UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: ~~September 30~~March 31, ~~2016~~2017

¨	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 000-53917

TALON REAL ESTATE HOLDING CORP.

(Exact Name of Registrant as Specified in its Charter)

Utah

26-1771717

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

~~5500~~100 ~~Wayzata~~S. ~~Boulevard,~~1st ~~Suite 1070~~Street, Minneapolis, MN ~~55416~~55458-3357

(Address of Principal Executive Offices, Including Zip Code)

(612) 604-4600

(Registrant’s Telephone Number, Including Area Code)

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	¨	Accelerated Filer	¨	Non-Accelerated Filer	¨	Smaller Reporting Company	x
			(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding at ~~November~~June 215, ~~2016~~2019 was 1729,~~607~~102,~~680~~791 shares.

TALON REAL ESTATE HOLDING CORP.

QUARTERLY REPORT ON FORM 10-Q

INDEX

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements	31
Condensed Consolidated Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015	4
Condensed Consolidated Balance Sheets as of March 31, 2017 (unaudited) and December 31, 2016	2
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015 (unaudited)	5
Condensed Consolidated Statements of Operations for the three months ended March 31, 2017 and 2016 (unaudited)	3
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 (unaudited)	6
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016 (unaudited)	4
Notes to Condensed Consolidated Financial Statements (unaudited)	75
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2328
Item 3. Quantitative and Qualitative Disclosures About Market Risk	3341
Item 4. Controls and Procedures	3341
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	3546
Item 1A. Risk Factors	3646
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3646
Item 3. Defaults Upon Senior Securities	3646
Item 4. Mine Safety Disclosures	3646
Item 5. Other Information	3646
Item 6. Exhibits	3646
Signatures	3747

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

In this Quarterly Report on Form 10-Q, references to “Company,” “we,” “us,” “our” and words of similar import refer to Talon Real Estate Holding Corp. and its subsidiaries, unless the context requires otherwise.

This Quarterly Report on Form 10-Q contains forward-looking statements regarding us, our business prospects and our results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those described under the heading “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016 as filed with the Securities and Exchange Commission on April 617, ~~2016~~2019. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Commission that advise interested parties of the risks and factors that may affect our business.

PART I. – FINANCIAL INFORMATION

Item 1. Financial Statements

~~Financial~~TALON ~~Statements~~REAL ESTATE HOLDING CORP.

~~TALON REAL ESTATE HOLDING CORP.~~Minneapolis, Minnesota

~~Minneapolis, Minnesota~~FINANCIAL STATEMENTS

~~FINANCIAL~~TABLE ~~STATEMENTS~~OF CONTENTS

~~TABLE~~As OFof ~~CONTENTS~~March 31, 2017 and for the three months ended March 31, 2017 and 2016

As of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015

	Page
Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets	2
Condensed Consolidated Statements of Operations	3
Condensed Consolidated Statements of Cash Flows	4
Notes to Condensed Consolidated Financial Statements	5

	Page
Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets	4
Condensed Consolidated Statements of Operations	5
Condensed Consolidated Statements of Cash Flows	6
Notes to Condensed Consolidated Financial Statements	7

-1-

3 Table of Contents

TALON REAL ESTATE HOLDING CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

~~September~~March 3031, ~~2016~~2017 and December 31, ~~2015~~2016

	September 30, 2016			December 31, 2015
		March 31, 2017				December 31, 2016
	~~(unaudited)~~		(unaudited)
ASSETS
Land and improvements	$	~~8,165,000~~$	8,302,447	$	~~8,165,000~~	$	8,302,447
Building and improvements		~~53,313,302~~	51,192,060		~~53,285,277~~		45,552,308
Equipment, furniture and fixtures		~~28,864~~	32,193		~~28,864~~		30,571
Total property and equipment		~~61,507,166~~	59,526,700		~~61,479,141~~		53,885,326
Less: accumulated depreciation		~~(7,852,526)~~	(9,159,425	)	~~(5,881,183)~~		(8,506,290	)
Net property and equipment		~~53,654,640~~	50,367,275		~~55,597,958~~		45,379,036
Cash		~~184,332~~	88,596		~~340,385~~		108,418
Rents and other receivables, net		~~387,696~~	598,515		~~375,351~~		428,176
Prepaid expenses and other assets		~~229,796~~	70,083		~~158,284~~		104,855
Restricted escrows and reserves		~~3,175,992~~	13,995,393		~~2,139,180~~		3,001,232
Deferred leasing costs, net		~~2,574,109~~	2,234,977		~~3,035,853~~		2,003,221
Intangible assets, net		~~6,032,527~~	4,899,333		~~7,742,145~~		5,465,603
TOTAL ASSETS	$	~~66,239,092~~$	72,254,172	$	~~69,389,156~~	$	56,490,541
LIABILITIES
Notes payable	$	~~52,891,759~~$	73,204,216	$	~~51,286,384~~	$	52,640,239
Less: unamortized deferred financing costs		~~(472,672)~~	(3,264,295	)	~~(969,527)~~		(496,063	)
Notes payable, net		~~52,419,087~~	69,939,921		~~50,316,857~~		52,144,176
Notes payable - related party		-			500,000
Notes payable, related party			1,199,497				809,472
Accounts payable		~~5,915,052~~	3,910,655		~~5,406,648~~		6,167,516
Tenant improvement allowance		~~7,760,995~~	5,639,752		~~7,760,995~~		—
Accrued expenses and other liabilities		~~1,826,033~~	1,260,136		~~1,453,078~~		854,743
Tenant security deposits		~~157,399~~	167,242		~~166,208~~		167,242
Deferred rent revenue		~~129,752~~	100,488		~~289,034~~		121,710
Prepaid rent		~~289,893~~	133,875		~~447,773~~		175,758
Accrued interest		~~854,738~~	635,977		~~528,129~~		1,029,911
Below-market leases, net		~~179,536~~	121,741		~~266,228~~		150,638
Mandatorily redeemable Operating Partnership preferred units		~~3,000,000~~	—		~~3,000,000~~		3,000,000
Total Liabilities		~~72,532,485~~	83,109,284		~~70,134,950~~		64,621,166
COMMITMENTS AND CONTINGENCIES (NOTE 9)
COMMITMENTS AND CONTINGENCIES (NOTE 7)
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred shares outstanding at $.001 par value; authorized 10,000,000 shares; none issued or outstanding as of both September 30, 2016 and December 31, 2015	$	-		$	-
Preferred shares outstanding at $.001 par value; authorized 10,000,000 shares; none issued or outstanding as of both March 31, 2017 and December 31, 2016							—
Common shares outstanding at $.001 par value; authorized 90,000,000 shares; 17,607,680 and 17,057,680 issued and outstanding as of September 30, 2016 and December 31, 2015, respectively		17,607			17,057
Common shares outstanding at $.001 par value; authorized 90,000,000 shares; 19,720,981 and 17,135,981 issued and outstanding as of March 31, 2017 and December 31, 2016, respectively			19,720				17,135
Additional paid in capital		~~2,192,550~~	2,350,316		~~1,850,382~~		2,261,411
Accumulated loss		~~(13,016,729)~~	(16,102,357	)	~~(9,218,803)~~		(14,215,704	)
Total Talon Real Estate Holding Corp. shareholders’ equity (deficit)		~~(10,806,572)~~	(13,732,321	)	~~(7,351,364)~~		(11,937,158	)
Noncontrolling interests – Operating Partnership; 9,200,001 common units issued and outstanding as of September 30, 2016 and December 31, 2015		6,083,241			8,109,449
Non-controlling interests – Operating Partnership; 9,200,001 common units issued and outstanding as of March 31, 2017 and December 31, 2016			4,502,532				5,418,810
Noncontrolling interests – consolidated real estate entities		(1,570,062)			(1,503,879)
Non-controlling interests – consolidated real estate entities			(1,625,323	)			(1,612,277	)
TOTAL SHAREHOLDERS’ EQUITY (DEFICIT)		~~(6,293,393)~~	(10,855,112	)	~~(745,794)~~		(8,130,625	)
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY (DEFICIT)	$	~~66,239,092~~$	72,254,172	$	~~69,389,156~~	$	56,490,541

See accompanying notes to condensed consolidated financial statements.

4 -2-

~~TALON~~ Table ~~REAL~~of ~~ESTATE HOLDING CORP.~~Contents

~~CONDENSED~~TALON ~~CONSOLIDATED~~REAL ~~STATEMENTS~~ESTATE OFHOLDING ~~OPERATIONS~~CORP.

~~For~~CONDENSED CONSOLIDATED ~~the~~STATEMENTS ~~three~~OF ~~and nine months ended September 30, 2016 and 2015~~OPERATIONS

~~(unaudited)~~For the three months ended March 31, 2017 and 2016

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2016		2015		2016		2015
REVENUE
Rent	$	1,807,865	$	1,895,656	$	5,510,286	$	5,672,192
Tenant reimbursement		897,805		908,373		2,697,053		2,799,242
Other income		94,203		36,185		211,210		327,799
Total Revenue		2,799,873		2,840,214		8,418,549		8,799,233
EXPENSES
General & administrative		447,089		110,783		911,088		434,414
Salary and compensation		288,191		177,434		847,229		579,996
Professional		245,762		177,387		698,960		575,968
Property operating expenses		1,130,767		1,344,288		3,353,160		3,903,016
Real estate taxes & insurance		443,111		400,167		1,333,554		1,209,662
Depreciation and amortization		1,220,070		1,261,182		3,675,862		3,774,346
Total Expenses		3,774,990		3,471,241		10,819,853		10,477,402
Operating Loss		(975,117)		(631,027)		(2,401,304)		(1,678,169)
Interest expense		(1,237,722)		(1,207,617)		(3,489,012)		(3,404,747)
NET LOSS		(2,212,839)		(1,838,644)		(5,890,316)		(5,082,916)
Net loss attributable to noncontrolling interest - Operating Partnership		759,446		632,201		2,026,208		1,750,354
Net loss attributable to noncontrolling interests - consolidated real estate entities		12,670		34,418		66,182		90,175
NET LOSS ATTRIBUTABLE TO TALON REAL ESTATE HOLDING CORP.	$	(1,440,723)	$	(1,172,025)	$	(3,797,926)	$	(3,242,387)
Loss per common share basic and diluted	$	(0.08)	$	(0.07)	$	(0.22)	$	(0.20)

(unaudited)

See accompanying notes to condensed consolidated financial statements.

	For the Three Months Ended March 31,
	2017			2016
REVENUE
Rent	$	1,771,070		$	1,875,912
Tenant reimbursement		861,384			897,491
Other income		24,738			86,001
Total Revenue		2,657,192			2,859,404

EXPENSES
General & administrative		51,772			347,003
Salary and compensation		182,022			224,697
Professional		357,140			225,845
Property operating expenses		1,179,187			1,185,578
Real estate taxes & insurance		460,379			445,477
Depreciation and amortization		1,218,242			1,232,405
Total Expenses		3,448,742			3,661,005
Operating Loss		(791,550	)		(801,601	)

Interest expense		2,024,427			1,228,038

NET LOSS		(2,815,977	)		(2,029,639	)

Net loss attributable to non-controlling interest - Operating Partnership		916,278			702,710
Net loss attributable to non-controlling interests - consolidated real estate entities		13,046			24,187
NET LOSS ATTRIBUTABLE TO TALON REAL ESTATE HOLDING CORP.	$	(1,886,653	)	$	(1,302,742	)

Loss per common share basic	$	(0.10	)	$	(0.08	)

5See accompanying notes to condensed consolidated financial statements.

~~TALON REAL ESTATE HOLDING CORP.~~ -3-

~~CONDENSED~~ Table ~~CONSOLIDATED~~of ~~STATEMENTS OF CASH FLOWS~~Contents

~~For~~TALON ~~the~~REAL ~~nine~~ESTATE ~~months~~HOLDING ~~ended September 30, 2016 and 2015~~CORP.

~~(unaudited)~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine months ended September 30,
	2016		2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(5,890,316)	$	(5,082,916)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization		3,850,285		3,945,500
Amortization of deferred financing costs		433,475		875,285
Stock-based compensation expense		342,718		135,685
Provision for doubtful accounts		36,485		78,298
Deferred financing costs		168,253		-
Changes in operating assets and liabilities:
Rents and other receivables		(48,830)		(60,729)
Prepaid expenses and other assets		(71,512)		292,457
Deferred leasing costs		-		(76,686)
Accounts payable		1,578,988		100,983
Accrued expenses and other liabilities		584,655		268,040
Tenant security deposits		(8,809)		(12,390)
Deferred rent revenue		(159,282)		123,785
Prepaid rent		(157,880)		(5,535)
Accrued interest		459,449		150,486
Net cash flows from operating activities		1,117,679		732,263
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for acquisition or improvements of real estate assets		-		(1,007,853)
Deposits made for future acquisitions		-		(320,000)
Deposits to restricted escrows and reserves		(2,143,733)		(2,298,682)
Payments from restricted escrows and reserves		1,106,921		1,721,929
Net cash flows from investing activities		(1,036,812)		(1,904,606)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable		305,993		3,000,000
Principal payments on notes payable		(442,006)		(1,393,071)
Deposits or cash paid for financing costs		(100,907)		(424,850)
Net cash flows from financing activities		(236,920)		1,182,079
Net Change in Cash		(156,053)		9,736
CASH - BEGINNING OF PERIOD		340,385		147,157
CASH - END OF PERIOD	$	184,332	$	156,893
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Purchases of building and land improvements included in accounts payable	$	27,534	$	9,165,924
Leasing and financing fees included in accounts payable and other liabilities		9,938		2,209,343
Issuance of common stock included in financing costs		-		575,000
Accounts payable converted to notes payable		1,241,388		-
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest on mortgages and Operating Partnership preferred units	$	2,728,928	$	2,378,976

For the three months ended March 31, 2017 and 2016

~~See accompanying notes to condensed consolidated financial statements.~~(unaudited)

	Three months ended March 31,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(2,815,977	)	$	(2,029,639	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization		1,267,434			1,295,847
Amortization of deferred financing costs		923,463			204,752
Stock-based compensation expense		55,740			38,285
Provision for doubtful accounts		—			25,715
Deferred financing costs		25,750			175,411
Settlement added to notes payable		874,193			—

Changes in operating assets and liabilities:
Rents and other receivables		(170,339	)		(22,708	)
Prepaid expenses and other assets		34,772			110,241
Deferred leasing costs		(308,682	)		1,400
Accounts payable		(255,984	)		406,261
Accrued expenses and other liabilities		405,393			529,590
Tenant security deposits		—			—
Deferred rent revenue		(21,222	)		(102,052	)
Prepaid rent		(41,883	)		(234,478	)
Accrued interest		(119,501	)		214,509
Net cash flows from operating activities		(146,843	)		613,134

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment, furniture and fixtures		(1,622	)		—
Deposits made for future acquisitions					—
Deposits to restricted escrows and reserves					(772,397	)
Payments from restricted escrows and reserves		466,839			39,093
Net cash flows from investing activities		465,217			(733,304	)
		—
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable					—
Principal payments on notes payable		(330,526	)		(91,424	)
Deposits or cash paid for financing costs		(7,670	)		(11,000	)
Common stock issued for financing costs					—
Principal payments on Operating Partnership preferred units					—
Net cash flows from financing activities		(338,196	)		(102,424	)
		—
Net Change in Cash		(19,822	)		(222,594	)

CASH - BEGINNING OF PERIOD		108,418			340,385
CASH - END OF PERIOD	$	88,596		$	117,791

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Purchases of building and land improvements included in accounts payable	$	—		$	22,944
Leasing and financing fees included in accounts payable and other liabilities		—			58,252
Escrow deposits from notes payable		14,159,480			—
Escrows applied to notes payable		2,698,480			—
Accounts payable settled through notes payable		1,990,877			103,002
Accounts payable settled through share issuance		10,000			—
Redemption of preferred units settled through notes payable		3,050,000			—
Accrued interest settled through notes payable		224,433			—
Original issuance discount and fees on notes payable		3,691,695			—
Building improvements from tenant improvement allowance		5,639,752			—
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest on mortgages and Operating Partnership preferred units	$	744,407		$	863,636

~~TALON~~See ~~REAL~~accompanying notes ~~ESTATE~~to ~~HOLDING~~condensed ~~CORP~~consolidated financial statements.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ -4-

As Table of ~~September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)~~Contents

~~NOTE~~TALON 1REAL –ESTATE ~~ORGANIZATION~~HOLDING ~~AND BASIS OF PRESENTATION~~CORP.

~~Organization~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Talon Real Estate Holding Corp. (“TREHC”) previously established an Operating Partnership (“Talon OP”) and transferred all of its assets and liabilities to the operating partnership in exchange for general partnership units. As ~~the sole general partner~~ of ~~Talon~~March 31, OP2017 ~~we have the exclusive power to manage~~ and ~~conduct the business and affairs~~ for the ~~operating~~three ~~partnership. TREHC~~months ~~owned~~ended ~~approximately~~March ~~66% and 65% of the Operating Partnership as of September 30, 2016 and December~~ 31, ~~2015,~~2017 ~~respectively. The Operating Partnership owned 49% of 5130 Industrial Street, LLC, 100% of Talon Bren Road, LLC, 100% of Talon First Trust, LLC,~~ and ~~100% of Talon RE as of September 30,~~ 2016 and December 31, 2015. Talon Bren Road, LLC, and Talon First Trust, LLC both limited liability companies organized under the laws of the state of Delaware, were formed on May 9, 2014 and April 21, 2014, respectively, to purchase real estate. Talon Real Estate, LLC (~~“Talon RE”~~unaudited) ~~was incorporated in the state of Minnesota on December 20, 2012 and began operations in 2013 for the purpose of acquiring real estate properties.~~

~~Basis~~NOTE 1 of– ~~Presentation~~ORGANIZATION AND BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary to present fairly our consolidated financial position as of September 30, 2016 and our condensed consolidated statements of operations for the three and nine months ended September 30, 2016 and 2015, and our condensed consolidated statements of cash flows for the nine months ended September 30, 2016 and 2015, as applicable. These adjustments are of a normal recurring nature.Organization

~~The~~Talon ~~accompanying~~Real ~~condensed~~Estate ~~consolidated~~Holding ~~financial~~Corp. ~~statements~~(“TREHC”) ~~include~~previously established ~~the~~an ~~accounts~~Operating ofPartnership ~~TREHC~~(“Talon OP”) and transferred all of its ~~interest~~assets and liabilities to the operating partnership in exchange for general partnership units. As the ~~Operating~~sole ~~Partnership~~general partner of Talon OP we have the exclusive power to manage and conduct the business and affairs for the operating partnership. ~~The~~TREHC ~~limited~~owned ~~partners~~approximately in65% of the Operating Partnership as ~~have~~of aMarch ~~redemption~~31, ~~option~~2017 ~~that~~and ~~they~~March ~~may~~31, ~~exercise~~2016, respectively. ~~Upon~~The ~~exercise~~Operating Partnership owned 100% of ~~the~~5130 ~~redemption~~Industrial ~~option~~Street, byLLC, ~~the~~100% of ~~limited~~Talon ~~partners~~Bren Road, ~~the~~LLC, ~~Company~~100% ~~has~~of ~~the~~Talon ~~choice~~First Trust, LLC, and 100% of ~~redeeming~~Talon ~~the~~RE as of December 31, 2016 and 2015. Talon Bren Road, LLC, and Talon First Trust, LLC, are both limited ~~partners'~~liability ~~interests~~companies ~~("Units")~~organized ~~for~~under ~~TREHC~~the ~~common~~laws ~~shares~~of the state of ~~stock~~Delaware, onand awere formed ~~one-for-one~~on ~~basis~~May 9, or2014 ~~making~~and aApril ~~cash~~21, ~~payment~~2014, respectively, to ~~the~~purchase ~~unit~~real ~~holder~~estate. ~~The~~Talon ~~redemption~~Real ~~generally~~Estate, ~~may~~LLC be(“Talon ~~exercised~~RE”) was byincorporated in the ~~limited~~state ~~partners~~of atMinnesota ~~any~~on ~~time~~December ~~after~~20, ~~the~~2012 ~~first~~and ~~anniversary~~began ofoperations ~~the~~in ~~date~~2013 offor the ~~acquisition~~purpose of acquiring real estate properties. Talon RE merged with Guide Holdings, Inc. in which Guide Holdings, Inc. was the ~~Units~~surviving ~~subject~~entity toand ~~volume~~was ~~restrictions~~renamed Talon Real Estate Holding Corp.

~~The~~Basis accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2015, which have previously been filed with the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of ~~America (“GAAP”) have been omitted from this report on Form 10-Q pursuant to the rules and regulations of the SEC.~~Presentation

The ~~results for the interim periods shown in this report are not necessarily indicative of future financial results. The~~ accompanying ~~condensed~~ consolidated ~~balance~~financial ~~sheet as of September 30, 2016 and condensed consolidated~~ statements ofhave ~~operations~~been prepared ~~and~~in ~~condensed~~accordance ~~consolidated~~with ~~statements~~United ofStates ~~cash~~Generally ~~flows~~Accepted ~~for~~Accounting ~~the~~Principles ~~three~~(“US ~~and nine months ended September 30, 2016 and 2015, as applicable, have not been audited by our independent registered public accounting firm~~GAAP”).

~~NOTE~~The 2accompanying –consolidated ~~INVESTMENT~~financial INstatements ~~REAL~~include the ~~ESTATE~~accounts ~~PROPERTIES~~of ~~AND~~TREHC ~~ENTITIES~~and its interest in the Operating Partnership. The limited partners in the Operating Partnership have a redemption option that they may exercise. Upon exercise of the redemption option by the limited partners, the Company has the choice of redeeming the limited partners' interests ("Units") for TREHC common shares of stock on a one-for-one basis, or making a cash payment to the unit holder. The redemption generally may be exercised by the limited partners at any time after the first anniversary of the date of the acquisition of the Units subject to volume restrictions.

~~The Company acquired real estate property through its subsidiary, Talon First Trust, LLC, located at 180 5th Street East, St. Paul, MN on July~~ NOTE 2, ~~2014. The~~– ~~building~~INVESTMENT isIN ~~primarily~~REAL ~~leased~~ESTATE toPROPERTIES ~~tenants~~AND for commercial and government use. The property totals 659,577 net rentable square feet. As of September 30, 2016, the Company had tenants occupying approximately 60% of the rentable space. In April 2015, the Company executed a lease for a significant new tenant that would increase the occupancy by over 21% in the St. Paul building upon commencement of the lease (see Note 9).ENTITIES

The Company owns, through its subsidiary Talon First Trust, LLC, real estate property located at 180 East 5th Street, St. Paul, MN. The building has 656,875 net rentable square feet and is primarily leased to tenants for commercial and government use. As of March 31, 2017, the Company had tenants occupying approximately 60% of the rentable space. In April 2015, the Company executed a lease for a significant new tenant that would increase the occupancy by over 21% in the St. Paul building upon commencement of the lease. The lease was amended on January 27, 2017 to resolve certain disputes between the Company and the tenant and as amended, the lease is scheduled to commence on January 1, 2018. On March 7, 2017 one tenant that occupies approximately 16% of the net rentable square feet filed for Chapter 11 bankruptcy protection from its creditors. In June of 2018, this asset was sold to First Capital Reit (Note 12).

~~TALON REAL ESTATE HOLDING CORP.~~ -5-

~~NOTES~~ Table TOof ~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Contents

AsTALON ofREAL ~~September~~ESTATE ~~30,~~HOLDING ~~2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)~~CORP.

~~NOTE~~NOTES 2TO –CONDENSED CONSOLIDATED ~~INVESTMENT~~FINANCIAL ~~IN REAL ESTATE PROPERTIES AND ENTITIES (continued)~~STATEMENTS

~~The~~As ~~Company acquired real estate property through its subsidiary, Talon Bren Road, LLC, located on 20 acres~~ of ~~land at 10301 Bren Road West~~March 31, ~~Minnetonka,~~2017 MNand onfor ~~May~~the ~~29,~~three ~~2014. This~~months ~~property~~ended isMarch ~~primarily leased to tenants who are wholesale product sales representatives. These leases are subject to a master lease agreement entered into between Talon Bren Road~~31, ~~LLC~~2017 and ~~Upper~~2016 ~~Midwest Allied Gifts Association, Inc., a Minnesota nonprofit corporation~~ (~~“UMAGA”~~unaudited)~~. This property has 164,472 net rentable square feet. As of September 30, 2016, the Company had 100% of the rentable space leased.~~

~~The~~NOTE 2 ~~Company~~– ~~owns~~INVESTMENT ~~and~~IN ~~operates~~REAL ~~the~~ESTATE ~~following~~PROPERTIES ~~real~~AND ~~estate~~ENTITIES ~~properties through its subsidiary, 5130 LLC:~~(continued)

~~5130~~The ~~Industrial~~Company ~~Street~~owns, ~~Maple~~through ~~Plain~~its subsidiary Talon Bren Road, LLC, real estate property located on 20 acres of land at 10301 Bren Road West, Minnetonka, MN. This property has 164,472 net rentable square feet and is primarily leased to tenants who are wholesale product sales representatives. These leases are subject to a master lease agreement entered into between Talon Bren Road, LLC and Upper Midwest Allied Gifts Association, Inc. (“UMAGA”), a Minnesota nonprofit corporation. As of March 31, 2017, the Company had 100% of the rentable space leased.

~~1350~~The ~~Budd~~Company ~~Ave,~~owns ~~Maple~~and ~~Plain~~operates the following real estate properties through its subsidiary, MN5130 LLC:

~~The~~5130 ~~properties~~Industrial ~~are primarily leased to tenants for mixed commercial and industrial usage. The properties have a combined 171~~Street,~~639~~ ~~net~~Maple ~~rentable square feet. As of September 30~~Plain, ~~2016, the Company had tenants occupying approximately 85% of the rentable space.~~MN

~~NOTE~~1350 3Budd –Ave, ~~SUMMARY~~Maple OFPlain, ~~SIGNIFICANT ACCOUNTING POLICIES~~MN

~~Accounting~~The ~~Estimates~~properties have combined 171,639 net rentable square feet and are primarily leased to tenants for mixed commercial and industrial usage. As of March 31, 2017, the Company had tenants occupying approximately 85% of the rentable space.

~~The~~NOTE 3 ~~preparation~~– ofSUMMARY ~~consolidated~~OF ~~financial~~SIGNIFICANT ~~statements~~ACCOUNTING in conformity with U.S. GAAP requires management to use estimates and assumptions which affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Significant items subject to such estimates and assumptions include determination of the useful life of property and other long-lived assets, valuation and impairment analysis of property and other long-lived assets, and valuation of the allowance for doubtful accounts. It is at least reasonably possible that these estimates could change in the near term.POLICIES

~~Principles~~Accounting ~~of Consolidation~~Estimates

WeThe ~~evaluate~~preparation ~~the~~of ~~need~~consolidated tofinancial ~~consolidate~~statements ~~affiliates based on standards set forth~~ in ~~the~~conformity with ~~Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation~~U. InS. ~~determining~~GAAP ~~whether~~requires wemanagement ~~have~~to ause ~~controlling~~estimates ~~interest in an affiliate~~ and ~~the~~assumptions ~~requirement~~which toaffect ~~consolidate~~ the ~~accounts~~reported ofamounts ~~that entity, management considers factors such as ownership interest, authority to make decisions, contractual and substantive participating rights~~ of ~~the~~assets ~~limited partners~~ and ~~shareholders~~liabilities, ~~as well as whether~~ the ~~entity~~disclosure ~~is a variable interest entity for which we are the primary beneficiary. The accompanying condensed consolidated financial statements include the accounts~~ of ~~Talon~~contingent ~~Real~~assets ~~Estate Holding Corp. (“TREHC”)~~ and ~~Talon OP~~liabilities, ~~our Operating Partnership,~~ and ~~all subsidiaries in which it maintains a controlling interest. Talon OP also consolidates 5130 LLC, an entity in which it has a 49% ownership interest, based on its ability to control~~ the ~~operating~~reported ~~and~~amounts ~~financial decisions~~ of ~~5130~~revenues ~~LLC~~and expenses. ~~All~~ ~~significant~~Actual ~~intercompany~~results ~~balances~~could ~~have~~differ from ~~been~~those ~~eliminated in consolidation~~estimates.

~~Cash~~Principles of Consolidation

~~The~~We ~~Company~~evaluate ~~considers~~the ~~short-term~~need ~~investments~~to ~~with~~consolidate ~~original~~affiliates ~~maturities~~based on standards set forth in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation. In determining whether we have a controlling interest in an affiliate and the requirement to consolidate the accounts of 90that ~~days~~entity, ormanagement ~~less~~considers factors such as ownership interest, authority to bemake ~~cash~~decisions, ~~equivalents~~contractual and substantive participating rights of the limited partners and shareholders, as well as whether the entity is a variable interest entity for which we are the primary beneficiary. The ~~Company~~accompanying ~~believes~~consolidated financial statements include the accounts of Talon Real Estate Holding Corp. (“TREHC”) and Talon OP, our Operating Partnership, and all subsidiaries in which it ismaintains a ~~not~~controlling ~~exposed~~interest. Talon OP also consolidates 5130 LLC, an entity in which it has a 49% ownership interest, based on its ability to ~~any~~control the operating and financial decisions of 5130 LLC. All significant ~~credit~~intercompany ~~risk~~balances onhave ~~cash~~been eliminated in consolidation.

~~Restricted Escrows and Reserves~~Cash

The Company isconsiders ~~required~~short-term toinvestments ~~hold~~with ~~cash~~original maturities inof ~~restricted~~90 ~~escrow~~days ~~accounts~~or ~~for~~less ~~insurance, real estate taxes and a replacement reserve. The escrows are used~~ to ~~pay~~be ~~periodic~~cash ~~charges of real estate taxes and assessments, tenant improvements, and leasing commissions~~equivalents. The ~~balances~~Company inbelieves ~~the~~it ~~escrow~~is ~~accounts~~not ~~were~~exposed ~~$3,175,992~~to ~~and~~any ~~$2,139,180~~significant ascredit ofrisk ~~September 30, 2016 and December 31, 2015, respectively~~on cash.

