RE may lag in recovery.

Real estate will come back, but not quite yet.

During 1992, CDI/East acquired a major office building in the Galleria area of Houston, Texas. This 400,000-square-foot, Class A building was purchased with

a specific view toward value appreciation, and not for immediate cash-on-cash returns --although the going-in return was satisfactory.

CDI/East had focused on Houston in 1991, as a stable market that had been recovering dramatically since 1989. Job growth and diversification: were spurring the recovery of a recession that had begun in Houston in 1982. The signs were encouraging, and the ability to predict short term increases in values (two to three years) was something that CDI/East felt confident doing.

The property was acquired in March of 1992. Almost at the same time, the market began to soften, because of large amounts of sublet space being offered. Notwithstanding the market problems, the building outperformed our projections for the year by about 10 percent.

1993 will be another story. Instead of market rents rising over the next year, we believe that they 'will remain fiat. Obviously, the rent increases that were predicted for 1993 may not be in place until the following year, thereby lengthening the time frame for property to reach its projected level of stabilization.

Based on our experience during the past year, the market remains generally soft; good deals are hard to find; in most markets the decline will continue: there are still pockets of opportunity, but they must be found through diligent spade-work. CDI/East is continuing to focus on quality properties which are held by distressed owners, rather than seeking distressed properties.

We are continuing our policy of calculated slow growth through selectivity. After a long search, we have entered into negotiations for an extremely high quality office building in the Atlanta market. We hope this deal will close by the end of the first quarter of this year.

Although the economy is showing signs of optimism, such as the dramatic increase in retail sales at Christmas, the major element that will favorably affect commercial real estate is growth. As the economy recovers, I believe that the real estate market will follow-but, two years behind.

We will continue to search for pockets of opportunity.