mortgagor, any partner of Mortgagor, any member of Mortgagor, or any beneficiary of Mortgagor (individually, an “Exculpated Party”, and collectively, the “Exculpated Parties”), personally, and shall not levy or execute judgment upon any property of the Exculpated Parties, other than the Premises; it being expressly agreed, acknowledged and understood, however, that (i) the foregoing limitation of the liability of an Exculpated Party shall not apply to the extent that such Exculpated Party is otherwise liable for the obligations of the Mortgagor by operation of law or is otherwise liable to Lender under any agreement, statute, regulation or any governing law; and (ii) nothing contained herein shall in any manner or way release, affect or impair:

(a) The existence of the Indebtedness and Obligations created in and evidenced by the Loan Documents;

(b) The enforceability of the liens, security interests and assignments created in and granted by the Loan Documents against the Premises;

(d) The right of the Lender to recover from the Mortgagor all Losses (as hereinafter defined) incurred by Lender (whether directly or indirectly) arising from or related to the following:

The failure to apply any Rents received by any of the Exculpated Parties or Mortgagor either within ninety (90) days prior to an Event of Default or any time after an Event of Default (all such Rents received during such periods being herein called “Recoverable Rents”) to (x) the payment of any amount due under the Loan Documents, including, without limitation, the Indebtedness; (y) the payment of all operating expenses of the Premises; or (z) the performance of any Obligations required under the Loan Documents;

provided, however, the Mortgagor shall not be liable to Lender under this subsection (A) for any Recoverable Rents in excess of the Recoverable Rents applied to the payment of the amounts and the performance of the Obligations set forth in (x), (y) and (z) above;

The misapplication or misappropriation of any tenant security deposits, advance or prepaid rents, cancellation or termination fees or other similar sums paid to or held by Mortgagor, any affiliate of the Mortgagor or any other person or entity (other than Lender) in connection with the operation of the Premises in violation of the Loan Documents or any leases affecting the Premises;

Any amount(s) necessary to repair or replace any damage to or destruction of the Premises which is caused by any willful or wanton act or omission on the part of any of the Exculpated Parties or Mortgagor including, without limitation, waste or any act of arson or malicious destruction by any of the Exculpated Parties or Mortgagor;

The failure to maintain insurance as required by the Loan Documents or any leases affecting the Premises or the failure to timely pay insurance premiums, real estate taxes, regular or special assessments or utility charges affecting the Premises;

All outstanding amounts due under the Indebtedness and Obligations, including principal, interest and other charges, due to a transfer of any interest in the Premises in violation of section 3.11 of the Mortgage;

Any insurance proceeds or condemnation awards received by any of the Exculpated Parties or Mortgagor and not delivered over to Lender or used for Restoration of the Premises in accordance with the terms of the Loan Documents;

Any fraud or willful misrepresentation of a material fact by any of the Exculpated Parties or Mortgagor in any document executed or presented to Lender in connection with the Loan; or

Any use, generation, storage, release, threatened release, discharge, disposal, or presence on, under, or about the Premises of any materials, substances or wastes defined or classified as hazardous or toxic under applicable Federal, State or local laws or regulations or arising out of or from any failure on the part of any of the Exculpated Parties or Mortgagor to comply with the provisions of the Environmental Indemnification Agreement.

As used herein, the term “Losses” means any and all claims, suits, liabilities (including, without limitation, strict liabilities), actions, proceedings, obligations, debts, damages (including, without limitation, offsets and abatements of Rent), costs, fines, penalties, charges, fees, expenses (including, without limitation, reasonable legal fees and expenses and other costs of defense and internal administrative fees assessed by Lender), judgments, awards, amounts paid in settlement of whatever kind or nature.

7.14

Waiver of Trial by Jury.

Mortgagor hereby waives, to the fullest extent permitted by Applicable Law, the right to trial by jury in any action, proceeding or counterclaim filed by any party, whether in contract, tort or otherwise, relating directly or indirectly to this Mortgage or any acts or omissions of the Mortgagor in connection therewith or contemplated thereby.

7.15

Expenses.

