918958--3/16/2007--CRESCENT_REAL_ESTATE_EQUITIES

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{investment, property, distribution}

{loan, real, estate}

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{provision, law, control}

{control, financial, internal}

{personnel, key, retain}

{regulation, change, law}

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Our failure to have an effective system of internal controls over financial reporting could hinder our ability to accurately or timely report our financial results, which could have an adverse effect on our business, results of operations or financial condition. We derive the substantial majority of our office rental revenues from geographically concentrated markets. Our performance and value are subject to general risks associated with the real estate industry. We depend on leasing office space to tenants on economically favorable terms and collecting rent from our tenants, who may not be able to pay. We may experience difficulty or delay in renewing leases or re-leasing space. Our results of operations depends on the ability of El Paso Energy to meet its obligations pursuant to its lease termination agreement with us. We may have limited flexibility in dealing with our jointly owned investments. The management and leasing agreements under which we operate our Office Properties owned through joint ventures may be terminated after an initial period. The performance of our Resort Residential Development Properties is affected by national, regional and local economic conditions. In many cases, we do not develop our Resort Residential Development Properties and are dependent on the developer of these properties. The revenues from our eight Resort/Hotel Properties depend on third-party operators that we do not control. The revenues from our eight Resort/Hotel Properties are subject to risks associated with the hospitality industry. Development and construction risks could adversely affect our profitability. Many real estate costs are fixed, even if income from our properties decreases. Payment of distributions on any class of our shares may be adversely affected by the level of our debt and the terms and number of our other shares that rank on an equal basis with or senior to that class of shares. The amount of debt that we have and the restrictions imposed by that debt could adversely affect our business and our financial condition. We are obligated to comply with financial and other covenants in our debt that could restrict our operating activities, and the failure to comply could result in defaults that accelerate the payment under our debt. Many factors affect the trading price of our shares. Rising interest rates could adversely affect our cash flow and the market price of our outstanding debt securities and preferred shares. The level of our distributions to our common shareholders is highly dependent on the implementation of our Strategic Plan. The terms of some of our debt may prevent us from paying distributions on our shares. Mezzanine loans involve greater risks of loss than senior loans secured by income producing properties. The use of repurchase agreements to fund our mezzanine notes exposes us to risks. Environmental problems are possible and may be costly. Compliance with the Americans with Disabilities Act could be costly. Our insurance coverage on our properties may be inadequate or unavailable, which may have a material adverse effect on our business. Competition for acquisitions and dispositions could adversely affect us. Acquisitions may fail to perform as expected. We are dependent on our key personnel whose continued service is not guaranteed. Provisions of our declaration of trust and bylaws could inhibit changes in control or discourage takeover attempts beneficial to our shareholders. Your ownership of our shares is subject to limitation for REIT tax purposes. The number of shares available for future sale could adversely affect the market price of our publicly traded securities. Failure to qualify as a REIT would cause us to be taxed as a corporation, which would substantially reduce funds available for payment of distributions.

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918958--3/16/2007--CRESCENT_REAL_ESTATE_EQUITIES_CO