UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A
Amendment No. 1

(Mark One)
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
OR
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 0-6201

BRESLER & REINER, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		52-0903424
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification Number)
11200 Rockville Pike, Suite 502
Rockville, Maryland		20852
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (301) 945-4300

Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.01 par value

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. Yes o No x

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

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. Yes o No x

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 registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K/A or any amendment to this Form 10-K/A. 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 Exchange Act). Yes o No x

The aggregate market value of the voting stock held by non-affiliates (1,319,840 shares) was $38,407,344 as of June 30, 2006. The aggregate market value was computed by reference to the last sale of the Common Stock of the Registrant at $29.10 per share. For purposes of this computation, directors, officers and holders of 5% or more of the Registrant’s Common Stock are considered affiliates of the Registrant at that date.

The number of shares of the registrant’s Common Stock outstanding as of March 29, 2007 was 5,477,212.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Report incorporates by reference information from the definitive Proxy Statement for the registrant’s 2007 Annual Meeting of Stockholders to be held on June 13, 2007.

BRESLER & REINER, INC.

ANNUAL REPORT ON
FORM 10-K/A
Amendment No. 1

For the Fiscal Year Ended December 31, 2006

TABLE OF CONTENTS

			Page
PART I
	Item 1	Business		2
	Item 1A	Risk Factors		6
	Item 1B	Unresolved Staff Comments		10
	Item 2	Properties		11
	Item 3	Legal Proceedings		15
	Item 4	Submission of Matters to a Vote of Security Holders		15
PART II
	Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters		16
	Item 6	Selected Financial Data		17
	Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
	Item 7A	Quantitative and Qualitative Disclosures About Market Risk		28
	Item 8	Financial Statements and Supplementary Data		29
	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		29
	Item 9A	Controls and Procedures		29
	Item 9B	Other Information		30
PART III
	Item 10	Directors, Executive Officers of the Registrant and Corporate Governance		31
	Item 11	Executive Compensation		31
	Item 12	Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters		31
	Item 13	Certain Relationships, Related Transactions and Director Independence		31
	Item 14	Principal Accounting Fees and Services		31
PART IV
	Item 15	Exhibits and Financial Statement Schedules		32
		Signatures		35

EXPLANATORY NOTE

The Company is amending our Form 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission (“SEC”) on April 2, 2007 (the “Original Filing”) to correct and restate our consolidated financial statements contained therein and related disclosures for errors that we identified subsequent to its filing. As described in Note 21 to our consolidated financial statements, this amendment is to correct errors identified in our consolidated statements of cash flows for the years ended December 31, 2006, 2005 and 2004. As part of this restatement, we have also recorded certain other errors considered immaterial in our consolidated balance sheet as of December 31, 2006, our consolidated statement of operations and consolidated statement of changes in shareholders’ equity for the year ended December 31, 2006.

For the convenience of the reader, this Form 10-K/A sets forth the originally filed Form 10-K in its entirety. This Amendment No. 1 on Form 10-K/A continues to speak as of the date of our original Form 10-K and we have not updated the disclosures to speak as of a later date or to reflect subsequent results, events or developments. Information not affected by the restatement is unchanged and reflects the disclosures made at the time of the Original Filing. Accordingly, this Form 10-K/A should be read in conjunction with our SEC filings made subsequent to the Original Filing. The following items have been amended as a result of the restatement and are included in this Amendment No. 1 on Form 10-K/A:

· Part II—Item 6—Selected Financial Data

· Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations

· Part II—Item 9A—Controls and Procedures

· Part IV—Item 15—Exhibits and Financial Statement Schedules

Pursuant to the rules of the SEC, Item 15 of Part IV has been amended to contain the currently dated certifications from our principal executive officer and principal financial officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications of our principal executive officer and principal financial officer are attached to this Amendment No. 1 on Form 10-K/A as Exhibits 31.1, 31.2 and 32 respectively.

We have not amended and do not intend to amend our previously filed Annual Reports on Form 10-K as all periods affected by the restatement described above have been amended in this filing. We will be restating our condensed consolidated financial statements for the periods ended March 31, 2006, June 30, 2006 and September 30, 2006 in conjunction with filing our 2007 periodic reports on Form 10-Q for the respective periods. For this reason the previously issued condensed consolidated financial statements for the periods indicated should no longer be relied upon.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report, together with other statements and information publicly disseminated by the Company, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and includes this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe the Company’s future plans, strategies and expectations, are generally identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond the Company’s control and which could materially affect actual results, performances or achievements. Factors that may cause actual results to differ materially from current expectations include, but are not limited to the risk factors discussed in this Annual Report on Form 10-K/A. Accordingly, there is no assurance that the Company’s expectations will be realized. Except as otherwise required by the federal securities laws, the Company disclaims any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

The “Company” means Bresler & Reiner, Inc., a Delaware corporation, and one or more of its subsidiaries and affiliates, and, as the context may require, Bresler & Reiner, Inc. only.

ITEM 1. BUSINESS

Our Company

Bresler & Reiner, Inc. is a Delaware corporation that for over 40 years has been primarily engaged in the ownership of commercial, residential and hospitality properties and in the development of commercial and residential buildings and land.

We engage in real estate activities in the Philadelphia, Pennsylvania; Houston, Texas; Washington, D.C.; Wilmington, Delaware; Baltimore, Maryland; Maryland and Delaware Eastern Shore; and Orlando and Tampa, Florida, metropolitan areas. We are not involved in any operations outside of the United States of America.

Our Strategy

Our goal is to generate attractive risk-adjusted investment returns through ownership of operating properties and participation in development projects.

Operating Properties

To achieve our goal with regards to operating properties, we employ the following strategy:

· Target Properties that Have Stable Cash Flows and Present Upside Potential. We seek to acquire well located properties that have stable cash flows and also present upside potential that may result from valued added improvements, enhanced tenant services and strong management. We view existing vacancies or near-term lease expirations as opportunities to increase rental revenue.

· Employ Successful Bidding and Due Diligence Techniques. Our strong local relationships and effective due diligence allows us to make an informed offer based on a thorough evaluation of the property and its potential. We consider such factors as:

· economic and demographic conditions in the property’s local and regional market;

· the location, age, occupancy and rental rates of competing properties;

· the location, age, construction quality and design of the property;

· the current and projected cash flow of the property in its current condition;

· the potential to increase cash flow through moderate renovation and enhanced tenant service;

· the terms of existing debt on the property and the availability of new financing on favorable terms;

· the terms of tenant leases, including the relationship between the property’s current rents and market rents and the ability to increase rents upon lease rollover;

· the property’s current expense structure and the potential to increase operating margins;

· access to experienced local property managers and leasing agents; and

· whether we have or can achieve a sufficient concentration of properties in a sub-market to achieve economies of scale and enhanced service levels from local service providers.

· Engage Third Party Property Managers and Leasing Agents. We use third-party property managers and leasing agents who have a strong presence in the applicable local market to handle day-to-day operations and leasing activity of the properties. We believe property management and leasing is local in nature and that managers and leasing agents are an integral part of the property’s success. We hire property managers and leasing agents who embrace the idea of building a collaborative relationship with us, are highly motivated, offer value-added services and have solid relationships with high quality, cost-effective vendors. By clustering our properties, we are able to provide onsite property maintenance services that are both cost effective and better suited to respond to tenant requests in a timely manner, thereby increasing tenant loyalty and lowering tenant turnover costs.

· Employ Asset Management and Oversight. We engage in rigorous oversight and asset management of our properties. We make regular on-site visits, touring the properties and meeting with the property managers and leasing agents. We work with our property managers to identify revenue generation and expense reduction opportunities. We

establish internal controls to ensure compliance with our operating, accounting and reporting requirements and test these controls during periodic site visits conducted by our internal audit department. We approve each property’s long and short-term capital replacement plans and annual operating budgets and review monthly operating and leasing reports for each property.

Development Properties

We employ the following strategy to achieve our goals with respect to development projects:

· Due Diligence Techniques. We thoroughly evaluate a development project’s potential for generating strong risk-adjusted returns by considering such factors as:

· the highest and best use for the project;

· the economic and demographic conditions in the project’s local and regional market;

· competition from comparable projects;

· the projected cash flow of the project;

· potential risk-adjusted returns on our investment;

· development risks including cost overruns and delays; and

· interest-rate risk.

· Partner with Developers. We partner with reputable local, regional and national developers who have expert knowledge of their markets and strong relationships with general contractors and service providers. The agreements with our joint venture partners generally provide for a distribution waterfall that provides us with a preferred return on our investment as well as incentives to our partners to maximize returns on the project.

Selling Properties

We acquire operating properties as a long term investment, and we pursue our development properties to complete the development process. However, we continually evaluate whether we should continue to hold properties or to dispose of them. In evaluating whether to dispose of a property we consider the amount of control we exert over the ownership entity, whether the property fits with our overall strategy, and whether re-deployment opportunities for the sale proceeds offer greater returns than can be achieved through continuing to own and operate the existing property.

Prudent Financing

We maintain a strong liquidity position that allows us to effectively compete for acquisitions where the seller may require the buyer to rapidly close on the purchase of a property. We employ mortgage debt in order to enhance our returns on invested capital. In certain instances we enter into master lease agreements or provide loan guarantees in order to maximize the benefits of leverage. At other times we prepay existing mortgage debt in order to place more favorable debt. While under accounting principles generally accepted in the United States of America (“GAAP”) the cost and other penalties associated with such prepayments adversely affect our earnings in the year in which they occur, we proceed with such prepayments after considering among other things, whether the benefits to be gained over the course of the loan from the new leverage outweigh the costs incurred in the current year on a net present value basis.

Our Competitive Strengths

To employ our strategy we utilize our competitive strengths which include:

· Experienced Management. Our management team has extensive experience acquiring, financing, developing, repositioning and selling real estate. The co-founders of the Company are active members of the Board.

· Network of Industry Contacts and Collaborative Relationships. Our management team has developed a broad network of contacts that include property owners, developers, lenders, brokers, property managers and leasing agents.

· Growth Oriented Capital Structure. Our strong liquidity position provides us with flexibility in structuring transactions and allows us to react quickly to investment opportunities.

Financial Information about Business Segments

We operate in six reportable business segments: Commercial Rental Property; Residential Rental Property; Hospitality Property; Developed and Undeveloped Land sales; Commercial and Residential Condominiums; and Commercial Building and Residential Apartment Development. For additional information about these segments see Note 18 of Notes to Consolidated Financial Statements in Item 15 of this report and Managements’ Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of Part II of this report.

Narrative Description of the Business

The following is a brief description of each of our reportable business segments:

Commercial Rental Property

This segment includes the rental income derived by commercial properties from the leasing of office and industrial space and other related revenue sources. Commercial leases generally provide for a fixed monthly rental over terms that range from three to 10 years. At December 31, 2006 we owned, or had an ownership interest in, 47 commercial office and flex warehouse buildings containing approximately 3,749,000 square feet of space. The properties are located in the Philadelphia, Pennsylvania; Houston, Texas; Washington, D.C. and Wilmington, Delaware metropolitan areas.

Also included in this segment is income generated from management and leasing activities associated with our 50% ownership interest in Redwood Commercial Management, LLC (Redwood), a commercial management company. Redwood manages approximately 1,050,000 square feet of commercial office space, approximately 559,000 square feet of which are owned by entities which we control.

Residential Rental Property

This segment includes the rental income derived by residential properties from the leasing of apartment units and other related revenue sources. Apartment leases generally provide for a fixed monthly rental over a one-year term. At December 31, 2006, we owned, or had an ownership interest in, four residential properties containing a total of 1,136 apartment units. The properties are located in the Orlando, Florida and Washington, D.C. metropolitan areas.

Included in this segment for 2004 are fees generated from a wholly-owned subsidiary that formerly managed a residential property owned by affiliated third parties. This management contract was terminated during the year ended December 31, 2004.

Hospitality Property

This segment includes revenue and income generated from services provided at our two hotel properties. The properties bear the Doubletree and Holiday Inn Express brands and are both managed by third party managers. The properties are located in Baltimore, Maryland and Camp Springs, Maryland. In February 2007, we sold the Doubletree brand hotel.

Developed and Undeveloped Land

This segment includes the revenues and costs associated with the development and sale of land parcels and lots as part of residential subdivisions and undeveloped commercial land sales. The residential subdivisions are located on the Maryland and Delaware Eastern Shore, and the undeveloped commercial land is located in the Washington, DC metropolitan area.

Commercial and Residential Condominiums

This segment primarily includes the revenues and costs associated with the development and sale of commercial and residential condominiums. This activity is conducted in the Washington, DC; Philadelphia, Pennsylvania and Baltimore, Maryland metropolitan markets.

Development of Rental Properties

This segment primarily includes the development and construction of commercial and residential buildings that will be leased to tenants upon completion. Costs associated with this segment are capitalized until completion, at which time the assets are placed in service and transferred to either the residential or commercial rental property segment. This activity is conducted in the Washington, DC and Philadelphia, Pennsylvania metropolitan markets.

Other Information

Competition

We operate in highly competitive marketplaces in virtually all aspects of our real estate activities:

· During the acquisition process we compete against other buyers of real estate; including both public and private real estate investment trusts, real estate development companies, investment firms, investment funds and financial institutions. We compete primarily based on offer prices and the ability to fund the acquisition and close the transaction in a timely manner. This competition may reduce the availability of properties at prices that meet our targeted rates of return on invested capital or may require us to reduce our targeted rates of return.