Mortgagor acknowledges and agrees that Lender shall impose certain administrative processing fees (the “Servicing Fees”) in connection with (i) the extension, renewal, modification, amendment and termination of the Loan Documents; (ii) the release or substitution of collateral therefor; (iii) the consideration of any consents, waivers and approvals with respect to the Premises or the Mortgagor; (iv) the review of any Lease or proposed Lease or the preparation or review of any tenant estoppel certificate or any subordination, nondisturbance and attornment agreement; or (v) any other services provided by Lender or any of its agents to or on behalf of the Mortgagor in connection with the Premises, the Loan Documents or the Indebtedness secured thereby (the occurrence of any of the foregoing shall hereinafter be referred to as a “Servicing Action”). Mortgagor hereby acknowledges and agrees to pay, immediately, with or without demand, all such Servicing Fees (as the same may be increased or decreased from time to time), and any additional fees of a similar type or nature that may be imposed by Lender from time to time, in connection with a Servicing Action. Mortgagor shall also be responsible for the payment of all fees and expenses of Lender’s outside attorneys in the event that Lender, in its sole discretion, shall determine that the assistance of an outside attorney is necessary to accomplish the Servicing Action.

7.16

Release.

Pursuant to the terms of that certain Amended and Restated Tax Indemnity Agreement dated as of January 10, 2006 by and among Prime Group Realty, L.P., a Delaware limited partnership, Roland E. Casati, an individual, Richard A. Heise, Sr., an individual, and CTA General Partner, L.L.C. (the “TIA”), Mortgagor has agreed to grant to a party to be designated by Prime Group Realty, L.P. (“Optionor”) an option (the “Option”) to purchase portions of the Premises which are not improved with buildings (the “Option Property”) to permit the construction of additional improvements on the Premises. In the event that Optionor exercises the option, Lender consents to the sale of the Option Property to the Optionor and, upon request of Mortgagor and conditioned upon the deposit of the net proceeds of such sale being applied to the payment of the Obligations, shall release the Option Property from the lien of the Mortgage.

7.17

Intentionally Deleted.

7.18

Intentionally Deleted.

7.19

Intentionally Deleted.

7.20

Intentionally Deleted.

7.21 Senior Mortgage. Notwithstanding anything contained herein to the contrary, so long as (1) that certain Amended and Restated Mortgage, Security Agreement and Fixture Financing Statement dated as of the date hereof executed by Mortgagor for the benefit of WELLS FARGO BANK, N.A., as trustee for the registered holders of COBALT CMBS COMMERCIAL MORTGAGE TRUST 2006-C1, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2006-C1 (“Senior Lender”) granting Senior Lender a first priority lien on the Premises (as it may be amended, modified,

reinstated or otherwise changed from time to time, the “Senior Mortgage”), and (2) that certain Amended and Restated Subordination and Standstill Agreement dated as of the date hereof executed by Mortgagee for the benefit of Senior Lender are in full force and effect, Mortgagee and Mortgagor acknowledge and agree that:

(a) during any period that payments from Mortgagor are being collected pursuant to the Senior Mortgage for the purpose of escrowing for (i) taxes, assessments or other charges imposed on the Premises or any portion thereof, (ii) insurance premiums due on the insurance policies required under the Senior Mortgage or this Mortgage, or (iii) any other purpose, Mortgagee shall not exercise any of its rights under this Mortgage or the Loan Documents to require any such escrow;

(b) all rights of Mortgagee under this Mortgage and the Loan Documents to the Premises and the proceeds thereof (including, without limitation, assignments of leases and rents, and any rights with respect to insurance proceeds and condemnation awards) shall be expressly subject and subordinate to the rights of Senior Lender and its successors and assigns under the Senior Mortgage;

(c) Mortgagor shall perform all of Mortgagor’s obligations under the Senior Mortgage, including Mortgagor’s covenants to make payments when due. Performance by Mortgagor of its obligations under the Senior Mortgage shall constitute performance hereunder of the corresponding obligations contained herein (not including any obligations to pay the indebtedness secured by this Mortgage as and when due); and

(d) Upon the occurrence of a default under the Senior Mortgage, in addition to any other rights or remedies available to Mortgagee, Mortgagee may, but need not, make any payment or perform any act required to cure or attempt to cure any said default under any of the Senior Mortgage in any manner and form deemed expedient by Mortgagee. Mortgagee shall not be responsible for determining the validity or accuracy of any claim of default made by the Mortgagee under the Senior Mortgage and the payment of any sum by Mortgagee in curing or attempting to cure any alleged default or omission shall be presumed conclusively to have been reasonable, justified and authorized. Mortgagor hereby grants to Mortgagee an irrevocable power of attorney, which power of attorney is coupled with an interest, for the term of this Mortgage to cure any default or forfeiture which may occur under the Senior Mortgage. Mortgagee further agrees to execute a formal and recordable power of attorney granting such right at any time during the existence of this Mortgage if requested by Mortgagor. All monies paid by Mortgagee in curing any default under the Senior Mortgage, including reasonable attorneys’ fees and costs in connection therewith, shall bear interest from the date or dates of such payment at the Default Rate (as set forth in the Note), shall be paid by Mortgagor to Mortgagee on demand, and shall be deemed a part of the Indebtedness and recoverable as such in all respects. Any inaction on the part of the Mortgagee shall not be construed as a waiver of any right accruing to Mortgagee on account of any Default hereunder.