8Restricted Escrows and Reserves

~~TALON~~The ~~REAL~~Company ~~ESTATE~~is ~~HOLDING~~required ~~CORP~~to hold cash in restricted escrow accounts for insurance, real estate taxes and a replacement reserve. The escrows are used to pay periodic charges of real estate taxes and assessments, tenant improvements, and leasing commissions. The balances in the escrow accounts were $13,995,393 and $3,001,232 as of March 31, 2017 and December 31, 2016, respectively.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ -6-

As Table of ~~September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)~~Contents

~~NOTE~~TALON 3REAL –ESTATE ~~SUMMARY~~HOLDING ~~OF SIGNIFICANT ACCOUNTING POLICIES (continued)~~CORP.

~~Rents~~NOTES ~~and~~TO ~~other~~CONDENSED CONSOLIDATED ~~Receivables~~FINANCIAL STATEMENTS

~~Rents~~As ~~receivable and deferred rent are recorded at their estimated net realizable value. The Company follows a policy~~ of ~~providing an allowance for doubtful accounts~~March 31, ~~which~~2017 ~~is based on a review of outstanding receivables, historical collection information,~~ and existing economic conditions. The Company does not require collateral and accounts are considered past due if payment is not made on a timely basis in accordance with our credit terms. Accounts considered uncollectible are written off. Receivables have been reduced by an allowance for ~~doubtful~~the ~~accounts~~three ofmonths ~~$129,330~~ended ~~and~~March ~~$93~~31,~~560~~ as2017 ofand ~~September 30,~~ 2016 ~~and December 31, 2015, respectively.~~(unaudited)

~~Revenue~~NOTE 3 ~~Recognition~~– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

~~Base~~Rents rental income is recognized on a straight-line basis over the terms of the related lease agreement, inclusive of leases which provide for scheduled rent increases or rent concessions. Differences between rent income earned and ~~base~~Other rent amounts due per the respective lease agreements are credited or charged to deferred rent revenue or deferred rent receivable as applicable. When the Company enters into lease modifications or extensions with current tenants, the deferred rent at the time of the extension is amortized over the remaining term of the lease, and the revised terms are considered a new lease.Receivables

~~Tenant~~Rents ~~recoveries~~receivable ~~related~~and todeferred ~~reimbursement~~rent ofare ~~real~~recorded ~~estate~~at ~~taxes,~~their estimated ~~insurance,~~net ~~repairs~~realizable ~~and~~value. ~~maintenance~~The ~~and~~Company ~~other~~follows ~~operating~~a ~~expenses~~policy ~~are~~of ~~billed~~providing ~~monthly~~an allowance for doubtful accounts, which is based on a ~~current~~review ~~year~~of ~~estimated~~outstanding ~~operating~~receivables, ~~costs~~historical ~~for~~collection ~~applicable~~information, ~~expenses~~and existing economic conditions. An ~~additional~~The ~~billing~~Company ordoes anot require ~~refund~~collateral and accounts are considered past due if payment is not made toon ~~tenants~~a timely basis in ~~the~~accordance ~~following~~with ~~year~~our ~~after~~credit terms. ~~actual~~Accounts ~~operating~~considered ~~expenses~~uncollectible are ~~determined~~written off. Receivables have been reduced by an allowance for doubtful accounts of $129,330 as of both March 31, 2017 and December 31, 2016.

~~Derivative~~Revenue ~~Instruments~~Recognition

~~The~~Base ~~Company~~rental ~~records~~income ~~all~~is ~~derivative~~recognized ~~instruments~~ on ~~the~~a ~~balance~~straight-line ~~sheet~~basis over ~~at fair value. The accounting for changes in~~ the ~~fair~~terms ~~value~~ of ~~derivatives~~the ~~depends~~related onlease ~~the~~agreement, ~~intended~~inclusive ~~use~~ of ~~the~~leases ~~derivative,~~which ~~whether~~provide ~~the~~for ~~Company~~scheduled ~~has~~rent ~~elected~~increases toor ~~designate~~rent aconcessions. Differences ~~derivative~~between inrent aincome ~~hedging~~earned ~~relationship~~ and ~~whether~~base ~~the~~rent ~~hedging~~amounts ~~relationship~~due ~~has~~per ~~satisfied~~ the ~~criteria~~respective ~~necessary~~lease toagreements ~~apply~~are ~~hedge~~credited ~~accounting. If~~or ~~the~~charged ~~Company~~to deferred ~~does~~rent ~~not~~revenue ~~apply~~or ~~hedge~~deferred ~~accounting,~~rent ~~all~~receivable ~~changes~~as inapplicable. When the ~~fair~~Company ~~value~~enters ofinto ~~derivatives~~lease ~~are~~modifications ~~recognized~~or ~~directly~~extensions with incurrent ~~earnings~~tenants, in the ~~period~~deferred ofrent ~~change. Currently,~~at the ~~Company~~time ~~has~~of ~~not~~the ~~elected~~extension ~~hedge~~is ~~accounting~~amortized ~~treatment~~over ~~and~~the ~~all~~remaining ~~changes~~term inof ~~fair~~the ~~value~~lease, ofand the revised ~~Company’s~~terms ~~derivatives~~ are ~~recognized~~considered ina ~~current~~new ~~period earnings~~lease.

~~Deferred~~Tenant ~~Leasing~~recoveries ~~Costs~~related to reimbursement of real estate taxes, insurance, repairs and ~~Tenant~~maintenance ~~Allowance~~and other operating expenses are billed monthly based on current year estimated operating costs for applicable expenses. An additional billing or a refund is made to tenants in the following year after actual operating expenses are determined.

~~Direct~~Deferred ~~and~~Leasing ~~indirect~~Costs ~~costs, including estimated internal costs~~ and ~~leasing~~Tenant commissions, associated with the leasing of real estate investments owned by the Company are capitalized as deferred leasing costs and amortized on a straight-line basis over the term of the related lease as amortization expense. Unamortized costs are charged to expense upon the early termination of the lease. Costs associated with unsuccessful leasing opportunities are expensed.Allowance

9Direct and indirect costs, including estimated internal costs and leasing commissions, associated with the leasing of real estate investments owned by the Company are capitalized as deferred leasing costs and amortized on a straight-line basis over the term of the related lease as amortization expense. Unamortized costs are charged to expense upon the early termination of the lease. Costs associated with unsuccessful leasing opportunities are expensed.

~~TALON~~In ~~REAL~~leasing ~~ESTATE~~tenant ~~HOLDING~~space, ~~CORP~~the Company may provide funding to the lessee through a tenant allowance. In accounting for a tenant allowance, the Company determines whether the allowance represents funding for the construction of leasehold improvements and evaluates the ownership, for accounting purposes, of such improvements. If the Company is considered the owner of the leasehold improvements for accounting purposes, the Company capitalizes the amount of the tenant allowance as building improvements and depreciates it over the shorter of the useful life of the leasehold improvements or the related lease term. For tenant allowances committed at lease inception and recorded as building improvements but not yet performed or completed, the corresponding liability will be recorded as tenant improvement allowance payables. If the tenant allowance represents a payment for other than funding leasehold improvements, or in the event the Company is not considered the owner of the improvements, for accounting purposes, the tenant allowance is considered to be a lease incentive and is capitalized as a deferred leasing cost and is amortized over the lease term as a reduction of rental revenue on a straight-line basis.

~~NOTES~~The TOCompany ~~CONDENSED~~had ~~CONSOLIDATED~~amortization ~~FINANCIAL~~expense ~~STATEMENTS~~for tenant improvements of $259,782 and $269,475 for the three-months ended March 31, 2017 and 2016, respectively. The Company had amortization expense for leasing costs of $76,926 and $73,622 for the three-months ended March 31, 2017 and 2016, respectively. The Company had accumulated amortization for tenant allowances of $3,140,513 as of March 31, 2017 and $2,880,732 as of December 31, 2016.

~~As of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)~~ -7-

~~NOTE~~ Table 3of ~~– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)~~Contents

~~Deferred~~TALON ~~Leasing~~REAL ~~Costs~~ESTATE ~~and~~HOLDING ~~Tenant Allowance (continued)~~CORP.

InNOTES ~~leasing~~TO ~~tenant~~CONDENSED CONSOLIDATED ~~space,~~FINANCIAL the Company may provide funding to the lessee through a tenant allowance. In accounting for a tenant allowance, the Company determines whether the allowance represents funding for the construction of leasehold improvements and evaluates the ownership, for accounting purposes, of such improvements. If the Company is considered the owner of the leasehold improvements for accounting purposes, the Company capitalizes the amount of the tenant allowance as building improvements and depreciates it over the shorter of the useful life of the leasehold improvements or the related lease term. For tenant allowances committed at lease inception and recorded as building improvements but not yet performed or completed, the corresponding liability will be recorded as tenant improvement allowance payables. If the tenant allowance represents a payment for a purpose other than funding leasehold improvements, or in the event the Company is not considered the owner of the improvements, for accounting purposes, the tenant allowance is considered to be a lease incentive and is capitalized as a deferred leasing cost and is amortized over the lease term as a reduction of rental revenue on a straight-line basis. The Company had amortization expense for tenant allowances of $260,552 and $793,279 for the three and nine months ended September 30, 2016, respectively, and $272,852 and $779,461 for the three and nine months ended September 30, 2015, respectively. The Company had accumulated amortization for tenant allowances of $2,620,180 and $1,826,901 as of September 30, 2016 and December 31, 2015, respectively. The Company had amortization expense for deferred leasing costs of $73,320 and $220,302 for the three and nine months ended September 30, 2016, respectively, and $79,682 and $232,788 for the three and nine months ended September 30, 2015, respectively. The Company had accumulated amortization for deferred leasing costs of $704,323 and $484,021 as of September 30, 2016 and December 31, 2015, respectively. As of September 30, 2016, the Company had deferred leasing costs and tenant allowances recorded as building improvements of $11,532,029 that did not have amortization expense in the three and nine months ended September 30, 2016 due to lease terms that have not commenced as of that date.STATEMENTS

~~Deferred~~As ~~Financing~~of ~~Costs~~March 31, 2017 and for the three months ended March 31, 2017 and 2016 (unaudited)

~~Costs~~NOTE 3 ~~incurred~~– inSUMMARY ~~connection~~OF ~~with~~SIGNIFICANT ~~obtaining~~ACCOUNTING ~~financing~~POLICIES are netted against notes payable and are being amortized on a straight-line basis over the financing term and are included in interest expense. During the three and nine months ended September 30, 2016, the Company expensed $103,090 and $450,614, respectively, related to deferred financing costs associated with unsuccessful refinancing efforts. The Company had amortization expense of $121,094 and $433,475 for the three and nine months ended September 30, 2016, respectively, and $325,531 and $875,285 for the three and nine months ended September 30, 2015, respectively. The Company had accumulated amortization of $1,936,370 and $1,502,895 as of September 30, 2016 and December 31, 2015, respectively.(continued)

~~Real~~Deferred ~~Estate~~Financing ~~Property and Fixed Assets~~Costs

~~Investment~~Costs incurred in ~~real~~connection ~~estate and fixed assets~~ with aobtaining ~~useful~~financing ~~life of longer than one year~~ are netted ~~carried~~against atnotes ~~cost~~payable ~~less accumulated depreciation~~ and ~~amortization.~~are ~~Property~~being ~~such~~amortized asusing ~~land,~~the ~~building~~effective ~~and~~interest ~~improvements~~method ~~includes~~over ~~cost~~the offinancing ~~acquisitions,~~term ~~development,~~ and ~~construction~~are ~~and~~included in ~~tenant~~interest ~~allowances and improvements~~expense. WeThe ~~allocate~~Company ~~the~~had ~~cost~~amortization ofexpense ~~an acquisition, including the assumption~~ of ~~liability~~$923,463 tofor the ~~acquired~~three ~~tangible~~months ~~assets~~ended ~~(including~~March ~~land~~31, ~~buildings~~2017, and ~~personal~~$204,752 ~~property) determined by valuing~~ for the ~~property~~three asmonths ifended itMarch ~~were vacant~~31, ~~and identifiable intangibles based on their relative fair values~~2016. ~~Acquisitions~~ ofIncluded ~~real~~in ~~estate~~amortization ~~are~~expense ~~recorded~~for ~~based upon preliminary allocations of~~ the ~~purchase~~three ~~price~~months toended ~~management’s~~March ~~assessment~~31, of2017 is the ~~fair value~~ write-off of ~~tangible~~unamortized ~~and~~deferred ~~intangible~~financing ~~assets~~costs ~~and~~of ~~any~~$137,254 ~~assumed~~due ~~liabilities acquired which are subject~~ to ~~adjustment as additional information is obtained up to one year after~~ the ~~date~~refinancing of ~~acquisition.~~debt ~~Management’s~~secured ~~fair~~by ~~value assessment includes~~ the ~~use~~180 ofEast ~~readily~~5th ~~accepted~~Street property ~~fair~~owned ~~value~~by ~~techniques~~Talon ~~such~~First asTrust, ~~discounted cash flow analysis and comparable sales analysis including management’s reliance on independent market analysis~~LLC.

10Real Estate Property and Fixed Assets

~~TALON~~Investment ~~REAL~~in ~~ESTATE~~real ~~HOLDING~~estate ~~CORP~~and fixed assets with a useful life of longer than one year are carried at cost less accumulated depreciation and amortization. Property such as land, building and improvements includes cost of acquisitions, development, and construction and tenant allowances and improvements. We allocate the cost of an acquisition, including the assumption of liability, to the acquired tangible assets (including land, buildings and personal property) determined by valuing the property as if it were vacant, and identifiable intangibles based on their relative fair values. Acquisitions of real estate are recorded based upon preliminary allocations of the purchase price to management’s assessment of the fair value of tangible and intangible assets and any assumed liabilities acquired which are subject to adjustment as additional information is obtained up to one year after the date of acquisition. Management’s fair value assessment includes the use of readily accepted fair value techniques such as discounted cash flow analysis and comparable sales analysis including management’s reliance on independent market analysis.

~~NOTES~~Depreciation TOis ~~CONDENSED~~provided ~~CONSOLIDATED~~using ~~FINANCIAL~~the ~~STATEMENTS~~straight-line method over the estimated useful life of the assets for furniture and equipment, buildings and land improvements, and the term of the lease for tenant improvements. The estimated useful lives being used are as follows:

As of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)

Land Improvements	3-15 years
Buildings	25-30 years
Building Improvements	10-20 years
Tenant Improvements	1-12 years
Furniture and Equipment	3 years

~~NOTE~~Repair 3and –maintenance ~~SUMMARY~~costs OFare ~~SIGNIFICANT~~expensed ~~ACCOUNTING~~as ~~POLICIES~~incurred, ~~(continued)~~whereas expenditures that improve or extend the service lives of assets are capitalized. Disposal and abandonment of improvements are recognized at occurrence as a charge to depreciation.

~~Real~~Intangible ~~Estate~~Assets ~~Property~~ and ~~Fixed Assets (continued)~~Liabilities

~~Depreciation~~Upon isacquisitions ~~provided~~of ~~using~~real estate, the ~~straight~~Company assesses the fair value of acquired tangible assets and any significant intangible assets and liabilities (such as above-~~line~~ ~~method~~and below-market ~~over~~leases and value of acquired in-place leases), and any assumed liabilities, and allocates the purchase price based on these fair value assessments. The Company records intangible assets and liabilities acquired at their estimated ~~useful~~fair value ~~life~~apart from goodwill for acquisitions of ~~the~~real estate. The Company amortizes identified intangible assets ~~for~~and ~~buildings~~liabilities based on the period over which the assets and ~~land~~liabilities ~~improvements,~~are expected to affect the future cash flows of the real estate property acquired. Lease intangibles (such as in-place or above- and below-market leases) are amortized over the term of the related lease. ~~for~~Above ~~tenant~~and ~~improvements~~below-market leases are amortized as a reduction in (addition to) rent revenue. The ~~estimated~~Company amortized ~~useful~~$45,220 ~~lives~~as ~~being~~a ~~used~~net ~~are~~reduction asin ~~follows:~~rent revenue for above and below-market leases for the three months ended March 31, 2017, and $48,267 for the three months ended March 31, 2016. Amortization of other intangibles is recorded in depreciation and amortization expense.

Land Improvements	3-15 years
Buildings	25-30 years
Building Improvements	10-20 years
Tenant Improvements	1-12 years
Furniture and Equipment	3 years

-8-

~~Repair~~ Table ~~and maintenance costs are expensed as incurred, whereas expenditures that improve or extend the service lives~~ of ~~assets are capitalized. Disposal and abandonment of improvements are recognized at occurrence as a charge to depreciation.~~Contents

~~Intangible~~TALON ~~Assets~~REAL orESTATE ~~Liabilities~~HOLDING CORP.

~~Upon~~NOTES ~~acquisitions~~TO ofCONDENSED CONSOLIDATED ~~real~~FINANCIAL estate, the Company assesses the fair value of acquired tangible assets and any significant intangible assets and liabilities (such as above- and below-market leases and value of acquired in-place leases), and any assumed liabilities, and allocates the purchase price based on these fair value assessments. The Company records intangible assets and liabilities acquired at their estimated fair value apart from goodwill for acquisitions of real estate. The Company amortizes identified intangible assets and liabilities based on the period over which the assets and liabilities are expected to affect the future cash flows of the real estate property acquired. Lease intangibles (such as in-place or above- and below-market leases) are amortized over the term of the related lease. Above and below-market leases are amortized as a reduction in (addition to) rent revenue. The Company amortized $45,220 and $138,709 to rent revenue for above and below-market leases for the three and nine months ended September 30, 2016, respectively, and $48,415 and $166,954 for the three and nine months ended September 30, 2015, respectively. Amortization of other intangibles is recorded in depreciation and amortization expense.STATEMENTS

~~Impairment~~As of ~~Long-Lived~~March 31, ~~Assets~~2017 and for the three months ended March 31, 2017 and 2016 (unaudited)

~~Long-lived~~NOTE 3 ~~assets,~~– ~~such~~SUMMARY asOF ~~real~~SIGNIFICANT ~~estate~~ACCOUNTING ~~property,~~POLICIES and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. An impairment loss would be recognized when the estimated future cash flows from the use and eventual disposition of the asset are less than the carrying amount of that asset. The Company did not recognize any impairment losses for either of the three and nine months ended September 30, 2016 or 2015.(continued)

~~Income~~Impairment ~~Taxes~~of Long-Lived Assets

~~The~~Long-lived ~~Company~~assets, ~~accounts~~such ~~for~~as ~~income~~real ~~taxes~~estate ~~under~~property, ~~FASB~~and ~~ASC~~purchased intangible ~~740-10-30~~assets ~~which~~subject ~~results~~to inamortization, ~~the~~are ~~recognition~~reviewed ~~of deferred tax assets and liabilities~~ for ~~the~~impairment ~~expected~~whenever ~~future~~events ~~tax~~or ~~consequences~~changes ofin ~~temporary~~circumstances ~~differences~~indicate ~~between~~ that the ~~book~~ carrying ~~amounts~~amount ~~and~~of ~~the~~an ~~tax~~asset ~~basis~~may ofnot ~~assets~~be ~~and~~fully ~~liabilities~~recoverable. ~~Deferred~~ ~~income~~An ~~tax~~impairment ~~assets~~loss ~~and~~would ~~liabilities~~be ~~are~~recognized ~~measured~~when ~~using~~ the ~~enacted~~estimated ~~tax~~future cash ~~rates~~flows ~~and~~from ~~laws~~the ~~that~~use ~~will~~and beeventual indisposition ~~effect~~of ~~when~~ the ~~temporary~~asset ~~differences and carry forwards~~ are ~~expected~~less tothan ~~reverse. Accounting standards require~~ the ~~consideration~~carrying amount of athat ~~valuation~~asset. ~~allowance~~The ~~for~~Company ~~deferred tax assets if it is “more likely than~~ did not” ~~that~~recognize ~~some~~any ~~component~~impairment orlosses ~~all~~for either of the ~~benefits~~three ofmonths ~~deferred~~ended ~~tax~~March ~~assets~~31, ~~will~~2017 ~~not~~or ~~be realized~~2016.

~~The~~Income Company's policy of accounting for uncertain tax positions is to recognize the tax effects from an uncertain tax position in the financial statements, only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized, upon ultimate settlement with the relevant tax authority. The Company has examined the tax positions taken in its tax returns and determined that there are no uncertain tax positions. As a result, the Company has recorded no uncertain tax liabilities in its consolidated balance sheet.Taxes

11The Company accounts for income taxes under FASB ASC 740-10-30 which results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities. Deferred income tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the temporary differences and carry forwards are expected to reverse. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized.

~~TALON~~The ~~REAL~~Company's ~~ESTATE~~policy ~~HOLDING~~of ~~CORP~~accounting for uncertain tax positions is to recognize the tax effects from an uncertain tax position in the financial statements, only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized, upon ultimate settlement with the relevant tax authority. The Company has examined the tax positions taken in its tax returns and determined that there are no uncertain tax positions. As a result, the Company has recorded no uncertain tax liabilities in its consolidated balance sheet.

~~NOTES~~The TOCompany ~~CONDENSED~~is ~~CONSOLIDATED~~no ~~FINANCIAL~~longer ~~STATEMENTS~~subject to U.S. federal, state or local income tax examinations by tax authorities for the years before 2013. The Company is not currently under examination by any taxing jurisdiction. In the event of any future tax assessments, the Company has elected to record the income tax penalties as general and administrative expense and any related interest as interest expense in the Company's consolidated statements of operations.

AsStock-based ~~of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)~~Compensation

~~NOTE~~The 3Company –has ~~SUMMARY~~granted OFrestricted ~~SIGNIFICANT~~stock ~~ACCOUNTING~~to ~~POLICIES~~employees ~~(continued)~~under an approved employee equity incentive plan and to Directors under a director compensation plan. Granted shares are considered issued and outstanding as of the date of the grants. Stock-based compensation is expensed on a straight-line basis over the vesting period and is valued at the fair value on the date of the grant. The Company has recognized $55,740 and $38,285 of compensation expense for the three months ended March 31, 2017 and 2016, respectively.

~~Income~~The ~~Taxes~~Company ~~(continued)~~may also issue common stock in exchange for goods or services of non-employees. These shares are either fully vested at date of grant or vest over a certain period during which services are provided. The Company expenses the fair market value of the services over the period in which they are received.

The Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for the years before 2012. The Company is not currently under examination by any taxing jurisdiction. In the event of any future tax assessments, the Company has elected to record the income tax penalties as general and administrative expense and any related interest as interest expense in the Company's consolidated statements of operations. -9-

~~Stock-based~~ Table ~~Compensation~~of Contents

~~The~~TALON ~~Company~~REAL ~~has~~ESTATE ~~granted~~HOLDING ~~restricted stock to employees under an approved employee equity incentive plan and to Directors under a director compensation plan~~CORP. Granted shares are considered issued and outstanding as of the date of the grants. Stock-based compensation is expensed on a straight-line basis over the vesting period and is valued at the fair value on the date of the grant. The Company has recognized $145,150 and $342,720 of compensation expense for the three and nine months ended September 30, 2016, respectively, and $38,285 and $135,685 of compensation expense for the three and nine months ended September 30, 2015, respectively.

~~The~~NOTES ~~Company~~TO ~~may~~CONDENSED CONSOLIDATED ~~also~~FINANCIAL issue common stock in exchange for goods or services of non-employees. These shares are either fully vested at date of grant or vest over a certain period during which services are provided. The Company expenses the fair market value of the services over the period in which they are received.STATEMENTS

OnAs ~~February 10, 2015, the Company issued 460,000 shares~~ of ~~common stock valued at $575,000 to an unrelated party in exchange for such party’s guaranty of a loan which was obtained in the year ended December~~ March 31, ~~2015. The~~2017 ~~value of the stock issued has been included as deferred financing costs in the consolidated balance sheet as of September 30, 2016~~ and ~~December 31, 2015. Financing costs of $0 and $47,917 related to this stock issuance were amortized to interest expense~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2016,~~2017 ~~respectively,~~ and ~~$143,750~~2016 ~~and $383,333 for the three and nine months ended September, 30 2015, respectively.~~(unaudited)

~~Noncontrolling~~NOTE 3 ~~Interest~~– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Interests in the Operating Partnership held by limited partners are represented by partnership common units of the Operating Partnership. The Company's interest in the Operating Partnership was 66.0% and 65.0% of the common units of the Operating Partnership as of September 30, 2016 and December 31, 2015, respectively. The Operating Partnership’s income is allocated to holders of units based upon the ratio of their holdings to the total units outstanding during the period. Capital contributions, distributions, syndication costs, and profits and losses are allocated to nonNon-controlling ~~interests in accordance with the terms of the Operating Partnership agreement.~~Interest

~~The~~Interests ~~portion~~in the Operating Partnership held by limited partners are represented by partnership common units of ~~membership~~the ~~interests~~Operating Partnership. The Company's interest in ~~5130~~the ~~LLC~~Operating ~~not~~Partnership ~~held~~was approximately by67% ~~Talon~~and OP65% isof ~~reported~~the common units of the Operating Partnership as ~~noncontrolling~~of ~~interest~~March 31, 2017 and December 31, 2016, respectively. The Operating Partnership’s income is allocated to holders of units based upon the ratio of their holdings to the total units outstanding during the period. Capital contributions, distributions, syndication costs, and profits and losses are allocated to non-controlling ~~the~~interests ~~noncontrolling~~in ~~interest~~accordance ~~based~~with onthe ~~membership percentages and~~ terms of the ~~operating~~Operating Partnership agreement.

~~Net~~The ~~Income~~portion ~~(Loss)~~of ormembership ~~Earnings~~interests ~~Per~~in ~~Share~~5130 LLC not held by Talon OP were reported as non-controlling interest. Capital contributions, distributions, and profits and losses are allocated to the non-controlling interest based on membership percentages and terms of the operating agreement.

~~Basic~~Net ~~earnings~~Income ~~per~~(Loss) ~~common~~or ~~share~~Earnings isPer computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average common and potential dilutive common shares outstanding in accordance with the treasury stock method.Share

12Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average common and potential dilutive common shares outstanding in accordance with the treasury stock method.

~~TALON~~Given ~~REAL~~that ~~ESTATE~~the ~~HOLDING~~Company ~~CORP~~has incurred operating losses for all periods presented, diluted earnings per share is not presented. The weighted average outstanding shares used in the basic earnings per share computation is 18,945,481 and 16,788,586 for the three months ended March 31, 2017 and 2016 respectively.

~~NOTES~~Recent TOAccounting ~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Pronouncements

AsIn ofMay ~~September~~2014, 30the FASB issued ASU No. 2014-09, ~~2016~~Revenue from Contracts with Customers. This new standard will eliminate all industry-specific guidance and ~~for~~replace all current U.S. GAAP guidance on the ~~three~~topic. The new revenue recognition standard provides a unified model to determine when and ~~nine~~how ~~months~~revenue ~~ended~~is ~~September~~recognized. 30The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. Lease contracts are specifically excluded from the new accounting guidance. This guidance will be effective for the Company beginning January 1, ~~2016~~2018 and ~~2015~~can ~~(unaudited)~~be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Adoption had no material impact on the Company’s consolidated financial statements.

~~NOTE~~In 3April –2015, ~~SUMMARY~~the OFFASB ~~SIGNIFICANT~~issued ~~ACCOUNTING~~ASU ~~POLICIES~~No. 2015-03 Interest—Imputation of Interest (~~continued~~Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The Company adopted the amendments in this update effective January 1, 2016. Adoption did not have a material impact on the financial statements.

~~Net~~In ~~Income~~August 2016, the Financial Accounting Standards Board (~~Loss~~“FASB”) orissued ~~Earnings~~Accounting ~~Per~~Standards ~~Share~~Update (~~continued~~“ASU”) 2016-15—Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance for eight specific cash flow issues with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. The effective date for ASU 2016-15 is for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. Adoption of the ASU had no material impact on the Company’s financial statements.

The following is a reconciliation of the denominator of the basic net earnings per common share computation to the denominator of the diluted net earnings per common share computation for each of the periods presented: -10-

	Three Months Ended September 30,		Nine Months Ended September 30,
	2016	2015	2016	2015
Weighted average common shares outstanding - basic	17,251,136	16,716,934	16,980,771	16,578,942
Plus potentially dilutive common shares:
Unvested restricted stock	178,409	5,384	194,503	57,143
Weighted average common shares outstanding - diluted	17,429,545	16,722,318	,17,175,274	16,636,085

Table of Contents

~~Reclassifications~~TALON REAL ESTATE HOLDING CORP.

~~Certain~~NOTES ~~previously~~TO ~~reported~~CONDENSED CONSOLIDATED ~~amounts~~FINANCIAL ~~have been reclassified to conform to the current financial statement presentation. The reclassifications had no impact on net loss or shareholders’ equity.~~STATEMENTS

~~Recent~~As ~~Accounting~~of ~~Pronouncements~~March 31, 2017 and for the three months ended March 31, 2017 and 2016 (unaudited)

InNOTE 3 ~~May~~– ~~2014,~~SUMMARY ~~the~~OF ~~FASB~~SIGNIFICANT ~~issued~~ACCOUNTING ~~ASU~~POLICIES No. 2014-09, Revenue from Contracts with Customers. This new standard will eliminate all industry-specific guidance and replace all current U.S. GAAP guidance on the topic. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. Lease contracts are specifically excluded from the new accounting guidance. This guidance will be effective for the Company beginning January 1, 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We are currently assessing the impact on the Company’s consolidated financial statements.(continued)

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40). The amendments in this Update provide guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The ~~amendments~~Company inhas adopted this ~~Update~~amendment ~~are~~in this update effective for the ~~annual~~current ~~period~~fiscal ~~ending after December 15, 2016, and for annual periods and interim periods thereafter~~year. ~~Early~~(see ~~application is permitted. The Company currently has disclosed certain matters relative to going concern in~~ Note ~~15 but presently has not yet adopted the new guidance~~13).