· We compete for tenants and guests at our operating commercial, residential and hospitality properties primarily based on price, location and amenities offered. An oversupply of real property created by other developers and owners could hinder our ability to maintain high occupancy levels or could require that we reduce rents or offer significant concessions. Such situations could materially and adversely affect our results of operations and cash flows.

· We compete for development projects with other developers of similar projects as well as existing projects. Increased supply of condominium units and developed land could affect the prices at which we can sell these projects, thereby adversely affecting our results of operations and cash flows.

Employees

On December 31, 2006, we had 28 full-time employees, all but one of whom were located at our corporate offices in Rockville, Maryland, working in such areas as finance, accounting, asset management and internal audit. We believe that our relations with our employees are good. The on-site personnel engaged in the day-to-day operations and the development activities of properties are employees or sub-contactors of the management companies or developers contracted to operate or develop such properties.

Market Concentrations

The commercial properties we owned at December 31, 2006 are concentrated in both the Mid-Atlantic region of the country, and the Houston, Texas metropolitan market. Our residential apartment properties are concentrated in the Central Florida area. Our hospitality properties are located in the Baltimore, Maryland and Washington, D.C. metropolitan areas. Our development projects are located in the Washington, D.C., Maryland and Delaware Eastern Shore, and Philadelphia, Pennsylvania metropolitan areas. No single tenant represents more than 10% of our total revenues.

Seasonality

Our commercial properties are unaffected by seasonality. There are limited seasonal impacts on results at residential properties with slightly lower occupancy during the months of December and January. Our hospitality properties are affected to a larger extent by seasonality; however, the impact is minimal to our overall results of operations. Sales of residential condominiums are affected by seasonality with fewer sales in the winter months. Sales of developed land are not affected by seasonality since the sales contracts with the homebuilders incorporate structured take-down of lots.

Access to Company Information

We electronically file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all exhibits and amendments to these reports, with the Securities and Exchange Commission (the SEC). The public may read and copy any of the reports that are filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the

SEC at 1-800-SEC-0330. The SEC maintains an internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically.

We make available, free of charge, by responding to requests addressed to our investor relations department, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all exhibits and amendments to these reports. These reports are available as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. These reports can also be accessed on our website (http://www.breslerandreiner.com). Information on our website, however is not part of this report.

ITEM 1A. RISK FACTORS

Risk Factors That May Affect Our Future Business Results

We face a number of material risks and uncertainties in our business, which could materially and adversely affect our business, financial condition and results of operations and, as a result, the trading price of our common stock. We believe that the risks and uncertainties described below are the material risks that we face. Any investor in our securities should carefully consider the risks described below.

We are subject to risks associated with investments in real estate. The value of and our income from our properties may decline due to factors that adversely affect real estate generally and those that are specific to our properties. General factors that may adversely affect our real estate portfolios include:

· increases in interest rates;

· a general tightening of the availability of credit;

· a decline in the economic conditions in one or more of our primary markets;

· an increase in competition for tenants and customers or a decrease in demand by tenants and customers;

· an increase in supply of our property types in our primary markets;

· a continuation of terrorist activities or other acts of violence, war in the United States or abroad or the occurrence of such activities or acts that impact properties in our real estate portfolios or that may impact the general economy; and

· the adoption on the national, state or local level of more restrictive laws and governmental regulations, including more restrictive zoning, land use or environmental regulations and increased real estate taxes.

In addition, there are factors that may adversely affect the value of, and our income from, specific properties, including:

· adverse changes in the perceptions of prospective tenants or purchasers of the attractiveness of the property;

· opposition from local community or political groups with respect to development or construction at a particular site;

· our inability to provide adequate management and maintenance or to obtain adequate insurance;

· our inability to collect rent or other receivables;

· an increase in operating costs;

· introduction of a competitor’s property in or in close proximity to one of our current markets; and

· earthquakes, floods or underinsured or uninsured natural disasters.

The occurrence of one or more of the above risks could result in a significant reduction in the net operating income generated by these properties and we could lose some or all of our investments in those properties.

We may not be able to recover increased property maintenance costs through rent increases. Our properties are subject to increases in operating expenses. Certain commercial tenants are obligated to pay a portion of the escalating operating costs. In addition, certain tenants are subject to rent escalations for cost of living increases. However, we may not be able to increase revenues enough to offset these increased expenses.

Various factors could adversely affect development of new projects or the repositioning of existing projects. Our development projects are subject to significant risks relating to our ability to complete our projects on time and on budget. Factors that may result in a development project exceeding budget or being prevented from completion include:

· an inability to secure sufficient financing on favorable terms, including an inability to refinance construction loans;

· construction delays or cost overruns, either of which may increase project development costs;

· an increase in commodity costs;

· an inability to obtain zoning, occupancy and other required governmental permits and authorizations;

· an inability to secure tenants or anchors necessary to support the project; and

· failure to achieve or sustain anticipated occupancy or sales levels.

If any of these occur, we may not achieve our projected returns on properties under development and we could lose some or all of our investments in those properties. In the past, we have elected not to proceed with specific development projects, and we anticipate that this may occur again from time to time in the future.

The construction of real estate projects entails unique risks, including risks that the project will fail to conform to building plans, specifications and timetables. These failures could be caused by strikes, weather, government regulations and other conditions beyond our control. In addition, we may become liable for injuries and accidents occurring during the construction process that are not insured.

In the construction of new projects, we may guarantee the lender of the construction loan the lien-free completion of the project. This guaranty is recourse to us and places the risk of construction delays and cost overruns on us. This type of guaranty is released upon completion of the project. Furthermore, we typically guarantee a portion of project indebtedness. We may have to make significant expenditures in the future in order to comply with our guaranty obligations.

We face risks associated with property acquisitions. We have in the past acquired, and intend in the future to acquire, properties and portfolios of properties, including large portfolios that would increase our size and potentially alter our capital structure. Although we believe that the acquisitions that we have completed in the past and that we expect to undertake in the future have and will enhance our future financial performance, the success of such transactions is subject to a number of factors, including the risk that:

· we may not be able to obtain financing for acquisitions on favorable terms;

· acquired properties may fail to perform as expected;

· the actual costs of repositioning or redeveloping acquired properties may be higher than our estimates; and

· we may not be able to efficiently integrate acquired properties, particularly portfolios of properties, into our organization and to manage new properties in a way that allows us to realize cost savings and synergies.

We may be unable to sell properties at fair value to avoid losses or to reposition our portfolio. Because real estate investments are relatively illiquid, we may be unable to dispose of underperforming properties and may be unable to reposition our portfolio in response to changes in regional or local real estate markets. As a result, we may incur operating losses from some of our properties and may have to write down the value of some properties due to impairment. In addition, we may be forced to sell properties during unfavorable market conditions and therefore not realize their fair market value.

We face significant competition from other real estate developers. We compete with real estate developers, operators and institutions for tenants and acquisition and development opportunities. Some of these competitors have significantly greater financial resources than we do. Such competition may reduce the number of suitable investment opportunities offered to us, may interfere with our ability to attract and retain tenants and may increase vacancies, which could result in increased supply and lower market rental rates. In addition, some of our competitors may be willing to make space available at lower prices than available space in our properties.

We may be unable to renew expiring leases, lease vacant space or re-lease space on a timely basis or on comparable or better terms. Leases for commercial properties, representing 25% of our annualized commercial base rent at December 31,

2006, expire on or before December 31, 2007. Current tenants may not renew their leases upon the expiration of their terms; or we may not be able to locate qualified replacement tenants under acceptable terms.

We cannot assure you that our tenants will not default on their leases and fail to make rental payments to us. Moreover, we may be unable to locate a replacement tenant in a timely manner or on comparable or better terms if a tenant defaults on its lease. The loss of rental revenues from a number of our tenants and our inability to replace such tenants may adversely affect our profitability and our ability to meet our financial obligations.

Increased interest rates would raise our cost of capital and could affect our ability to obtain new mortgage debt or refinance existing mortgage debt. An increase in interest rates would increase our cost of capital, which may affect our ability to obtain new mortgage debt or to refinance existing mortgage debt and would limit our ability to make future acquisitions. Higher interest rates upon refinancing mortgage debt would decrease cash flow from operations, negatively impacting our earnings and lowering our cash returns as a percentage of our invested equity. In addition, a rise in interest rates could raise the cost of our variable rate debt in excess of increased earnings on our short-term investments, thereby negatively impacting our earnings. In addition, an increase in interest rates could decrease the amounts that third parties are willing to pay for our assets, thereby limiting our ability to alter our portfolio promptly in relation to economic or other conditions.

We may have difficulty obtaining financing in weak markets. Weak real estate markets not only affect the prices for which real estate properties can be purchased or sold, and rental revenues, but also affect the availability of financing. Under such conditions we may have difficulty refinancing existing acquisition and construction financing with long-term financing, which could result in our having to accept less favorable financing terms or use our cash resources to repay indebtedness that otherwise would be refinanced. If principal payments due at maturity cannot be refinanced, extended or repaid with proceeds from other sources, such as the proceeds of sales of assets or new equity securities, cash flow will not be sufficient to repay all maturing debt in years when significant “balloon” payments come due.

Our debt level may impair our ability to pursue our business plan. As of December 31, 2006, our indebtedness totaled $610,681,000, of which $533,104,000 are mortgage and construction loans. We are likely to incur significant additional debt to finance future acquisition and development activities. Our level of debt and the limitations imposed on us by our debt agreements creates risks, including the following:

· our cash flow may be insufficient to make required payments of principal and interest;

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

· we may be unable to refinance some or all of our indebtedness, including mortgage debt, or any refinancing may not be on terms as favorable as those of the existing indebtedness;

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

· any default in payment of our indebtedness or violation of any covenants in our loan documents could result in acceleration of those obligations and possible loss of property to foreclosure; and

· our default under any one of our mortgage loans with cross default provisions could result in a default on other indebtedness and loss of properties securing the indebtedness.

If the economic performance of any of our properties declines, our ability to make debt service payments could be adversely affected. If a property is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments, we may lose that property to lender foreclosure.

The mortgage debt we have incurred for properties we acquired during the last three years has ranged between 80% and 90% of the purchase price of these properties. We do not have a policy limiting the amount of debt that we may incur. Furthermore, our bylaws do not limit the amount or percentage of indebtedness that we may incur. Accordingly, our management and board of directors have discretion to increase the amount of our outstanding debt at any time without approval by our stockholders. Changes in our debt policies could expose us to greater credit risk, interest rate risk or result in a more leveraged balance sheet. If we become highly leveraged, then the resulting increase in debt service could adversely affect our ability to make payments on our outstanding indebtedness and may harm our financial condition.

Weaker economic conditions in the markets in which our properties are located could adversely affect our financial condition. Our properties are located in the Philadelphia, Pennsylvania; Houston, Texas; Washington, D.C.; Wilmington, Delaware; Baltimore, Maryland; Maryland and Delaware Eastern Shore; and Orlando, and Tampa, Florida, metropolitan

areas. A decline in the economies of one or more of our core real estate markets, or in the U.S. economy as a whole, could adversely affect our financial position, results of operations, cash flow and ability to pay dividends to shareholders.

We are investing in properties in real estate markets that are outside our core geographic markets. Over the course of the last year we have made acquisitions outside of our core geographic areas. We may not be able to operate effectively outside of our core markets. We may continue to make investments in new markets, which may expose us to a variety of risks including:

· a lack of market knowledge and understanding of the local economies; and

· unfamiliarity with local government and permitting procedures.

Our insurance may not be adequate to cover losses, including those that result from environmental damage or terrorist acts. We carry comprehensive general liability, property, flood, earthquake and rental loss insurance with respect to our properties within insured limits and policy specifications that we believe are customary for similar properties. There are specific types of losses, generally of a catastrophic nature, such as losses from wars, biological, chemical or radioactive contamination, terrorism or earthquakes, for which we may not have adequate insurance coverage or, in our judgment, for which we cannot obtain insurance at a reasonable cost.

Should an uninsured loss or a loss in excess of insured limits occur, including any loss resulting from floods or other natural disasters, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property. Any such loss could materially and adversely affect our results of operations, cash flows and financial position. Nevertheless, we might remain obligated for any mortgage debt or other financial obligations related to the property, even if the property is irreparably damaged. We are also subject to additional wind damage underwriting premiums for certain properties. It is also possible that third-party insurance carriers will not be able to maintain reinsurance sufficient to cover any losses that may be incurred.

The costs of compliance with or liabilities under environmental laws may adversely affect our operating results. Our operating expenses could be higher than anticipated due to the cost of complying with existing or future environmental laws and regulations. As an owner of real property, we can be liable for environmental contamination created by the presence or discharge of hazardous substances on the property, regardless of:

· our lack of knowledge of the contamination;

· the timing of the contamination;

· the cause of the contamination; or

· the party responsible for the contamination of the property.

There may be environmental problems associated with our properties of which we are unaware. We could be held liable for the environmental costs associated with the release of regulated substances or related claims, whether by us, our tenants, former owners or tenants of the affected property or others. The presence of hazardous substances on a property could result in personal injury or other claims by private parties. Such claims could result in costs or liabilities that could exceed the value of that property. If we become aware of any environmental problems, we take steps to remediate them.