(e) To the fullest extent possible, the terms and provisions of the Senior Mortgage shall be read together with the terms and provisions of this Mortgage such that the terms and provisions of this Mortgage shall supplement, rather than conflict with, the terms and provisions of the Senior Mortgage; provided, however, that, notwithstanding the foregoing, in the event any of the terms or provisions of this Mortgage conflict with any of the terms or provisions of the Senior Mortgage, such that it is impractical for such terms or provisions to coexist, the terms or provisions of the Senior Mortgage shall govern and control for all purposes and performance by Mortgagor of the terms or provisions contained in the Senior Mortgage shall be deemed to be

performance hereunder of any conflicting terms and provisions. The inclusion in this Mortgage of terms and provisions, supplemental rights or remedies in favor of Lender which are not addressed in the Senior Mortgage shall not be deemed to be a conflict with the Senior Mortgage and all such additional terms, provisions, supplemental rights or remedies contained herein shall be given full force and effect.

7.22

Intentionally Deleted.

IN WITNESS WHEREOF, Mortgagor has caused this Mortgage to be executed as of the date hereinabove first written.

CONTINENTAL TOWERS, L.L.C., a Delaware limited liability company

By: CTA GENERAL PARTNER, LLC,
a Delaware limited liability company,
its sole member

By: CTA MEMBER, INC.,
a Delaware corporation,
its managing member

By: [s] Paul G. Del Vecchio

Name: Yochanan Danziger,
by Paul G. Del Vecchio,
Attorney-In-Fact

Title: President

STATE OF ILLINOIS

COUNTY OF COOK

This instrument was ACKNOWLEDGED before me on December 29, 2006, by PAUL G. DEL VECCHIO, Attorney-In-Fact for YOCHANAN DANZIGER, the President of CTA MEMBER, INC., a Delaware corporation, as managing member of CTA GENERAL PARTNER, LLC, a Delaware limited liability company, as the sole member of CONTINENTAL TOWERS, L.L.C., a Delaware limited liability company, on behalf of said limited liability company.

[S E A L]

[s] Barbara M. DeVitto

Notary Public, State of Illinois

My Commission Expires:

Barbara M. DeVitto

11/09/2008

Printed Name of Notary Public

EXHIBIT A

Legal Description of Real Estate

REAL PROPERTY IN THE CITY OF ROLLING MEADOWS, COUNTY OF COOK, STATE OF ILLINOIS, DESCRIBED AS FOLLOWS:

Parcel 1:

Excepting therefrom that part of Lot 1 dedicated for roadway purposes according to instrument recorded December 2, 2002 as Document No. 0021325095;

Parcel 2:

portions of that part of the Northeast 1/4 of Section 17, Township 41 North, Range 11 East of the Third Principal Meridian, in Cook County, Illinois described as follows:

Parcel 3:

Parcel 4:

Reciprocal Easement Agreement dated December 29, 2006 and recorded January ___, 2007, as Document 0700240149 made by and between Continental Towers, L.L.C. and Continental Towers Associates III, LLC for vehicular and pedestrian ingress and egress and use of parking area.

Common address: Continental Towers, 1701 Golf Road, Rolling Meadows, Illinois

PINS: 08-16-100-034 (part) and 08-16-100-035

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EXHIBIT B

Other Loan Documents

1.	Second Amended and Restated Promissory Note dated as of the date executed by Borrower for the benefit of Lender.

2.	Third Amended and Restated Loan Agreement dated as of the date hereof by and among Borrower, Richard A. Heise, and Lender.

3.	Second Amended and Restated Mortgage dated as of the date hereof by and among CTAIII and Lender.

4.	Second Amended and Restated Assignment of Rents and Leases dated as of the date hereof executed by Borrower for the benefit of Lender.

5.	Second Amended and Restated Environmental Indemnity Agreement dated as of the date hereof executed by Borrower for the benefit of Lender.

6.	Amended and Restated Promissory Note dated as of November 21, 2006 executed by Borrower and CTAIII for the benefit of Lender.