In ~~April~~March ~~2015~~2016, the FASB issued ASU ~~No. 2015~~2016-~~03 Interest~~09—~~Imputation~~Compensation—Stock Compensation ~~of Interest~~ (~~Subtopic~~Topic ~~835-30~~718): ~~Simplifying~~Improvements ~~the~~to ~~Presentation~~Employee ofShare-Based ~~Debt~~Payment ~~Issuance~~Accounting ~~Costs. The amendments in this~~ (“ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts2016-09”). ~~The~~ ~~recognition~~ASU ~~and~~2016-09 ~~measurement guidance for debt issuance costs are not affected by~~ modifies the ~~amendments in this update. We adopted the~~ accounting ~~standards~~for update as of January 1, 2016 with retrospective application to our December 31, 2015 Consolidated Balance Sheet. The effect of the adoption was to reclassify debt issuance from deferred financing costs, net of accumulated amortization, of $969,527 to a contra account as a deduction from the related notes payable. There was no effect on our consolidated statements of operations and cash flows.share-

13based payment awards, including income tax consequences, classification of awards as equity or liabilities, and classification on the statement of cash flows. The effective date for ASU 2016-09 is for annual periods beginning after December 15, 2016, and interim periods within those fiscal years. The adoption of this standard is not expected to have a material impact on the Company’s business, financial position, results of operations or liquidity.

~~TALON~~During ~~REAL~~February ~~ESTATE~~2016, ~~HOLDING~~FASB ~~CORP~~issued ASU No. 2016-02, “Leases.” ASU No. 2016-02 was issued to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset (as defined). ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. Upon adoption, the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The adoption of this Standard did not have a material impact on the Company’s financial statements.

~~NOTES~~In TOMarch ~~CONDENSED~~2016, ~~CONSOLIDATED~~the ~~FINANCIAL~~FASB ~~STATEMENTS~~issued ASU 2016-08 – “Revenue from Contracts with Customers: Principal versus Agent Considerations.” The amendments of this standard are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The effective date for ASU 2016-08 is the same as the effective date for ASU 2014-09 and ASU 2015-14. Adoption of this Standard did not have a material impact on The Company’s financial statements.

AsIn January 2017, the FASB issued ASU 2017-01 – “Business Combinations (Topic 805): Clarifying the Definition of ~~September~~a 30Business.” The amendment is intended to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, ~~2016~~disposals, goodwill, and consolidation. The effective date for ~~the~~ASU ~~three~~2017-01 is for annual periods beginning after December 15, 2017, and ~~nine~~interim ~~months~~periods ~~ended~~within ~~September~~those fiscal 30years. The Company adopted the new guidance effective January 1, ~~2016~~2018 and ~~2015~~the ~~(unaudited)~~guidance resulted in acquisitions of operating properties being accounted for as asset acquisitions instead of business combinations. The adoption of this guidance changed the Company’s accounting for the transaction costs for acquisitions of operating properties such that transaction costs are capitalized as part of the purchase price of the acquisition instead of being expensed as acquisition-related expenses. The ASU is required to be applied prospectively.

~~NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)~~ -11-

~~Recent~~ Table ~~Accounting~~of ~~Pronouncements (continued)~~Contents

InTALON ~~September~~REAL ~~2015,~~ESTATE ~~the~~HOLDING ~~FASB issued ASU 2015–16, Simplifying the Accounting for Measurement Period Adjustments~~CORP. To simplify the accounting for adjustments made to provisional amounts, ASU 2015–16 requires that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The provisions of ASU 2015–16 are effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. We adopted this ASU effective January 1, 2016. The adoption of ASU 2015-16 had no impact on our condensed consolidated balance sheets or results of operations, or cash flows.

~~During~~NOTES ~~February~~TO ~~2016,~~CONDENSED CONSOLIDATED ~~the~~FINANCIAL FASB issued ASU No. 2016-02, Leases. ASU No. 2016-02 was issued to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset (as defined). ASU No. 2016-02 is not expected to significantly impact the accounting for leases by lessors. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. Upon adoption, the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The Company is currently assessing the effect that ASU No. 2016-02 will have on its results of operations, financial position and cash flows.STATEMENTS

InAs March 2016, the FASB issued ASU No. 2016-09, Compensation- Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which will reduce complexity in accounting standards related to share-based payment transactions, including, among others, (1) accounting for income taxes, (2) classification of ~~excess tax benefits on the statement of cash flow~~March 31, ~~(3)~~2017 ~~forfeitures,~~ and ~~(4) statutory tax withholding requirements. The ASU is effective~~ for ~~annual~~the ~~reporting~~three ~~periods~~months ~~beginning~~ended onMarch ~~or after December 15~~31, ~~2016,~~2017 and ~~interim periods within those annual periods. The Company is currently assessing the effect that ASU No.~~ 2016~~-09~~ ~~will have on its consolidated financial statements.~~(unaudited)

NOTE 4 – TENANT LEASES

The Company leases various commercial and industrial space to tenants over terms ranging from month-to-month to twelve years. Some of the leases have renewal options for additional terms. The leases expire at various dates from ~~October~~January ~~2016~~2017 to December ~~2027~~2025. Some leases provide for base monthly rentals and reimbursements for real estate taxes and common area maintenance.

The Company has the following future minimum base rentals on non-cancellable leases, including leases entered into subsequent to ~~September~~March 3031, ~~2016~~2017:

2016	$	2,092,210
2017 (remaining 9 months)	$	5,264,839
2017		8,027,637
2018		6,927,823
2018		7,868,415
2019		6,207,780
2019		6,997,191
2020		3,112,572
2020		2,899,522
2021		1,728,134
Thereafter		1210,~~008~~851,~~648~~438
	$	39,893,623
Total	$	34,092,586

14Included in the above table are base lease payments due beginning January 1, 2018 totaling $15,832,430 for a significant tenant that has not occupied space yet but for which we have an executed lease agreement.

~~TALON~~NOTE 5 ~~REAL~~– ~~ESTATE~~NOTES ~~HOLDING CORP.~~PAYABLE

~~NOTES~~Note TOPayable, ~~CONDENSED~~Related ~~CONSOLIDATED FINANCIAL STATEMENTS~~Party

AsDuring ofAugust ~~September~~2014, the Company entered a two-year unsecured note payable with Curtis Marks, a former director, which matured on June 30, 2016. The note bore interest at an annual rate of 14% through November 2015, 20% through June 2016 and ~~for~~26% thereafter under default provisions until the ~~three~~principal is repaid. The note required monthly interest only payments with the outstanding principal due at maturity. The Company defaulted on the note at maturity and ~~nine~~in ~~months~~April ~~ended~~2017 ~~September~~the 30principal was increased by approximately $397,000 as a result of a judgement against the Company described in Note 7. At March 31, 2017, management determined a negative outcome was probable and recorded a $397,695 increase to the principal balance. At March 31, 2017 and December 31, 2016, the unpaid principal on the notes totaled $897,695 and ~~2015~~$500,000, ~~(unaudited)~~respectively.

~~NOTE~~During 4June –2014, ~~TENANT~~the ~~LEASES~~Company entered into two two-year unsecured notes payable totaling $370,000 with Bren Road, LLC, a limited partner in Talon OP (~~continued~~Note 11). The notes bore interest at an annual rate of 8% and required monthly principal and interest payments totaling $4,440 with the remaining principal due at maturity. At March 31, 2017 and December 31, 2016, the unpaid principal on the notes totaled $302,293 and $309,472, respectively. In July 2017, the principal and unpaid interest was satisfied by a $594,176 judgement against the lender as described in Note 7.

Included in the above table are base lease payments due beginning January 1, 2018 totaling $15,627,822 for a significant tenant that has not occupied space yet but for which we have an executed lease agreement (Note 9). -12-

~~NOTE~~ Table 5of ~~– NOTES PAYABLE~~Contents

~~The~~TALON ~~following~~REAL ~~tables~~ESTATE ~~summarize the Company’s notes payable~~HOLDING CORP.

				Principal Balance At
Loan Description	Loan Type	Maturity Date	Interest Rate	September 30, 2016		December 31, 2015
Talon First Trust, LLC Mortgage (1)	Secured floating rate interest only	July 5, 2017	5.94%	$	32,000,000	$	32,000,000
Talon First Trust, LLC. – Promissory Note (2)	Unsecured fixed rate interest only	August 31, 2016	10.00%		1,008,908		481,934
Talon First Trust, LLC. – Promissory Note	Unsecured fixed rate interest only	See below (3)	10.00%		59,489		-
Talon First Trust, LLC. – Sale of Future Receivable (4)	See below (4)	See below (4)	(4)		131,467		-
Talon Bren Road, LLC Mortgage 1	Secured fixed rate	May 28, 2019	4.65%		10,926,861		11,123,773
Talon Bren Road, LLC Mortgage 2	Secured fixed rate interest only	March 1, 2017	16.00%		2,000,000		2,000,000
Talon Bren Road, LLC HVAC loan	Unsecured fixed rate	June 1, 2019	8.00%		91,508		111,797
Talon Bren Road, LLC Roof loan	Unsecured fixed rate interest only	June 1, 2019	8.00%		225,000		225,000
5130 Industrial Street, LLC Mortgage 1	Secured fixed rate	April 8, 2017	6.05%		4,000,456		4,049,859
5130 Industrial Street, LLC Mortgage 2	Secured fixed rate	April 8, 2017	12.75%		293,144		294,021
Talon OP, L.P. – Promissory Notes (5)	Unsecured fixed rate interest only	June 30, 2016	24.00%		1,000,000		1,000,000
Talon OP, L.P. – Promissory Notes	Unsecured fixed rate	July 31, 2017	3.00%		654,926		-
Talon OP, L.P. – Promissory Note (see NOTE 6)	Unsecured fixed rate interest only	June 30, 2016	24.00%		500,000		-
				$	52,891,759	$	51,286,384
Less: unamortized deferred financing costs					(472,672)		(969,527)
Notes payable, net				$	52,419,087	$	50,316,857

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Related Party Notes Payable

Principal Balance At

Loan Description

Loan Type

Maturity Date

Interest Rate

June 30, 2016

December 31, 2015

Talon OP, L.P. Promissory Note – Related Party (see NOTE 6)

Unsecured fixed rate interest only

June 30, 2016

24.00%

500,000

As of March 31, 2017 and for the three months ended March 31, 2017 and 2016 (unaudited)

NOTE 5 – NOTES PAYABLE (1continued)

~~Beginning~~Notes January 2016, mechanics lien statements were filed upon the property at 180 E. Fifth Street for work completed to prepare the tenant space for a significant lease entered into on April 9, 2015. Mechanics liens that remain undischarged of record after 60 days constitute an event of default under the loan agreements, permitting the lender to accelerate the indebtedness at its option. On September 21, 2016 and October 20, 2016, mechanics lien holders filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligations to which the Company has responded. At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute. The lender is aware of this default and our refinancing efforts to cure it. They are currently not exercising any remedies with respect to any defaults.Payable

During March 2007, the Company entered into two mortgage notes payable totaling $4,750,000 secured by the Company’s real estate properties operated by 5130 Industrial Street, LLC (Note 2). The first note totaled $4,450,000 and required monthly interest only payments at 6.05% per annum with the outstanding principal due at maturity on April 8, 2017. The second note totaled $300,000 and required monthly interest only payments at 12.75% per annum with the outstanding principal due at maturity on April 8, 2017. At March 31, 2017 and December 31, 2016, the unpaid principal on the first note totaled $3,968,876 and $3,981,740, respectively. At March 31, 2017 and December 31, 2016, the unpaid principal on the second note totaled $292,609 and $292,941, respectively. The Company defaulted on the notes at maturity and in December 2018 the lender foreclosed on the properties as described in Note 12.

OnDuring ~~November~~May 162014, ~~2015~~ the Company entered into a ~~$481,934~~five-year ~~unsecured~~first ~~promissory~~mortgage note ~~with~~payable ~~the~~totaling ~~Property Manager of Talon First Trust~~$11,500,000 ~~LLC.~~secured ~~The~~by ~~note satisfied~~ the ~~fees~~Company’s ~~due~~real ~~under~~estate ~~the~~property ~~Property~~operated by ~~Management~~Talon ~~Agreement~~Bren ~~for~~Road, ~~the~~LLC ~~period~~(Note of2). ~~March~~The ~~2015~~note ~~through~~bore ~~December~~interest ~~2015~~at ~~and had~~ an ~~original~~annual ~~maturity~~rate ~~date~~ of ~~December 31, 2015~~4. ~~Subsequently,~~65% ~~the Company extended the maturity date to February 15, 2016~~ and ~~then~~required tomonthly ~~August~~principal ~~31, 2016~~ and ~~increased~~interest payments ~~the~~totaling ~~note by~~ $~~471~~65,~~974~~438. ~~for~~At ~~the~~March ~~fees~~31, ~~incurred~~2017 ~~from January 2016 through July 2016~~ and ~~interest~~December ~~incurred through May~~ 31, 2016, ~~per~~ the ~~terms~~unpaid ofprincipal ~~the~~on ~~promissory notes and Property Management Agreement entered into with~~ the ~~Property~~note ~~Manager~~totaled ~~(see Note 9). In July 2016, an additional~~ $10,~~000~~788,414 and $4510,~~000~~ 858,648, respectively. ~~was~~During ~~added~~April to2017 the ~~principal~~Company ~~balance~~received ofa ~~the~~written ~~note.~~default ~~The~~notice ~~note bore interest at 8% annually~~ from ~~November 16, 2015 through June 30, 2016 and currently bears interest at 10% annually through maturity. On September 21, 2016, and subsequently as amended on September 22, 2016,~~ the ~~Property~~lender ~~Manager filed a summons~~ and ~~complaint~~ in ~~the~~June ~~State~~2017 ~~of Minnesota claiming that~~ the Company ~~breached its obligation under the notes to which the Company has responded. At~~ settled this ~~time,~~note ~~the~~as ~~Company~~described isin ~~unable~~Note ~~to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute~~12.

During February 2015, the Company entered into a two-year second mortgage note payable totaling $2,000,000 secured by the Company’s real estate property operated by Talon Bren Road, LLC (3Note 2). The note bore interest at an annual rate of 16% and required monthly interest payments totaling $26,667 with principal due at maturity. At December 31, 2016, the unpaid principal on the note totaled $2,000,000. During January 2017 the Company settled this note as described below.

The ~~outstanding~~May ~~principal~~2014 and ~~applicable~~February ~~accrued~~2015 ~~interest~~mortgage notes ispayable ~~due~~include ina ~~full~~restrictive ~~upon~~covenant ~~sale~~that orrequires ~~refinancing~~Talon Bren Road, LLC to maintain a minimum debt service coverage ratio (“DSCR”) before distributions of 1.35:1.00 and after distributions of 1:05:1.00 as of the ~~property~~last atday ~~180~~of Eeach calendar year. ~~Fifth Street~~As inof StDecember 31, 2015, Talon Bren Road LLC was out of compliance with the DSCR test. ~~Paul~~An amendment to the note agreements as well as waiver of the DSCR default for the December 31, 2015 test date was executed. The note agreements were amended to include a minimum Senior DSCR (pre-distributions) of not less than 1.50:1.00. It also amended and restated the minimum DSCR before distributions of not less than 1.20:1.00 as of the last day of each calendar year commencing after December 31, 2015. As of March 31, 2017, Talon Bren Road, LLC was not in compliance with the DSCR.

~~(4)~~ -13-

On Table ~~June 29, 2016 the Company received funds from two different sources totaling $235,993 for the sale~~ of future receivables at the property located at 180 E. Fifth Street. The agreements require payments totaling $352,305 over 120 days. Per FASB ASC 470-10-25, which provides guidance on funds received from sales of future receivables, this transaction has been classified as debt and included in notes payable. The agreements are guaranteed by a shareholder of the Company.Contents

15TALON REAL ESTATE HOLDING CORP.

~~TALON~~NOTES TO ~~REAL~~CONDENSED ~~ESTATE~~CONSOLIDATED ~~HOLDING~~FINANCIAL ~~CORP.~~STATEMENTS

~~NOTES~~As of TOMarch ~~CONDENSED~~31, ~~CONSOLIDATED~~2017 ~~FINANCIAL~~and ~~STATEMENTS~~for the three months ended March 31, 2017 and 2016 (unaudited)

AsNOTE 5 of– ~~September~~NOTES ~~30,~~PAYABLE ~~2016 and for the three and nine months ended September 30, 2016 and 2015~~ (~~unaudited~~continued)

~~NOTE~~During 5July –2014, ~~NOTES~~the ~~PAYABLE~~Company entered into a three-year first mortgage note payable totaling $32,000,000 secured by the Company’s real estate property operated by Talon First Trust, LLC (~~continued~~Note 2). The note bore interest at an annual rate of 6.04% and required monthly interest only payments totaling $161,067 with the remaining principal due at maturity. At December 31, 2016 the unpaid principal on the note totaled $32,000,000. During the year ended December 31, 2016, mechanics lien statements were filed upon the property for unpaid balances included in accounts payable. In January 2017, the Company settled this note and satisfied all outstanding liens as described in later in this note.

~~(5)~~During January and May 2015, respectively, the Company entered into two separate $500,000 unsecured notes payable which matured on June 30, 2016. The notes bore interest at an annual rate of 20% through October 31, 2015, 24% through June 30, 2016 and 26% thereafter until the principal is repaid. The notes required monthly interest only payments totaling approximately $20,000 with the outstanding principal due at maturity. The Company defaulted on the notes at maturity. A judgment was rendered against the Company in May 2017 as described in Note 7. At March 31, 2017, management determined a negative outcome was probable and recorded a $476,498 increase to the principal balance. At March 31, 2017 and December 31, 2016, the unpaid principal on the notes totaled $1,476,498 and $1,000,000, respectively.

OnDuring ~~January~~November ~~12,~~ 2015 ~~and May 19, 2015, respectively,~~ the Company entered into a two-month ~~separate $500,000~~ unsecured ~~promissory~~note ~~notes~~payable ~~with~~totaling ~~the same unrelated party~~$481,934. The ~~notes~~Company ~~bore~~defaulted ~~interest~~on atthe ~~14%~~note ~~annually~~at ~~and had an original~~ maturity ~~date~~in ofJanuary 2016. During June 302016, ~~2015 and July 18, 2015, respectively. In 2015,~~ the Company ~~extended~~refinanced the ~~maturity~~note ~~dates~~with ofthe ~~both~~lender ~~notes~~resulting toin ~~December~~the ~~31,~~issuances ~~2015. The notes bore interest~~ of ~~20%~~a ~~annually~~six-month ~~from~~unsecured ~~July~~note payable totaling $1, ~~2015 and July 19~~008, ~~2015~~908, ~~respectively,~~including ~~through October 31~~$481,934 ~~2015. Subsequently,~~in ~~the~~unpaid ~~Company~~principal ~~extended~~and ~~the maturity dates of both notes to the earlier of~~$526,974 ~~the disposition or refinancing of the property at 180 E 5th Street~~ in ~~St.~~accrued ~~Paul~~interest orand ~~June 30, 2016~~penalties. The notes ~~will~~bore ~~bear~~ interest at ~~24%~~an annual ~~annually~~rate ~~from~~of ~~November~~10%. 1,At ~~2015~~March ~~through June 30~~31, ~~2016. The~~2017 ~~maturity date has not been extended~~ and ~~the~~December ~~note is due and payable in full. On September 24~~31, 2016, the ~~unrelated~~unpaid ~~party~~principal ~~filed~~on ~~a summons and complaint in~~ the ~~State of Minnesota claiming that the Company breached its obligation under the~~ notes tototaled ~~which~~$1,330,167 ~~the~~and ~~Company has responded~~$1,008,908, respectively. At ~~this~~In ~~time~~January 2017, the Company issettled ~~unable to determine~~ the ~~outcome~~June ~~of,~~2016 ~~and~~note ~~therefore~~with ~~has~~the ~~not~~lender ~~recorded~~as ~~any~~described ~~obligations~~in ~~with~~Note ~~respect to this dispute~~7.

~~The~~During May 2016, the Company isentered into ~~required~~a $59,489 unsecured note payable to ~~make~~settle ~~the~~accounts ~~following~~payable due to an unrelated party. The note bore interest at an annual rate of 10% and unpaid principal ~~payments~~and oninterest ~~our~~are ~~outstanding~~due ~~notes~~upon ~~payable~~the ~~for~~sale ~~each~~or refinancing of the ~~five~~property ~~succeeding~~operated ~~fiscal~~by ~~years~~Talon First Trust, LLC. At March 31, 2017 and ~~thereafter~~December as31, ~~follows:~~2016, the unpaid principal on the note totaled $59,489. The Company repaid the principal and unpaid interest in July 2017.

	Amount
2016	$	34,800,951
2017		7,231,444
2018		322,112
2019		10,537,252
	$	52,891,759

During August 2016, the Company entered into a one-year $654,926 unsecured note payable to settle accounts payable due to an unrelated party. The note bears interest at an annual rate of 3% and unpaid principal and interest were due at maturity. At March 31, 2017 and December 31, 2016, the unpaid principal on the note totaled $654,926. The Company defaulted on this note at maturity and the balance remains outstanding.

~~The Company is required to periodically fund and maintain escrow accounts to make future real estate tax and insurance payments, as well as to fund certain capital expenditures.~~ -14-

~~The~~ Table ~~Company’s mortgage assumed by Talon Bren Road, LLC in connection with the acquisition~~ of the property at Bren Road includes a restrictive covenant that requires Talon Bren Road, LLC to maintain a minimum debt service coverage (“DSCR”) before distributions of 1.35:1.00 and after distributions of 1:05:1.00 as of the last day of each calendar year. As of December 31, 2015, Talon Bren Road LLC was out of compliance with the DSCR test. An amendment to the loan agreement as well as waiver of the DSCR default for the December 31, 2015 test date was subsequently executed. The loan agreement was amended to include a minimum Senior Debt Service Coverage Ratio (pre-distributions) of not less than 1.50:1.00. It also amended and restated the minimum Debt Service Coverage Ratio before distributions of not less than 1.20:1.00 as of the last day of each calendar year commencing after December 31, 2015.Contents

~~The~~TALON ~~Company’s~~REAL ~~mortgage~~ESTATE ~~entered into by Talon First Trust, LLC in connection with the property at 180 E~~HOLDING CORP. Fifth Street, St. Paul, Minnesota includes a financial covenant that requires the Company to maintain a net worth that equals or exceeds $30 million and cash and marketable securities equal to or greater than $3 million as of December 31, 2015 through the remaining term of the loan. The loan agreement allows the Company 30 days following any failure in which to satisfy this financial covenant or provide an individual or entity acceptable to lender as another guarantor on the loan and of the environmental indemnity obligations. Failure to satisfy the covenant would constitute an event of default under the terms of the loan. The Company (as well as Talon OP, L.P.) is a guarantor of the loan entered into by Talon First Trust, LLC and an indemnitor of Talon First Trust, LLC’s environmental obligations in connection with the property at 180 E. Fifth Street, St. Paul, Minnesota. The lender has accepted Mr. Kaminski as an additional guarantor pursuant to the Joinder Agreement dated March 30, 2016. Although Mr. Kaminski has executed a joinder agreement adding himself as an additional guarantor on the loan, the lender has reserved all rights, remedies and recourses available to it for any event of default whether arising prior or after the date of the agreement. There is no assurance that the financial covenants will be satisfied in the future. As such, the Company has included the full outstanding balance of the loan in the principal amounts due in 2016 in the table above.

16NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~TALON~~As of ~~REAL~~March ~~ESTATE~~31, ~~HOLDING~~2017 ~~CORP.~~and for the three months ended March 31, 2017 and 2016 (unaudited)

~~NOTES~~NOTE 5 TO– ~~CONDENSED~~NOTES ~~CONSOLIDATED~~PAYABLE ~~FINANCIAL STATEMENTS~~(continued)

AsDuring ofOctober ~~September~~2016, 30the Company entered into a non-interest bearing $181,000 ~~2016~~unsecured ~~and~~note ~~for~~payable. ~~the~~At ~~three~~March 31, 2017 and ~~nine~~December ~~months~~31, ~~ended~~2016, ~~September~~the 30unpaid principal on the note totaled $81,800. The Company defaulted on the note at maturity in October 2016. ~~and~~The ~~2015~~Company ~~(unaudited)~~refinanced the unpaid principal in June 2017 as described in Note 12.

~~NOTE~~At 6December –31, ~~TRANSACTIONS~~2016, ~~WITH~~the ~~RELATED~~Company ~~PARTIES~~recorded $271,287 unsecured note payable to a former employee to settle a complaint filed by a former employee as described in Note 7. The note bore interest at an annual rate of 15% and matured in January 2018. The unpaid principal balance as of March 31, 2017 was $186,178. The note was repaid during 2017.

OnDuring ~~August~~January 122017, ~~2014,~~ the Company entered into atwo ~~$500,000~~18-month ~~unsecured~~ promissory note agreements with ~~one~~a ofthird-party ~~its directors. The note bore interest at 14% annually and had an original maturity date of February 8~~lender, ~~2015. Proceeds~~Quick ~~from~~Liquidity ~~this note paid off additional notes entered into on December 30~~Management, ~~2013 and March 7~~LLC, ~~2014,~~totaling ~~respectively, for~~ $~~100~~2,~~000 each~~550, ~~with the same party~~000. In ~~2015, the Company extended the maturity date of the note to December 31, 2015.~~ The notes ~~note~~had ~~bore~~an interest atrate of 20% ~~annually~~per ~~from~~annum ~~July~~and 1,required ~~2015~~monthly ~~through~~interest ~~September~~only ~~30,~~payments ~~2015. Subsequently,~~with ~~in 2016~~ the ~~Company~~principal ~~extended~~due ~~the maturity date of the note to the earlier of, the disposition or refinancing of the property~~ at ~~180 E~~maturity. ~~Fifth Street in St. Paul or June 30, 2016.~~ The ~~maturity date has not been extended and the~~ note isagreements ~~due~~were ~~and~~guaranteed ~~payable~~by inFirst ~~full. The~~Tracks, ~~note will bear interest at 24% annually from November 1~~LLC, ~~2015~~a ~~through~~related ~~the~~party ~~date~~(Note ~~payment is made in full~~12). The ~~Company~~proceeds ~~incurred~~from ~~$30,246~~the ~~and~~notes ~~$90,082~~were ofused ~~interest~~to ~~expense~~pay ~~for~~ off the ~~three~~outstanding ~~and~~principal ~~nine months ended September 30, 2016, respectively,~~ and ~~$25,206~~ ~~and~~interest ~~$59,918~~due ~~for~~under the ~~three~~February ~~and nine months ended September 30,~~ 2015, ~~respectively. Accrued interest on the note was~~ $~~207~~2,~~479 and $117~~000,~~397~~000 asnote ~~of September 30, 2016 and December 31, 2015, respectively~~payable. ~~The~~ ~~Company~~During ~~did~~June ~~not pay any interest on the current note for the three and nine months ended September 30~~2017, ~~2016 and 2015, respectively. The note agreement provides that~~ the ~~Company~~outstanding ~~will not make any distributions~~principal, interest ~~dividends or payments to any of their equity shareholders other than to preferred unit holders. On September 16 the party terminated their affiliation with the Company~~ and ispenalties nototaling ~~longer a related party. On October 18~~$3, ~~2016~~475,220 ~~the party filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation~~ under the notes towere ~~which~~satisfied ~~the~~through ~~Company has responded. At this time,~~ the ~~Company~~issuance isof ~~unable to determine~~ the ~~outcome~~MCREIF ~~of,~~ and ~~therefore~~MCC ~~has~~notes ~~not~~described in ~~recorded~~Note ~~any obligations with respect to this dispute~~12.

~~NOTE~~On 7January –27, ~~CONCENTRATIONS~~2017, Talon First Trust, LLC, (the “Talon First Trust”), a Delaware limited liability company that is wholly owned by Talon OP, L.P., (the “Parent”), a Minnesota limited partnership and the entity through which Talon Real Estate Holding Corp. conducts substantially all of its business, entered into a Loan Agreement (the “Gamma Loan”) with Gamma Real Estate Capital LLC (the “Lender”), a Delaware limited liability company, in the principal amount of $51.6 million. The loan bears an interest rate equal to the sum of (i) the greater of (x) the LIBOR Index Rate, and (y) the LIBOR Floor, plus (ii) a margin of 9.00% per annum and has an initial maturity date of January 26, 2018 with two 6-month options for the Company to extend upon satisfaction of certain conditions. Pursuant to the Gamma Loan, approximately $5.3 million has been deposited into an interest reserve account to be applied toward monthly interest payments to the Lender.