Although our leases generally require our tenants to operate in compliance with all applicable laws and to indemnify us against any environmental liabilities arising from a tenant’s activities on the property, we could nonetheless be subject to strict liability by virtue of our ownership interest for environmental liabilities created by our tenants and we cannot be sure that our tenants would satisfy their indemnification obligations under the applicable lease.

We are controlled by the Bresler and Reiner families, whose interests may differ from those of other shareholders. As of March 30, 2007, members of the Bresler and Reiner families, which include members of our current board of directors and executive officers, owned over 70% of our common stock. As a result of their ownership, these family members have the ability to elect our board of directors and to control our management and policies. Generally, they may also determine, without the consent of our other shareholders, the outcome of any corporate transaction or other matters submitted to our shareholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets and prevent or cause a change in control.

We expect to experience significant growth in the future and may not be able to adapt our management and operational systems to integrate additional properties without unanticipated significant disruption or expense. During the three year period ended December 31, 2006, the total size of our commercial office portfolio increased by 2,174,000 square feet. We intend to continue to make a significant number of additional acquisitions and cannot assure you that we will be able to adapt our management, administrative, accounting and operational systems to integrate the properties into our portfolio, or that we will be able to manage any future acquisitions of additional properties without operating disruptions or unanticipated costs. In addition, acquisitions will require substantial attention from our management, and may cause disruptions in our operations and divert management’s attention away from day-to-day operations. Our failure to successfully integrate additional property acquisitions into our portfolio could have a material adverse effect on our results of operations and financial condition.

If our property managers or leasing agents default on their obligations, operating results from affected properties could suffer and we may have difficulty finding replacements. We outsource property management and leasing of our properties to local property managers and leasing agents, who perform all day-to-day property management and leasing functions for our properties. Although we oversee our property managers and leasing agents, they may not satisfy their obligations under our agreements. If they fail to do so, our relationships with our tenants could be damaged or we could incur liabilities from loss or injury at a property. In either case our operating results and financial condition could be negatively affected. If a property manager or leasing agent breaches its agreement with us, we will seek to replace them. However, we may not be able to obtain suitable replacements within the relevant market. In addition, as we enter a new market we will seek to engage local third-party property managers, leasing agents and other service providers. However, we may not be able to identify such service providers who meet our standards and who are capable of complying with our property management and leasing guidelines.

Property ownership through joint ventures may limit our ability to act exclusively in our interests. Several of our properties are owned through joint ventures with third parties. We could become engaged in a dispute with one or more of our joint venture partners that might affect our ability to operate a jointly-owned property. Moreover, our joint venture partners may have business objectives that are inconsistent with ours or may have competing interests that could create conflicts of interest. If the objectives of our joint venture partners are inconsistent with ours, we may not be able to act exclusively in our interests.

Compliance with the Americans with Disabilities Act and fire, safety and other regulations may require us to make unanticipated expenditures that adversely affect our financial condition. Under the Americans with Disabilities Act of 1990, or the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. We believe our properties substantially comply with present requirements of the ADA. However, if found non-compliant we would have to incur additional costs to bring the property into compliance.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Commercial Rental Properties

We owned or held an ownership interest in the following commercial office properties at December 31, 2006:

Consolidated Properties (1)	Location	Date of Acquisition/ Opening		Number of Buildings		Square Feet		Occupancy at 12/31/06		B&R Ownership			Loan Balance at 12/31/06 (7)			Purchase Price/ Development Cost (2)
						(in 000’s)							(in 000’s)			(in 000’s)
Philadelphia, Pennsylvania metropolitan area:
Fort Washington Executive Center	Ft. Washington, PA		2004		3		393		100.0%		97.5%	(3)		$	47,249		$	52,664
Mearns Park	Warminster, PA		2006		1		300		98.7%		97.0%	(4)		16,500			19,000
Valley Square	Plymouth Meeting, PA		2006		5		294		87.3%		97.0%	(4)		37,500			42,500
Blue Bell Plaza	Plymouth Meeting, PA		2006		2		155		100.0%		100.0%	(4)		29,800			32,000
West Germantown Pike	Plymouth Meeting, PA		2004		2		115		100.0%		98.0%	(3)		15,626			20,500
One Northbrook	Trevose, PA		2004		1		95		78.9%		100.0%	(4)		14,770			16,900
510 Township Road	Plymouth Meeting, PA		2006		1		87		59.2%		100.0%	(4)		10,760			13,500
Cross Keys	Doylestown, PA		2005		1		82		90.9%		100.0%	(4)		14,500			17,792
102 Pickering Way	Exton, PA		2005		1		80		97.9%		100.0%	(4)		9,940			15,275
900 Northbrook	Trevose, PA		2003		1		66		94.0%		90.0%	(3)		10,792			12,050
Houston, Texas metropolitan area:
Commerce Park North	Houston, TX		2006		2		164		91.2%		100.0%	(4)		9,400			11,750
10333 Harwin Drive	Houston, TX		2006		1		148		55.0%		100.0%	(4)		10,532			12,585
9950 Westpark	Houston, TX		2006		1		111		70.6%		100.0%	(4)		6,342			7,818
17043-49 El Camino	Houston, TX		2006		4		82		81.9%		100.0%	(4)		5,024			6,052
1120 NASA Road	Houston, TX		2006		1		80		83.6%		100.0%	(4)		5,208			6,642
8700 Commerce Drive	Houston, TX		2006		1		77		76.8%		100.0%	(4)		3,809			4,979
1717 Portway Plaza	Houston, TX		2006		1		67		78.7%		100.0%	(4)		2,711			4,858
1110 NASA Road	Houston, TX		2006		1		60		90.0%		100.0%	(4)		3,408			4,978
950 Threadneedle	Houston, TX		2006		1		59		100.0%		100.0%	(4)		—			5,250
1100 NASA Road	Houston, TX		2006		1		57		90.1%		100.0%	(4)		2,830			4,502
Washington, DC metropolitan area:
Versar Center	Springfield, VA		2002		2		217		88.1%		100.0%			17,626			20,000
Sudley North (Buildings A, B & C)	Manassas, VA		1987		3		116		89.8%		100.0%			10,161			9,848
Wynwood	Chantilly, VA		2005		2		88		100.0%		100.0%			11,800			13,000
Sudley North (Building D)	Manassas, VA		1987		1		69		100.0%		50.0%			6,114			4,729
Fort Hill	Centreville, VA		2000		1		66		100.0%		80.0%			5,428			7,050
Bank Building	Manassas, VA		1991		1		3		100.0%		100.0%			947			876
Wilmington, Delaware metropolitan area:
919 Market Street	Wilmington, DE		2005		1		223		92.1%		100.0%	(4)		35,600			40,525
1105 Market Street (5)	Wilmington, DE		2005		1		173		58.4%		100.0%	(4)		19,000			20,700
Total consolidated properties					44		3,527		86.5%					$	363,377		$	428,323
Unconsolidated Properties (1)
Devon Square	Devon, PA		2002		2		140		38.1%		5.5%			$	16,557		$	17,109
Madison Building (6)	McLean, VA		2002		1		82		100.0%		24.9%			13,869			22,000
Total unconsolidated properties					3		222							$	30,426		$	39,109
Total consolidated and unconsolidated properties					47		3,749							$	393,803		$	467,432

NOTES:

(1) Consolidated properties represent properties whose assets, liabilities and results of operations are consolidated into our consolidated financial statements. Unconsolidated properties represent properties that are accounted for under the equity method of accounting, in accordance with GAAP.

(2) Includes intangible in-place lease assets and liabilities for purchased properties.

(3) Represents our share of the Class A voting membership interest in the entity. An unrelated third party owns a Class B membership interest in the joint venture that entitles this party to 15% of cash available from operations after the Class A members have received a cumulative annual 12%

return on their investment in the property and 15% of cash available from a refinancing or sale of the property after the Class A members have received a full return of their investment along with a cumulative annual 12% return on their investment.

(4) We have entered into asset supervision agreements with an unaffiliated third-party for properties located in Pennsylvania and an associate for properties located in Texas that entitles these parties to 20% of cash available from operations after we have received a cumulative annual 12% return on our investment in the property, and 20% of cash available from a refinancing or sale of the property after we have received a full return of our investment along with a cumulative annual 12% return on our investment.

(5) Property was reported as held for sale at December 31, 2006 and was sold in February 2007

(6) Our interest in this property was sold in February 2007.

(7) Generally, new mortgage loans obtained for acquired properties have 10-year terms and 30-year amortization schedules.

Residential Apartment Properties

We owned or held an ownership interest in the following residential apartment properties at December 31, 2006:

Consolidated Properties (1)	Location	Date of Acquisition/ Opening		Apt. Units		Occupancy at 12/31/06		B&R Ownership			Loan Balance at 12/31/06			Purchase Price Development/ Cost (2)
											(in 000’s)			(in 000’s)
The Fountains	Orlando, FL		2003		400		91.8%		100.0%	(3)		$	39,500		$	35,100
Victoria Place	Orlando, FL		2003		364		89.0%		85.0%			32,341			39,500
Huntington at Sundance	Lakeland, FL		2006		292		96.9%		100.0%	(3)		14,454			24,650
Total consolidated properties					1,056		92.2%					$	86,295		$	99,250
Unconsolidated Properties (1)
Arbor Crest	Silver Spring, MD		2004		80		91.3%		33.3%			$	9,000		$	8,455
Total consolidated and unconsolidated properties					1,136							$	95,295		$	107,705

NOTES:

(1) Consolidated properties represent properties whose assets, liabilities and results of operations are consolidated into our consolidated financial statements. Unconsolidated property represents a property that is accounted for under the equity method of accounting, in accordance with GAAP.

(2) Includes intangible assets and liabilities for purchased properties.

(3) We have entered into an asset supervision agreement with an unaffiliated third-party that entitles that party to 20% of cash available from operations after we have received a cumulative annual 12% return on our investment in the property, and 20% of cash available from a refinancing or sale of the property after we have received a full return of our investment along with a cumulative annual 12% return on our investment.

Hospitality Properties

We owned the following hospitality properties at December 31, 2006 which are consolidated into our consolidated financial statements:

	Location	Rooms		Date of Acquisition/ Opening		Average Room Rate for the Year Ended 12/31/06			REVPAR for the Year Ended 12/31/06			Occupancy for the Year Ended 12/31/06		B&R Ownership %		Loan Balance at 12/31/06			Purchase Price/ Development Cost
																(in 000’s)			(in 000’s)
Inn at the Colonnade (1)	Baltimore, MD		125		1993		$	138.17		$	95.50		69.1%		100.0%		$	9,458		$	7,368
Holiday Inn Express	Camp Springs, MD		151		1987		$	102.75		$	60.14		58.5%		100.0%		3,500			3,170
Total			276														$	12,958		$	10,538

(1) Property was reported as held for sale at December 31, 2006 and was sold in February 2007.

Commercial, Residential and Land Development

We owned or had an ownership interest in the following development projects at December 31, 2006:

Project Name	Location	Date of Acquisition		Development Type	Size (1)	Number sold (2)	B&R Ownership %		Loan Balance at 12/31/06
									(in 000s)
Consolidated Properties (3)
*Commercial & Residential Condominiums*
Laguna Vista	Ocean City, MD		2003	Residential Condominiums	41 units	25		100.0%		$	—
400 S Philadelphia Ave.	Ocean City, MD		2004	Residential Condominiums	20 units	—		51.0%		6,400
Sudley South (Buildings I & III)	Manassas, VA		1991	Commercial Office Condominiums	108,000 sq. ft.	45,000 sq. ft.		100.0%		2,855
*Developed and Undeveloped Land*
Crisfield	Crisfield, MD		2005	Residential Lots	232 lots	16		51.0%		11,700
Red Mill Pond	Lewes, DE		2005	Residential Lots	541 lots	—		51.0%		32,603
Seaside	Ocean City, MD		2004	Residential Lots	139 lots	58		51.0%		12,813
*Rental Properties Development*
Waterfront	Washington, DC		1964	Commercial Office, Residential and Retail	2,166,000 sq ft (4)	—(5)		24.8%		—
1150 Northbrook	Trevose, PA		2003	Commercial Office Building	108,000 sq. ft.	—(5)		100.0%		$	4,103
Unconsolidated Properties (3)
Guilford Properties	Baltimore, MD		2006	(6)	(6)	—		51.0%		$	6,345
Holliday Development	Baltimore, MD		2006	(6)	(6)	—		51.0%		1,785
Symphony House	Philadelphia, PA		2005	Residential Condominiums	163 units (7)	—		22.3%		63,286
Venice Lofts	Philadelphia, PA		2005	Residential Condominiums	128 units	2		22.3%		26,639

NOTES:

(1) Represents the actual or planned size of the project.

(2) Represents number of sales that had closed as of December 31, 2006.

(3) Consolidated properties represent properties whose assets, liabilities and results of operations are consolidated into our consolidated financial statements. Unconsolidated property represents a property that is accounted for under the equity method of accounting, in accordance with GAAP.

(4) Represents the anticipated size of the Waterfront Complex. See below for description of the Waterfront Complex

(5) Upon completion, the space will be leased to tenants.

(6) The type of development and size of the project has yet to be determined.

(7) Project also includes a theatre containing 35,000 square feet of space, a parking garage and retail space.