7.	Second Amended and Restated Loan Agreement dated as of November 21, 2006 by and among Borrower, CTAIII, Richard A. Heise, and Lender.

8.	Amended and Restated Mortgage dated as of November 21, 2006 by and among Borrower, CTAIII and Lender.

9.	Amended and Restated Assignment of Rents and Leases dated as of November 21, 2006 executed by Borrower and CTAIII for the benefit of Lender.

10.	Amended and Restated Environmental Indemnity Agreement dated as of November 21, 2006 executed by Borrower and CTAIII for the benefit of Lender.

11.

12.	First Amendatory Agreement dated April 30, 1993, and recorded June 9, 1993, as Document Number 93434372, between American National Bank and Trust Company of Chicago, as Trustee, Continental Towers Associates – I, General Electric Capital Corporation and other parties.

13.	Second Amendatory Agreement dated November 1, 1994, and recorded December 30, 1994, as Document Number 04084292, between American National Bank and Trust Company of Chicago, as Trustee, Continental Towers Associates – I, General Electric Capital Corporation and other parties.

14.	Loan Modification and Amended and Restated Loan Agreement dated June 1, 1995, and recorded August 17, 1995, as Document Number 95545031, between American National Bank and Trust

Company of Chicago, as Trustee, Continental Towers Associates – I, General Electric Capital Corporation and other parties.

15.

16.

17.	Assignment of Liens and Documents dated December 12, 1997, and recorded December 17, 1997, as Document Number 97947241, from General Electric Capital Corporation to Prime Group Realty, L.P.

18.	Assignment of Liens and Documents dated December 15, 1997, and recorded December 17, 1997, as Document Number 97947243, from Prime Group Realty, L.P. to BankBoston, N.A.

19.	Reassignment of Liens and Documents dated May 4, 1998, and recorded May 18, 1998, as Document Number 98407007, from BankBoston, N.A. to Prime Group Realty, L.P.

20.

21.	First Mortgage dated December 27, 1985, and recorded December 30, 1985, as Document 85342789, made by American National Bank and Trust Company, as Trustee under Trust 40935, to General Electric Capital Corporation, to secure an indebtedness of $105,000,000.00.

22.	Third Loan Modification Agreement (modifying item 11 above), dated December 1, 1988, and recorded January 10, 1989, as Document 89013686.

23.	Fourth Loan Modification Agreement (modifying item 11 above), dated December 1, 1989, and recorded January 25, 1990, as Document 90041713.

24.	Fifth Loan Modification Agreement (modifying item 11 above), dated December 1, 1990, and recorded March 8, 1991, as Document 91105421. (Reassignment in item 9 above applies to this Mortgage as well.)

25.

26.	1997 Promissory Note dated October 1, 1991, with an amended and restated effective date of December 12, 1997, in the original principal amount of $163,103,099.24 made by American

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National Bank and Trust Company of Chicago, as Trustee of Trust 40935, in favor of General Electric Capital Corporation.

27.

28.	Hazardous Substances Indemnity Agreement dated as of October 1, 1991, as amended by the Loan Agreement.

29.	All UCC Financing Statements executed in connection with any of the foregoing.

30.

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EXHIBIT C

Credit Leases

Any Lease of all or any part of the Property in excess of (x) 90,000 rentable square feet (inclusive of expansion options), or (y) 20,000 rentable square feet (inclusive of expansion options) with a term greater than five (5) years (inclusive of extension options).

EX-10 24 exhibit-10_77.htm EXHIBIT 10.77

EXHIBIT 10.77

SECOND AMENDED AND RESTATED PROMISSORY NOTE

In the original principal amount of $83,024,815.00	Dated: October 1, 1991
	Amended and Restated as of the
	Effective Date December 29, 2006

FOR VALUE RECEIVED, CONTINENTAL TOWERS, L.L.C., a Delaware limited liability company, whose mailing address is c/o CTA General Partner, L.L.C., 77 W. Wacker Drive, Suite 3900, Chicago, IL 60601 (“Borrower”) promises to pay to the order of PGRT EQUITY, L.L.C., a Delaware limited liability company, whose mailing address is 77 W. Wacker Drive, Suite 3900, Chicago, IL 60601 (“Holder”), or any subsequent holder of this Note, the principal sum of Eighty Three Million Twenty Four Thousand Eight Hundred Fifteen and 00/100 ($83,024,815.00), with interest on the unpaid balance of such amount from the date hereof at the rates of interest specified herein.