The ~~Company~~Gamma ~~has~~Loan ~~three~~is ~~tenants~~secured ~~that~~by ~~rent~~(i) ~~approximately~~a ~~31%~~mortgage ofon the Company’s interest ~~total~~in ~~rentable~~its ~~space~~building aslocated ofat ~~September~~180 ~~30,~~East ~~2016~~5th ~~with~~Street, ~~base~~St. ~~rent representing 64% and 63% of total base rent revenues for the three and nine months ended September 30~~Paul, ~~2016~~Minnesota, ~~respectively. For the same periods in 2015~~55101, ~~the~~(ii) ~~same~~an ~~three~~assignment ~~tenants~~of ~~rented~~lease ~~approximately~~and 31rents, (iii) 100% of the ~~space,~~membership ~~with base rent representing 61%~~ and ~~62%,~~ownership ~~respectively,~~interests ofin the ~~total~~Parent, ~~base~~and ~~rent~~(iv) ~~revenues. The~~other ~~largest~~collateral ~~tenant~~specified ~~currently~~in ~~rents approximately 12% of~~ the ~~Company’s~~Gamma ~~rentable~~Loan ~~space~~documents. The ~~Company~~Gamma ~~had~~Loan ~~two~~is ~~parties~~guaranteed ~~who~~by ~~accounted~~First ~~for~~Tracks, ~~86%~~LLC, ~~and~~a ~~90%~~related ofparty ~~the~~(Note ~~total~~12). ~~rent~~First ~~and~~Tracks ~~other~~received ~~receivables~~a ~~balance~~fee as of ~~September 30~~$750,000 ~~2016~~ and ~~December 31~~2, ~~2015~~500,000 shares ~~respectively~~for the guarantee.

~~NOTE 8 – RESTRICTED ESCROWS AND RESERVES~~ -15-

~~According~~ Table ~~to the terms~~ of the Company's notes payable agreements (Note 5), the Company is required to make monthly and quarterly deposits to various escrow and reserve accounts for the payment of real estate taxes, tenant improvements and leasing commissions. The Company had $3,175,992 and $2,139,180 in restricted escrows and reserve accounts as of September 30, 2016 and December 31, 2015, respectively.Contents

~~NOTE~~TALON 9REAL –ESTATE ~~COMMITMENTS AND CONTINGENCIES~~HOLDING CORP.

OnNOTES TO ~~June~~CONDENSED 7,CONSOLIDATED ~~2013,~~FINANCIAL Talon RE, entered into a contribution agreement with the remaining interest holder of 5130 LLC pursuant to which it will acquire the remaining 51% interest in 5130 LLC in exchange for 2,820,810 shares of our common stock, subject to receiving consent to the transfer from 5130 LLC’s lender.STATEMENTS

~~The Company entered into a property lease agreement relating to rental~~ As of ~~office~~March ~~space.~~31, ~~This~~2017 ~~non-cancellable~~and ~~lease~~for ~~has~~the athree ~~remaining term of 45~~ months. ~~The~~ended ~~lease~~March is31, ~~subject~~2017 toand ~~periodic~~2016 ~~adjustments for operating expenses. The future net minimum rental payments for this lease are as follows:~~(unaudited)

Years ending December 31,
2016	$	13,170
2017		53,178
2018		84,664
2019		89,187
2020		45,876
	$	286,075

NOTE 5 – NOTES PAYABLE (continued)

17The following table details the allocation of the proceeds from the January 2017 Gamma Loan:

TALON REAL ESTATE HOLDING CORP.

July 14 Note payoff	$	29,354,774
Financing costs		1,032,000
Closing costs		2,012,869
Gamma Loan escrows and reserves
Interest reserve		5,289,000
TI Escrow		2,000,000
Shell work reserves		884,211
Basement fireproof reserve		100,000
Tax and insurance reserve		246,517
TI allowance escrow (Note 7)		5,639,752
Redemption of preferred units (Note 10)		3,050,000
Satisfaction of TI invoices and mechanics liens		1,990,877
	$	51,600,000

~~NOTES~~Under TOvarious ~~CONDENSED~~mortgage ~~CONSOLIDATED~~notes ~~FINANCIAL~~payable, the ~~STATEMENTS~~Company is required to periodically fund and maintain escrow accounts to make future real estate tax and insurance payments, as well as to fund certain capital expenditures (Note 6).

During 2016, the Company received funds under agreements for the sale of future receivables from four different sources. As of ~~September~~December 3031, 2016, ~~and~~the total outstanding balance under the agreements was $430,500 for the ~~three~~sale ~~and~~of ~~nine~~future ~~months~~receivables ~~ended~~generated ~~September~~by 30the property located at 180 E. Fifth Street. The agreements required payments totaling $644,039 ~~2016~~over 120 days. Per FASB ASC 470-10-25, which provides guidance on funds received from sales of future receivables, these transactions have been classified as debt and ~~2015~~included ~~(unaudited)~~in notes payable. The agreements are guaranteed by the Company’s CEO. The unpaid principal balance as of March 31, 2017 was $215,259. The outstanding balances under the agreements were repaid during 2017.

~~NOTE~~At 9March –31, ~~COMMITMENTS~~2017, ~~AND~~The ~~CONTINGENCIES~~Company ~~(continued)~~is required to make the following principal payments on our outstanding notes payable for each of the succeeding fiscal years as follows:

The Company entered into a Contribution Agreement dated May 29, 2014 with Bren Road, LLC, the contributor of the property acquired through our subsidiary, Talon Bren Road, LLC. The agreement provides for any deficit in achieving $1,560,000 of net operating income (“NOI”) per year for the first three years to be funded by Bren Road, LLC. The Company recognized $24,348 and $65,470 of income under this agreement for the three and nine months ended September 30, 2016, respectively, and ($22,904) and $128,068 for the three and nine months ended September 30, 2015, respectively. The Company has filed a complaint in the State of Minnesota on June 10, 2016 to enforce the Contribution Agreement. The defendant has responded and filed a counterclaim against Talon Bren Road, LLC and Talon OP, LP on July 7, 2016 to which the Company has responded. Amounts due but unpaid under the Contribution Agreement are included in accounts receivable.

The Company entered into a consulting agreement dated May 29, 2014 with Gerald Trooien (“Consultant”). This agreement provides for consulting services to Talon Bren Road, LLC for $43,750 per month payable beginning August 15, 2014 and continuing for 59 months thereafter. The agreement will terminate upon the occurrence of any of the following: -16-

a. Table of Contents

~~redemption~~TALON orREAL ~~conversion~~ESTATE ~~of all limited partnership units held by Bren Road, LLC,~~HOLDING CORP.

b.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~sale~~As of byMarch ~~Bren~~31, ~~Road~~2017 ofand ~~any~~for ofthe ~~its~~three ~~partnership~~months ~~units~~ended inMarch ~~Talon OP~~31, ~~L.P.,~~2017 and 2016 (unaudited)

c.NOTE 6 – RESTRICTED ESCROWS AND RESERVES

~~payment~~According to ~~Bren~~the ~~Road~~terms of ~~any~~the ~~dividends~~Company's innotes ~~respect~~payable agreements (Note 5), the Company is required to ~~Bren~~make ~~Road’s~~monthly ~~interest~~and quarterly deposits to various escrow and reserve accounts for the payment of real estate taxes, tenant improvements and leasing commissions. The Company had $13,995,393 and $3,001,232 in ~~Talon~~restricted escrows and reserve accounts as of March 31, 2017 and December 31, 2016, respectively.

d.NOTE 7 – COMMITMENTS AND CONTINGENCIES

On June 7, 2013, Talon RE entered into a contribution agreement with the Kaminski Trust, the remaining interest holder of 5130 Industrial Street LLC, pursuant to which the Company ~~qualifies~~will asacquire the aremaining ~~real~~51% ~~estate~~interest ~~investment~~in ~~trust~~5130 ~~(REIT)~~Industrial Street LLC in exchange for 2,820,810 shares of the Company’s common stock, subject to receiving consent to the transfer from 5130 Industrial Street LLC’s mortgage holder under the March 2007 notes. During December 2018, the shares were issued to The Kaminski Trust. The Company’s CEO and his wife are the trustees of The Kaminski Trust.

The ~~consulting~~Company entered into a property lease agreement ~~provides~~relating to ~~for~~rental aof ~~reduction~~office space. This non-cancellable lease has been amended to run through May 2024. The Company incurred $22,761 and $26,339 of rent expense for the ~~monthly~~three-months ~~consulting~~ended ~~fees~~March ~~upon~~31, ~~potential~~2017 ~~receipt~~and of2016, ~~funds~~respectively. byOn December 15, 2018, the ~~Consultant~~Company ~~from~~entered into a ~~subsequent~~termination ~~mortgage~~agreement ~~financing~~with the landlord. In exchange for vacating the premises, the accrued rent was forgiven.

The Company ~~incurred~~entered ~~$106,820~~into ~~and~~a ~~$393~~Contribution Agreement dated May 29,~~750~~ of2014 ~~consulting~~with ~~expenses~~Bren ~~for~~Road, LLC, the ~~three~~contributor ~~and~~of ~~nine~~the ~~months~~property ~~ended~~acquired through ~~September~~our 30subsidiary, ~~2016,~~Talon ~~respectively,~~Bren ~~$131~~Road,~~250~~ ~~and~~LLC. The agreement provides for any deficit in achieving $~~393~~1,~~750~~560,000 of ~~expenses~~net operating income (“NOI”) per year for the first three ~~and~~years ~~nine~~to ~~months~~be ~~ended~~funded ~~September~~by ~~30,~~Bren ~~2015~~Road, ~~respectively~~LLC. The Company ~~had~~recognized ~~amounts~~$ ~~due~~0 ofand $~~383~~46,~~750~~023 ~~and~~of income ~~$45,938~~under asthis ofagreement ~~September~~for ~~30,~~the ~~2016~~three ~~and~~months ~~December~~ended March 31, ~~2015~~2017 and 2016, respectively.

The Company entered into a ~~Property~~consulting ~~Management~~agreement ~~Agreement~~ dated ~~July 2~~May 29, 2014 with ~~Swervo~~Gerald ~~Management~~Trooien ~~Division, LLC~~ (“~~Property Manager~~Consultant”). This agreement provides for ~~management~~consulting ~~and~~services ~~other~~to ~~leasing duties for~~ Talon ~~First~~Bren ~~Trust~~Road, LLC for ~~monthly~~$43,750 ~~payments~~per ofmonth ~~7.5%~~payable ~~of the monthly gross rental receipts at the property~~ beginning ~~July~~August 215, 2014 and continuing for 59 months thereafter. The agreement will terminate upon the occurrence of any of the following:

a. redemption or conversion of all limited partnership units held by Bren Road, LLC,

~~the~~b. sale by Bren Road of ~~property~~any byof ~~the~~its ~~property~~partnership ~~owner~~units in Talon OP, L.P.,

bc. payment to Bren Road of any dividends in respect to Bren Road’s interest in Talon, and

~~any~~d. ~~non-monetary breach of any term or condition in~~ the ~~Property~~Company ~~Management~~qualifies ~~Agreement~~as bya ~~either~~real ~~party~~estate ~~not~~investment ~~cured~~trust ~~within 60 days of written notice of breach, and~~(REIT).

c. -17-

~~the~~ Table ~~date the principal and interest on the property note in aggregate principal amount~~ of ~~$33,000,000 by RCC Real Estate Inc, has been paid in full.~~Contents

~~The~~TALON ~~Company~~REAL ~~incurred~~ESTATE ~~$143,862 and $434,555 of expenses for the three and nine months ended September 30, 2016, respectively, and $180,580 and $464,984 for the three and nine months ended September 30, 2015, respectively~~HOLDING CORP. The Company as of September 30, 2016 had $106,936 due and had $0 due as of December 31, 2015. On January 7, 2016, the Company entered into a $584,937 unsecured promissory note with the Property Manager in satisfaction of the fees for the period of March 2015 through January 2016 and which amends the note dated November 16, 2015 for $481,934 and extended the maturity date to February 15, 2016. Subsequently, the Company extended the maturity date to August 31, 2016 and increased the note by $368,971 for the fees incurred from February 2016 through July 2016 and interest incurred through May 31, 2016 per the terms of the promissory notes and Property Management Agreement entered into with the Property Manager. On September 21, 2016, and subsequently as amended on September 22, 2016, the Property Manager filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the notes to which the Company has responded. At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute.

18NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~TALON~~As of ~~REAL~~March ~~ESTATE~~31, ~~HOLDING~~2017 ~~CORP.~~and for the three months ended March 31, 2017 and 2016 (unaudited)

~~NOTES~~NOTE 7 TO– ~~CONDENSED~~COMMITMENTS ~~CONSOLIDATED~~AND ~~FINANCIAL~~CONTINGENCIES ~~STATEMENTS~~(continued)

AsThe ofCompany ~~September~~incurred 30$145,312 ~~2016~~ and $140,289 of consulting expenses for the three ~~and nine~~ months ended ~~September~~March 3031, 2017 and 2016, respectively. The Company had amounts due to the consultant of $771,803 and ~~2015~~$627,491 as of March 31, 2017 and December 31, 2016, respectively. The outstanding amount as March 31, 2017 was satisfied on June 23, 2017 (~~unaudited~~see Note 12) as part of the refinancing of Talon Bren Road, LLC’s outstanding mortgages.

~~NOTE~~The 9Company –entered ~~COMMITMENTS~~into ~~AND~~a ~~CONTINGENCIES~~Property Management Agreement dated July 2, 2014 with Swervo Management Division, LLC (~~continued~~“Property Manager”). This agreement provides for management and other leasing duties for Talon First Trust, LLC for monthly payments of 7.5% of the monthly gross rental receipts at the property beginning July 2, 2014 and continuing for 59 months thereafter. Subsequently, on January 27, 2017, the agreement was terminated.

OnThe ~~April 9, 2015, the~~ Company ~~entered into a significant lease arrangement with a new tenant. As part of the lease agreement, the Company~~ incurred an$-0- ~~obligation~~and ~~for lease incentives up to approximately~~ $~~8.2~~144,569 ~~million. As~~ of ~~September~~expenses ~~30,~~for ~~2016,~~ the three ~~Company~~months ~~had~~ended ~~recorded~~March ~~$216~~31,~~770~~ to2017 ~~building improvements~~ and $72016,~~760,995~~ ~~to tenant improvement allowance payable related to this commitment~~respectively. On ~~April~~November 116, ~~2016~~2015, the ~~tenant~~Company ~~provided~~entered ~~notice~~into ~~asserting~~ a ~~right~~$481,934 tounsecured ~~terminate~~promissory note with the ~~lease~~Property ~~based~~Manager ~~on certain alleged defaults~~ related to ~~the~~unpaid ~~completion~~fees ~~and~~for ~~delivery of~~ the ~~building~~period ~~and~~of ~~tenant~~March ~~improvements~~2015 ~~under~~through ~~the~~December ~~lease~~2015. OnIn June 1, 2016, the ~~tenant~~Company entered ~~filed~~into a ~~summons~~$953,908 ~~and~~unsecured ~~complaint~~promissory innote ~~the~~related ~~State~~to ~~of Minnesota claiming that~~ the ~~Company~~refinance ~~breached~~of ~~its obligation under~~ the ~~lease~~previous ~~and~~note ~~asserting~~plus ~~certain~~unpaid ~~rights~~fees tofor ~~terminate~~ the ~~lease. The~~period January ~~Company~~2016 ~~has~~through ~~responded~~July to2016 ~~the~~due ~~complaint~~August to31, ~~enforce~~2016 ~~the~~(Note ~~lease~~5). At ~~this~~After ~~time~~that date, ~~the~~an ~~Company~~additional is$55,000 ~~unable~~of tofees ~~determine~~became ~~the~~due ~~outcome of,~~ and ~~therefore has not recorded any obligations with respect to this dispute~~payable.

On ~~August 31~~April 9, 2015, the Company entered ~~amended~~into a ~~lease~~significant lease arrangement with ana ~~existing~~ new tenant. As ~~part~~On ofJanuary ~~the lease agreement~~27, 2017 the ~~Company~~company ~~incurred~~executed ana ~~obligation~~Second ~~for~~Amendment to the lease ~~incentives~~with upthe tenant to ~~approximately~~resolve ~~$252,000. On~~issues ~~June~~concerning ~~30,~~a ~~2016,~~notice of default that the Company ~~reversed~~received from the ~~remaining~~tenant ~~balance~~on April 1, 2016 resulting in the termination of the $~~210~~7,~~300~~760,995 ofimprovement ~~deferred~~allowance. ~~leasing~~The ~~incentives~~Second ~~and~~Amendment ~~corresponding~~rescinds ~~payable~~the asNotice of Default and the Termination ~~tenant~~Notice ~~cancelled~~that the ~~leasing~~tenant ~~incentive~~had ~~offered~~delivered, inchanges to the lease. ~~The~~commencement ~~Company~~date ~~had~~from ~~recorded~~January ~~leasing~~1, ~~incentives~~2016 ~~payable~~to ofJanuary $01, 2018 and placed $~~235,500,~~5.6 ~~within~~million ~~accrued~~in ~~expenses~~escrow ~~and~~to ~~other~~provide ~~liabilities~~evidence ~~related~~of our ability to ~~this~~pay ~~commitment~~for asthe ofremaining ~~September~~tenant ~~30,~~improvements. ~~2016~~We deposited ~~and~~the ~~December~~required ~~31,~~escrow ~~2015~~funds on January 27, ~~respectively~~2017 (Note 12).

~~NOTE~~The ~~10 – RESTRICTED~~depositing of ~~STOCK~~the escrowed funds was done for the express purpose of paying for the buildout for the significant tenant. The funds were deployed to pay for the tenant improvements during 2017. All remaining funds were applied to reduce the Gamma Loan (Note 5).

The Company has granted restricted stock to employees under an approved employee equity incentive plan and to Directors under a director compensation plan. The 2013 Equity Incentive Plan dated June 7, 2013 (the “Plan”) allows up to 1,500,000 shares to be issued and granted to employees, non -employee directors, and consultants and automatically increases on January 1 of each year by three percent of the outstanding shares of common stock as of December 31 of the immediately preceding year. Employee awards granted in 2013 vest monthly over 36 months provided the recipient remains an employee or consultant of the Company. Awards granted in 2014 vest either immediately, monthly over a three year period, or monthly over a five year period. Awards granted in June 2016 vest either immediately or in April 2017. The Non18-Employee Director Compensation Plan allows shares of restricted common stock to be granted to board members and is included under the Plan. The 2013 board member awards vest one-third of the shares on the date of grant, one-third on January 1 of the year following the date of grant, and one-third on January 1 of the second year following the date of grant, provided the recipient remains a member of the board as of the vesting date. The 2014 awards vested immediately in March of 2014 and the 2016 awards vested half in June 2016 with the remainder to vest in April 2017.

As Table of ~~September 30, 2016, the Company had granted 807,095 shares to employees and 480,000 shares to Directors under the Plan.~~Contents

~~The~~TALON ~~following~~REAL ~~table~~ESTATE ~~sets forth a summary of restricted stock for the three and nine months ended September 30, 2016:~~HOLDING CORP.

Total Restricted Stock	Number of Restricted Shares	Weighted-average Grant Date Fair Value
Granted and not vested, June 30, 2016	545,307	$	.83
Granted	-		-
Vested	(40,497)		0.69
Forfeited or rescinded	(398,363)		1.11
Granted and not vested, September 30, 2016	106,447	$	1.03
Total Restricted Stock	Number of Restricted Shares	Weighted-average Grant Date Fair Value
Granted and not vested, December 31, 2015	287,007	$	1.20
Granted	550,000		1.00
Vested	(332,197)		1.03
Forfeited or rescinded	(398,363)		1.11
Granted and not vested, September 30, 2016	106,447	$	1.03

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

19As of March 31, 2017 and for the three months ended March 31, 2017 and 2016 (unaudited)

~~TALON~~NOTE 7 ~~REAL~~– ~~ESTATE~~COMMITMENTS ~~HOLDING~~AND ~~CORP.~~CONTINGENCIES (continued)

~~NOTES~~Legal ~~TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Proceedings

AsThe Company filed a complaint in the State of ~~September~~Minnesota 30on June 10, 2016 to enforce the NOI Payment Agreement and ~~for~~other documents issued in conjunction with the ~~three~~Contribution Agreement entered into on May 29, 2014 with Bren Road, L.L.C, a limited partner in Talon OP, L.P. The defendant has responded and ~~nine~~filed ~~months~~a ~~ended~~counterclaim and ~~September~~third-party 30complaint against Talon Bren Road, LLC and Talon OP, LP on July 7, 2016. On November 9, 2016 the matter came before the court on the Defendant’s motion for partial summary judgment. Subsequently, on February 27, 2017 the Hennepin County District Court issued a Findings of Fact and ~~2015~~Order for Judgment on the counter claim against the Company in the amount of $719,365, plus post judgment interest which pursuant to our 10301 Bren Road and 180 E 5th Street loan agreements, constitutes a non-financial event of default. In an attempt to collect on the judgment, the defendant filed a motion for the appointment of the receiver. The outstanding amount of the judgment was satisfied on June 23, 2017 as part of the refinancing of Talon Bren Road, LLC’s outstanding mortgages. On March 27, 2017 our complaint in the amount of $771,408 went to trial in Hennepin County District Court. On July 21, 2017 a judgment was ordered in favor of Talon Bren Road, LLC and Talon O.P LP in the amount of $594,176. The principal and accrued interest under the two June 2014 notes (~~unaudited~~Note 5) were settled under the July 21, 2017 judgment.

~~NOTE~~On ~~10 – RESTRICTED~~January ~~STOCK~~12, 2015 and May 19, 2015, respectively, the Company entered into two separate $500,000 unsecured promissory notes (~~continued~~Note 5) with the same unrelated party. In 2015, the Company extended the maturity dates of both notes to December 31, 2015. Subsequently, the Company extended the maturity dates of both notes to the earlier of, the disposition or refinancing of the property at 180 E 5th Street in St. Paul or June 30, 2016. On September 24, 2016, the unrelated party filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the notes. On May 19, 2017, a judgment was entered against the Company in the amount of $1,476,498. As of the date of this report, the judgment has not been repaid by the Company.

~~Total~~On ~~unrecognized~~August ~~compensation~~12, ~~expense~~2014, ~~related~~the toCompany ~~the~~entered ~~outstanding~~into ~~restricted~~a ~~stock~~$500,000 asunsecured promissory note with Curtis Marks (Note 5), a former director. The note had an original maturity date of ~~September~~February 8, 2015. Proceeds from this note paid off additional notes entered into on December 30, ~~2016~~2013 ~~was~~and March 7, 2014, respectively, for $~~110~~100,~~059~~000 each, with ~~which~~the issame ~~expected~~party. toIn be2015, ~~recognized~~the ~~over~~Company aextended ~~weighted~~the ~~average~~maturity ~~period~~date of 19the ~~months~~note to December 31, 2015. ~~The~~ Subsequently, in 2016 the Company ~~recognized~~extended ~~$145,150~~the ~~and~~maturity ~~$342,720~~date of ~~stock-based~~the ~~compensation~~note ~~expense~~to ~~for~~the earlier of, the ~~three~~disposition or ~~and~~refinancing ~~nine~~of ~~months~~the ~~ended~~property ~~September~~at 180 E. Fifth Street in St. Paul or June 30, 2016. On October 18, ~~respectively~~2016, ~~and~~the ~~$38,285~~related party filed a summons and ~~$135,685~~complaint ~~for~~in the ~~three~~State of Minnesota claiming that the Company breached its obligation under the notes. In April 2017, this matter went to trial and ~~nine~~the ~~months~~plaintiff ~~ended~~was ~~September~~awarded 30$897,695 ~~2015~~On May 31, ~~respectively~~2017, ~~that~~the isCourt ~~included~~granted ina ~~salary~~Charging Order against the Company and ~~compensation~~Talon ~~expense~~OP inL.P. where the ~~consolidated~~Company and ~~statements~~Talon ofOP ~~operations~~L. ~~The~~P ~~Company~~are ~~used~~required 0%to ~~for~~pay ~~both~~all profits and distributions to the ~~discount~~plaintiff until ~~factor~~the full amount of the judgment is paid and ~~forfeiture~~satisfied. ~~rate~~Subsequent ~~for~~to ~~determining~~the judgment and charging order, in April 2018, the judgment ~~fair~~was ~~value~~fully ofsatisfied ~~restricted~~by ~~stock. The~~the Company, ~~has~~granting ~~limited~~a ~~history~~second tomortgage ~~determine~~in ~~forfeiture~~favor ~~trends~~of ~~and~~the judgment creditor. As of the ~~Company~~date ~~considers~~of this filing, the ~~discount~~second ~~rate~~mortgage toamount behas ~~immaterial~~not been repaid by the Company.

2013 Equity Incentive Plan Restricted Stock		Number of Restricted Shares
Authorized but not granted or issued, December 31, 2015		1,339,715
Authorized increase in Plan shares		511,730
Granted		(550,000)
Forfeited or rescinded		398,363
Authorized but not granted or issued, September 30, 2016		1,699,808

On October 20, 2016, a former employee filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under terms of the former employee’s employment with the Company. In January 2017, the parties reached an agreement to settle all claims. The Company executed a $271,287 promissory note (Note 5) which is fully recorded on the Consolidated Balance Sheet as of December 31, 2016. The promissory note has been satisfied as of December 31, 2017.

~~NOTE 11 – INTANGIBLE ASSETS AND LIABILITIES~~ -19-

~~The Company's identified intangible assets and liabilities at~~ ~~September~~Table ~~30,~~of ~~2016 and December 31, 2015 were as follows:~~Contents

	September 30, 2016		December 31, 2015
Identified intangible assets:r0
In-place leases	$	10,078,055	$	10,078,055
Above-market leases		1,832,939		1,832,939
Accumulated amortization		(5,878,467)		(4,168,849)
Net carrying amount	$	6,032,527	$	7,742,145
	September 30, 2016		December 31, 2015
Identified intangible liabilities:
Below-market leases	$	507,746	$	507,746
Accumulated amortization		(328,210)		(241,518)
Net carrying amount	$	179,536	$	266,228

TALON REAL ESTATE HOLDING CORP.

~~The~~NOTES TO ~~effect~~CONDENSED ofCONSOLIDATED ~~amortization~~FINANCIAL of acquired intangible assets and liabilities was $539,336 and $1,622,925, respectively, for the three and nine months ended September 30, 2016 and $562,698 and $1,774,922 for the three and nine months ended September 30, 2015, respectively. Above-market leases, included in intangible assets, are amortized as a reduction of rent revenue and totaled $74,118 and $225,402 for the three and nine months ended September 30, 2016, respectively, and $83,268 and $271,512 for the three and nine months ended September 30, 2015, respectively. Below-market leases are amortized as an addition to rent revenue and totaled $28,898 and $86,693 for the three and nine months ended September 30, 2016, respectively, and $34,853 and $104,558 for the three and nine months ended September 30, 2015, respectively. Amortization of in-place leases was $494,117 and $1,484,217 for the three and nine months ended September 30, 2016, respectively, and $514,283 and $1,607,967 for the three and nine months ended September 30, 2015, respectively. In-place leases, and above and below-market leases had a weighted average amortization period of 4.5 years in the year acquired.STATEMENTS

20As of March 31, 2017 and for the three months ended March 31, 2017 and 2016 (unaudited)

~~TALON~~NOTE 7 ~~REAL~~– ~~ESTATE~~COMMITMENTS ~~HOLDING~~AND ~~CORP.~~CONTINGENCIES (continued)

~~NOTES~~On TOJanuary ~~CONDENSED~~25, ~~CONSOLIDATED~~2017, ~~FINANCIAL~~in ~~STATEMENTS~~the matter of Swervo Management Division, LLC, as plaintiff, versus Talon Real Estate Holding Corp, Talon First Trust, LLC and Talon Bren Road, LLC, as defendant, the Company executed a $1,330,167 amended and restated promissory note, plus interest on the unpaid balance at 10%. The entire principal balance shall be due and payable on the earlier of July 24, 2017 or upon a time that the Company refinances or sells its property located at 10301 Bren Road. This note replaces the Amended and Restated promissory note dated June 30, 2016 in the amount of $953,908 ($1,008,908 as of December 31, 2016 – Note 5) given by Talon Real Estate Holding Corp. and Talon First Trust, LLC. On July 24, 2017, the $1,330,167 promissory note was amended and restated, based on the payment of combined principal and interest of $300,000, to a $1,095,764 promissory note, plus interest on the unpaid balance at 10%. The entire principal balance shall be due and payable on the earlier of October 24, 2017 or upon a time that the Company refinances or sells its property located at 10301 Bren Road. On November 6, 2017, the $1,095,764 promissory note was amended and restated to a $927,587 promissory note, plus interest on the unpaid balance at 10%. The entire principal balance shall be due and payable on the earlier of December 31, 2017 or upon a time that the Company refinances or sells its property located at 10301 Bren Road. The Company defaulted on the November 2017 note at December 31, 2017 and accepted a judgment in October 2018 in the amount of $1,010,180. As of the date of this filing, the judgement amount has not been repaid by the Company.

AsNOTE 8 – RESTRICTED ~~of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)~~STOCK

~~NOTE~~The 11Company –has ~~INTANGIBLE~~granted ~~ASSETS~~restricted ~~AND~~stock ~~LIABILITIES~~to employees under an approved employee equity incentive plan and to directors under a director compensation plan. The 2013 Equity Incentive Plan dated June 7, 2013 (~~continued~~the “Plan”) allows up to 1,500,000 shares to be issued and granted to employees, non-employee directors and consultants. Authorized shares automatically increase on January 1 of each year by three percent of the outstanding shares of common stock as of December 31 of the immediately preceding year. Employee awards granted in 2013 vest monthly over 36 months provided the recipient remains an employee or consultant of the Company. Awards granted in 2014 vest either immediately, monthly over a three-year period, or monthly over a five-year period. Awards granted in 2016 vest on a cliff basis one year from the date of issuance, or partially vest immediately and the remaining vest on a cliff basis annually from 2017 to 2019.

The ~~estimated~~Non-Employee ~~annual~~Director ~~amortization~~Compensation Plan allows shares of ~~acquired~~restricted ~~intangible~~common ~~assets~~stock to be granted to board members and ~~liabilities~~is ~~for~~included ~~each~~under the Plan. The 2013 board member awards vest one-third of the ~~five~~shares ~~succeeding~~on ~~fiscal~~the ~~years~~date isof grant, one-third on January 1 of the year following the date of grant, and one-third on January 1 of the second year following the date of grant, provided the recipient remains a member of the board as ~~follows:~~of the vesting date. The 2014 awards vested immediately in March of 2014. The 2016 awards vest half on the date of grant and half on April 15, 2017.