Waterfront Complex

Beginning in 1964, we developed a shopping-office center (“Waterfront Complex”) in Washington, D.C., containing approximately 1,144,000 square feet of office, retail and storage space. These improvements were constructed on ground leased from The District of Columbia Redevelopment Land Agency (“RLA”) for a term expiring in 2058 with an option to extend for an additional 20 years.

We assigned our interests in the Waterfront Complex to a joint venture entity, B&R Waterfront Properties, LLC (“BRW”). We are the managing member and hold a 54% interest in BRW, which is consolidated into our consolidated financial statements.

Prior to 2002, the United States General Services Administration (“GSA”) leased approximately 955,000 square feet of space in the Waterfront Complex under a thirty year lease agreement. In September 2002 the GSA lease expired and was not subsequently renewed.

In October 2002, BRW formed a joint venture, called Waterfront Associates LLC (“WALLC”), with K/FCE Investment LLC (“K/FCE”), a joint venture between The Kaempfer Company, Inc. and Forest City Enterprises, Inc., to redevelop and reposition the Waterfront Complex. BRW contributed the leasehold improvements relating to the Waterfront Complex to WALLC. Affiliates of K/FCE are marketing, leasing, redeveloping, and managing the complex. Based on the terms of the agreement K/FCE committed to contribute the first $25,000,000 of redevelopment funds and has the right, subject to certain conditions, to increase its ownership in the joint venture up to 50% by the making of capital contributions or by causing the joint venture to make capital distributions. K/FCE, as the managing member of WALLC, has sole responsibility for the management, control, and operation of the WALLC, as well as for the formulation and execution of its business and investment policy.

Between 2002 and December 31, 2006 WALLC expended approximately $18,000,000 in planning and development costs as it sought to obtain the necessary Planned Unit Development (“PUD”) approvals and find a large tenant for the project. In 2006 WALLC entered into several transactions that will have a major impact on the repositioning and redevelopment of the Waterfront Complex.

In November 2006, WALLC entered into a Land Disposition and Development Agreement (“LDDA”) with RLA Revitalization Corporation (“RLARC”), a subsidiary of the RLA. Based on the LDDA, the existing ground lease will be extinguished and a fee simple ownership interest for most of the site will be conveyed to WALLC. In return, RLARC will retain fee simple ownership in a portion of the site that is sufficient to develop a 400,000 square foot mixed-use residential building. Based on the agreement, which is subject to several contingencies including obtaining the necessary PUD approvals, WALLC has committed to develop 2,166,000 square feet of commercial office, retail and residential space at the Waterfront Complex.

In November 2006, WALLC entered into two lease agreements with agencies of the District of Columbia for the lease of a total of 500,000 square feet of office space in two new commercial office buildings to be constructed by WALLC at the Waterfront Complex. The leases, which are subject to several approval and development contingencies, have 15 year terms and include rental payments of $28.40 per square foot on a triple-net basis. Development of the office buildings is anticipated to commence in 2007.

In March 2007, in accordance with an amended and restated operating agreement of WALLC entered into the same month, K/FCE exercised its right to increase its ownership interest in the joint venture to 50% by making a $25,000,000 contribution to WALLC (the “equalization contribution”) with such amount distributed to BRW. The equalization contribution is in addition to $23,000,000 that K/FCE has either contributed or has committed to contribute to WALLC.

Major Tenants

There are no tenants or recurring customers whose revenues are 10% or more of our total operating revenues from continuing operations. The following is a table of our three largest tenants:

Tenant Name	Property Name Location	Lease Maturity Date		Base Rental Income for the 12 months ended December 31, 2006			Percent of commercial Rental Revenue for the twelve months ended December 31, 2006			Percent of Total Operating Revenue for the twelve months ended December 31, 2006
Hartford Fire Insurance Company	Ft Washington Executive Ctr., Ft Washington, PA		2007		$	4,756,000		9.0	%		4.6	%
Merck	Blue Bell Plaza, Plymouth Meeting, PA		2008		2,951,000			5.6			2.9
Platinum Technology, Inc.	W Germantown Pike, Plymouth Meeting, PA		2009		2,260,000			4.3			2.2

ITEM 3. LEGAL PROCEEDINGS

We are subject to various legal proceedings and claims that arise in the ordinary course of our business. Management believes that the final outcome of such matters will not have a material adverse effect on our financial position, results of operations or liquidity.

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

No matters were submitted to the vote of the security holders during the fourth quarter of 2006.

Executive Officers of the Registrant

Executive Officers of Registrant (included pursuant to General Instruction G to Form 10-K and instruction 3 to Item 401(b) of Regulation S-K).

The following list is included as an unnumbered Item in Part I of this Report in lieu of being included in the Proxy Statement for the Annual Meeting of Shareholders to be held on June 13, 2007.

Name	Age	Positions & Offices	Date Elected to Office
Charles S. Bresler	79	Chairman & Director	June 1970
Sidney M. Bresler	52	Chief Executive Officer, President, Director and Assistant Secretary	June 2002 August 2002 February 2003
Jean S. Cafardi	60	Corporate Secretary	November 2000
Darryl M. Edelstein	39	Executive Vice President—Finance, Chief Financial Officer and Treasurer	November 2006 August 2003 May 2004

In accordance with Article V of our By-Laws, each officer was elected to serve until his successor is chosen and shall have qualified or until his earlier resignation or removal.

Sidney M. Bresler is the son of Charles S. Bresler.

Each officer has held the above positions as his principal occupation for more than the past five years with the exception of Sidney M. Bresler and Darryl M. Edelstein.

Prior to June 2002 and during his seventeen years of employment with the Company, Sidney M. Bresler has served in various capacities.

Darryl M. Edelstein, who is a CPA, joined us in August 2003, as our Chief Financial Officer. He was our Chief Operating Officer from March 2005 to November 2006. Between October 2005 and November 2006 he relinquished the position of Chief Financial Officer. In November 2006 he became our Executive Vice President-Finance and resumed the position of Chief Financial Officer and the position of Chief Operating Officer was eliminated. During the previous five years he worked at the Company and in various finance capacities for Crestline Capital Corporation. During the eight years prior to that he worked in various finance and accounting capacities at Host Marriott Corporation, Kraft Foods Inc. and Ernst & Young, LLP.

PART II

Stock Performance Graph

The following graph shows a comparison of cumulative total shareholder returns for an investment in the common stock of the Company, the S&P 500 and the Dow Jones US Real Estate Index. The comparison for each of the periods assumes that $100 was invested on December 31, 2001, in each of the Company’s common stock, the S&P 500 Index and the Dow Jones US Real Estate Index. These indices, which reflect formulas for dividend reinvestment and weighting of individual stocks, do not necessarily reflect returns that could be achieved by individual investors.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Bresler & Reiner Inc., The S&P 500 Index
And The Dow Jones US Real Estate Index

*$100 invested on 12/31/01 in stock or index-including reinvestment of dividends. Fiscal year ending December 31.

	12/01	12/02	12/03	12/04	12/05	12/06
Bresler & Reiner Inc.	100.00	94.20	107.02	136.71	151.70	165.05
S & P 500	100.00	77.90	100.24	111.15	116.61	135.03
Dow Jones US Real Estate	100.00	103.63	141.87	186.15	204.09	276.53

Our Common Stock is traded in the over-the-counter market. The following table presents the high and low bid quotations for the periods shown.

	High		Low
2006
First Quarter	$	33.20	$	32.50
Second Quarter	33.69		28.84
Third Quarter	31.71		26.76
Fourth Quarter	39.84		26.71
2005
First Quarter	$	30.00	$	29.50
Second Quarter	33.50		28.75
Third Quarter	39.00		31.00
Fourth Quarter	36.00		32.40

These quotations also represent prices between dealers and do not include retail markup, markdown or commissions and do not represent actual transactions. As of March 15, 2007, there were 76 record holders of Common Stock.

In May 2006 and December 2006, our Board of Directors declared cash dividends each of $0.15 per share of common stock. The dividends were paid on June 15, 2006 and December 15, 2006, respectively. In May 2005 our Board of Directors declared a cash dividend of $0.28 per common share, $0.14 per share of which was paid on June 15, 2005 and the remaining dividend payment of $0.14 was paid in December 15, 2005.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth our selected consolidated financial data (in thousands, except weighted average number of common shares outstanding and per share amounts). The historical financial data should be read in conjunction with the consolidated financial statements and accompanying notes and the discussion set forth in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each included elsewhere in this Form 10-K/A.

	Years Ended December 31,
	2006		2005			2004		2003			2002
Operating revenues	$	100,426	$	103,053		$	62,894	$	17,930		$	38,902
Income (loss) from continuing operations	$	3,613	$	(1,394	)	$	3,542	$	1,863		$	4,190
Net (loss) income	$	15,708	$	(2,249	)	$	4,419	$	9,581		$	6,086
Income (loss) from continuing operations per common share, basic and diluted	$	0.66	$	(0.25	)	$	0.65	$	0.34		$	0.76
Earnings (loss) per common share, basic and diluted	$	2.87	$	(0.41	)	$	0.81	$	1.75		$	1.11
Total assets	$	855,621	$	763,998		$	535,180	$	348,249		$	243,492
Long-term obligations (3)	$	582,435	$	405,155		$	249,112	$	128,895		$	45,797
Cash dividends per common share	$	0.30	$	0.28		$	0.25	(1		)	(1		)
Weighted average number of common shares outstanding (2)	5,477,212		5,477,212			5,477,212		5,477,212			5,477,502

(1) No dividends were declared or paid.

(2) Weighted average number of common shares outstanding has been restated to reflect the 2-for-1 stock split, effected in the form of a stock dividend in 2004.

(3) Excludes long-term obligations related to assets held for sale.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this document.

Restatement

Subsequent to the issuance of our consolidated financial statements for the fiscal year ended December 31, 2006 contained in our Annual Report on Form 10-K filed with the SEC on April 2, 2007, we identified errors in our consolidated statements of cash flows for the years ended December 31, 2006, 2005 and 2004. As a result we have restated our consolidated statement of cash flows for these years as detailed in the “Explanatory Note” in the forepart of this Form 10-K/A Amendment No.1 and in Note 21 to our consolidated financial statements. As part of this restatement, we have also recorded certain other errors considered immaterial in our consolidated balance sheet as of December 31, 2006, our consolidated statement of operations and consolidated statement of changes in shareholders’ equity for the year ended December 31, 2006. We have amended the tables and discussions in the “Balance Sheet Overview;” the “Financial Statement Overview” and the “Liquidity and Capital Resources” section of this “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations” to reflect the restatement of the consolidated financial statements for the periods indicated.

Overview

We are a real estate owner and developer with a portfolio that includes commercial, residential and hospitality properties as well as undeveloped and developed land. We earn our revenues and profits primarily from leasing commercial office space and residential apartment units; providing services at our hospitality properties; selling residential and commercial properties and selling both developed and undeveloped land.

Beginning in 2003 we have aggressively acquired real estate assets. In doing so we have applied a dual investment approach, investing in both operating commercial and residential properties that generate immediate returns that are relatively stable and predictable and investing in development projects where returns are generally higher but are less immediate and predictable. Through diversifying our real estate holdings in this way we have reduced the risks associated with the cyclical nature of the real estate industry. Building a strong base of commercial and residential properties enables us to assume the higher risks associated with investing in development projects. Income generated from our income producing commercial and residential properties, together with the ability to generate capital through the sale or refinancing of these properties, reduces our dependency on sales of development projects to fund payments on development loans. This allows us to better address the challenges associated with downturns in the housing market and affords us the opportunity to wait for the market to turn around. Our development investments, with their higher returns and large contribution to earnings, complement our investments in operating properties which do not contribute significantly to earnings until sold due to large amounts of depreciation and amortization expense associated with these investments.

Acquisition and Disposition of Operating Commercial and Residential Properties

Between 2003 and 2006 we acquired, through both wholly-owned subsidiaries and joint venture entities with unaffiliated third parties that we consolidate into our consolidated financial statements, a total of 25 commercial office buildings containing 3,605,000 square feet of office and industrial space and three residential apartment properties containing 1,056 apartment units. The total purchase price of these acquisitions was $517,230,000. In connection with these acquisitions, we obtained or assumed fixed-rate mortgage debt totaling $357,315,000 at an average interest rate of 5.74% and obtained variable-rate mortgage debt of $57,130,000.

We continued our growth strategy in the first quarter of 2007, through the acquisition of two commercial office buildings containing 130,000 square feet of space with purchase prices totaling $14,495,000 and one residential apartment property containing 366 apartment units with a purchase price of $42,050,000. In connection with these acquisitions we incurred mortgage debt totaling $48,400,000.

In 2006 we expanded our geographic footprint beyond the East Coast to include Houston, Texas. We intend to continue to grow our portfolio of commercial and residential properties and may continue to expand into other geographic regions should properties in these regions meet our criteria as attractive investment opportunities.

We are focused on growing our portfolio of assets, and acquiring properties for long term investment. However, we evaluate the sale of existing properties and our investments in development projects after considering among other things

whether the property fits with our overall strategy, the amount of control we exert over the ownership entity, and whether we can re-deploy the sales proceeds and achieve superior returns through investments in a new property or development opportunity rather than continuing to own and operate the existing property.

During the three year period ended December 31, 2006, we sold 18 commercial office and industrial buildings containing 1,262,000 square feet of space, two residential apartment complexes containing 434 apartment units, five commercial properties leased to convenience store operators, and our interest in four development projects. In the first quarter of 2007 we sold one commercial building containing 173,000 square feet, one of our two hospitality properties and our 25% interest in a commercial office property. Where possible, we structure the sales of our properties as part of a tax free exchange under §1031 of the US Internal Revenue Code, which provides for the deferral of the tax gain from the sale.

Challenges we will face this year include an interest rate environment that may not be as accommodating as it has been in recent years. Over the course of the last three years, interest rates have remained at historically low levels. A low interest rate environment has facilitated our growth plans through lowering our cost of capital. However, there is no assurance that interest rates will not increase over the course of the year. A higher interest rate environment would raise our cost of capital, thereby putting pressure on the returns on our invested equity and affecting our ability to acquire properties.

Investment in Development Projects

Between 2003 and 2006 we have invested in 10 development projects, including projects involving the development of lots as part of residential subdivisions, development of residential and commercial condominiums and development of residential apartment buildings and commercial buildings for lease.

During 2006, due to a softer housing market, we experienced slower than projected sales of both our residential lots and our residential condominiums located on the Maryland and Delaware Eastern Shore and as a result, our revenue from development projects decreased from the prior year. At our three residential subdivisions, where we are developing residential lots for sale to homebuilders, we restructured our sales contracts with the homebuilders to accommodate a slowdown in home sales, primarily delaying the dates on which the takedowns occur. We met our obligations under the loans secured by these projects by paying down $6,900,000 under these loans and amending the loans to adjust pay down schedules that more accurately reflect the slower takedowns of lots.

At our condominium projects in Ocean City, Maryland, the softer market resulted in fewer sales along with lower prices and higher concessions offered on units sold. As a result, we recorded an impairment charge of $1,494,000 in 2006 to reduce the carrying amount of one of our projects to the net estimated fair value of the project.

Challenges we will face over the course of the next year include a continued softening in the housing market that could continue to adversely affect sales of our residential lots and condominium units. This risk has been mitigated through our receipt of significant non-refundable deposits from homebuilders, along with the restructuring of the loans secured by our residential subdivisions. Another challenge is a higher interest rate environment which adversely affects sales at our development projects, since higher potential mortgage payments could lower the amount a buyer would be prepared to pay for a house or condominium unit.

Financing Activities

To provide the necessary funds to aid our growth plans and to build a strong cash position, we have completed during the three year period ended December 31, 2006 two private placements of trust preferred securities, generating net proceeds of approximately $68,000,000. We have also generated $79,857,000 of additional proceeds from asset sales and $32,643,000 of proceeds through refinancing existing loans. Additionally, we have obtained an unsecured line of credit with a $50,000,000 capacity. In the first quarter of 2007, we refinanced existing debt on six of our properties, generating net proceeds of $23,147,000. The refinancings reflect our strategy of realizing asset appreciation on our existing properties to provide funds for future acquisitions.

The discussion that follows is based primarily on our consolidated balance sheets as of December 31, 2006 and 2005, and the results of operations for the years ended December 31, 2006, 2005 and 2004 and should be read with our consolidated financial statements. The ability to compare one period to another may be significantly affected by operating properties in the process of being repositioned, acquisitions and dispositions of commercial and residential properties, development projects and the acquisition and subsequent partial sale of undeveloped commercial and residential lots. Historical results set forth in our consolidated financial statements are not necessarily indicative of our future financial position and results of our operations.

Application of Critical Accounting Policies. Our accounting policies comply with accounting principles generally accepted in the United States. The application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties. We have made best estimates and judgments of certain amounts included in the financial statements. However, actual results could differ from these estimates and a change in the facts and circumstances of the underlying transactions could significantly change the application of an accounting policy and the resulting financial statement impact. We have listed below those policies that we believe are critical and require the use of significant judgment in their application.

Rental Property and Equipment. Rental property and equipment is stated at cost. We use judgment in order to allocate the purchase price of all acquired assets and assumed liabilities and assign useful lives to those assets that have finite lives. Tenant allowances incurred at the origination of a lease are deferred and amortized on a straight-line basis over the term of the related lease. Depreciation expense is computed using the straight-line method applied over the deemed useful life of depreciable assets, generally 39 years for buildings and three to ten years for furniture, fixtures and equipment. Replacements and renovations that extend the useful life of an asset are capitalized and depreciated over their estimated useful lives. Repairs, maintenance and minor improvements are expensed as incurred. The allocation of the purchase price to assets or assignment of useful lives will affect the amount of depreciation expense recorded.

Upon acquisitions of real estate, we assess the fair value of the acquired assets (including land, buildings and improvements, and identified intangibles such as above- and below-market leases and acquired in-place leases and tenant relationships) and assumed liabilities in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations (“SFAS 141”) and SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”) and allocate purchase price based on these assessments. We assess fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market conditions that may affect the property.

In accordance with SFAS No. 141, we record on our balance sheet the fair value of debt assumed in connection with our acquisitions. In order to calculate the fair value of assumed debt, we discount the cash flows relating to the debt by an interest rate that is an estimate of the market rate of interest for a loan of that type, taking into account such factors as the cash flow generated by the property, any guarantees of indebtedness, and the amount of debt relative to the property’s fair market value. The estimate of fair value of the assumed debt will affect our interest expense and the carrying amount of the assumed debt on our balance sheet.

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we evaluate the recoverability of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability is measured based on net, undiscounted expected cash flows. Assets are considered to be impaired if the undiscounted expected cash flows are less than the carrying amount of the assets. Impairment charges are recorded based upon the difference between the carrying value of the asset and its fair value.

The use of different assumptions would result in different values at acquisition, initial allocations of purchase price and future impairment charges. The impact of our estimates in connection with acquisitions and future impairment analysis could be material to our consolidated financial statements.

In accordance with SFAS No. 143, Accounting for Asset Retirement Obligations and FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, we recognize a liability for the fair value of a legal obligation to perform asset-retirement activities that are conditional on a future event if the amount can be reasonably estimated. The asset cost is increased by the value of the cost of the future conditional costs and depreciated over the useful life of the respective asset. The amount recorded on our books related to the recognition of this liability could vary significantly depending on the assumptions used.

Cost of Real Estate Sales. Homebuilding and land development costs are charged to the cost of the homes and land parcels sold under either the specific identification method, where practicable, or relative sales value basis method. The relative sales value basis method requires us to estimate the total project revenue. An inaccurate projection of total revenue or total project costs would affect the cost of sales recorded related to the sale of homes and developed land.

Investments in Joint Ventures. For all investments not wholly-owned, we determine if the entity is a variable interest entity (“VIE”). Such a determination includes, among other requirements that we evaluate whether the equity investment at risk is sufficient to allow the entity to finance its activities without additional subordinated support from others. If the equity at risk is not sufficient then the entity is considered a VIE and is subject to consolidation based on the guidelines of FASB Interpretation No. 46R, Consolidation of Variable Interest Entities (“FIN 46R”). If the equity at risk is sufficient, and various other conditions are met, then the entity is not considered to be a VIE.

If an investee of ours is a VIE under FIN 46R, we determine whether we are the primary beneficiary through being subject to a majority of the potential variability in gains or losses of the VIE. If we are the primary beneficiary, then we consolidate our investment in the joint venture. If we are not the primary beneficiary, then we do not consolidate our investment.

Our evaluation of the sufficiency of equity at risk and our determination of the primary beneficiary is based on subjective assessments that involve our estimating a number of possible future outcomes of cash flows for the entity as well as the probability of each outcome occurring. This process includes our estimating future operating income and losses, taking into account industry trends, the impact of macro economic forces, as well as the effects of demand, competition and other factors. The evaluation of the sufficiency of equity of an entity and the determination of the primary beneficiary will affect the presentation of that entity in our consolidated balance sheet and results of operations.

Deferred Charges and Other Assets. Fees incurred in connection with obtaining financing are deferred and amortized as a part of interest expense over the term of the related debt instrument on a straight-line basis, which approximates the effective interest method. Lease commissions incurred to originate a lease are deferred and amortized on a straight-line basis over the term of the related lease.

Included in Other Assets is the value of acquired in-place leases for purchased properties. In accordance with SFAS No. 141 and SFAS No. 142 we allocate a portion of the real estate acquisition purchase price to acquired in-place leases based on the relative fair values of the assets and liabilities acquired. In order to determine the amount of the purchase price to be allocated to the acquired leases, we develop assumptions regarding the relative value of the in-place leases when compared to the current market. Some of the judgments required as part of this exercise include (1) determining the market rental rates of the acquired leases (2) estimating the market value of concessions (including rent concessions and tenant improvement allowances) and leasing commissions to be paid on new leases (3) estimating an appropriate lease-up period and (4) applying an estimated risk-adjusted discount rate to the existing tenant’s leases. The amount allocated to in-place leases and the associated amortization of those leases could vary significantly depending on the assumptions used.

Other Liabilities. The application of FASB Interpretation No. 45 (“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, requires us to recognize, upon the issuance of a guarantee, a liability for the fair value of the obligation we assume. The calculation of the fair value of this obligation involves significant judgment. The liability recorded for such obligation on our balance sheet could vary significantly depending on the assumptions used.

Balance Sheet Overview

The following table reflects certain condensed balance sheet items as of the dates presented (in thousands):

	December 31,				Increase
	2006		2005		(decrease)
Assets:
Rental property and equipment, at cost	$	513,606	$	312,536		$	201,070
Property and land development	166,109		154,139			11,970
Assets held for sale	25,952		159,375			(133,423		)
Cash, cash equivalents, and investments	55,020		73,848			(18,828		)
Investments in joint ventures	30,403		30,053			350
Deferred charges and other assets, net	45,788		36,266			9,522
Total assets	855,621		763,998			91,623
Liabilities and Shareholders’ Equity:
Mortgage and construction loans and other debt	$	582,435	$	405,155		$	177,280
Total liabilities	670,901		586,940			83,961
Minority interest	43,496		49,696			(6,200		)
Shareholders’ equity	141,224		127,362			13,862

Material changes in assets include:

· Rental property and equipment, at cost, increased primarily as a result of the acquisition of 14 commercial and industrial office properties and one residential property in 2006. The acquisitions increased our commercial office portfolio by 1,741,000 square feet and added 292 apartment units to the residential portfolio, at a total acquisition cost of $201,064,000.

· Property and land development increased primarily as a result of development activity at the Red Mill Pond, Crisfield, Seaside, 1150 Northbrook and the Paradise Developers projects totaling approximately $35,936,000. This increase was partially offset by sales of condominium units at Laguna Vista, sales of residential lots at Seaside and sales of commercial office condominiums at the Paradise Developers projects that totaled $23,823,000.

· Assets held for sale decreased due to the sale in 2006 of Washington Business Park, Charlestown North, four of the Historic Baltimore Portfolio buildings, the Divine Lorraine, the 7800 Building and our interest in 640 North Broad. (See Note 3 of our consolidated financial statements.)

· Cash, cash equivalents and investments decreased in total primarily due to cash used for the previously mentioned commercial office and residential apartment acquisitions, offset by cash proceeds received from the issuance of the Trust Preferred Securities and proceeds from the sale of certain properties.

· The increase in deferred charges and other assets, net, is primarily related to deferred financing fees and the allocation of the purchase price of properties acquired to in-place lease assets, partially offset by the amortization of these assets.

Material changes in liabilities and shareholders’ equity include:

· Mortgage and construction loans and other debt increased primarily as a result of the mortgage loans obtained or assumed in connection with the acquisition of commercial office and industrial properties; the acquisition of the residential apartment community; construction loans draws; and the issuance of Trust Preferred Securities. This increase was partially offset by loan repayments during the period.

· Minority interest decreased primarily as a result of our minority partner’s share of distributions from the sale of the remaining Historic Baltimore Portfolio Properties.

Financial Overview

Results of Operations—Comparison of the results of operations for the year ended December 31, 2006 compared to 2005.

	Years Ended December 31,								$ Change				% Change
	2006				2005				2005 to 2006				2005 to 2006
									Increase (decrease)
Operating revenues from:
Homebuilding, residential lots and other development		$	28,102			$	55,364			$	(27,262	)		(49.2	)%
Commercial rental properties		57,801				34,777				23,024				66.2
Residential rental properties		10,693				9,384				1,309				13.9
Hospitality properties		3,408				3,189				219				6.9
Total operating revenues		100,426				103,053				(2,627		)		(2.5	)
Cost of homebuilding, residential lots and other development		23,823				43,679				(19,856		)		(45.5	)
Commercial operating expenses		25,072				13,582				11,490				84.6
Commercial depreciation and amortization expense		22,700				9,483				13,217				139.4
Residential operating expenses		4,908				3,821				1,087				28.4
Residential depreciation and amortization expense		2,592				2,199				393				17.9
Hospitality operating expenses		2,360				2,316				44				1.9
General and administrative expense		12,652				7,724				4,928				63.8
Loss on impairment of assets		1,494				—				1,494				100.0
Other expenses		(1,678		)		121				(1,799		)		(1,486.8	)
Interest income		2,112				1,100				1,012				92.0
Interest expense		27,486				14,786				12,700				85.9
Debt extinguishment costs		1,047				3,171				(2,124		)		(67.0	)
Gain on sale of investments in joint ventures		24,417				1,551				22,866				1,474.3
Minority interest		1,012				5,800				(4,788		)		(82.6	)
Income(loss) from discontinued operations, net of tax and minority interest		12,095				(855		)		12,950				1,514.6
Net income (loss)		15,708				(2,249		)		17,957				798.4

Homebuilding, Residential Lots and Other Development. The $27,262,000 decrease in homebuilding, residential lots and other development revenue in 2006 was primarily due to fewer sales of residential condominium units. Revenue in 2006 includes the sale of 40 residential lots at Seaside, 45,000 square feet of condominium office space at Paradise Developers, six condominium units at Laguna Vista and a five acre parcel of land in Manassas, Virginia. Revenue in 2005 includes the sale of 137 condominium units at Golfview, 10 residential lots at Clarksburg, 19 condominium units at Laguna Vista, 11 condominium units at Cigar Factory, 18 residential lots at Seaside and 16 residential lots at Crisfield. By December 31, 2005 there were no units remaining at the Golfview and Clarksburg projects and we had sold our interest in the Cigar Factory.