Years ending December 31,
	Assets		Liabilities
2016 (remaining 3 months)	$	566,924	$	28,898
2017		2,247,503		113,849
2018		1,654,921		36,789
2019		1,175,159		-
2020		388,020		-
	$	6,032,527	$	179,536

As of March 31, 2017, the Company has granted 1,093,759 shares to employees and 480,000 shares to Directors, net of forfeitures, under the Plan. Of the employee shares granted, 360,000 remain unvested as of March 31. 2017.

~~NOTE~~Total 12unrecognized –compensation ~~HEDGING~~expense ~~ACTIVITIES~~related to the outstanding restricted stock as of March 31, 2017 was $267,334, which is expected to be recognized over a weighted average period of 32 months.

The Company may use derivative instruments as part of its interest rate risk management strategy to minimize significant unanticipated earnings fluctuations that may arise from variable interest rates associated with existing borrowings. On July 2, 2014, the Company entered into an interest rate cap contract for the notional amount of $33 million with a strike rate of 2.5% on one month LIBOR as a hedge for a floating rate debt entered into on that date. The interest rate cap expired on July 5, 2016. The interest rate cap was issued at approximate market terms and thus no fair value adjustment was recorded at inception. The Company did not elect hedge accounting treatment for the rate cap and as such, changes in fair value are recorded directly to earnings. -20-

~~NOTE~~ Table 13of ~~– MANDATORILY REDEEMABLE PREFERRED OPERATING PARTNERSHIP UNITS~~Contents

OnTALON ~~July~~REAL 2,ESTATE ~~2014, the Company issued 30,000 preferred units, at a price of $100 per unit, totaling $3,000,000~~HOLDING CORP. These preferred unit holders are entitled to distributions at a rate of 6% per annum of their liquidation preference amount of $100 per unit which are cumulative from the date of issuance and are payable monthly (to the extent there are sufficient distributable proceeds). On and after July 2, 2020, the Company shall redeem the units, in whole, at the liquidation preference price of $100 per unit, plus accrued and unpaid distributions. There was $100,005 of preferred payments outstanding as of September 30, 2016. The preferred units have been classified as a liability in the consolidated balance sheet as the preferred liquidation preference amount is mandatorily redeemable in specific amounts at specific dates in the future. The liquidation preference amount totaled $3,000,000 as of September 30, 2016 and December 31, 2015.

~~NOTE~~NOTES TO 14CONDENSED –CONSOLIDATED ~~SUBSEQUENT~~FINANCIAL ~~EVENTS~~STATEMENTS

~~On January 28, 2016, Talon Bren Road, LLC, a subsidiary~~ As of ~~Talon~~March OP31, ~~L.P.,~~2017 ~~which is the entity through which Talon Real Estate Holding Corp. conducts substantially all of its business, entered into a purchase~~ and sale agreement with Timberland Partners, Inc. Under the agreement, Talon Bren Road agreed to sell the property located at 10301 Bren Road West, Minnetonka, Minnesota to the buyer subject to a diligence period and other conditions of the purchase and sale agreement typical of a real estate transaction. Pursuant to the agreement, in exchange for the ~~property,~~three ~~the~~months ~~buyer~~ended ~~paid~~March ~~Talon Bren Road a $100~~31,~~000~~ ~~initial~~2017 ~~deposit~~ and ~~was to pay $25,900,000 at closing, subject to adjustments as set forth in the purchase agreement. The agreement was terminated by the buyer on November 1,~~ 2016 ~~following the due diligence period.~~(unaudited)

21NOTE 9 – INTANGIBLE ASSETS AND LIABILITIES

~~TALON~~The ~~REAL~~Company's ~~ESTATE~~identified ~~HOLDING~~intangible assets ~~CORP.~~and liabilities at March 31, 2017 and December 31, 2016 were as follows:

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	March 31, 2017			December 31, 2016
Identified intangible assets:
In-place leases	$	10,078,055		$	10,078,055
Above-market leases		1,832,939			1,832,939
Accumulated amortization		(7,011,661	)		(6,445,391	)
Net carrying amount	$	4,899,333		$	5,465,603

As of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)

	March 31, 2017			December 31, 2016
Identified intangible liabilities:
Below-market leases	$	507,746		$	507,746
Accumulated amortization		(386,005	)		(357,108	)
Net carrying amount	$	121,741		$	150,638

~~NOTE~~The ~~15 – GOING~~effect of ~~CONCERN~~amortization of acquired intangible assets and liabilities was a net charge of $537,372 for the three months ended March 31, 2017 and $544,253 for the three months ended March 31, 2016. Above-market leases, included in intangible assets, are amortized as a reduction of rent revenue and totaled $74,117 for the three months ended March 31, 2017, and $77,167 for the three months ended March 31, 2016. Below-market leases are amortized as an addition to rent revenue and totaled $28,898 for the three months ended March 31, 2017, and $28,898 for the three months ended March 31, 2016. Amortization of in-place leases was $492,152 for the three months ended March 31, 2017, and $495,983 for the three months ended March 31, 2016. In-place leases, and above and below-market leases had a weighted average amortization period of 4.5 years in the year acquired.

~~Liquidity~~The isestimated aannual ~~measure~~ amortization of ~~our~~acquired ~~ability~~intangible ~~to meet potential cash requirements, including commitments to repay borrowings, fund and maintain our operations and~~ assets, ~~acquire properties, make distributions to our shareholders~~ and ~~other~~liabilities ~~general~~for ~~business~~each ~~needs.~~of In the ~~short-term,~~five wesucceeding ~~have~~fiscal ~~incurred~~years ~~significant~~is ~~expenses~~as ~~related to completing building and tenant improvements at our properties, and pursuing our acquisition strategy creating a cash shortfall through September 30, 2016.~~follows:

Our short-term liquidity requirements consist primarily of funds needed to pay for operating expenses and other expenditures directly associated with our properties, pay off maturing debt, and to pursue our strategy of near-term growth through acquisition of properties as well as general and administrative expenses operating as a public company.

Years ending December 31,		Assets		Liabilities
	2017 (remaining 9 months)	$	1,681,233	$	84,952
	2018		1,654,921		36,789
	2019		1,175,158		—
	2020		388,021		—
		$	4,899,333	$	121,741

We currently do not have available cash and cash flows from current operations to provide us with adequate liquidity for the foreseeable future. Our current liabilities exceed our unrestricted cash and we have very limited cash flow from current operations. As of September 30, 2016, we had unrestricted cash of $184,332 and current liabilities including tenant improvement allowances, unsecured debt, accounts payable and accrued expenses substantially in excess of the available cash. We therefore will require additional capital and/or increased cash flow from future operations to fund our ongoing business. The loan secured by the property at 180 E. Fifth Street may be accelerated by the lender which would require refinancing or sale of the property. We may also be unable to borrow or obtain sufficient funds for repayment on terms acceptable to us or at all, and our ability to obtain future financing may also be impacted negatively. -21-

~~There~~ Table ~~is no guarantee that we will be able to raise any required additional capital or generate sufficient cash flow from our current and future operations to fund our ongoing business. If the amount~~ of capital we are able to raise together with our income from operations is not sufficient to satisfy our capital needs, we may be required to cease our operations or alter our growth plans. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our consolidated financial statements, and it is likely that investors will lose all or a part of their investment.Contents

~~Although~~TALON weREAL ~~plan~~ESTATE to aggressively pursue acquisitions to grow our business there is no assurance that we will be able to acquire additional properties in the future or obtain the necessary financing to acquire such propertiesHOLDING CORP.

~~Since~~NOTES TO ~~our~~CONDENSED ~~available~~CONSOLIDATED ~~cash~~FINANCIAL and cash flows from current operations do not provide us with adequate cash to satisfy current liabilities and do not provide us with adequate liquidity for the foreseeable future, we anticipate that we will undertake future debt or equity financings or if necessary, sell certain of our property holdings in 2016 and 2017.STATEMENTS

~~In the future, we may use a number~~ As of ~~different~~March ~~sources to finance our liquidity needs~~31, ~~including~~2017 cash flows from operations, issuance of debt securities or equity securities (which might be common or preferred stock), private financings (such as additional bank credit facilities, which may or may not be secured by our assets), asset sales, seller financing, property-level mortgage debt, or any combination of these sources, to the extent available to us, or other sources that may become available from time to time. Any debt that we incur may be recourse or non-recourse and ~~may~~for be secured or unsecured. We may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, and other costs. Although we have successfully raised equity capital in the ~~past,~~three wemonths ~~cannot~~ended beMarch assured that we will be able to continue to be successful in raising capital through issuance of securities. Our ability to obtain needed financing may be impaired by such factors as the capital markets31, ~~our~~2017 ~~status as a new enterprise without significant assets or demonstrated operating history,~~ and~~/or~~ ~~the~~2016 loss of key management. There is no guarantee that we will be able to raise any required additional capital or generate sufficient cash flow from our current and proposed operations to fund our ongoing business.(unaudited)

22NOTE 10 – MANDATORILY REDEEMABLE PREFERRED OPERATING PARTNERSHIP UNITS

~~Item~~On July 2, 2014, the Company issued 30,000 preferred units, at a price of $100 per unit, totaling $3,000,000. These preferred unit holders are entitled to distributions at a rate of 6% per annum of their liquidation preference amount of $100 per unit which are cumulative from the date of issuance and are payable monthly (to the extent there are sufficient distributable proceeds). The preferred units have been classified as a liability in the consolidated balance sheet as the preferred liquidation preference amount is mandatorily redeemable in specific amounts at specific dates in the future. The preferred units were redeemed on January 27, 2017. (Note 5)

~~Management’s~~NOTE 11 ~~Discussion~~– ~~and~~RELATED ~~Analysis~~PARTY ~~of Financial Condition and Results of Operations~~TRANSACTIONS

~~The~~In ~~following~~October ~~discussion~~2016, ~~should be read in conjunction with~~ the ~~financial~~Company ~~statements~~entered ~~and~~into ~~related~~a ~~notes~~loan ~~included~~guaranty agreement ~~elsewhere~~with, inFirst ~~this~~Tracks ~~report.~~LLC, ~~This~~an ~~discussion~~entity ~~and~~wholly ~~analysis~~owned ~~contains~~by ~~forward-looking~~the ~~statements~~wife ~~that~~of ~~involve~~the ~~risks~~Company’s Chairman and ~~uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors~~CEO, ~~including~~to ~~those~~guaranty ~~set~~additional debt ~~forth~~financing ~~under “Risk Factors” in our Annual Report~~ on ~~Form~~behalf ~~10-K~~of ~~for~~ the ~~year~~Company ~~ended~~(Note ~~December 31, 2015~~5). ~~Forward-looking~~ ~~statements~~Total ~~speak~~fees ~~only as~~ of ~~the~~approximately ~~date they are made~~$70,000 ~~and~~were wepaid ~~undertake~~by nothe ~~obligation~~Company to ~~update~~First ~~them~~Tracks during in2016 ~~light~~pursuant ofto ~~new~~this ~~information or future events~~agreement.

~~Overview~~First Tracks, LLC also provided a guarantee on the issuance of debt secured by the property owned by Talon Bren Road, LLC. Fees of $55,000 was paid to First Tracks, LLC on January 5, 2017 for this guarantee.

WeThe ~~are~~Gamma aLoan ~~real~~(see ~~estate~~Note ~~investment~~5) ~~company~~entered ~~focused~~into on ~~investing~~January ~~in office~~27, ~~industrial and retail properties located in the Midwest and South Central regions of the United States. We target properties located in the area bounded by Minnesota and Texas to the north and south~~2017, is ~~and~~guaranteed by ~~Illinois~~First ~~and Colorado to the east and west~~Tracks, ~~although we will consider properties outside this target area if we identify attractive opportunities~~LLC. WeAs ~~believe~~consideration ~~these markets are currently underserved in financing and market transaction options~~ for ~~which~~the weguarantee, ~~can~~Talon ~~provide~~Real ~~advantageous~~Estate ~~solutions.~~Holding WeCompany ~~believe~~issued ~~the~~First ~~size~~Tracks ~~and~~LLC 2,500,000 ~~location~~shares of ~~opportunities~~its incommon ~~this~~stock ~~region~~on ~~will~~January be27, a2017 ~~desirable fit for our real estate portfolio~~ and ~~can~~paid bea ~~pursued~~fee atof ~~attractive yields~~$750,000.

~~Our~~During ~~Current~~2014, ~~Property~~the ~~Interests~~Company entered into a Contribution Agreement and two note payable agreements (Note 5) with Bren Road, LLC, a limited partner of Talon OP. The Contribution Agreement contained a NOI Payment Agreement under which Bren Road, LLC, owed the Company $287,150 at December 31, 2016 and is included in rents and other receivables on the Company’s consolidated balance sheet. The balances due under the NOI Payment Agreement and note payable agreements were settled during 2017 as detailed in Note 7.

WeNOTE 12 ~~currently~~– ~~own~~SUBSEQUENT ~~an interest in four properties located in and around the Minneapolis-St. Paul metropolitan area of Minnesota.~~EVENTS

WeIn ~~own~~June 2018, the Company entered into a ~~49%~~contribution ~~interest~~agreement under inwhich anthe Company sold Talon First Trust, LLC, a subsidiary owned by Talon OP, L.P., the entity ~~that~~through ~~owns~~which anthe ~~industrial~~Company conducts ~~complex~~substantially ~~consisting~~all of ~~two~~its ~~buildings~~business, ~~with~~to ~~approximately~~First ~~171~~Capital Real Estate Operating Partnership,~~639~~ ~~square~~LP ~~feet~~(FCROP), ~~located~~a insubsidiary of First Capital Real Estate Trust, Inc. (FCREIT). Under the ~~Minneapolis-~~agreement, the Company agreed to sell the Limited Liability Company which contained the ownership of the property located at 180 East 5th Street, St. Paul, ~~metropolitan~~MN, ~~area~~for consideration with an estimated value of $98,000,000. Consideration Wereceived ~~have~~included ~~entered~~2,495,321 ~~into~~ownership aunits ~~contribution~~of ~~agreement~~FCROP towith ~~acquire~~an estimated valuation of $40,000,000 and the ~~remaining~~assumption of ~~interest~~up into ~~this~~$58,000,000 ~~entity~~of principal, ~~subject~~interest toand ~~receiving~~penalties ~~consent~~due tounder the ~~transfer~~January ~~from~~2017 ~~the~~Gamma ~~entity’s~~loan ~~lender~~agreement.

~~We also own a 227,000 square foot building situated on 20 acres of land in Minnetonka, Minnesota and a 856,223 square foot thirteen~~ -story office tower located in downtown St. Paul, Minnesota. As of September 30, 2016 the combined occupancy for all of the buildings in our portfolio was 71%. In April 2015, the Company executed a lease in the St. Paul building for a significant new tenant that would increase the occupancy of our portfolio by over 14% upon occupancy.22-

~~The~~ Table ~~following table sets forth information regarding our 5 largest tenants as~~ of ~~September 30, 2016.~~Contents

Property Location (1)	Tenant Industry	Primary Use	Lease Expiration	Approx. Total Leased Square Feet	Percentage of Company's Rentable Square Feet	Base Rent for the nine months ended Sept. 30, 2016		Percentage of Company’s Total Base Rent for the nine months ended Sept. 30, 2016
180 E 5th Street, St. Paul, MN	Health Care	Office	4/30/2018	119,490	12%	$	1,364,382	23%
180 E 5th Street, St. Paul, MN	Government	Office	5/31/2020	89,130	9%	$	1,162,903	19%
180 E 5th Street, St. Paul, MN	Retail	Office	3/31/2020	102,577	10%	$	959,232	16%
5130 Industrial St, Maple Plain, MN	Construction	Industrial	2/28/2021	61,500	6%	$	164,854	3%
1350 Budd Ave, Maple Plain, MN	Construction	Industrial	2/28/2018	29,903	3%	$	81,533	1%

TALON REAL ESTATE HOLDING CORP.

~~(1)~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~The two properties located in Maple Plain, MN lease approximately 15%~~ As of ~~the~~March ~~Company’s rentable space and account for approximately 6% of the Company’s total base rent revenues for both the three and nine months ended September 30~~31, ~~2016~~2017 and 5% for ~~both~~ the three ~~and nine~~ months ended ~~September~~March 3031, ~~2015.~~2017 ~~The property located in Minnetonka, MN leases approximately 17% of the Company’s rentable space~~ and ~~accounts for approximately 19% and 18% of the Company’s total base rent revenues for the three and nine months ended September 30,~~ 2016, respectively, and 18% for both the three and nine months ended September 30, 2015. No major tenants are located at the property in Minnetonka, MN. The property located in St. Paul, MN leases approximately 40% of the Company’s rentable space and accounts for approximately 76% of the Company’s total base rent revenues for both the three and nine months ended September 30, 2016 and 77% for both the three and nine months ended September 30, 2015.(unaudited)

23NOTE 12 – SUBSEQUENT EVENTS (continued)

~~The~~Talon ~~future~~First ~~square~~Trust ~~feet~~LLC ~~expiring for all current leases, including leases entered into subsequent to September 30, 2016:~~(ft)

~~Years~~Pro ~~ending~~Balance ~~December 31,~~Sheet

	5130 Industrial St		1350 Budd Ave		10301 Bren Rd		180 E 5th St
		March 31, 2017				December 31, 2016
	Maple Plain, MN		Maple Plain, MN		Minnetonka, MN		St. Paul, MN		Total
Assets
2016	56,215		-		24,810		2,910		83,935
Cash
2017	-		-		-		25,554		25,554
BMO			1,110				—
2018	-		29,903		-		134,787		164,690
Talon First Trust, LLC Operating			(995	)			(33,059	)
2019	-		-		139,662		708		140,370
Talon First Trust, LLC Property			—				53
2020	-		-		-		223,094		223,094
Talon First Trust, LLC Lockbox			5,000				67,821
Thereafter	59,500		-		-		147,125	(1)	206,625
Talon First Trust, Operating AB			(76,576	)			—
	115,715		29,903		164,472		534,178		844,268
Talon Management Services AB			38,555				—
Total Cash			(32,906	)			34,815
Escrow
Real Estate Tax Escrow			456,361				196,401
Property Insurance Escrow			36,672				81,836
Replacement Reserve Escrow			—				100,839
Interest Reserve Escrow			4,826,434				—
General Escrow			987,211				—
TI & Commission Escrow			7,331,070				2,397,502
Total Escrow			13,637,748				2,776,579
Receivables
Tenant Receivable			320,915				102,775
Due From Affiliates			(25,000	)			—
Total Receivables			295,915				102,775
Fixed Assets
Building			21,258,346				21,258,346
Accum Depr - Building			(1,948,682	)			(1,771,529	)
Building Improvements			1,272,545				1,272,545
Accum Depr - Building Improvements			(318,361	)			(285,352	)
Tenant Improvements			12,394,469				6,754,717
Accum Depr - Tenant Improvements			(2,927,127	)			(2,667,345	)
Land			3,000,000				3,000,000
Land Improvements			137,447				137,447
Accum Depr - Land Improvements			(4,582	)			(2,291	)
Total Fixed Assets			32,864,056				27,696,538

~~(1)~~ -23-

On Table ~~April 1, 2016, the Company received a notice asserting a right to terminate the lease for 141,109 square feet pursuant to certain alleged defaults related to the completion and delivery~~ of ~~the building and tenant improvements under the lease. The Company is responding to the suit to enforce the lease.~~Contents

~~Management~~TALON ~~may~~REAL ~~periodically~~ESTATE ~~sell certain properties including core income-producing and value-added properties for various reasons based on individual circumstances and opportunities~~HOLDING CORP. Proceeds from the sale of such properties may be used to repay related property debt, pay transaction expenses, acquire or invest in other properties and for general corporate purposes including satisfying existing liabilities.

~~Factors~~NOTES TO ~~That~~CONDENSED ~~May~~CONSOLIDATED ~~Influence~~FINANCIAL ~~Our Operating Results~~STATEMENTS

~~Acquisition Strategy. We plan to grow our business through the acquisition~~ As of ~~new~~March ~~properties~~31, ~~initially~~2017 ~~targeting properties that meet the criteria described above under “Overview”~~ and ~~elsewhere~~for ~~in this report. We expect~~ the ~~properties~~three wemonths ~~acquire~~ended ~~will~~March be31, ~~subject~~2017 ~~to mortgage financing~~ and ~~other~~2016 ~~indebtedness that we will assume or refinance. Debt service on such indebtedness will have a priority over any distributions with respect to our common stock.~~(unaudited)

~~Rental~~NOTE 12 ~~Revenue.~~– ~~The~~SUBSEQUENT ~~amount~~EVENTS of net rental revenue generated by our properties depends primarily on our ability to maintain the occupancy rates of currently leased space and to lease space that becomes available. As of September 30, 2016, our properties were 71% leased. We believe that the average rental rates for our properties are generally equal to the current average quoted market rates. Negative trends in one or more of these factors such as a decrease in rental rates or a decrease in demand for our properties could adversely affect our rental revenue in future periods. Future economic downturns affecting the Minneapolis-St. Paul metropolitan area or downturns in our tenants’ businesses that impair our ability to renew leases or re-let space or the ability of our tenants to fulfill their lease commitments could adversely affect our revenues. In addition, growth in rental revenue primarily will depend on our ability to acquire additional properties that meet our investment criteria.(continued)

~~Conditions~~Talon inFirst ~~Our~~Trust ~~Markets.~~LLC Our current properties are located in the Minneapolis-St. Paul metropolitan area. Positive or negative changes in economic or other conditions in this area, or areas in our prospective proprieties, including employment and wage rates, natural disasters and other factors, may impact our overall performance. Our ability to grow in our broader market throughout our region may also be impacted by these factors.(ft)

~~Operating~~Pro Balance ~~Expenses.~~Sheet Our operating expenses primarily consist of property taxes, management fees, utilities, insurance and site maintenance costs. As of September 30, 2016, some of our leases required tenants to reimburse us for a share of our operating expenses. Increases or decreases in any unreimbursed operating expenses, either due to the nature of the expenses not requiring reimbursement from our tenants or due to a reduction in leased square footage requiring tenant reimbursement of a portion of our operating expenses, will impact our overall performance. Legal fees incurred in 2016 and 2015 were significant due to the Company’s acquisition and refinancing activities, as well as litigation expenses. We expect an increase in legal fees associated with these activities and business matters customary to a public real estate holding company, as well as our ongoing litigation.(continued)

Interest Expense. Our interest expense will depend on the amounts we borrow as well as the interest rates charged by our lenders. Our current loan agreements are a mix of both fixed and floating rates, as well as secured and unsecured by our properties. Our aggregate interest expense may increase as we acquire properties and could fluctuate between periods based on the variable rate loan arrangements, if we do not hedge any such interest rate risk.

Other Assets
Deposits Paid	15,000		15,000
Intangible Assets	9,091,055		9,091,055
Intangible Assets - Above Market	1,832,939		1,832,939
Intangible Assets - Below Market	(507,746	)	(507,746	)
Accum Amort - Intangible Assets	(5,463,132	)	(5,024,045	)
Accum Amort - Intangible Assets - Above	(947,131	)	(873,014	)
Accum Amort - Intangible Assets - Below	386,005		357,108
Leasing Costs	3,063,156		2,754,474
Accum Amort - Leasing Costs	(845,388	)	(772,433	)
Deferred Leasing Incentives	80,187		80,187
Accum Amort - Leasing Incentives	(62,978	)	(59,007	)
Prepaid Insurance	16,669		41,673
Other Prepaid Expenses	300		300
Deferred Rent	(92,300	)	(112,504	)
Total Other Assets	6,566,636		6,823,988

Total Assets	53,331,449		37,434,694.92

Liabilities_Capital

Liabilities

Accounts Payable & Accruals
Prepaid Rent	65,735		71,744.80
Tenant Deposits	22,696		22,696.06
Great Hall - Deposits	500		500.00
Accounts Payable (System)	2,128,733		4,268,679
Tenant Improvement Allowance	5,639,752		—
Leasing Incentives Payable	2,050		2,050
Other Payable	189,549		—
Accrued Interest	474,938		274,592
Accrued Real Estate Taxes	316,894		—
Accrued RE Taxes - Special Assessments	771,370		771,370
Accrued Payroll	13,548		—
Total Accounts Payable & Accruals	9,625,764.89		5,411,632

Notes Payable
Other Notes	1,563,485		1,330,800
Mortgage - 1st	51,600,000		32,000,000
Total Notes Payable	53,163,485		33,330,800
Financing Costs	(3,070,315	)	(1,087,893	)
Accum Amort - Financing Costs	589,456		874,180
Preferred OP Capital - 6%	—		3,000,000
Total Liabilities	60,308,391		41,528,719

Capital
Operating Partnership Capital	5,000,000		5,000,000
Intra Company Transfer	(404,577	)	209,476
Retained Earnings	(2,193,865	)	(4,146,447	)
Prior Retained Earnings	(9,378,500	)	(5,157,053	)
Total Capital	(6,976,942	)	(4,094,024	)

Total Liabilities_Capital	53,331,449		37,434,695

-24-

~~Critical~~ Table ~~Accounting~~of ~~Policies and Estimates~~Contents

~~Our~~TALON ~~discussion~~REAL ~~and~~ESTATE ~~analysis of the historical financial condition and results of our operations are based upon our financial statements which have been prepared in accordance with U~~HOLDING CORP.~~S. generally accepted accounting principles, or GAAP.~~

~~The~~NOTES TO ~~preparation~~CONDENSED ofCONSOLIDATED ~~these~~FINANCIAL condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions in certain circumstances that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses in the reporting period. Actual amounts may differ from these estimates and assumptions. We have provided a summary of our significant accounting policies in the notes to the consolidated financial statements of our company elsewhere in this report. We have summarized below those accounting policies that require material subjective or complex judgments and that have the most significant impact on our financial condition and results of operations. We evaluate these estimates on an ongoing basis, based upon information currently available and on various assumptions that we believe are reasonable as of the date hereof. Other companies in similar businesses may use different estimation policies and methodologies, which may impact the comparability of our results of operations and financial condition to those of other companies. There have been no significant changes to those policies during the three and nine months ended September 30, 2016.STATEMENTS

~~Investment~~As of inMarch ~~Real~~31, ~~Estate~~2017 and ~~Fixed~~for ~~Assets~~the three months ended March 31, 2017 and 2016 (unaudited)

~~Investment~~NOTE 12 in– ~~real~~SUBSEQUENT ~~estate~~EVENTS and fixed assets are carried at cost less accumulated depreciation and amortization. Property such as land, building and improvements includes cost of acquisitions, development, and construction, and tenant allowances and improvements. Maintenance and repairs are expensed as incurred, and major improvements are capitalized. We allocate the cost of an acquisition, including the assumption of liability, to the acquired tangible asset and identifiable intangibles based on their relative fair values. We assess fair value based on estimated cash flow projections that utilize appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market economic conditions.(continued)

WeTalon ~~allocate~~First ~~the~~Trust ~~cost~~LLC ~~of an acquisition, including the assumption of liability, to the acquired tangible assets~~ (~~including land, buildings and personal property~~ft) determined by valuing the property as if it were vacant, and identifiable intangibles based on their relative fair values. Acquisitions of real estate are recorded based upon preliminary allocations of the purchase price to management’s assessment of the fair value of tangible and intangible assets and any assumed liabilities acquired which are subject to adjustment as additional information is obtained up to one year after the date of acquisition. Adjustments to preliminary allocations of purchase price are adjusted prospectively when all information necessary to determine the relative fair values has been received.

~~Depreciation~~Pro isForma ~~provided~~Statement ~~using the straight-line method over the estimated useful life~~ of ~~the assets for building, improvements, and furniture and equipment, and the term of the lease for tenant improvements. The estimated useful lives being used are as follows:~~Operations

Land Improvements	3-15 years
Building	25-30 years
Building Improvements	10-20 years
Tenant Improvements	1-12 years
Furniture and Equipment	3 years

For the Three Months Ending March 31, 2017

Intangible Assets

	March 31, 2017
Income
Rental Income
Rent Revenue	1,334,296
CAM Income	462,602
Storage	10,725
Utility Income	20,057
RE Tax Income	73,271
Gross Rental Income	1,900,954

GAAP Straightline Rent Adjustment	20,203
Amort - Intangible Assets - Above	(74,117	)
Amort - Intangible Assets - Below	28,897
Amort - Leasing Incentives	(3,971	)
Net Rental Income	1,871,966

Interest Income	240
Late Fee Income	200
Other Income	8,423
Great Hall Income	9,153
Direct Tenant Reimbursable Income	3,572

Total Income	1,893,558

Expenses

Management Company Expenses

Professional Fees
Legal	24,470
Total Professional Fees	24,470

Staff Costs - Admin
Admin Payroll Fee	337
Bank Service Charges	—
Filing Fees	—
Due Diligence Lost Deals	—
Total General & Administrative	24,807

Direct Tenant Reimbursable	—
Total Management Expenses	24,807

~~Upon acquisitions of real estate, the Company assesses the fair value of acquired tangible assets and any significant intangible assets (such as above~~ - ~~and below~~25-market leases and value of acquired in-place leases), and any assumed liabilities, and allocates the purchase price based on these fair value assessments. The Company amortizes identified intangible assets and liabilities based on the period over which the assets and liabilities are expected to affect the future cash flows of the real estate property acquired. Lease intangibles (such as in-place or above- and below-market leases) are amortized over the term of the related lease. Above and below-market leases are amortized as a reduction in (addition to) rent revenue. Amortization of other intangibles is recorded in depreciation and amortization expense.