The $19,856,000 decrease in cost of homebuilding, residential lots and other development in 2006 was due to the lower sales volume described above.

Commercial Rental Properties. The $23,024,000 increase in commercial rental properties revenue in 2006 was primarily due to the operation of 19 commercial office properties acquired in 2006 and in 2005. Revenues from properties that we owned for the full year in both 2006 and 2005 were comparable.

Operating expenses consist of direct operating costs of the properties, including property taxes and insurance, and exclude interest expense and depreciation expense. The $11,490,000 increase in operating expenses in 2006 was primarily due to the operation of commercial office properties acquired in 2006 and 2005. Operating expenses for properties that we owned for the full year in both 2006 and 2005 were comparable.

The $13,217,000 increase in depreciation and amortization expense in 2006 was primarily due to the depreciation and amortization related to properties acquired in 2006 and 2005.

Residential Rental Properties. The $1,309,000 increase in residential revenue in 2006 was primarily due to $812,000 of revenue generated by Huntington at Sundance, which was acquired in 2006, along with higher rental rates at Victoria Place and The Fountains.

Operating expenses consist of direct operating costs of the properties including property taxes and insurance, and exclude interest expense and depreciation expense. The $1,087,000 increase in operating expenses in 2006 was primarily due to $421,000 of operating expenses at Huntington at Sundance along with costs associated with a change in management companies during the third quarter of 2006, higher insurance rates and improved maintenance activities in 2006.

The $393,000 increase in depreciation and amortization expense in 2006 was primarily due to the 2006 acquisition described above.

Hospitality Properties. The $219,000 increase in hospitality revenues in 2006 was primarily due to an increase in revenue per available room (“REVPAR”) at the Holiday Inn. Operating expenses, which consist of direct operating costs of the properties including property taxes and insurance, and excluding interest expense and depreciation expense, were comparable to the prior year.

General and Administrative Expense. The $4,928,000 increase in general and administrative expense in 2006 includes the recognition of $1,416,000 of compensation expense related to the stock appreciation rights granted in 2006 and an increase of $586,000 related to non-consummated acquisition costs in 2006. The increase also includes an increase of $1,410,000 in audit fees, (of which approximately $600,000 relates to the 2005 audit fees that were paid in 2006), $500,000 in consulting fees and $447,000 in salaries, wages and benefits, as a result of the growth in assets and operations of the company.

Loss on Impairment of Assets. The $1,494,000 of costs incurred in 2006 relate to the reduction in carrying value of our Laguna Vista development project to its estimated fair value.

Other Expenses. Other expenses in 2006 include a $1,702,000 reduction in a reserve established for the removal of hazardous materials at the Waterfront Complex.

Interest Income. The $1,012,000 increase in interest income in 2006 was primarily due to higher interest rates and larger average balances outstanding during the year from the investment of proceeds received from the Trust Preferred Securities and sales of our investments in joint ventures.

Interest Expense. The $12,700,000 increase in interest expense in 2006 was primarily due to the additional interest on debt obtained or assumed in connection with properties acquired in 2006 and in 2005, along with interest expense related to the Trust Preferred Securities issued in 2006 and 2005. For the years ended December 31, 2006 and 2005, we capitalized interest of approximately $2,234,000 and $1,979,000 respectively, related to our investment in development projects.

Debt Extinguishment Costs. The $1,047,000 of costs incurred in 2006 relate to the defeasance of debt secured by Cross Keys. The $3,171,000 of costs incurred in 2005 relate to the defeasance of debt secured by the Fountains and 919 Market Street.

Gain on Sale of Investments in Joint Ventures. The $22,866,000 increase in gain on sale of investments in joint ventures in 2006 was due to the sale of 1925 K Street, our interest in Washington Business Park Undeveloped Land and our interest in five low-income residential housing projects in 2006, which generated before tax gains of $18,285,000, $4,910,000 and $1,222,000, respectively, compared to the sale of one low-income residential housing project in 2005.

Minority Interest. Minority interest reflects our minority partner’s share of profits in joint ventures that we consolidate into our consolidated financial statements. The $4,788,000 decrease in minority interest in 2006, was primarily due to fewer sales of condominiums by joint ventures with minority partners.

Income from Discontinued Operations, Net of Tax and Minority Interest. The $12,950,000 increase in income from discontinued operations, net of tax and minority interest in 2006 primarily reflects the gains on sale of Washington Business Park, Charlestown North, four buildings in our Historic Baltimore portfolio, the 7800 Building and the Divine Lorraine and adjacent ground, generating gains after taxes, debt extinguishment costs and minority interest of $3,187,000, $8,617,000, $1,540,000, $1,231,000 and $1,079,000, respectively. These gains were partially offset by an asset impairment expense of $2,961,000 after taxes related to 1105 Market Street. In 2005 we recorded gains on sale, after taxes and minority interest totaling $538,000 related to the sale of four buildings in our Historic Baltimore Portfolio.

Results of Operations—Comparison of the results of operations for the year ended December 31, 2005 compared to 2004.

	Years Ended December 31,							$ Change				% Change
	2005				2004			2004 to 2005				2004 to 2005
								Increase (decrease)
Operating revenues from:
Homebuilding and residential lots		$	55,364			$	24,605		$	30,759			125.0	%
Commercial rental properties		34,777				24,652			10,125				41.1
Residential rental properties		9,384				8,705			679				7.8
Hospitality properties		3,189				2,874			315				11.0
Total operating revenues		103,053				62,894			40,159				63.9
Cost of homebuilding and residential lots		43,679				21,071			22,608				107.3
Commercial operating expenses		13,582				9,925			3,657				36.8
Residential operating expenses		3,821				3,783			38				1.0
Hospitality operating expenses		2,316				2,198			118				5.4
Commercial depreciation and amortization expense		9,483				6,774			2,709				40.0
General and administrative expense		7,724				3,973			3,751				94.4
Withdrawn public offering costs		3,312				—			3,312				100.0
Interest income		1,100				1,869			(769		)		(41.1	)
Interest expense		14,786				9,655			5,131				53.1
Debt extinguishment costs		3,171				—			3,171				100.0
Gain on sale of investments in joint ventures		1,551				624			927				148.6
Income from investments in joint ventures		793				1,360			(567		)		(41.7	)
Minority interest		5,800				1,966			3,834				195.0
Net (loss) income		(2,249		)		4,419			(6,668		)		(150.9	)

Homebuilding and Residential Lots. The $30,759,000 increase in homebuilding, residential lots and other development revenue in 2005 was primarily due to the sale in 2005 of 10 developed lots at Clarksburg Ridge, 11 condominium units at Cigar Factory, 137 condominium units at Golfview, 19 condominium units at Laguna Vista, 18 lots at Seaside and 16 lots at Crisfield. In 2004, we sold 120 developed lots at Clarksburg Ridge, 13 condominium units at Cigar factory and two condominium units at Golfview.

The $22,608,000 increase in the cost of homebuilding, residential lots and other development revenue in 2005 was a result of increased development sales described in the proceeding paragraph.

Commercial Rental Properties. The $10,125,000 revenue increase in 2005 was primarily due to the operation of nine commercial office properties acquired during 2005 and 2004. Revenues from properties that we owned for a full twelve

months in 2005 and 2004 decreased by $600,000 from 2004 due to lower average occupancy in 2005 at Washington Business Park and Versar Center.

Operating expenses consist of direct operating costs of the properties including property taxes and insurance and excluding interest expense and depreciation expense. The $3,657,000 increase in 2005 was primarily due to the addition of operating expenses of properties acquired in 2005 and 2004. Operating expenses from properties that we owned for a full twelve months in 2005 and 2004 were comparable.

The $2,709,000 increase in depreciation and amortization expense in 2005 was primarily due to 2005 and 2004 acquisitions.

Residential Rental Properties. The $679,000 increase in revenue in 2005 compared to 2004 was primarily due to higher occupancy and increased rental rates at all three of our properties.

Operating expenses consist of direct operating costs of the properties including property taxes and insurance and excluding interest expense and depreciation expense. Operating expenses in 2005 were comparable with 2004.

Hospitality Properties. The $315,000 increase in revenue for 2005 was due to an increase in REVPAR in 2005 at the Holiday Inn.

Operating expenses, which consist of direct operating costs of the properties including property taxes and insurance, and excluding interest expense and depreciation expense, increased by $118,000 compared to 2004. The increase can be primarily attributed to management fees incurred at the Holiday Inn due to the termination of the management agreement with a wholly-owned subsidiary and the signing of a new management agreement with an unrelated third party management company in July 2004.

General and Administrative Expense. The $3,751,000 increase in general and administrative expense in 2005 was primarily due to retirement benefit expenses totaling $1,330,000 for Burton J Reiner, one of our co-founders. We have also hired additional personnel and incurred other additional administrative costs due to the increased operations and moving to new premises.

Withdrawn Public Offering Costs. The $3,312,000 of expense relates to costs incurred by us associated with the proposed Midlantic initial public offering, which were recorded by us upon Midlantic’s decision to withdraw the offering. (See Note 3 in our consolidated financial statements.)

Interest Income. The $769,000 decrease in interest income for 2005 was primarily due to the repayment of several notes receivable from unrelated parties during the fourth quarter of 2004.

Interest Expense. The $5,131,000 increase in interest expense in 2005 was primarily due to interest on debt obtained or assumed in connection with properties acquired in 2005 and 2004. For the years ended December 31, 2005 and 2004, we capitalized interest of $1,979,000 and $1,738,000, respectively, related to our investment in development projects.

Debt Extinguishment Costs. The $3,171,000 of expense in 2005 are costs incurred related to the defeasance of debt secured by The Fountains and by 919 Market Street both of which we refinanced.

Gain on Sale of Investments in Joint Ventures. The $927,000 increase in the gain on the sale of investments in joint ventures was a result of our share of a gain on the sale of Foxchase Village, an unconsolidated low-income residential housing complex in the second quarter of 2005.

Income from Investments in Joint Ventures. The $567,000 decrease income from investments in joint ventures in 2005, was primarily due to operating losses at Arbor Crest and decreased income from 1925 K Street. These were partially offset by operating income from Devon Square.

Minority Interest. Minority interest reflects our minority partner’s share of profits in joint ventures that we consolidate into our consolidated financial statements. The $3,834,000 increase in minority interest in 2005 was primarily due to sales of condominiums and lots at Cigar Factory, Golfview, Seaside and Crisfield.

Funds From Operations

We consider Funds From Operations (“FFO”) to be a meaningful measure of our performance and we evaluate management based on FFO. We provide FFO as a supplemental measure for reviewing our operating performance, although FFO should be reviewed in conjunction with net income which remains the primary measure of performance. FFO is a recognized metric used extensively within the real estate industry by operators of rental properties. Accounting for real estate assets using historical cost accounting under GAAP is based on the presumption of the value of real estate assets

diminishing predictably over time. Since real estate values instead have risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results that exclude historical cost depreciation to be useful in evaluating the operating performance of real estate companies. As a result, the National Association of Real Estate Investment Trusts (“NAREIT”) created the concept of FFO as a standard supplemental measure of operating performance that adjusts GAAP net income to exclude historical cost depreciation.

While we are not a real estate investment trust (“REIT”), which is generally not subject to federal income tax, our real estate operations include large amounts of depreciable and amortizable real estate assets and we compete against REITS. Therefore, we believe FFO to be a relevant measurement of our performance.

FFO as defined by the NAREIT is net income (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciable property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect funds from operations on the same basis. Our FFO measure differs from NAREIT’s definition in that we also exclude income tax expense related to property sales. The exclusion of income tax expense on property sales is consistent with the objective of presenting comparative period operating performance. FFO should not be considered an alternative to net income as an indicator of our operating performance, or as an alternative to cash flows from operating, investing or financing activities as a measure of liquidity. Additionally, the FFO measure presented by us is not calculated in the same manner as FFO measures of other real estate companies and therefore may not necessarily be comparable. We believe that FFO provides relevant information about our operations and is useful, along with net income, for an understanding of our operating activities.

Our FFO was $16,663,000 for the year ended December 31, 2006, compared to $12,012,000 for the year ended December 31, 2005, an increase of $4,651,000. This increase is primarily due to FFO generated from properties we acquired in 2006 and 2005 and a gain on sale totaling $2,946,000 after taxes, related to the sale of our interest in a joint venture that owned undeveloped land. The increase was partially offset by FFO from properties sold in 2006 and 2005 and fewer condominium unit sales in 2006.