~~Principles~~ Table of ~~Consolidation~~Contents

WeTALON ~~evaluate~~REAL ~~the~~ESTATE ~~need to consolidate affiliates based on standards set forth in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation~~HOLDING CORP. ~~In determining whether we have a controlling interest in an affiliate and the requirement to consolidate the accounts of that entity, management considers factors~~

25NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~such~~As of asMarch ~~ownership interest~~31, ~~authority~~2017 ~~to make decisions, contractual~~ and ~~substantive participating rights of the limited partners and shareholders, as well as whether the entity is a variable interest entity~~ for ~~which we are~~ the ~~primary~~three ~~beneficiary. The~~months ~~accompanying~~ended ~~consolidated~~March ~~financial statements include the accounts of Talon Real Estate Holding Corp. (“TREHC”) and Talon OP~~31, ~~our~~2017 ~~Operating Partnership. Talon OP also consolidates 5130 LLC, an entity in which it has a 49% ownership interest, based on its ability to control the operating~~ and ~~financial~~2016 ~~decisions of 5130 LLC. All significant intercompany balances have been eliminated in consolidation.~~(unaudited)

~~Noncontrolling~~NOTE 12 ~~Interest~~– SUBSEQUENT EVENTS (continued)

~~Interests~~Talon inFirst ~~the~~Trust ~~Operating~~LLC Partnership held by limited partners are represented by Operating Partnership units. The Company's interest in the Operating Partnership was approximately 65% of the common units of the Operating Partnership as of September 30, 2016 and December 31, 2015. The Operating Partnership’s income is allocated to holders of common units based upon the ratio of their holdings to the total units outstanding during the period. Holders of preferred units receive certain distributions based on a percentage of the liquidation preference. Capital contributions, distributions, syndication costs, and profits and losses are allocated to non-controlling interests in accordance with the terms of the Operating Partnership agreement.(ft)

~~The~~Pro ~~portion~~Forma ofStatement membership interests in 5130 LLC not held by Talon OP is reported as noncontrolling interest. Capital contributions, distributions, and profits and losses are allocated to the noncontrolling interest based on membership percentages and terms of ~~the operating agreement.~~Operations

~~Revenue~~For ~~Recognition~~the Three Months Ending March 31, 2017 (continued)

Base rental income is recognized on a straight-line basis over the terms of the related leases, inclusive of leases which provide for scheduled rent increases or rent concessions. Differences between rental income earned and amounts due according to the respective lease agreements are credited or charged to deferred rent receivable, as applicable.

Owner Expenses
Bad Debt Expense
Fees	180,300
Taxes	—
Owner Utilities	—
Total Owner Expenses	180,300

Common Area Expenses

Building Operations
Alley Expense	—
Building Repairs	(2,435	)
Building Supplies	984
Connectivity - Cable, Internet, Phones	6,956
Electrical	2,619
Elevator - Contract	10,555
Elevator - Other	—
Food Service	9,999
Garbage & Recycling	5,870
HVAC - Contract	11,600
HVAC - Other	1,889
Janitorial - Contract	145,491
Janitorial - Supplies	16,520
License & Permits	—
Locks & Hardware	—
Maintenance - Payroll	35,294
Parking	14,310
Payroll Taxes - Operations	4,514
Pest Control	285
Plant Service	3,134
Plumbing	1,635
Security	9,252
Security - Payroll	41,060
Skyway	4,605
Snow Removal	—
Sprinkler & Fire Protection	5,595
Tenant Events	—
Uniforms	327
Total Building Operations	330,059

Tenant recoveries related to reimbursement of real estate taxes, insurance, repairs and maintenance and other operating expenses are recognized as revenue in the period the applicable expenses are incurred. Recoveries are billed monthly using estimated operating costs and an additional billing or a refund is made to tenants in the following year after actual operating expenses are determined. -26-

~~Accounting~~ Table ~~Standards~~of ~~Applicable to Emerging Growth Companies~~Contents

WeTALON ~~qualify~~REAL asESTATE ~~an “emerging growth company” pursuant to the provisions of the JOBS Act~~HOLDING CORP. Section 102(b)(1) of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We have elected to use the extended transition period for complying with these new or revised accounting standards. Since we will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies, our financial statements may not be comparable to the financial statements of companies that comply with public company effective dates. If we were to elect to comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.

~~Significant~~NOTES TO ~~Events~~CONDENSED ~~and~~CONSOLIDATED ~~Transactions~~FINANCIAL ~~during the three months ended September 30, 2016~~STATEMENTS

~~Summarized~~As of ~~below~~March ~~are~~31, ~~the~~2017 ~~Company’s significant transactions~~ and ~~events~~for ~~during~~ the three months ended ~~September~~March 3031, 2017 and 2016. (unaudited)

OnNOTE 12 ~~January~~– ~~11,~~SUBSEQUENT ~~2016,~~EVENTS ~~Talon OP, L.P., a Minnesota limited partnership and the entity through which Talon Real Estate Holding Corp.~~ (~~the “Company”~~continued) conducts substantially all of its business, entered into an asset purchase agreement with LSOP 3 Joint Venture, LLC and LSOP 3C II, LLC. Under the asset purchase agreement, Talon OP agreed to purchase from LSOP 3 Joint Venture and LSOP 3C II, LLC (a) the membership units in each of LSOP 3 REIT MN, LLC, LSOP 3 REIT MN 2, LLC, and LSOP 3 REIT MN 3, LLC, which own properties located at 6231-6325 Bury Drive, Eden Prairie, MN, 4600 Nathan Lane North, Plymouth, MN and 9600 54th Avenue North, Plymouth, MN, as well as (b) the properties located at 550-590 Hale Avenue North, Oakdale, MN, 7805 Hudson Road, Woodbury, MN, 7400 Flying Cloud Drive and 7660-7716 Golden Triangle Drive, Eden Prairie, MN, 5600-5610 Rowland Road, Minnetonka, MN, 2800 Campus Drive, 2905 Northwest Boulevard and 2955 Xenium Lane North, Plymouth, MN and 7550 Meridian Circle North, Maple Grove, MN for an aggregate purchase price of approximately $81 million.

26Talon First Trust LLC (ft)

~~The~~Pro ~~agreement~~Forma ~~was~~Statement terminated by the seller on September 7, 2016 as the transaction was not closed by September 1, 2016. Pursuant to the agreement, Talon OP, along with its partners, previously paid a $750,000 deposit, which the seller has retained. Talon has expensed $300,000 of ~~the total deposit, representing the amount not funded by other parties to the transaction.~~Operations

OnFor ~~August 18, 2016, Eun Stowell,~~ the Three ~~Chief~~Months ~~Financial~~Ending ~~Officer~~March ~~of Talon Real Estate Holding Corp.~~31, ~~resigned~~2017 ~~her positions with the Company. Matthew G. Kaminski served as interim Chief Financial Officer until November 1, 2016, went Keith Gruebele was appointed as our Chief Financial Officer.~~(continued)

On September 16, 2016, Neil Brown and Curt Marks resigned from our board of directors. On September 16, 2016, Marc P. Agar and Kristian G. Wyrobek were elected to our board of directors. The new directors have been appointed to the audit committee and compensation committees of the board of directors.

Utilities
Electricity	222,435
Gas	40,141
Water & Sewer	9,503
Total Utilities	272,080

Great Hall Expense	20,231

Real Estate Taxes	316,894
Insurance	25,004
Health Insurance - Property	1,609
Management Fee	76,038
Professional Fees - Property	66,533

Administrative
Administrative - Property	25,443
Bank Charges	4,386
Legal-property	950
Dues & Subscriptions - Property	558
Advertising/Marketing - Property	590
Postage-Site	496
Meals - Property	1,540
Travel - Property	72
Office Supplies - Property	996
Total Administrative	35,031

Total Common Area Expenses	1,143,480
Total Expenses	1,348,586
Net Operating Income	544,972

Interest Expense
Interest - Operating Loan	(26,970	)
Interest - 1st Mortgage	1,070,370
Interest - Other	82,653
Total Interest Expense	1,126,054

Depreciation/Amortization Exp
Depr - Building	177,153
Depr - Building Improvements	33,009
Depr - Tenant Improvements	259,782
Depr - Land Improvements	2,291
Amort - Financing Costs	703,506
Amort - Intangible Assets	439,088
Amort - Leasing Costs	72,954
Total Depreciation/Amortization Expense	1,687,783

NET INCOME	(2,268,865	)

On January 28, 2016, Talon Bren Road, LLC, a subsidiary of Talon OP, L.P., which is the entity through which Talon Real Estate Holding Corp. conducts substantially all of its business, entered into a purchase and sale agreement with Timberland Partners, Inc. Under the agreement, Talon Bren Road agreed to sell the property located at 10301 Bren Road West, Minnetonka, Minnesota to the buyer subject to a diligence period and other conditions of the purchase and sale agreement typical of a real estate transaction. Pursuant to the agreement, in exchange for the property, the buyer paid Talon Bren Road a $100,000 initial deposit and was to pay $25,900,000 at closing, subject to adjustments as set forth in the purchase agreement. The agreement was terminated by the buyer on November 1, 2016 following the due diligence period.-27-

~~Market~~ Table ~~Conditions~~of ~~and Outlook~~Contents

~~Our~~TALON ~~last~~REAL ~~two~~ESTATE ~~acquisitions were accomplished utilizing a 721 Exchange tax deferral methodology similar to that of an “UPREIT” providing several unique advantages over a 1031 exchange or selling to cash buyers~~HOLDING CORP. This strategy is advantageous for real estate owners seeking to mitigate and defer their immediate tax obligations, stay invested in real estate, diversify their holdings, and seek potential future growth and liquidity by accepting Talon OP common units which can later be converted 1:1 for Talon common stock under the ticker “TALR” and their capital gains tax obligations are deferred until then.

~~Our~~NOTES TO ~~strategy~~CONDENSED isCONSOLIDATED toFINANCIAL continue offering these tax-deferred solutions to real estate owners as part of diversifying our shareholder base creating liquidity and shareholder value. We continue to believe office and industrial properties offer the best return on equity metrics as part of our investment strategy. Retail will also be part of our overall portfolio with an average overall target portfolio contribution of nearly 20% over the long-term.STATEMENTS

~~The middle corridor~~ As of ~~the~~March ~~United~~31, ~~States~~2017 ~~continues~~and tofor ~~offer~~the ~~higher~~three ~~cap~~months ~~rates~~ended ~~compared~~March to31, ~~the~~2017 ~~west~~ and ~~east~~2016 ~~coasts and we will continue to explore additional investment options within this region to continue our mission to provide return on equity targets of 8-15% per asset or portfolio.~~(unaudited)

~~Results~~NOTE 12 of– ~~Operations~~SUBSEQUENT EVENTS (continued)

~~Our~~In ~~revenues~~April ~~and~~2017, ~~expenses~~the ~~have~~Company ~~changed~~defaulted ~~primarily~~on ~~due~~the toMarch ~~increases~~2007 inmortgage notes ~~expenses~~(Note is5). ~~attributable~~In toDecember an2018, ~~increase~~the inlender ~~legal~~foreclosed ~~services~~and ~~related~~conducted toa ~~our~~sheriff’s ~~legal~~sale ~~proceedings~~on inproperties ~~2016. We~~operated ~~expect~~by ~~our~~5130 ~~revenues~~Industrial Street, ~~tenant~~LLC, ~~reimbursements~~which ~~and~~secured ~~many~~the ~~expenses~~mortgage ~~will~~notes. ~~continue~~Pursuant to ~~increase~~Minnesota onlaw, ana ~~absolute~~property ~~basis~~foreclosed upon in ~~the~~this ~~future~~manner asis wesubject to ~~seek~~a tosix ~~acquire~~(6) ~~additional~~month ~~properties,~~redemption. ~~assume~~The orCompany ~~refinance~~is ~~indebtedness~~currently inunder ~~connection~~contract ~~with~~to sell the ~~acquisitions~~property ~~and~~located ~~build~~at ~~the~~1350 ~~infrastructure~~Budd ~~necessary~~Ave, toMaple ~~grow~~Plain, MN ~~our~~for ~~business~~$1,400,000. In The Company is engaged in refinancing the ~~near~~second ~~term~~property, webut ~~expect~~as of the date of this report has been unable to ~~continue~~do so. Failure to ~~incur~~sell ~~higher~~the ~~legal~~properties ~~and~~or ~~other~~refinance ~~professional~~the ~~fees~~mortgage notes could result in ~~pursuit~~an acceleration of ~~potential~~actions ~~acquisitions~~by the lender to foreclose on the properties.

~~Three~~During ~~months~~June ~~ended~~2017, ~~September~~the 30Company entered into a transaction that included a Promissory Note Secured by a Mortgage and Collateral Security Agreement with MCREIF SubREIT LLC, ~~2016~~in ~~compared~~the principal amount of $15,127,000. The Note bears interest at a rate equal to ~~Three~~9.5% ~~months~~per ~~ended~~annum ~~September~~and 30had an initial maturity date of June 1, ~~2015~~2018. The Note is subject to a balloon payment upon maturity in the amount of $15,246,755, which is comprised of the unpaid principal balance and unpaid interest of $119,755. The loan is guaranteed personally by the Company’s Chief Executive Officer.

~~Revenues~~During November 2018, the Company entered into a Forbearance Agreement with MCREIF through February 1, 2019. Under the Forbearance Agreement the interest rate was increased to 16% per annum and ~~Expenses~~the balance due on the note was increased to $16,218,000 for unpaid principal, interest and default penalties.

~~Rental~~During ~~revenues~~January ~~decreased $87~~2019,~~791,~~ ~~or 4.6%, to $1,807,865 for~~ the ~~three~~Company ~~months~~and ~~ended~~MCREIF ~~September~~agreed ~~30, 2016, compared~~ to ~~$1,895,656 for~~ extend the ~~same~~maturity ~~period~~ of the ~~prior~~June ~~year. The~~2017 ~~net~~promissory ~~rental~~note ~~revenues~~to ~~are~~July ~~relatively~~31, ~~consistent~~2019, ~~with~~reduce the ~~same~~interest ~~period~~rate into ~~the~~9.50% ~~prior~~per ~~year~~annum, asand increase the ~~composition~~balance due ofunder ~~our portfolio stayed~~ the ~~same~~note ~~with~~to a$16,689,000 ~~slight~~for ~~decrease~~unpaid inprincipal, ~~base~~interest ~~rents,~~and ~~due~~default topenalties. ~~some~~As ~~smaller~~of ~~tenant’s~~the ~~leases~~date ~~expiring~~of atthis filing, the ~~Talon~~note is ~~First~~in ~~Trust,~~good ~~LLC’s building~~standing.

~~Tenant~~During ~~reimbursements~~June ~~decreased $10~~2017,~~568,~~ orthe ~~1.2%,~~Company toentered into a $~~897~~500,~~805~~000 ~~for~~secured promissory ~~the~~note ~~three~~payable ~~months~~with ~~ended September 30~~MCC, ~~2016~~LLC. ~~compared~~The tonote ~~$908,373~~had ~~for~~an ~~the~~interest ~~same~~rate ~~period~~ of ~~the prior year~~4.50% ~~This~~per ~~difference~~annum, isrequired ~~due~~monthly toprincipal ~~the~~and ~~net~~interest payments ~~decrease~~of in$10,000 ~~tenants~~with ~~paying operating expense reimbursements across~~ the ~~portfolio~~unpaid inprincipal ~~2016~~and ~~compared~~interest tobalance ~~the~~due ~~same~~at ~~period~~maturity inon ~~the~~July ~~prior~~1, ~~year~~2018.

27During September 2018, the unpaid principal and interest under the note was refinanced under a $651,800 secured promissory note with MCC. The note has an interest rate of 10% per annum, requires monthly principal and interest payments of $5,430 with the unpaid principal and interest balance due at maturity on August 1, 2019. As of the date of this filing, the note is in good standing.

~~General~~The ~~and~~following ~~administrative~~table ~~expenses~~details ~~increased $336,306, or 303.6%, to $447,089 for~~ the ~~three~~allocation ~~months ended September 30, 2016 compared to $110,783 for the same period~~ of ~~the~~proceeds ~~prior year. The increase is primarily due to~~ from the ~~expensing~~June of2017 aMCREIF ~~$300,000 deposit on a lost deal~~ and ~~expensing~~MCC ofnotes ~~previously deferred financing costs that were unsuccessful in 2016.~~payable:

Salary and compensation expenses increased $110,757 or 62.4%, to $288,191 for the three months ended September 30, 2016 compared to $177,434 for the same period of the prior year. The increase in salary and compensation expense in the third quarter of 2016 is attributable to the true up of approximately $107,000 of the cost of the immediate vesting of non-cash stock compensation in the second quarter of 2016.

May 2014 note payoff (Note 5)	$	10,720,058
October 2016 note payoff (Note 5)		81,800
January 2017 Quick Liquidity notes payoff (Note 5)		3,475,220
Trooien consulting fees (Note 7)		744,145
Financing costs		415,625
Closing costs		57,613
Satisfaction of invoices		70,898
MCREIF reserves:
Interest reserve		35,927
Insurance reserve		25,714
	$	15,627,000

Professional fees increased $68,375, or 38.5%, to $245,762 for the three months ended September 30, 2016 compared to $177,387 for the same period of the prior year. The increase is primarily due to an increase in legal services related to our legal proceedings in the three months ended September 30, 2016 of approximately $89,000, offset by a decrease in consulting fees of approximately $24,000 compared to the same period of the prior year. -28-

~~Property~~ Table ~~operating expenses decreased $213,521, or 15.9%, to $1,130,767 for the three months ended September 30, 2016 compared to $1,344,288 for the same period~~ of the prior year. Approximately $83,000 of the decrease in these expenses is primarily attributable to the decrease in maintenance, security and janitorial personnel, provision for doubtful accounts decrease of approximately $69,000 and approximately $20,000 of the decrease is due to a decrease in utility costs across the portfolio for the three months in 2016 compared to the same period in 2015.Contents

~~Real~~TALON ~~estate~~REAL ~~taxes~~ESTATE ~~and insurance increased $42,944 or 10~~HOLDING CORP.7%, to $443,111 for the three months ended September 30, 2016 compared to $400,167 for the same period of the prior year. The three months ending September 30, 2016 are in line with the annual increase in real estate taxes across the portfolio as the composition of our portfolio stayed the same.

~~Depreciation~~NOTES TO ~~and~~CONDENSED ~~amortization~~CONSOLIDATED ~~expense~~FINANCIAL decrease by $41,112, or 3.3%, to $1,220,070 for the three months ended September 30, 2016 compared to $1,261,182 for the same period of the prior year. The decrease is primarily attributable to certain intangible assets expiring in correlation with the applicable leases.STATEMENTS

~~Interest~~As of ~~expense~~March ~~increased by $30~~31,~~105,~~ or2017 ~~2.5%~~and ~~to $1,237,722~~ for the three months ended ~~September~~March 3031, ~~2016~~2017 ~~compared~~and to $1,207,617 for the same period of the prior year. The increase is primarily attributable to an increase in interest expense of approximately $128,000 due to increased financing activity in the three-month period of 2016 compared to the same period in the prior year. This was offset somewhat by the reduction of certain financing cost that expired in correlation with the terms of the applicable financing of approximately $225,000,(unaudited)

~~Nine~~NOTE 12 ~~months~~– ~~ended~~SUBSEQUENT ~~September~~EVENTS ~~30, 2016 compared to nine months ended September 30, 2015~~(continued)

~~Revenues~~During October 2017, the Company received funds under agreements for the sale of future receivables from two different sources totaling $500,000. The agreements required payments totaling $720,000 over 120 days and ~~Expenses~~are guaranteed by the Company's CEO. As of the date of this report the agreements are past due and have an outstanding balance of approximately $200,000.

~~Rental~~In ~~revenues~~August ~~decreased~~2018, ~~$161~~Talon OP,~~906~~ L.P., orwhich ~~2.9%~~is the entity through which the Company conducts substantially all of its business, toentered $5into a Contribution Agreement (the “Antigua Contribution Agreement”) with FCREIT,~~510~~ through FCROP,~~286~~ its operating partnership, for the ~~nine~~acquisition ~~months~~of ~~ended~~the ~~September~~FCROP’s 30interests in and to Goat Head Hill and Dutchman’s Bay, ~~2016~~Island of Antigua (the “Antigua Project”), ~~compared~~including, towithout $5limitation,~~672~~ that certain Memorandum of Agreement dated July 28,~~192~~ ~~for~~2015 between Brown McLennon, the ~~same~~FCROP ~~period~~and the government of Antigua and Barbuda regarding the ~~prior~~development ~~year. The~~of ~~net~~hotels ~~rental~~on ~~revenues~~the ~~are~~properties ~~relatively~~known ~~consistent~~as ~~with~~Dutchman’s Bay and Goat Head Hill on Antigua and the ~~same~~FCROP’s 100% ~~period~~ownership interest in Goat Head Hill Resort Development Ltd and Dutchman’s Bay, an Antigua and Barbuda Corporation. Pursuant to the ~~prior~~Antigua ~~year~~Contribution asAgreement, the ~~composition~~FCROP agreed to transfer all of ~~our~~its ~~portfolio~~interests ~~stayed~~in the ~~same~~Antigua ~~with~~Project to Talon OP, L.P. In consideration for such transfer Talon OP, L.P., will issue to FCROP $30 million in units of its limited partnership interests (“LP Units”), or 12,000,000 LP Units based on a ~~slight~~valuation ~~decrease~~of $2.50 per LP Unit. The LP Units will be payable in ~~base~~three ~~rents~~installments over a two-year period with 4,000,000 due toat ~~some~~closing ~~smaller~~and ~~tenant’s~~4,000,000 ~~leases~~due ~~expiring~~one and two years from the closing date. FCROP has agreed to sign such documents at the ~~Talon~~Closing ~~First~~as ~~Trust~~are necessary in connection with its admission as a limited partner of Talon OP, ~~LLC’s~~L.P. ~~building~~The agreement closed during December 2018.

~~Tenant~~In ~~reimbursements~~August ~~decreased~~2018, ~~$102~~Talon OP,~~189~~ L.P., orwhich ~~3.7%~~is the entity through which the Company conducts substantially all of its business, toentered $2into a Contribution Agreement (the “Hotels Contribution Agreement”) with FCREIT through FCROP,~~697~~ its operating partnership,~~053~~ for the ~~nine~~acquisition of ~~months~~seven ~~ended~~entities. ~~September~~In 30consideration for such transfer Talon OP, L.P. ~~2016~~will ~~compared~~issue to the FCROP $14,796,765 in units of its limited partnership interests (“LP Units”), or 5,918,706 LP Units based on a valuation of $2.50 per LP Unit. The aggregate value of the Companies/Hotels is $40,~~799~~790,~~242~~000 and a credit for ~~the~~existing ~~same~~indebtedness ~~period~~(“Existing Indebtedness”) of $25,993,235. FCROP has agreed to sign such documents at the ~~prior~~Closing ~~year~~as are necessary in connection with its admission as a limited partner of Talon OP, L. P. The ~~net~~agreement ~~tenant~~closed ~~reimbursements~~during December ~~are~~2018. ~~relatively~~The ~~consistent~~August ~~with~~2018 ~~the~~hotel ~~same~~acquisitions ~~period~~require inproforma ~~the~~presentation ~~prior~~under ~~year~~Regulation S-X. However, as of the ~~composition~~date of this ~~our~~filing, ~~portfolio~~records ~~stayed~~for the ~~same~~three ~~with~~months aended ~~slight~~March ~~decrease~~31, ~~tenants~~2017 ~~paying~~provided ~~operating~~by ~~expense~~FCREIT ~~reimbursements~~are ~~across~~incomplete ~~the~~and ~~portfolio~~contain inuncorrected ~~2016~~material errors. ~~compared~~Complete torecords ~~the~~will ~~same~~be ~~period~~provided inby FCREIT when they are available. Accordingly, proforma presentation as of March 31, 2017 and the ~~prior~~three ~~year~~months then ended are not included herein.

~~General~~In ~~and~~November ~~administrative~~2018, ~~expenses~~the ~~increased~~Company ~~$476,674,~~set orup a ~~109.7%,~~facility to ~~$911~~obtain financing with a private,~~088~~ ~~for~~affiliated limited liability company. The terms of the ~~nine~~facility ~~months~~involved ~~ended~~draw-downs by ~~September~~various 30professionals and the selling Two Million (2,000,000) ~~2016~~shares. ~~compared~~The facility included a Warrant to ~~$434,414~~Purchase ~~for~~Four ~~the~~Hundred Thousand ~~same~~Shares ~~period~~at a floor of ~~the~~One ~~prior~~Dollar ~~year~~($1. ~~The~~00) ~~increase~~per isshare. ~~primarily~~(the ~~due~~“Warrant”). toThe ~~the~~facility ~~expensing~~allows for an amount of aThree Hundred Fifty Thousand Dollars ($~~300~~350,000.00) ~~deposit~~to onbe abrawn ~~lost~~down ~~deal~~upon. ~~and~~As ~~expensing~~ of ~~previously~~May ~~deferred~~2019, ~~financing~~approximately ~~costs~~One ~~that~~Hundred ~~were~~Fifty ~~unsuccessful~~Thousand inDollars ($150,000) ~~2016~~of the facility are available for use.

~~Salary~~During ~~and~~December ~~compensation expenses increased $267~~2018,~~233,~~ ~~or 46.1%, to $847,229 for~~ the ~~nine~~Company ~~months~~issued ~~ended September 30~~675,000 ~~2016~~common ~~compared~~shares each to ~~$579~~Kristian Wyrobek,~~996~~ ~~for~~Marc ~~the~~Agar ~~same period of the prior year. The increase in salary~~ and ~~compensation~~First ~~expense~~Tracks isLLC ~~attributable~~(on tobehalf ~~the immediate vesting~~ of ~~non-cash~~the ~~stock~~Company’s ~~compensation~~CEO) ~~for~~as ~~awards~~director ~~granted in 2016~~compensation.

28 -29-

~~Professional~~ Table ~~fees increased $122,992, or 21.4%, to $698,960 for the nine months ended September 30, 2016 compared to $575,968 for the same period~~ of the prior year. The increase is primarily due to an increase in legal services related to our legal proceedings in the nine months ended September 30, 2016 compared to the same period of the prior year.Contents

~~Property~~TALON ~~operating~~REAL ~~expenses~~ESTATE ~~decreased $549,856, or 14~~HOLDING CORP.1%, to $3,353,160 for the nine months ended September 30, 2016 compared to $3,903,016 for the same period of the prior year. Approximately $300,000 of the decrease in these expenses is primarily attributable to the decrease in maintenance, security and janitorial personnel, provision for doubtful accounts decrease of approximately $69,000 and approximately $68,000 of the decrease is due to a decrease in utility costs across the portfolio for the first nine months in 2016 compared to the same period in 2015. An additional $28,000 and $75,000 of the decrease is due to a non-recurring parking lot repair and non-recurring fees, respectively, recognized in the first nine months of 2015 compared to the same period in 2016.

~~Real~~NOTES TO ~~estate~~CONDENSED ~~taxes~~CONSOLIDATED ~~and~~FINANCIAL insurance increased $123,892, or 10.2%, to $1,333,554 for the nine months ended September 30, 2016 compared to $1,209,662 for the same period of the prior year. The nine months ending September 30, 2016 are in line with the annual increase in real estate taxes across the portfolio as the composition of our portfolio stayed the same.STATEMENTS

~~Depreciation~~As of ~~and~~March ~~amortization expense decreased by $98~~31,~~484,~~ or2017 ~~2.6%,~~and ~~to $3,675,862~~ for the ~~nine~~three months ended ~~September~~March 3031, ~~2016~~2017 ~~compared~~and to2016 ~~$3,774,346 for the same period of the prior year. The decrease is primarily attributable to certain intangible assets expiring in correlation with the applicable leases.~~(unaudited)

~~Interest~~NOTE 12 ~~expense~~– ~~increased~~SUBSEQUENT byEVENTS $84,265 or 2.5% to $3,489,012 for the nine months ended September 30, 2016 compared to $3,404,747 for the same period of the prior year. The increase is primarily attributable to an increase in interest expense of approximately $443,000 due to increased financing activity and an approximately $82,000 increase in mortgage interest, offset by the net impact of certain financing costs becoming fully amortized in correlation with the terms of the applicable financing of approximately $442,000 in the nine month period of 2016 compared to the same period in the prior year.(continued)

~~Funds~~During ~~from~~December ~~Operations~~2018, the Company issued 3,000,000 common shares to First Tracks LLC (on behalf of the Company’s CEO) and ~~Non-GAAP~~1,000,000 ~~Reconciliation~~shares to an employee for compensation under the Company’s employee equity incentive plan (Note 9).

~~The~~During ~~National~~December ~~Association of Real Estate Investment Trusts~~2018, orthe ~~NAREIT,~~Company ~~defines~~issued ~~funds from operations~~406,000 ~~or FFO, as net income (loss) available to~~ common shareholders and operating partnership unit holders computed in accordance with GAAP, excluding gains or losses from sales of operating real estate assets and extraordinary items, plus depreciation and amortization of operating properties, and after adjustments for unconsolidated partnerships and joint ventures. We intend shares to ~~calculate FFO in a manner consistent with the NAREIT definition~~vendors.

~~Management~~On ~~intends~~April to3rd ~~use~~2019, ~~FFO~~Talon asentered ainto two ~~supplemental~~binding ~~measure~~ contracts to ~~conduct~~purchase ~~and evaluate our business because there are~~ certain ~~limitations~~Student ~~associated~~Housing ~~with~~assets ~~using~~in ~~GAAP~~Minnesota, ~~net~~Indiana, ~~income~~Illinois, ~~alone~~Iowa, asWisconsin, and Kansas. . (the ~~primary~~“Student ~~measure~~Housing ~~of our operating performance~~Assets”). ~~Historical~~Talon ~~cost~~is ~~accounting~~purchasing ~~for~~the ~~real estate~~ assets infor ~~accordance~~an ~~with~~aggregate ~~GAAP~~total ~~implicitly assumes that the~~ value of ~~real~~One ~~estate~~hundred ninety ~~assets~~one ~~diminishes~~million ~~predictably~~seven ~~over~~hundred ~~time.~~forty ~~Because~~thousand ~~real~~and ~~estate~~seventy ~~values~~nine ~~instead~~dollars ~~have historically risen or fallen with market conditions~~($191,740,079). ~~management~~The ~~believes~~two portfolios ~~that~~consist ~~the presentation~~ of ~~operating~~2805 beds ~~results~~combined. The ~~for~~contracts ~~real~~are ~~estate~~binding, ~~companies~~but ~~that~~include ~~use~~a ~~historical~~due ~~cost~~diligence ~~accounting~~contingency isand ~~insufficient~~a byfinancing ~~itself~~contingency. InAs ~~addition,~~of the ~~securities~~date ~~analysts,~~of ~~investors~~this filing, ~~and~~the ~~other~~Company ~~interested~~does ~~parties~~not ~~use~~consider ~~FFO~~closing asof the ~~primary~~contracts ~~metric~~to ~~for~~be ~~comparing~~probable. ~~the~~Accordingly, ~~relative~~proforma ~~performance~~presentation as of ~~equity~~March ~~REITs.~~31, ~~There~~2017 ~~can~~and bethe nothree ~~assurance~~months ~~that~~then ~~FFO~~ended ~~presented~~are bynot usincluded ~~is comparable to similarly titled measures used by REITs~~herein.

~~FFO~~On ~~should~~April ~~not~~29, be2019, ~~considered~~Talon asreached ana ~~alternative~~settlement with tothe ~~net~~Upper ~~income~~Midwest orAllied ~~other~~Gifts ~~measurements~~Association ~~under~~“UMAGA” ~~GAAP~~and asvarious antenants ~~indicator~~at ofTalon’s ~~our~~Bren ~~operating~~Road ~~performance~~property. The orsettlement includes a new 3.5 year Master Triple Net Lease for the entire property with UMAGA. Talon through the lease will obtain rights to ~~cash~~certain ~~flows~~parking ~~from~~areas ~~operating,~~at ~~investing~~the orproperty ~~financing~~during ~~activities~~the asterm aof ~~measure~~the lease. The settlement also includes the dismissal of ~~liquidity~~all suits, and claims, between Talon, UMAGA and the tenants. The ~~FFO~~settlement ~~does~~was ~~not~~read ~~reflect~~into ~~working~~the ~~capital~~court ~~changes~~record, and ~~cash~~is ~~expenditures~~binding, ~~for~~as ~~capital~~the ~~improvements~~final orsettlement ~~principal~~and ~~payments~~lease ondocuments ~~indebtedness~~are being drafted.

WeOn ~~define~~April ~~adjusted funds from operations~~30, ~~or AFFO~~2019, asTalon ~~FFO~~entered ~~excluding~~into a ~~the~~Purchase ~~non-cash effects of straight-line rent~~ and ~~amortization~~Sale ofAgreement ~~lease~~to ~~inducements~~sell ~~and deferred financing costs, depreciation of non-real estate, and excluding~~ the ~~effects~~UMAGA ~~of non-cash compensation charges~~property. Talon ~~U.S.~~has ~~GAAP~~contracted ~~requires rental revenues related~~ to ~~non-contingent~~sell ~~leases~~UMAGA ~~that~~for ~~contain~~Twenty ~~specified~~Six ~~rental~~Million ~~increases over the life of the lease to be recognized evenly over the life of the lease~~Dollars ($26,000,000). The ~~This~~contract ~~method~~is ~~may~~binding, ~~result~~but ~~in rental income in~~ the ~~early~~contract ~~years~~includes of a ~~lease~~due ~~that~~diligence iscontingency. The Purchase and ~~higher~~Sale ~~than~~Agreement ~~actual~~does ~~cash~~not ~~received, creating~~ contain a ~~deferred~~financing ~~rent receivable asset or lower income than actual cash received, creating a deferred rent revenue liability included in our consolidated balance sheet~~contingency. AtAs ~~some~~of ~~point during~~ the ~~lease,~~date ~~depending~~of onthis ~~its terms~~filing, ~~cash rent payments may exceed or be lower than~~ the ~~straight-line~~Company ~~rent~~does ~~which~~not ~~results~~consider closing inof the ~~deferred~~UMAGA ~~rent~~agreement ~~receivable asset or liability, respectively, decreasing~~ to ~~zero~~be ~~over the remainder of the lease term~~probable. ByAccordingly, ~~excluding~~proforma ~~the~~presentation ~~non-cash~~as ~~portion~~ of ~~straight-line~~March ~~rental revenue and amortization of lease inducement and deferred financing costs as well as non-cash compensation expense~~31, ~~investors,~~2017 ~~analysts~~ and ~~our~~the ~~management~~three ~~can~~months ~~compare~~then ended ~~AFFO~~are ~~between~~not ~~periods~~included herein.

29NOTE 13 – GOING CONCERN

~~Below~~The isaccompanying financial statements have been prepared in conformity with accounting principles generally accepted in the ~~calculation~~United States of ~~FFO~~America, assuming the Company will continue as a going concern, which contemplates the realization of assets and ~~AFFO~~satisfaction of liabilities in the normal course of business. For the three months ended March 31, 2017 and 2016, the ~~reconciliation~~Company incurred losses of $2,815,977 and $2,029,639, respectively, and as of March 31, 2017 had a total shareholders’ deficit of $10,855,112. These circumstances raise substantial doubt about the Company's ability to ~~net~~continue ~~income~~as ~~(loss)~~a going concern. The Company's ability to continue as a going concern is dependent on its ability to raise the additional capital to meet short and long-term operating requirements. Management is continuing to pursue external Financing alternatives to improve the Company's working capital position however additional financing may not be available upon acceptable terms, ~~which~~or weat ~~believe~~all. If the Company is unable to obtain the ~~most~~necessary ~~comparable~~capital, ~~GAAP~~the ~~financial~~Company ~~measure:~~may have to cease operations.

~~Reconciliation of Net Income Attributable to Talon Real Estate Holding Corp. (“TREHC”) to Funds From Operations~~ -30-

	Three months ended September 30,
In thousands $ (except per share)	2016					2015
	Amount		Weighted Avg Shares and Units (1)	Per Share and Unit (2)		Amount		Weighted Avg Shares and Units (1)	Per Share and Unit (2)
Net loss attributable to TREHC	$	(1,441)	17,251	$	(0.08)	$	(1,172)	16,717	$	(0.07)
Adjustments:
Non-controlling interest Operating Partnership		(652)	9,200				(632)	9,200
Consolidated depreciation and amortization:		1,220	-		-		1,261	-		-
adjust for non-real estate depreciation		(1)	-		-		(2)	-		-
adjust for amortization of above and below-market rents		49	-		-		53	-		-
adjust for noncontrolling real estate owned depreciation		(26)	-		-		(35)	-		-
Net adjustments		590					645
Funds from operations applicable to common shares	$	(851)	26,451	$	(0.03)	$	(527)	25,917	$	(0.02)

Table of Contents

	Three months ended September 30,
	2016					2015
Adjusted funds from operations	Amount		Weighted Avg Shares and Units (1)	Per Share and Unit (2)		Amount		Weighted Avg Shares and Units (1)	Per Share and Unit (2)
FFO available to common shares	$	(851)	26,451	$	(0.03)	$	(527)	25917	$	(0.02)
Adjustments:
Straight-line rents in excess of, or less than, contract rents		(24)	-		-		(33)	-		-
Non-real estate depreciation		1	-		-		2	-		-
Amortization of deferred financing costs net of noncontrolling real estate		119	-		-		324	-		-
Non-cash stock compensation charges		145	-		-		38	-		-
AFFO available to common shares	$	(610)	26,451	$	(0.02)	$	(196)	25,917	$	(0.01)

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

	Nine months ended September 30,
In thousands $ (except per share)	2016					2015
	Amount		Weighted Avg Shares and Units (1)	Per Share and Unit (2)		Amount		Weighted Avg Shares and Units (1)	Per Share and Unit (2)
Net loss attributable to TREHC	$	(3,798)	16,981	$	(0.22)	$	(3,242)	16,579	$	(0.20)
Adjustments:
Non-controlling interest Operating Partnership		(1,919)	9,200				(1,750)	9,200
Consolidated depreciation and amortization:		3,676	-		-		3,774	-		-
adjust for non-real estate depreciation		(5)	-		-		(7)	-		-
adjust for amortization of above and below-market rents		174	-		-		171	-		-
adjust for noncontrolling real estate owned depreciation		(85)	-		-		(96)	-		-
Net adjustments		1,841					2,092
Funds from operations applicable to common shares	$	(1,957)	26,181	$	(0.07)	$	(1,150)	25,779	$	(0.04)

The following discussion should be read in conjunction with the financial statements and related notes included elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new information or future events.

	Nine months ended September 30,
	2016					2015
Adjusted funds from operations	Amount		Weighted Avg Shares and Units (1)	Per Share and Unit (2)		Amount		Weighted Avg Shares and Units (1)	Per Share and Unit (2)
FFO available to common shares	$	(1,957)	26,181	$	(0.07)	$	(1,150)	25,779	$	(0.04)
Adjustments:
Straight-line rents in excess of, or less than, contract rents		(159)	-		-		125	-		-
Non-real estate depreciation		5	-		-		7	-		-
Amortization of deferred financing costs net of noncontrolling real estate		428	-		-		870	-		-
Non-cash stock compensation charges		343	-		-		136	-		-
AFFO available to common shares	$	(1,340)	26,181	$	(0.05)	$	(12)	25,779	$	0.00

Overview

~~(1)~~Talon ~~Noncontrolling~~Real ~~Units~~Estate Holding Corp is a publicly traded real estate corporation that invests primarily in single and multi-tenant office, industrial, hospitality and retail properties within the Midwest and South Central regions of the ~~Operating~~United ~~Partnership~~States. It ~~are~~currently ~~exchangeable~~owns ~~for~~eleven ~~cash~~properties. Headquartered in Minneapolis, orMN atand ~~the~~founded ~~Company's~~in ~~discretion~~June 2013, ~~for~~Talon’s ~~common~~primary ~~shares~~objective ofis ~~stock~~to onprovide ashareholders ~~one-for-one~~with ~~basis~~attractive returns from investments in real estate through dividend distribution and growth.

~~(2)~~On ~~Net~~June ~~income~~7, is2013, ~~calculated~~we onacquired a ~~per~~49% ~~share~~interest in ~~basis~~an entity that owns an industrial complex consisting of two buildings with approximately 171,639 square feet located in the Minneapolis-St. ~~FFO~~ ~~and~~Paul ~~AFFO~~metropolitan ~~are~~area. ~~calculated~~The onbuildings currently have a ~~per~~combined ~~share~~occupancy of 85%. We entered into a contribution agreement to acquire the remaining interest in this entity which closed at the end of 2018. In March of 2019 we entered into a purchase and ~~unit~~sale ~~basis~~agreement to sell this asset.

30In 2014, we completed two acquisitions totaling approximately $58 Million and over one million in gross building square feet. On May 29, 2014, we completed the acquisition of a 227,000 square foot building situated on 20 acres of land in Minnetonka, MN that was 100% leased by over 100 tenants who are wholesale distributors. This property contributes to our core stable income investment strategy. On July 2, 2014, we completed the acquisition of a thirteen-story office tower located in downtown St. Paul, MN totaling 856,223 total building square feet that was 62% occupied by corporate and government tenants at time of acquisition and is currently 60% occupied. Management acquired the St. Paul property for its attractive value-add and growth potential. In April 2015, the Company executed a lease for a significant new tenant that would increase the occupancy by over 21% in the St. Paul building upon commencement of the lease. On January 27, 2017 we executed a second amendment to the lease which amended the original lease to a seven-year term with a commencement date of January 1, 2018. We exchanged this asset for Operating Units of First Capital Reit in June of 2018.

~~Liquidity~~On ~~and~~August 31, 2018, Talon OP, L.P. (Talon-OP), which is the entity through which Talon Real Estate Holding Corp. (“Talon”) conducts substantially all of its business, entered into a Contribution Agreement (the “Antigua Contribution Agreement”) with First Capital ~~Resources~~Real Estate Trust, Incorporated (“Contributor”), through First Capital Real Estate Operating Partnership, L.P. (the “FC-OP”), its operating partnership, for the acquisition of the FC-OP’s interests in and to Goat Head Hill and Dutchman’s Bay, Island of Antigua (the “Antigua Project”), including, without limitation, that certain Memorandum of Agreement dated July 28, 2015 between Brown McLennon, the FC-OP and the government of Antigua and Barbuda regarding the development of hotels on the properties known as Dutchman’s Bay and Goat Head Hill on Antigua and the FC-OP’s 100% ownership interest in Goat Head Hill Resort Development Ltd and Dutchman’s Bay, an Antigua and Barbuda Corporation.

~~Liquidity~~Pursuant isto athe ~~measure~~Antigua Contribution Agreement, the FC-OP agreed to transfer all of ~~our~~its ~~ability~~interests in the Antigua Project to ~~meet~~Talon-OP. ~~potential~~In ~~cash~~consideration ~~requirements,~~for ~~including~~such ~~commitments~~transfer Talon-OP will issue to ~~repay~~the ~~borrowings,~~FC-OP ~~fund~~$30.0 ~~and~~million ~~maintain~~in ~~our~~units ~~operations~~of ~~and~~its ~~assets~~limited partnership interests (“LP Units”), ~~acquire~~or ~~properties~~12,000,000 LP ~~make~~Units ~~distributions~~based toon ~~our~~a ~~shareholders~~valuation ~~and~~of ~~other~~$2.50 ~~general~~per ~~business~~LP ~~needs~~Unit. WeThe ~~have~~LP ~~incurred~~Units ~~significant~~will ~~expenses~~be ~~related~~payable toin ~~operating~~three asinstallments over a ~~public~~two ~~corporation,~~year ~~building~~period. The ~~and~~FC-OP ~~tenant~~has ~~improvements~~agreed atto ~~our~~sign ~~properties,~~such ~~and~~documents ~~preparation~~at ~~for~~the ~~and~~Closing ~~execution~~as ofare ~~our~~necessary ~~acquisition~~in ~~strategy~~connection ~~creating~~with its admission as a ~~cash~~limited ~~shortfall~~partner ~~from~~of ~~operations~~the ~~through~~Company. ~~September~~This ~~30,~~transaction ~~2016~~closed in November 2018.

We currently do not have available cash and cash flows from current operations to provide us with adequate liquidity for the foreseeable future. Our current liabilities exceed our unrestricted cash and we have insufficient cash flow from current operations to pursue our strategy without further financing. As of September 30, 2016, we had unrestricted cash of approximately $184,332 and current liabilities including tenant improvement allowances, unsecured debt, accounts payable and accrued expenses substantially in excess of the available cash. We therefore will require additional capital and increased cash flow from future operations to fund our ongoing business. There is no guarantee that we will be able to raise any required additional capital or generate sufficient cash flow from our current and future operations to fund our ongoing business. If the amount of capital we are able to raise together with our income from operations is not sufficient to satisfy our capital needs, we may be required to cease our operations or alter our growth plans. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our consolidated financial statements, and it is likely that investors will lose all or a part of their investment. -31-

~~Our~~ Table ~~short-term liquidity requirements consist primarily~~ of the need to raise additional capital to provide funding for approximately $7.8 million of tenant allowances, pay off maturing unsecured notes payable in the approximate amount of $3.7 million, and to use any remaining proceeds to apply to other existing current liabilities. Additionally, the Company, Talon OP and Mr. Kaminski are also guarantors of a mortgage on the building located at 180 E. Fifth Street in St. Paul, Minnesota. The mortgage includes a financial covenant requiring the guarantors to maintain a certain net worth and amount of cash and marketable securities throughout the term of the loan. Failure to satisfy the financial covenant will constitute an event of default under the loan agreements which the lender may remedy by accelerating the debt. We are currently attempting to refinance this mortgage and will attempt to obtain financing with more traditional covenants; however, there is no guarantee that the Company will be able to refinance the mortgage with more favorable terms, if at all. A sale of the building has also been contemplated to address the liquidity issue. We also require cash to pursue our strategy of near-term growth through acquisition of properties as well as pay our general and administrative expenses for operating as a public company and to satisfy our existing liabilities, as well as to finance our ongoing litigation.Contents

~~Our~~On ~~long~~August 31, 2018, Talon OP, L.P. (Talon-~~term~~OP), which ~~liquidity~~is ~~requirements~~the ~~consist~~entity ~~primarily~~through which Talon Real Estate Holding Corp. (“Talon”) conducts substantially all of ~~funds~~its tobusiness, entered ~~pay~~into ~~for~~a ~~scheduled~~Contribution ~~debt~~Agreement ~~maturities~~(the “Hotels Contribution Agreement”) with First Capital Real Estate Trust, ~~non~~Incorporated (“Contributor”), through First Capital Real Estate Operating Partnership, L.P. (the “FC-~~recurring~~OP”), ~~capital~~its ~~expenditures~~operating partnership, ~~that~~for ~~need~~the acquisition of seven entities, as described in the Hotels Contribution Agreement. In consideration for such transfer Talon-OP will issue to bethe ~~made~~FC-OP ~~periodically~~$14,796,765.00 ~~and~~in ~~continued~~units ~~expansion~~of its limited partnership interests (“LP Units”), or 5,918,706 LP Units based on a valuation of ~~our~~$2.50 ~~business~~per ~~through~~LP ~~acquisitions~~Unit. ~~Although~~The weaggregate ~~plan~~value toof ~~aggressively~~the ~~pursue~~Companies/Hotels ~~acquisitions~~is to$40,790,000 ~~grow~~and a ~~our~~credit ~~business~~for existing indebtedness (“Existing Indebtedness”) of $25,993,235.00. ~~there~~The Existing Indebtedness is noset ~~assurance~~forth on ~~that~~Exhibit weB ~~will~~attached behereto. ~~able~~The FC-OP has agreed to ~~acquire~~sign ~~additional~~such ~~properties~~documents at the Closing as are necessary in connection with its admission as a limited partner of the ~~future~~Talon-OP.

~~Since~~Pursuant ~~our available cash and cash flows from current operations do not provide us with adequate cash~~ to ~~satisfy~~the ~~current~~terms ~~liabilities~~of ~~and are not expected to provide us with adequate liquidity for~~ the ~~foreseeable~~Hotels ~~future~~Contribution Agreement, weTalon-OP’s ~~anticipate~~obligation ~~that~~to weclose ~~will~~upon ~~undertake~~the ~~future~~acquisition ~~debt~~is orsubject ~~equity~~to ~~financings~~customary orconditions ~~asset~~to ~~sales during 2016~~closing. ~~Additional~~ ~~financing~~This orseries of ~~asset~~transactions ~~sales~~closed ~~are~~in ~~necessary~~December ~~for our company to continue as a going concern~~2018.

In the future, we anticipate using a number of different sources to finance our liquidity needs, including cash flows from operations, issuance of debt securities or equity securities (which might be common or preferred stock), private financings (such as additional bank credit facilities or cash advances, which may or may not be secured by our assets), asset sales (including sales of accounts receivable), seller financing, property-level mortgage debt, or any combination of these sources, to the extent available to us, or other sources that may become available from time to time. Any debt that we incur may be recourse or non-recourse and may be secured or unsecured. Although we have successfully raised equity capital in the past, we cannot be assured that we will be able to continue to be successful in raising capital through issuance of securities. Our ~~ability~~Current toProperty obtain needed financing may be impaired by such factors as the capital markets, our status as a new enterprise without significant assets or demonstrated operating history, and/or the loss of key management. There is no guarantee that we will be able to raise any required additional capital or generate sufficient cash flow from our current and proposed operations to fund our ongoing business. Ongoing litigation may also impact our liquidity, as cash flow may need to be used on legal and other litigation expenses.Interests

31We currently own an interest in three properties located in and around the Minneapolis-St. Paul metropolitan area of Minnesota.

~~Outstanding~~We ~~Indebtedness~~own a 49% interest in an entity that owns an industrial complex consisting of two buildings with approximately 171,639 square feet located in the Minneapolis-St. Paul metropolitan area. We have entered into a contribution agreement to acquire the remaining interest in this entity, subject to receiving consent to the transfer from the entity’s lender.

~~5130~~We ~~LLC~~also own a 227,000 ansquare ~~entity~~foot inbuilding situated ~~which~~on ~~our~~20 ~~Operating~~acres ~~Partnership~~of ~~owns~~land ain ~~49%~~Minnetonka, ~~interest~~Minnesota and ~~that~~an ~~owns~~856,223 ansquare ~~industrial~~foot ~~complex~~thirteen-story office tower located in ~~the Minneapolis-~~downtown St. Paul, ~~metropolitan~~Minnesota. ~~area~~As of March 31, is2017 ~~party~~the tocombined aoccupancy ~~loan~~for ~~agreement~~all ~~secured~~of bythe ~~such~~buildings ~~industrial~~in ~~complex~~our portfolio was 71%. ~~The~~In ~~loan~~April ~~agreement~~2015, the ~~provides~~Company ~~for~~executed ~~two~~a ~~term~~lease ~~loans,~~in the ASt. ~~loan~~Paul ~~and~~building for a significant new tenant that would increase the Boccupancy ~~loan.~~of ~~Both~~our ~~loans~~portfolio by ~~can~~over be14% ~~accelerated~~upon ~~under~~occupancy. ~~certain~~The ~~circumstances~~lease was amended on January 27, ~~including~~2017 ifto ~~there~~resolve iscertain andisputes ~~event~~between ofthe ~~default~~Company ~~under~~and the ~~loan~~tenant and ~~agreement~~as amended, the lease is schedule to commence on January 1, 2018.

Talon Bren Road, LLC, an entity through which our Operating Partnership acquired the property located at 10301 Bren Road West, Minnetonka, MN on May 29, 2014, is party to a loan agreement secured by such property. It is also a party to two loans the proceeds of which were used to fund certain capital improvements at the building. This property also secures the Talon Bren Road, LLC Mortgage 2 (as defined in the table below) entered into on July 2, 2014 in connection with the acquisition of the property located at 180 E. Fifth Street St. Paul, MN. -32-

~~Talon~~ Table First Trust, LLC, an entity through which our Operating Partnership acquired the property located at 180 E. Fifth Street St. Paul, MN on July 2, 2014, is party to a loan agreement secured by such property. The loan is subject to certain financial covenants as disclosed in Note 5 to the financial statements. On March 30, 2016, the lender accepted Mr. Kaminski as an additional guarantor under the loan agreements. Although Mr. Kaminski, the Company and Talon OP have executed a joinder agreement adding Mr. Kaminski as an additional guarantor on the loan, the lender has reserved all rights, remedies and recourses available to it for any event of ~~default whether arising prior or after the date of the agreement. There is no assurance that the financial covenants will be satisfied in the future.~~Contents

The following table ~~summarizes~~sets ~~the~~forth ~~Company’s~~information regarding ~~notes~~our ~~payable~~5 largest tenants as of ~~September~~March 3031, ~~2016~~2017. ~~and~~[To ~~December~~be ~~31,~~updated.] ~~2015:~~this correct for then. Since we don’t own 180 any more it is different today.

				Principal Balance At
Property Location (1)	Tenant Industry	Primary Use	Lease Expiration	Approx. Total Leased Square Feet		Percentage of Company's Rentable Square Feet		Base Rent for the three months ended Mar. 31, 2017		Percentage of Company’s Total Base Rent for the three months ended Mar. 31, 2017
Loan Description	Loan Type	Maturity Date	Interest Rate	September 30, 2016			December 31, 2015
180 E 5th Street, St. Paul, MN	Health Care	Office	4/30/2018	119,490		12%		$	1,364,382	23%
Talon First Trust, LLC Mortgage (1)	Secured floating rate interest only	July 5, 2017	5.94%	$	32,000,000		$	32,000,000
180 E 5th Street, St. Paul, MN	Government	Office	5/31/2020	89,130		9%		$	1,162,903	19%
Talon First Trust, LLC. – Promissory Note (2)	Unsecured fixed rate interest only	August 31, 2016	10.00%		1,008,908			481,934
180 E 5th Street, St. Paul, MN	Retail	Office	3/31/2020	102,577		10%		$	959,232	16%
Talon First Trust, LLC. – Promissory Note	Unsecured fixed rate interest only	See below (3)	10.00%		59,489			-
5130 Industrial St, Maple Plain, MN	Construction	Industrial	2/28/2021	61,500		6%		$	164,854	3%
Talon First Trust, LLC. – Sale of Future Receivable (4)	See below (4)	See below (4)	(4)		131,467			-
1350 Budd Ave, Maple Plain, MN	Construction	Industrial	2/28/2018	29,903		3%		$	81,533	1%
Talon Bren Road, LLC Mortgage 1	Secured fixed rate	May 28, 2019	4.65%		10,926,861			11,123,773
Talon Bren Road, LLC Mortgage 2	Secured fixed rate interest only	March 1, 2017	16.00%		2,000,000			2,000,000
Talon Bren Road, LLC HVAC loan	Unsecured fixed rate	June 1, 2019	8.00%		91,508			111,797
Talon Bren Road, LLC Roof loan	Unsecured fixed rate interest only	June 1, 2019	8.00%		225,000			225,000
5130 Industrial Street, LLC Mortgage 1	Secured fixed rate	April 8, 2017	6.05%		4,000,456			4,049,859
5130 Industrial Street, LLC Mortgage 2	Secured fixed rate	April 8, 2017	12.75%		293,144			294,021
Talon OP, L.P. – Promissory Notes (5)	Unsecured fixed rate interest only	June 30, 2016	24.00%		1,000,000			1,000,000
Talon OP, L.P. – Promissory Notes	Unsecured fixed rate interest only	July 31, 2017	3.00%		654,926			-
Talon OP, L.P. Promissory Note – Former Related Party (see note 6 to the financial statements)	Unsecured fixed rate interest only	June 30, 2016	24.00%		500,000			500,000
				$	52,891,759		$	51,786,384

(1) The two properties located in Maple Plain, MN lease approximately 15% of the Company’s rentable space and account for approximately 6% of the Company’s total base rent revenues for the three months ended March 31, 2017 and 5% for the three months ended March 31, 2016. The property located in Minnetonka, MN leases approximately 17% of the Company’s rentable space and accounts for approximately 19% of the Company’s total base rent revenues for the three months ended March 31, 2017, and 18% for the three months ended March 31, 2016. No major tenants are located at the property in Minnetonka, MN. The property located in St. Paul, MN leases approximately 40% of the Company’s rentable space and accounts for approximately 76% of the Company’s total base rent revenues for the three months ended March 31, 2017 and 77% for the three months ended March 31, 2016.

~~Beginning~~The ~~January~~future ~~2016,~~square ~~mechanics~~feet ~~lien~~expiring ~~statements were filed upon the property at 180 E. Fifth Street~~ for ~~work~~all current ~~completed~~leases, toincluding ~~prepare~~leases ~~the tenant space for a significant lease~~ entered into onsubsequent ~~April 9, 2015. Mechanics liens that remain undischarged of record after 60 days constitute an event of default under the loan agreements, permitting the lender~~ to ~~accelerate~~March ~~the indebtedness at its option. On September 21~~31, 2016 and October 20, 2016, mechanics lien holders filed a summons and complaint in the State of Minnesota claiming that the Company breached it’s obligations to which the Company has responded. At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute. The lender is aware of this default and our refinancing efforts to cure it. They are currently not exercising any remedies with respect to any defaults.2017:

~~(2)~~Years ending December 31,

On November 16, 2015 the Company entered into a $481,934 unsecured promissory note with the Property Manager of Talon First Trust, LLC. The note satisfied the fees due under the Property Management Agreement for the period of March 2015 through December 2015 and had an original maturity date of December 31, 2015. Subsequently, the Company extended the maturity date to February 15, 2016 and then to August 31, 2016 and increased the note by $471,974 for the fees incurred from January 2016 through July 2016 and interest incurred through May 31, 2016 per the terms of the promissory notes and Property Management Agreement entered into with the Property Manager (see Note 9 to the financial statements). The note bore interest at 8% annually from November 16, 2015 through June 30, 2016 and currently bears interest at 10% annually through maturity. On September 21, 2016, and subsequently as amended on September 22, 2016, the Property Manager filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the notes to which the Company has responded. At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute.

	5130 Industrial St	1350 Budd Ave	10301 Bren Rd	180 E 5^th St
	Maple Plain, MN	Maple Plain, MN	Minnetonka, MN	St. Paul, MN		Total

2017	56,215	-	24,810	2,910		83,935
2018	-	-	-	25,554		25,554
2019	-	29,903	-	134,787		164,690
2020	-	-	139,662	708		140,370
2021	-	-	-	223,094		223,094
Thereafter	59,500	-	-	147,125	⁽¹⁾	206,625
	115,715	29,903	164,472	534,178		844,268

(31) On April 1, 2016, the Company received a notice asserting a right to terminate the lease for 141,109 square feet pursuant to certain alleged defaults related to the completion and delivery of the building and tenant improvements under the lease. The lease was amended on January 27, 2017 to resolve certain disputes between the Company and the tenant and as amended, the lease is scheduled to commence on January 1, 2018.

~~The~~Management ~~outstanding~~may ~~principal~~periodically sell certain properties including core income-producing and ~~applicable~~value-added ~~accrued~~properties ~~interest~~for isvarious ~~due~~reasons inbased ~~full~~on ~~upon~~individual ~~sale~~circumstances orand opportunities. ~~refinancing~~Proceeds offrom the sale of such properties may be used to repay related property atdebt, ~~180~~pay E.transaction ~~Fifth Street~~expenses, acquire or invest in ~~St.~~other ~~Paul~~properties and for general corporate purposes including satisfying existing liabilities.