Our FFO was $12,012,000 for the year ended December 31, 2005, compared to $15,953,000 for the year ended December 31, 2004, a decrease of $3,941,000. This decrease was primarily due to the recognition in 2005 of expenses associated with the withdrawal of the Midlantic IPO, costs incurred related to the early extinguishment of debt; and retirement costs incurred related to the retirement of one of the company’s founders. The after-tax impact of these expenses totaled $4,782,000. This decrease was partially offset by FFO generated from properties we acquired in 2005 and 2004 and increased sales of condominium units and residential lots in 2005.

The following table reflects the calculation of FFO (in thousands):

	Years Ended December 31,
	2006			2005			2004
Net income (loss)	$	15,708		$	(2,249	)	$	4,419
Add: Depreciation and amortization including share of unconsolidated real estate joint ventures	27,302			16,125			12,659
Add: Income tax expense from property sales, net of minority interest	17,565			1,243			749
Less: Gain on sale of properties, net of minority interest	(43,912		)	(3,107		)	(1,874		)
Funds from operations	$	16,663		$	12,012		$	15,953

Liquidity and Capital Resources

General. At December 31, 2006 our consolidated current cash and cash equivalents and investments that are principally short-term municipal obligations were $55,020,000. Of this amount, approximately $22,000,000 is either maintained for working capital purposes or represents our joint venture partner’s share of cash at our consolidated joint ventures. The remaining amount is available, subject to certain debt covenants requiring us to maintain a minimum liquidity of $30,000,000, for funding future acquisitions, investments in development projects , capital expenditures, and required loan payments. In addition, under our line of credit, we have as of the time of this filing available borrowing capacity of $50,000,000, subject to certain restrictive covenants and sub-limits.

Short-Term Liquidity. Our most material short-term liquidity requirements for the year ended December 31, 2007 relate to interest and scheduled principal payments on our outstanding mortgage debt that total approximately $56,000,000, based on existing debt and variable interest rates as of December 31, 2006; capital improvements at our existing properties

budgeted to total approximately $12,400,000, required payments on our development loans scheduled to total $34,248,000, and our share of additional contributions required for the Waterfront Complex development, estimated to total approximately $10,000,000. Other short-term liquidity requirements include recurring repair and maintenance necessary to adequately maintain our properties; tenant improvement allowance payments, lease commissions; and general and administrative expenses. In addition, we intend to make additional acquisitions that will require the use of capital. We anticipate meeting these short-term liquidity requirements from the cash provided from operations, proceeds from loan refinancings and asset sales, and to the extent necessary, from our available cash on hand at December 31, 2006.

A number of factors could affect our cash provided from operations, including a change in occupancy levels and leasing rates, caused by tenants’ perception about the attractiveness of the property relative to competing properties; the physical deterioration of the property; competitive pressure caused by newly developed properties within the same geographic market; and rent concessions offered by competitors. Furthermore, an economic downturn in the markets in which we operate could affect the ability of tenants to meet their rental obligations, the likelihood that tenants will renew their leases and our ability to lease the space on economically favorable terms.

Future Capital Requirements. Our future capital requirements include funds necessary to pay scheduled debt maturities and capital improvements, additional investment that could be required at our current development projects as a result of cost overruns, and funds required for future property acquisitions and investments in development projects. Our fixed-rate mortgage debt matures on average in 12.2 years, beginning in 2008 (see annual contractual principal payments schedule in Note 8 of Notes to Consolidated Financial Statements). We anticipate meeting these liquidity requirements through debt refinancings, draws on our line of credit, asset dispositions and available cash on hand.

In the first quarter of 2007 we acquired two commercial office buildings and one residential apartment community with an aggregate purchase price of $56,600,000. We placed or assumed mortgage debt on these properties totaling $48,000,000. During this time period we also sold a commercial office building, a hospitality property and our 25% interest in a joint venture that owns a commercial office building, generating net proceeds of $8,090,000. We also refinanced three mortgage loans and placed new financing on a previously unleveraged property, generating net proceeds to us of $26,685,000. Additionally, BRW, a 54% owned subsidiary of ours received a $25,000,000 distribution payment related to an equalization of partnership interests in WALLC (see description of the transaction in Item 2 “Properties”).

Several of our loans contain financial covenants, including requirements that we maintain a minimum liquidity of $30,000,000, a minimum net worth of $130,000,000 and minimum annual funds from operations, as defined, of $15,000,000.

If we default on the payment of interest or principal in connection with an existing loan or violate any loan covenant, the lender may accelerate the maturity of the debt, requiring us to repay all outstanding indebtedness along with any prepayment fees due. If we are unable to repay the debt, the lender may foreclose on any assets pledged as collateral for the lender.

Operating Activities. For the year ended December 31, 2006, net cash provided by operating activities was $2,996,000. Operating activities includes funds used for our development projects totaling $1,883,000.

Investing Activities. For the year ended December 31, 2006, net cash used in investing activities totaled $103,857,000 primarily due to the acquisition of 15 commercial office and residential properties, development activity at five investment development projects and increased restricted cash, and partially offset by proceeds from asset sales and a decrease in investments in municipal obligations.

Financing Activities. For the year ended December 31, 2006, net cash provided by financing activities totaled $108,232,000. This primarily resulted from the placement of mortgage debt related to the acquisition of commercial office and residential properties, the issuance of Trust Preferred Securities and mortgage refinancings. This was partially offset by reductions in cash as a result of loan principal payments and amounts distributed to our equity partners from joint venture entities that we consolidate into our consolidated financial statements.

Excess cash flow generated from our properties’ operations and from distributions from joint ventures is typically invested in municipal obligations that are short-term in nature. These investments are then liquidated as needed for our real estate acquisitions and investments in development projects.

Off-Balance Sheet Commitments.

Together with our joint venture partner, we have guarantied repayment of up to $39,240,000 under the $98,100,000 primary construction loan for the Symphony House construction project. In addition, we have guarantied repayment of the full amount outstanding under the $16,900,000 mezzanine construction loan for the same project. The guarantied repayment

under the primary loan was reduced to $24,525,000 in the first quarter of 2006 upon the joint venture obtaining in excess of $83,500,000 in sales contracts and will be further reduced to $9,810,000 once net sales proceeds reach 110% of the outstanding principal balance of the loan. Both the primary construction loan and the mezzanine loan mature in 2008. Funding of the guaranty would increase our equity participation in the venture.

We have provided a guarantee to the lender on a $8,500,000 mezzanine construction loan for Venice Lofts, that should the interest rate on the project’s $30,000,000 variable-rate senior construction loan exceed 6.5%, the difference between the interest due and a calculation of interest due based on 6.5% interest rate, will be kept current. The amount outstanding under the senior loan totaled $16,852,000 at December 31, 2006 and all the loan interest payments were current as of that date.

We have guarantied repayment of the entire loan balance outstanding under a $21,350,000 acquisition and construction loan obtained by Devon Square. Our equity partner in the venture has provided the same guaranty. Funding of the guaranty would increase our equity participation in the venture. The loan matures in August 2007. At December 31, 2006, the balance outstanding under the loan totaled $16,557,000.

We have guarantied repayment of the entire loan balance outstanding under a $14,600,000 acquisition loan obtained by Madison Building Associates, LLC (“Madison”). Our equity partner in the venture has provided the same guaranty. The loan matures in 2012. At December 31, 2006, the balance outstanding under the loan totaled $13,869,000. In February 2007, we sold our interest in Madison and were released from the guaranty.

In conjunction with the sale of 640 North Broad we guarantied a $6,000,000 loan obtained by the buyer and secured in part by a $3,000,000 certificate of deposit that we purchased from the lender.

We have guarantied repayment of the entire loan balance outstanding under a $7,480,000 acquisition and development loan obtained by Guilford Properties. Our equity partner in the venture has provided the same guaranty. Funding of the guaranty would increase our equity participation in the venture. The loan matures in 2009. At December 31, 2006, the balance outstanding under the loan totaled $5,883,000.

In support of certain consolidated entities’ mortgage loans we have entered into master lease agreements, and we have provided indemnification for certain environmental events. These agreements are entered into for the benefit of the mortgage lenders to facilitate more favorable terms.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in interest rates. Our market risk arises from interest rate risk inherent in our investment assets and our variable rate debt. Interest rate risk is the possibility that changes in interest rates will cause unfavorable changes in net income or in the value of interest rate-sensitive assets, liabilities and commitments.

We do not believe that we have any material exposures to adverse changes in interest rates associated with our investment assets. We invest in investment grade state and local government issues with short-term maturities and fixed rates of return. The short-term nature of the investments provides opportunities for reinvestment at higher interest rates, as those rates increase.

We do not currently use derivatives to manage interest rate risk. At December 31, 2006, $96,118,000 of our debt was variable-rate. Based on the total of this variable-rate debt outstanding at December 31, 2006, a 1% increase in market interest rates would adversely impact our annual pre-tax earnings by approximately $961,000. While it is difficult to predict the spread between interest rates of our variable-rate debt and rates of interest we earn on our short-term investments, an increase in interest rates should increase the yield on our investments, partially offsetting this adverse impact on earnings.

At December 31, 2006, $514,562,000 of our debt was fixed rate. Based upon requirements for assessing the market value of debt instruments, we estimate the fair market value by discounting future cash payments at interest rates that approximate the current market. Based on these parameters, at December 31, 2006, the estimated fair value of our fixed-rate debt was $495,888,000.

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2006 (in thousands):

			Payments Due by Period
	Total		Less than 1-Year			1-3 Years		3-5 Years		More than 5-Years
Debt obligations (1)	$	610,681		$	42,484	$	103,898	$	22,826		$	441,473
Fixed interest payments	233,503			32,330		62,021		53,831			85,321
Variable interest payments (2)	9,233			5,974		3,259		—			—
Operating lease obligations	8,342			388		800		833			6,321
Outstanding letters of credit	2,786			2,275		511		—			—
Long-term purchase contract	4,742			948		2,846		948			—
Total	$	869,287		$	84,399	$	173,335	$	78,438		$	533,115

(1) Includes debt related to assets held for sale.

(2) Based on variable interest rates in effect on December 31, 2006.

Our assumed debt had a fair value in excess of carrying amount of $213,000 as of December 31, 2006.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our audited financial statements are listed under Item 15 in this annual report and are included therein.

No supplementary data are supplied because none are required.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures—We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. At the time of the filing of our Annual Report on Form 10-K for the year ended December 31, 2006, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2006. Based upon that evaluation and subject to the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of disclosure control and procedures provided reasonable assurance that the disclosure controls and procedures were effective to accomplish their objectives.

Subsequent to such evaluation, after discovering the errors in our statements of cash flows that required restatement and resulted in the filing of this Amendment to our Annual Report on Form 10-K/A, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, re-evaluated our disclosure controls and procedures. We have concluded that the errors resulting in the restatement of our statements of cash flows were the result of a material weakness in internal controls over financial reporting with respect to the preparation of the statement of cash flows, specifically as it pertains to the identification of non-cash activity and the proper classification of development and homebuilding activities. As a result of the identification of this material weakness in internal controls over financial reporting, we have now concluded that our disclosure controls and procedures were not effective as of December 31, 2006.

As a result, we have taken the following steps to remedy the material weaknesses that were identified relating to the preparation of our statement of cash flows.

· Implemented a process to identify non-cash activity including the preparation of roll-forward schedules that reconcile the change in balance sheet accounts between the relevant periods;

· Implemented procedures to properly identify activities regarding development projects;

· Formalized the process regarding classifying development projects in accordance with management’s intention with regards to these projects; and

· Added additional resources around the process of preparing and reviewing the statement of cash flows.

ITEM 9B. OTHER INFORMATION

No information is required to be disclosed under this Item.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERANCE

The information required by this item will be incorporated by reference to a definitive proxy statement involving the election of directors, which is expected to be filed by us pursuant to Regulation 14A, within 120 days after the close of our fiscal year.

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER MATTERS

The information required by this item will be incorporated by reference to a definitive proxy statement involving the election of directors, which we expect to be filed pursuant to Regulation 14A, within 120 days after the close of our fiscal year.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

A. Financial Statements

		Report of Independent Registered Public Accounting Firm
		Consolidated Balance Sheets as of December 31, 2006 (As Restated) and 2005
		Consolidated Statements of Operations for the years ended December 31, 2006 (As Restated), 2005 and 2004
		Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2006 (As Restated), 2005 and 2004
		Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004 (As Restated)
		Notes to the Consolidated Financial Statements
		Schedule III—Real Estate and Accumulated Depreciation as of December 31, 2006
		Schedules other than those listed above have been omitted because they are not required, not applicable, or the required information is set forth in the financial statements or notes thereto.

B. Exhibits

Exhibit Number			Description of Document
	3.1	Restated Certificate of Incorporation of Registrant filed February 23, 1971, Amendment filed August 12, 1987, and Amendment filed May 31, 1991. (Incorporated by reference to Exhibit 3A of Registrant’s Quarterly Report on Form 10-Q for the second quarter of 1991, filed August 14, 1991.)
	3.2	Certificate of Amendment to Certificate of Incorporation filed September 1, 2004 (incorporated by reference to Exhibit 3.1 of Registrant’s Quarterly Report on Form 10-Q for the third quarter of 2004, filed November 15, 2004.)
	3.3	Amended and Restated By-laws of Registrant. (Incorporated by reference to Exhibit 4 to Registrant’s Annual Report on Form 10-K for 2001, filed April 1, 2002.)
	3.4	First Amendment to Bresler & Reiner, Inc. Amended and Restated Bylaws of Registrant. (Incorporated by reference to Exhibit 3.3 of Registrant’s Report on Form 10-K for 2002, filed March 31, 2003.)
	3.5	Second Amendment to Bresler & Reiner, Inc. Amended and Restated Bylaws of Registrant. (Incorporated by reference to Exhibit 3.2 to Registrant’s Current Report on Form 8-K filed February 26, 2003.)
	9.1	First Amended and Restated Shareholders Agreement, dated as of July 31, 2002, by and between Bresler Family Investors, LLC, Burton J. Reiner and Anita O. Reiner, Joint Tenants, Burton and Anita Reiner Charitable Remainder Unitrust and Registrant. (Incorporated by reference to Exhibit 2.5 to Registrant’s Current Report on Form 8-K, filed August 8, 2002.)
	9.2	Second Amended and Restated Shareholders Agreement, dated as of February 21, 2003, by and among Bresler Family Investors, LLC, Burton J. Reiner and Anita O. Reiner, husband and wife as joint tenants, Burton and Anita Reiner Charitable Remainder Unitrust and Registrant. (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K, filed February 26, 2003.)
	10.1	Bresler & Reiner 2006 Stock Appreciation Rights Incentive Plan. (Incorporated by reference to Exhibit 10.4 to Registrant’s Annual Report on Form 10-K for 2005, filed March 31, 2006.)
	10.2	Amended and Restated Trust Agreement of Bresler & Reiner Statutory Trust I, dated November 23, 2005, by and among Bresler & Reiner, Inc., JPMorgan Chase Bank, National Association, Chase Bank USA and others named therein. (Incorporated by reference to Exhibit 10.5 to Registrant’s Annual Report on Form 10-K for 2005, filed March 31, 2006.)
	10.3	Junior Subordinated Indenture dated November 29, 2005 by and between Bresler & Reiner, Inc. and JPMorgan Chase Bank, National Association. (Incorporated by reference to Exhibit 10.6 to Registrant’s Annual Report on Form 10-K for 2005, filed March 31, 2006.)
	10.4	Common Securities Subscription Agreement dated November 29, 2005 by and between Bresler & Reiner, Inc. and Bresler & Reiner Statutory Trust I. (Incorporated by reference to Exhibit 10.7 to Registrant’s Annual Report on Form 10-K for 2005, filed March 31, 2006.)
	10.5	Purchase Agreement dated November 23, 2005 by and among Bresler & Reiner, Inc., Bresler & Reiner Statutory Trust I, and Merrill Lynch International. (Incorporated by reference to Exhibit 10.8 to Registrant’s Annual Report on Form 10-K for 2005, filed March 31, 2006.)
	10.6	Amended and Restated Trust Agreement of Bresler & Reiner Statutory Trust I, dated May 31, 2006, by and among Bresler & Reiner, Inc., JPMorgan Chase Bank, National Association, Chase Bank USA and others named therein. (Incorporated by reference to Exhibit 10.9 to Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2006, filed August 11, 2006.)
	10.7	Junior Subordinated Indenture dated May 31, 2006 by and between Bresler & Reiner, Inc. and JPMorgan Chase Bank, National Association. (Incorporated by reference to Exhibit 10.10 to Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2006, filed August 11, 2006.)
	10.8	Common Securities Subscription Agreement dated May 31, 2006 by and between Bresler & Reiner, Inc. and Bresler & Reiner Statutory Trust I. (Incorporated by reference to Exhibit 10.11 to Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2006, filed August 11, 2006.)

	10.9			Purchase Agreement dated May 31, 2006 by and among Bresler & Reiner, Inc., Bresler & Reiner Statutory Trust II, and Bear, Stearns & Co., Inc. (Incorporated by reference to Exhibit 10.12 to Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2006, filed August 11, 2006.)
	10.10			Purchase Agreement dated May 31, 2006 by and among Bresler & Reiner, Inc., Bresler & Reiner Statutory Trust II, and Merrill Lynch International. (Incorporated by reference to Exhibit 10.13 to Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2006, filed August 11, 2006.)
	21			Subsidiaries of the Registrant. (Filed herewith.)
	31.1			Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 from Sidney M. Bresler, Chief Executive Officer. (Filed herewith.)
	31.2			Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 from Darryl M. Edelstein, Executive Vice President-Finance and Chief Financial Officer. (Filed herewith.)
	32			Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 from Sidney M. Bresler, Chief Executive Officer and Darryl M. Edelstein, Executive Vice President-Finance and Chief Financial Officer. (Filed herewith.)

Shareholders may obtain a copy of any financial statement schedules and any exhibits filed with Form 10-K/A by writing to: Mr. Darryl M. Edelstein, CFO, 11200 Rockville Pike, Suite 502, Rockville, MD 20852. Mr. Edelstein will advise shareholders of the fee for any exhibit.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on June 28, 2007.

		BRESLER & REINER, INC.
		By:		/s/ SIDNEY M. BRESLER
				Sidney M. Bresler
				Chief Executive Officer
		By:		/s/ DARRYL M. EDELSTEIN
				Darryl M. Edelstein
				Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities indicated on June 28, 2007.

/s/ SIDNEY M. BRESLER		Chief Executive Officer, Director
Sidney M. Bresler
/s/ DARRYL M. EDELSTEIN		Executive Vice President—Finance and Chief Financial Officer
Darryl M. Edelstein		(Principal Financial & Accounting Officer)
/s/ BENJAMIN C. AUGER		Director
Benjamin C. Auger
/s/ CHARLES S. BRESLER		Director
Charles S. Bresler
/s/ GARY F. BULMASH		Director
Gary F. Bulmash
/s/ MICHAEL W. MALAFRONTE		Director
Michael W. Malafronte
		Director
Burton J. Reiner
/s/ RANDALL L. REINER		Director
Randall L. Reiner
/s/ JOHN P. CASEY		Director
John P. Casey
/s/ GRETCHEN DUDNEY		Director
Gretchen Dudney

BRESLER & REINER, INC.

FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006 and 2005

CONTENTS

Report of Independent Registered Public Accounting Firm		F-2
Consolidated Financial Statements
Consolidated Balance Sheets (As Restated)		F-3
Consolidated Statements of Operations (As Restated)		F-4
Consolidated Statements of Changes in Shareholders’ Equity (As Restated)		F-5
Consolidated Statements of Cash Flows (As Restated)		F-6
Notes to Consolidated Financial Statements		F-7

F-1

Report of Independent Registered Public Accounting Firm

To the Shareholders of Bresler & Reiner, Inc.

We have audited the accompanying consolidated balance sheets of Bresler & Reiner, Inc. (the “Company”) as of December 31, 2006 and 2005 and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2006. Our audits also included the financial statement schedule included as part of this Annual Report on Form 10-K at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits 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 also 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, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Bresler & Reiner, Inc. at December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 21, the accompanying consolidated balance sheet as of December 31, 2006, consolidated statement of operations and consolidated statement of changes in shareholders’ equity for the year ended December 31, 2006, and consolidated statements of cash flows for the years ended December 31, 2006, 2005 and 2004 have been restated.

/s/ DELOITTE & TOUCHE LLP

McLean, Virginia
March 31, 2007 (June 27, 2007 as to the effects of the restatement discussed in Note 21)

F-2

BRESLER & REINER, INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2006 AND 2005

	2006			2005
	(As restated see Note 21)
ASSETS
Real Estate:
Rental property and equipment	$	513,606,000		$	312,536,000
Property and land development	166,109,000			154,139,000
Land held for investment	1,412,000			2,989,000
Real estate, at cost	681,127,000			469,664,000
Less: accumulated depreciation and amortization	(42,700,000		)	(28,744,000		)
Total real estate, net	638,427,000			440,920,000
Assets held for sale	25,952,000			159,375,000
Receivables:
Income taxes receivable	644,000			2,429,000
Mortgage and notes receivable, other	5,438,000			834,000
Other receivables, net	6,996,000			6,239,000
Cash and cash equivalents	18,191,000			10,820,000
Restricted cash and deposits held in escrow	46,953,000			14,034,000
Investments, principally available-for-sale securities	36,829,000			63,028,000
Investment in and advances to joint ventures	30,403,000			30,053,000
Deferred charges and other assets, net	45,788,000			36,266,000
Total assets	$	855,621,000		$	763,998,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Mortgage and construction loans and other debt	$	582,435,000		$	405,155,000
Liabilities of assets held for sale	29,704,000			125,603,000
Accounts payable, trade and accrued expenses	19,358,000			18,662,000
Deferred income taxes payable	11,146,000			11,453,000
Other liabilities	28,258,000			26,067,000
Total liabilities	670,901,000			586,940,000
Minority interest	43,496,000			49,696,000
Commitments and contingencies
SHAREHOLDERS’ EQUITY
Common shares, $0.01 par value; 7,000,000 shares authorized, 5,477,212 shares issued and outstanding as of December 31, 2006 and 2005	55,000			55,000
Additional paid-in capital	5,721,000			5,721,000
Retained earnings	135,651,000			121,586,000
Accumulated other comprehensive loss	(203,000		)	—-
Total shareholders’ equity	141,224,000			127,362,000
Total liabilities and shareholders’ equity	$	855,621,000		$	763,998,000

See Notes to Consolidated Financial Statements

F-3

BRESLER & REINER, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

	2006			2005			2004
	(As restated see Note 21)
OPERATING REVENUES
Homebuilding, residential lots and other development	$	28,102,000		$	55,364,000		$	24,605,000
Rentals—commercial	57,801,000			34,777,000			24,652,000
Rentals—residential	10,693,000			9,384,000			8,705,000
Hospitality	3,408,000			3,189,000			2,874,000
Other	422,000			339,000			2,058,000
Total operating revenues	100,426,000			103,053,000			62,894,000
COSTS AND EXPENSES
Cost of homebuilding, residential lots and other development	23,823,000			43,679,000			21,071,000
Rental expense—commercial
Operating expenses	25,072,000			13,582,000			9,925,000
Depreciation and amortization expense	22,700,000			9,483,000			6,774,000
Rental expense—residential
Operating expenses	4,908,000			3,821,000			3,783,000
Depreciation and amortization expense	2,592,000			2,199,000			2,354,000
Hospitality expense
Operating expenses	2,360,000			2,316,000			2,198,000
Depreciation and amortization expense	312,000			272,000			364,000
General and administrative expense	12,652,000			7,724,000			3,973,000
Loss on impairment of assets	1,494,000			—			—
Withdrawn public offering costs	—			3,312,000			—
Other expenses	(1,678,000		)	121,000			—
Total operating expenses	94,235,000			86,509,000			50,442,000
Total operating income	6,191,000			16,544,000			12,452,000
OTHER INCOME (EXPENSES)
Interest income	2,112,000			1,100,000			1,869,000
Interest expense	(27,486,000		)	(14,786,000		)	(9,655,000		)
Debt extinguishment costs	(1,047,000		)	(3,171,000		)	—
Gain on sale of investments in joint ventures	24,417,000			1,551,000			624,000
Income before income taxes, income from investments in joint ventures, minority interest and income (loss) from discontinued operations	4,187,000			1,238,000			5,290,000
Income from investments in joint ventures	996,000			793,000			1,360,000
Minority interest	(1,012,000		)	(5,800,000		)	(1,966,000		)
Income (loss) before income taxes and discontinued operations	4,171,000			(3,769,000		)	4,684,000
(Provision) benefit for income taxes	(558,000		)	2,375,000			(1,142,000		)
Income (loss) from continuing operations	3,613,000			(1,394,000		)	3,542,000
Income (loss) from discontinued operations, net of tax and minority interest	12,095,000			(855,000		)	877,000
Net income (loss)	$	15,708,000		$	(2,249,000	)	$	4,419,000
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Basic and Diluted:
Income (loss) from continuing operations	$	0.66		$	(0.25	)	$	0.65
Income (loss) from discontinued operations, net of tax	2.21			(0.16		)	0.16
Net income (loss)	$	2.87		$	(0.41	)	$	0.81
Weighted average number of common shares outstanding	5,477,212			5,477,212			5,477,212

See Notes to Consolidated Financial Statements

F-4

BRESLER & REINER, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

	Common Stock				Additional Paid-in Captial			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity				Comprehensive Income (Loss)
Balance, January 1, 2004		$	28,000		$	7,565,000		$	122,319,000		$	(1,817,000	)		$	—		$	128,095,000
Stock split		29,000			(29,000		)	—			—				—			—
Cash dividends paid		—			—			(1,369,000		)	—				—			(1,369,000		)
Net income		—			—			4,419,000			—				—			4,419,000				$	4,419,000
Balance, December 31, 2004		57,000			7,536,000			125,369,000			(1,817,000		)		—			131,145,000
Cash dividends paid		—			—			(1,534,000		)	—				—			(1,534,000		)
Cancellation of treasury stock		(2,000		)	(1,815,000		)	—			1,817,000				—			—
Net loss		—			—			(2,249,000		)	—				—			(2,249,000		)		$	(2,249,000	)
Balance, December 31, 2005		55,000			5,721,000			121,586,000			—				—			127,362,000
Cash dividends paid

BRESLER & REINER INC 10-K/A