~~(4)~~ -33-

32Factors That May Influence Our Operating Results

~~(5)~~Acquisition Strategy. We plan to grow our business through the acquisition of new properties, initially targeting properties that meet the criteria described above under “Overview” and elsewhere in this report. We expect the properties we acquire will be subject to mortgage financing and other indebtedness that we will assume or refinance. Debt service on such indebtedness will have a priority over any distributions with respect to our common stock.

OnRental ~~January~~Revenue. ~~12,~~The ~~2015~~amount ~~and~~of net ~~May~~rental ~~19,~~revenue ~~2015,~~generated ~~respectively,~~by ~~the~~our ~~Company~~properties ~~entered~~depends ~~into~~primarily ~~two~~on ~~separate~~our ~~$500,000~~ability ~~unsecured~~to ~~promissory~~maintain ~~notes with~~ the ~~same~~occupancy ~~unrelated~~rates ~~party.~~of ~~The~~currently ~~notes~~leased space ~~bore interest at 14% annually~~ and ~~had~~to anlease ~~original~~space ~~maturity~~that ~~date~~becomes ~~of June 30, 2015 and July 18, 2015, respectively~~available. In ~~2015,~~As ~~the Company extended the maturity dates~~ of ~~both~~March ~~notes to December~~ 31, ~~2015. The~~2017, ~~notes~~our ~~bore~~properties ~~interest~~were ~~of 20~~91% ~~annually~~leased. ~~from~~We ~~July~~believe 1,that ~~2015~~the ~~and~~average rental ~~July~~rates ~~19,~~for ~~2015,~~our ~~respectively,~~properties ~~through~~are ~~October~~generally ~~31,~~equal ~~2015. Subsequently,~~to the ~~Company~~current ~~extended~~average ~~the~~quoted ~~maturity~~market ~~dates~~rates. ofNegative ~~both~~trends ~~notes~~in toone ~~the earlier of, the disposition~~ or ~~refinancing~~ more of ~~the~~these ~~property~~factors atsuch ~~180~~as Ea ~~5th~~decrease ~~Street~~ in ~~St.~~rental ~~Paul~~rates or ~~June~~a ~~30,~~decrease ~~2016. The~~in ~~notes~~demand ~~will~~for ~~bear~~our ~~interest~~properties atcould ~~24%~~adversely ~~annually~~affect ~~from~~our ~~November~~rental revenue 1,in ~~2015~~future ~~through June 30, 2016~~periods. ~~The~~Future ~~maturity~~economic ~~date~~downturns ~~has~~affecting ~~not been extended and~~ the ~~note~~Minneapolis-St. isPaul ~~due~~metropolitan ~~and~~area ~~payable~~or downturns in ~~full. On~~our ~~September~~tenants’ businesses ~~24,~~that ~~2016,~~impair ~~the~~our ~~unrelated~~ability ~~party~~to ~~filed~~renew aleases ~~summons~~or ~~and~~re-let ~~complaint~~space inor the ~~State~~ability of ~~Minnesota~~our ~~claiming~~tenants ~~that~~to ~~the~~fulfill ~~Company~~their ~~breached~~lease ~~its~~commitments could ~~obligation~~adversely ~~under~~affect ~~the~~our ~~notes to which the Company has responded~~revenues. At ~~this~~In ~~time~~addition, ~~the~~growth ~~Company~~in isrental ~~unable~~revenue toprimarily ~~determine~~will ~~the~~depend ~~outcome~~on ~~of,~~our ~~and~~ability ~~therefore~~to ~~has~~acquire ~~not~~additional properties ~~recorded~~that ~~any~~meet ~~obligations~~our ~~with~~investment ~~respect to this dispute~~criteria.

~~Off~~Conditions ~~Balance~~in ~~Sheet~~Our ~~Arrangements~~Markets. Our current properties are located in the Minneapolis-St. Paul metropolitan area. Positive or negative changes in economic or other conditions in this area, or areas in our prospective proprieties, including employment and wage rates, natural disasters and other factors, may impact our overall performance. Our ability to grow in our broader market throughout our region may also be impacted by these factors.

AtOperating ~~September~~Expenses. 30Our operating expenses primarily consist of property taxes, ~~2016~~management fees, weutilities, ~~did~~insurance ~~not~~and ~~have~~site maintenance costs. As of March 31, 2017, some of our leases required tenants to reimburse us for a share of our operating expenses. Increases or decreases in any unreimbursed ~~off-balance~~operating ~~sheet~~expenses, ~~arrangements~~either due to the nature of the expenses not requiring reimbursement from our tenants or due to a reduction in leased square footage requiring tenant reimbursement of a portion of our operating expenses, will impact our overall performance. Legal fees incurred in 2017 and 2016 were significant due to the Company’s acquisition and refinancing activities, as well as litigation expenses. We expect an increase in legal fees associated with these activities and business matters customary to a public real estate holding company, as well as our ongoing litigation.

~~Inflation~~Interest Expense. Our interest expense will depend on the amounts we borrow as well as the interest rates charged by our lenders. Our current loan agreements are a mix of both fixed and floating rates, as well as secured and unsecured by our properties. Our aggregate interest expense may increase as we acquire properties and could fluctuate between periods based on the variable rate loan arrangements, if we do not hedge any such interest rate risk.

As of September 30, 2016, most of our leases required tenants to reimburse us for a share of our operating expenses. As result, we are able to pass on much of any increases to our property operating expenses that might occur due to inflation by correspondingly increasing our expense reimbursement revenues. During the nine months ended September 30, 2016, inflation did not have a material impact on our revenues or net income. -34-

~~Item~~ Table 3.of Contents

~~Quantitative~~Critical ~~and~~Accounting ~~Qualitative~~Policies ~~Disclosures~~and ~~About Market Risk~~Estimates

~~Interest~~Our ~~Rate~~discussion ~~Sensitivity~~and ~~Risk~~analysis of the historical financial condition and results of our operations are based upon our financial statements which have been prepared in accordance with U.S. generally accepted accounting principles, or US GAAP.

~~Market~~The ~~risk~~preparation ~~includes~~of ~~risks~~these ~~that~~condensed ~~arise~~consolidated financial ~~from~~statements ~~changes~~ in ~~interest~~conformity ~~rates,~~with ~~foreign~~US ~~currency~~GAAP ~~exchange~~requires ~~rates,~~management ~~commodity~~to ~~prices,~~make ~~equity~~estimates ~~prices~~ and ~~other~~assumptions ~~market~~in ~~changes~~certain circumstances that affect ~~market-sensitive~~the ~~instruments.~~reported Inamounts ~~pursuing~~of ~~our~~assets ~~business~~and ~~plan,~~liabilities weat ~~expect~~the ~~that~~date ~~interest~~of ~~rate~~the ~~risk~~financial ~~will~~statements beand the ~~primary~~reported ~~market~~amounts ~~risk~~of revenues toand ~~which~~expenses wein ~~will~~the bereporting ~~exposed~~period. AsActual ofamounts ~~September~~may ~~30,~~differ ~~2016,~~from ~~all~~these ~~but~~estimates ~~one~~and ofassumptions. ~~our~~We ~~outstanding~~have ~~loans~~provided a ~~had~~summary aof ~~fixed~~our ~~rate. On~~significant ~~July~~accounting 2,policies ~~2014,~~in wethe ~~secured~~notes ato ~~$33~~the ~~million~~consolidated ~~loan~~financial ~~with~~statements aof ~~current~~our ~~interest~~company ~~rate~~elsewhere in ofthis 5report.~~75%~~ ~~which~~We ishave ~~indexed~~summarized ~~monthly~~below tothose ~~the~~accounting ~~one~~policies ~~month~~that ~~LIBOR~~require ~~plus~~material asubjective ~~spread~~or ofcomplex ~~5.50%~~judgments ~~per~~and ~~annum. In~~that have ~~conjunction~~the ~~with~~most ~~the~~significant ~~closing~~impact ofon ~~this~~our ~~loan,~~financial wecondition ~~are~~and ~~party~~results toof anoperations. ~~interest~~We ~~rate~~evaluate ~~cap~~these ~~transaction~~estimates ~~with~~on an ~~interest~~ongoing basis, ~~rate~~based ~~cap~~upon ofinformation ~~2.50%~~currently onavailable ~~the~~and ~~$33~~on ~~million.~~various Weassumptions ~~were~~that atwe ~~risk~~believe toare ~~interest~~reasonable ~~rate~~as ~~fluctuations~~of ~~on $33 million up to~~ the ~~interest~~date ~~rate~~hereof. Other ~~cap~~companies ofin ~~2.50%~~similar ~~until~~businesses ~~expiration~~may ofuse ~~the~~different ~~cap~~estimation onpolicies ~~July~~and 5methodologies, ~~2016,~~which ~~after~~may ~~which~~impact ~~time~~the comparability of our ~~interest~~results ~~rate~~of ~~risk~~operations isand nofinancial ~~longer~~condition ~~capped. Our~~to ~~interest~~those ~~rate~~of ~~risk~~other ~~may~~companies. ~~further~~There ~~increase~~have ifbeen weno ~~increase~~significant ~~our~~changes ~~debt~~to inthose policies during the ~~future~~three ormonths ~~refinance~~ended ~~our~~March ~~existing~~31, ~~debt~~2017.

WeInvestment ~~may~~in ~~become~~Real ~~exposed~~Estate ~~to the effects of interest rate changes as a result of floating rate debt used to maintain liquidity~~ and ~~fund~~Fixed expansion of our real estate investment portfolio and operations. Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings and cash flows and to manage overall borrowing.Assets

~~Foreign~~Investment ~~Currency~~in ~~Exchange~~real ~~Risk~~estate and fixed assets are carried at cost less accumulated depreciation and amortization. Property such as land, building and improvements includes cost of acquisitions, development, construction, and tenant improvement allowances. Maintenance and repairs are expensed as incurred, and major improvements are capitalized. We allocate the cost of an acquisition, including the assumption of liability, to the acquired tangible asset and identifiable intangibles based on their relative fair values. We assess fair value based on estimated cash flow projections that utilize appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market economic conditions.

~~Our~~We ~~results~~allocate the cost of ~~operations~~an acquisition, including the assumption of liability, to the acquired tangible assets (including land, buildings and ~~cash~~personal ~~flows~~property) determined by valuing the property as if it were vacant, and identifiable intangibles based on their relative fair values. Acquisitions of real estate are ~~not~~recorded ~~materially~~based ~~affected~~upon bypreliminary ~~fluctuations~~allocations inof ~~foreign~~the ~~currency~~purchase ~~exchange~~price ~~rates~~to management’s assessment of the fair value of tangible and intangible assets and any assumed liabilities acquired which are subject to adjustment as additional information is obtained up to one year after the date of acquisition. Adjustments to preliminary allocations of purchase price are adjusted prospectively when all information necessary to determine the relative fair values has been received.

~~Item~~Depreciation 4is provided using the straight-line method over the estimated useful life of the assets for building, improvements, and furniture and equipment, and the term of the lease for tenant improvements. The estimated useful lives being used are as follows:

Controls and Procedures

Land Improvements	3-15 years
Building	25-30 years
Building Improvements	10-20 years
Tenant Improvements	1-12 years
Furniture and Equipment	3 years

~~Evaluation of Disclosure Controls and Procedures~~ -35-

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules ~~13a-15(e)~~Table ~~and 15d-15(e) under the Securities Exchange Act~~ of 1934). Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed 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 Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2016.Contents

33Intangible Assets

~~Changes~~Upon acquisitions of real estate, the Company assesses the fair value of acquired tangible assets and any significant intangible assets (such as above- and below-market leases and value of acquired in-place ~~Internal~~leases), ~~Control~~and ~~Over~~any ~~Financial~~assumed ~~Reporting~~liabilities, and allocates the purchase price based on these fair value assessments. The Company amortizes identified intangible assets and liabilities based on the period over which the assets and liabilities are expected to affect the future cash flows of the real estate property acquired. Lease intangibles (such as in-place or above- and below-market leases) are amortized over the term of the related lease. Above and below-market leases are amortized as a reduction in (addition to) rent revenue. Amortization of other intangibles is recorded in depreciation and amortization expense.

~~There~~Principles ~~were~~of the following changes in the Company’s internal control over financial reporting that occurred during the three months ended September 30, 2016 which have the potential to have materially affected, or is reasonably likely to have materially affect, the Company’s internal control over financial reporting.Consolidation

OnIn ~~August~~determining 18whether we have a controlling interest in an affiliate and the requirement to consolidate the accounts of that entity, ~~2016~~management considers factors such as ownership interest, ~~Eun~~authority ~~Stowell~~to make decisions, contractual and substantive participating rights of the ~~Chief~~limited ~~Financial~~partners ~~Officer~~and shareholders, as well as whether the entity is a variable interest entity for which we are the primary beneficiary. The accompanying consolidated financial statements include the accounts of Talon Real Estate Holding Corp., ~~resigned~~(“TREHC”) ~~her~~and ~~positions~~Talon ~~with~~OP, ~~the~~our ~~Company~~Operating Partnership. ~~Matthew~~Talon G.OP ~~Kaminski~~also ~~served~~consolidates as5130 ~~interim~~LLC, ~~Chief~~an ~~Financial~~entity ~~Officer~~in ~~until~~which ~~November~~it 1,has ~~2016~~a 100% ownership interest as of December 2018, ~~when~~based on ~~Keith~~its ~~Gruebele~~ability ~~was~~to ~~appointed~~control asthe ~~our~~operating ~~Chief~~and ~~Financial~~financial ~~Officer~~decisions of 5130 LLC. All significant intercompany balances have been eliminated in consolidation.

OnNon-controlling September 16, 2016, Neil Brown and Curt Marks resigned from our board of directors. On September 16, 2016, Marc P. Agar and Kristian G. Wyrobek were elected to our board of directors. The new directors have been appointed to the audit committee and compensation committees of the board of directors.Interest

34Interests in the Operating Partnership held by limited partners are represented by Operating Partnership units. The Company's interest in the Operating Partnership was approximately 67% and 65% of the common units of the Operating Partnership as of March 31, 2017 and December 31, 2016, respectively. The Operating Partnership’s income is allocated to holders of common units based upon the ratio of their holdings to the total units outstanding during the period. Holders of preferred units receive certain distributions based on a percentage of the liquidation preference. Capital contributions, distributions, syndication costs, and profits and losses are allocated to non-controlling interests in accordance with the terms of the Operating Partnership agreement.

~~PART~~The IIportion of membership interests in 5130 LLC not held by Talon OP is reported as non-controlling interest. –Capital ~~OTHER~~contributions, ~~INFORMATION~~distributions, and profits and losses are allocated to the non-controlling interest based on membership percentages and terms of the operating agreement. This percentage was be consolidated in December 2018.

~~Item~~Revenue 1.Recognition

~~Legal~~Base ~~Proceedings~~rental income is recognized on a straight-line basis over the terms of the related leases, inclusive of leases which provide for scheduled rent increases or rent concessions. Differences between rental income earned and amounts due according to the respective lease agreements are credited or charged to deferred rent receivable, as applicable.

WeTenant ~~are~~recoveries ~~currently~~related ~~engaged~~to inreimbursement of ~~legal~~real ~~proceedings~~estate ~~that~~taxes, ~~may~~insurance, ~~have~~repairs aand ~~material~~maintenance ~~impact~~and onother ~~our~~operating ~~financial~~expenses ~~statements. From~~are ~~time~~recognized ~~to time, we may be named~~ as arevenue ~~defendant~~ in ~~legal~~the ~~actions~~period orthe applicable ~~otherwise~~expenses beare ~~subject~~incurred. toRecoveries ~~claims~~are ~~arising~~billed ~~from~~monthly ~~our~~using ~~normal~~estimated ~~business~~operating ~~activities. Any~~costs ~~such~~and ~~actions,~~an ~~even~~additional ~~those~~billing ~~that~~or ~~lack~~a refund ~~merit,~~is ~~could~~made ~~result~~to tenants in the ~~expenditure~~following ofyear ~~significant~~after ~~financial~~actual ~~and~~operating ~~managerial~~expenses ~~resources~~are determined.

The Company has filed a complaint in the State of Minnesota on June 10, 2016 to enforce the NOI Payment Agreement and other documents issued in conjunction with the Contribution Agreement entered into on May 29, 2014 with Bren Road, L.L.C. The defendant has responded and filed a counterclaim and third -~~party complaint against Talon Bren Road, LLC and Talon OP, LP on July 7, 2016 to which the Company has responded.~~36-

On Table April 9, 2015, the Company entered into a significant lease arrangement with a new tenant at the property located at 180 East 5th Street. On June 1, 2016, the tenant filed a summons and complaint in the State of ~~Minnesota claiming that the Company breached its obligation under the lease and the tenant has a right to terminate the lease. The Company has responded to the complaint to enforce the lease.~~Contents

OnAccounting ~~November~~Standards ~~16,~~Applicable 2015 the Company entered into a $481,934 unsecured promissory note with the Property Manager of Talon First Trust, LLC. The note satisfied the fees due under the Property Management Agreement for the period of March 2015 through December 2015 and had an original maturity date of December 31, 2015. Subsequently, the Company extended the maturity date to ~~February~~Emerging 15, 2016 and then to August 31, 2016 and increased the note by $471,974 for the fees incurred from January 2016 through July 2016 and interest incurred through May 31, 2016 per the terms of the promissory notes and Property Management Agreement entered into with the Property Manager (see Note 9 to the financial statements). On September 21, 2016, and subsequently as amended on September 22, 2016, the Property Manager filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the notes to which the Company has responded.Growth Companies

OnWe ~~January~~qualify ~~12,~~as ~~2015~~an ~~and~~“emerging ~~May~~growth company” ~~19,~~pursuant ~~2015,~~to ~~respectively,~~the provisions of the ~~Company~~JOBS ~~entered~~Act. ~~into~~Section ~~two~~102(b)(1) ~~separate~~of ~~$500,000~~the ~~unsecured~~JOBS ~~promissory~~Act ~~notes~~provides ~~with~~that ~~the~~an ~~same~~“emerging ~~unrelated~~growth company” ~~party.~~can Intake ~~2015,~~advantage of the ~~Company~~ extended ~~the~~transition ~~maturity~~period ~~dates~~provided in Section 7(a)(2)(B) of ~~both~~the ~~notes~~Securities toAct ~~December~~for ~~31,~~complying with ~~2015~~new or revised accounting standards. ~~Subsequently,~~ ~~the~~We ~~Company~~have ~~extended~~elected to use the ~~maturity~~extended ~~dates~~transition ofperiod ~~both~~for ~~notes~~complying towith ~~the~~these ~~earlier~~new ~~of,~~or revised ~~the~~accounting ~~disposition~~standards. Since we will not be required to comply with new or ~~refinancing~~revised ofaccounting standards on the ~~property~~relevant dates aton ~~180~~which Eadoption ~~5th~~of ~~Street~~such instandards ~~St.~~is ~~Paul~~required orfor ~~June~~other 30public companies, ~~2016. On~~our ~~September~~financial ~~24,~~statements ~~2016,~~may not be comparable to the ~~unrelated~~financial ~~party~~statements ~~filed~~of acompanies ~~summons~~that ~~and~~comply ~~complaint~~with inpublic ~~the~~company ~~State~~effective ofdates. ~~Minnesota~~If ~~claiming~~we ~~that~~were ~~the~~to ~~Company~~elect ~~breached~~to ~~its~~comply ~~obligation~~with ~~under~~these public ~~the~~company ~~notes~~effective dates, such election would be irrevocable pursuant to ~~which~~Section ~~the~~107 ~~Company~~of ~~has~~the ~~responded~~JOBS Act.

~~Beginning~~Significant ~~January~~Events ~~2016,~~and ~~mechanics~~Transactions ~~lien~~during ~~statements were filed upon~~ the ~~property~~three atmonths ended ~~180~~March ~~E. Fifth Street for work completed to prepare the tenant space for a significant lease entered into on April 9~~31, 2015. On September 21, 2016 and October 20, 2016, mechanics lien holders filed a summons and complaint in the State of Minnesota claiming that the Company breached it’s obligations to which the Company has responded.2017

OnSummarized ~~August~~below ~~12,~~are ~~2014,~~ the Company’s significant ~~entered~~transactions into a $500,000 unsecured promissory note with a related party, one of its directors. The note had an original maturity date of February 8, 2015. Proceeds from this note paid off additional notes entered into on December 30, 2013 and ~~March~~events 7,during ~~2014, respectively, for $100,000 each, with~~ the ~~same~~three ~~party. In~~months ~~2015,~~ended ~~the~~March ~~Company extended the maturity date of the note to December~~ 31, ~~2015~~2017. Subsequently, in 2016 the Company extended the maturity date of the note to the earlier of, the disposition or refinancing of the property at 180 E. Fifth Street in St. Paul or June 30, 2016. On October 18, 2016, the related party filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the notes to which the Company has responded.

On ~~October~~January 2027, ~~2016~~2017, Talon First Trust, LLC entered into a ~~former~~Loan ~~employee~~Agreement ~~filed~~(the “Gamma Loan”) with Gamma Real Estate Capital LLC (the “Lender”), a ~~summons~~Delaware ~~and~~limited ~~complaint~~liability company, in the ~~State~~principal amount of ~~Minnesota~~$51,600,000. ~~claiming~~The ~~that~~loan ~~the~~bears ~~Company~~an ~~breached~~interest ~~its~~rate ~~obligation~~equal ~~under~~to ~~terms~~the sum of (i) the ~~former~~greater ~~employee’s~~of ~~employment~~(x) the Prime Rate as published in the Wall Street Journal, and (y) the LIBOR Floor, plus (ii) a margin of 9.00% per annum, and has an initial maturity date of January 26, 2018 with two 6-month options for the Company to ~~which~~extend upon satisfaction of certain conditions. Pursuant to the ~~Company~~Gamma Loan, approximately $5,298,000 has ~~responded~~been deposited into an interest reserve account to be applied toward monthly interest payments to the Lender. The Gamma Loan is secured by (i) a mortgage on the Company’s interest in its building located at 180 East 5th Street, St. Paul, Minnesota, (ii) an assignment of lease and rents, (iii) 100% of the membership and ownership interests in the Parent, and (iv) other collateral specified in the Gamma Loan documents. The Gamma Loan documents contain events of default that are customary for loans of this type. The loan proceeds were used to pay-off the existing mortgage on the 180 East 5th Street property, redeem the Talon OP preferred units, and fund various escrows and reserves related to the property.

35On April 9, 2015, the Company entered into a significant lease arrangement with a new tenant. On January 27, 2017 the company executed a Second Amendment to the lease with the tenant to resolve issues concerning a notice of default that the Company received from the tenant on April 1, 2016. The Second Amendment rescinds the Notice of Default and the Termination Notice that the tenant had delivered, changes the lease commencement date from January 1, 2016 to January 1, 2018 and required the Company to place approximately $5,640,000 in escrow to provide evidence of our ability to pay for the remaining tenant improvements. We deposited the required escrow funds on January 27, 2017.

~~Item~~On 1AJanuary 25, 2017, in the matter of Swervo Management Division, LLC, as plaintiff, versus Talon Real Estate Holding Corp, Talon First Trust, LLC and Talon Bren Road, LLC, as defendant, the Company executed a $1,330,167 amended and restated promissory note, plus interest on the unpaid balance at 10%. The entire principal balance shall be due and payable on the earlier of July 24, 2017 or upon a time that the Company refinances or sells its property located at 10301 Bren Road. This note replaces the Amended and Restated promissory note dated June 30, 2016 in the amount of $953,908 ($1,008,908 as of December 31, 2016) given by Talon Real Estate Holding Corp. and Talon First Trust, LLC.

~~Risk Factors~~ -37-

~~There~~ Table ~~have~~of been no material changes in our risk factors from those disclosed under the heading “Risk Factors” in our Current Report on Form 10-K for the year ended December 31, 2015 as filed with the Securities and Exchange Commission on April 6, 2016.Contents

~~Item~~The 2Company filed a complaint in the State of Minnesota in June, 2016 to enforce the NOI Payment Agreement and other documents issued in conjunction with the Contribution Agreement entered into in May, 2014 with Bren Road, L.L.C. The defendant responded and filed a counterclaim and third-party complaint against Talon Bren Road, LLC and Talon OP, LP in July, 2016. In November, 2016 the matter came before the court on the Defendant’s motion for partial summary judgment. Subsequently, in February, 2017 the Hennepin County District Court issued a Findings of Fact and Order for Judgment on the counter claim against the Company in the amount of $719,365, plus post judgment interest which pursuant to our 10301 Bren Road and 180 East 5th Street loan agreements, constitutes a non-financial event of default. The outstanding amount of the judgment was satisfied on June 23, 2017 as part of the refinancing of Talon Bren Road, LLC’s outstanding mortgages.

~~Unregistered~~In ~~Sales~~March, 2017, a significant tenant of ~~Equity~~our ~~Securities~~180 ~~and~~East ~~Use~~5th Street, St Paul property filed for Chapter 11 bankruptcy protection from its creditors. The Company lost a portion of ~~Proceeds~~March rent from the period of the initial filing until a Trustee could be appointed. From the date of Trustee appointment through September 30, 2017, full lease payments were received by the Company. Under the terms of the bankruptcy, the tenant’s lease was terminated effective September 30, 2017.

~~Not~~On ~~Applicable~~March 27, 2017, Talon Bren Road, LLC received a notice of default under the terms of our second mortgage agreement, the outstanding balance of which was $2,000,000 as of the date of the receipt of the notice. This mortgage was refinanced on June 23, 2017 which resolved the default.

~~Item~~Market 3.Conditions and Outlook

~~Defaults~~Our ~~Upon~~last ~~Senior~~two ~~Securities~~acquisitions were accomplished utilizing a 721 Exchange tax deferral methodology similar to that of an “UPREIT” providing several unique advantages over a 1031 exchange or selling to cash buyers. This strategy is advantageous for real estate owners seeking to mitigate and defer their immediate tax obligations, stay invested in real estate, diversify their holdings, and seek potential future growth and liquidity by accepting Talon OP common units which can later be converted 1:1 for Talon common stock, which trade under the ticker “TALR,” and their capital gains tax obligations are deferred until then.

~~Not~~Our ~~Applicable~~strategy is to continue offering these tax-deferred solutions to real estate owners as part of diversifying our shareholder base creating liquidity and shareholder value. We continue to believe office and industrial properties offer the best return on equity metrics as part of our investment strategy. Retail will also be part of our overall portfolio with an average overall target portfolio contribution of nearly 20% over the long-term.

~~Item~~The 4middle corridor of the United States continues to offer higher cap rates compared to the west and east coasts and we will continue to explore additional investment options within this region to continue our mission to provide return on equity targets of 8-15% per asset or portfolio.

~~Mine~~Results ~~Safety~~of ~~Disclosures~~Operations

~~Not~~Our ~~Applicable~~revenues and expenses have changed primarily due to increases in expenses attributable to an increase in legal services related to our legal proceedings in 2017. We expect our revenues, tenant reimbursements and many expenses will continue to increase on an absolute basis in the future as we seek to acquire additional properties, assume or refinance indebtedness in connection with the acquisitions and build the infrastructure necessary to grow our business. In the near term, we expect to continue to incur higher legal and other professional fees in pursuit of potential acquisitions.

~~Item 5.~~ -38-

~~Other~~ Table ~~Information~~of Contents

~~Not~~Three ~~Applicable.~~months ended March 31, 2017 compared to three months ended March 31, 2016

~~Item~~Revenues 6.and Expenses

~~Exhibits~~Rental revenues decreased $104,842, or 5.6%, to $1,771,070 for the three months ended March 31, 2017, compared to $1,875,912 for the same period of the prior year. The modest decrease in rental revenue relates to several smaller adjustments to rented space and certain lease rate adjustments with no significant new leased space across the portfolio.

~~The~~Tenant ~~exhibits~~reimbursements ~~filed~~decreased as$36,107, or ~~part~~4.0%, ofto ~~this~~$861,384 ~~Quarterly~~for ~~Report~~the onthree ~~Form~~months ~~10-Q~~ended ~~are~~March ~~listed~~31, in2017 compared to $897,491 for the ~~Exhibit Index~~same ~~immediately~~period ~~following~~of the ~~signatures~~prior toyear. ~~this~~The decrease ~~report~~in tenant reimbursements is consistent with the decrease in rent and stable property operating expenses.

36Other income decreased $61,263, or 71.2%, to $24,738 for the three months ended March 31, 2017 compared to $86,001 for the same period of the prior year. The decrease primarily relates to lower recorded amounts related to an income guarantee on one of the properties owned and lower revenue from an event center located in the 180 East 5th Street property in St. Paul.

~~SIGNATURES~~General and administrative expenses decreased $295,231, or 85.1%, to $51,722 for the three months ended March 31, 2017 compared to $347,033 for the same period of the prior year. The decrease is primarily due to the expensing of $285,000 of lost deal costs in 2016 with no comparable expense in 2017.

~~Pursuant~~Salary and compensation expenses decreased $42,675 or 19.0%, to $182,022 for the ~~requirements~~three ofmonths ~~the~~ended ~~Securities~~March ~~Exchange~~31, ~~Act~~2017 ofcompared ~~1934~~to $224,697 for the ~~registrant~~same ~~has~~period ~~duly~~of ~~caused~~the ~~this~~prior ~~report~~year. The decrease in salary and compensation expense is primarily related to bestaff ~~signed~~turnover onin ~~its~~late ~~behalf~~2016 byresulting ~~the~~in ~~undersigned~~lower ~~thereunto~~salaries for ~~duly~~replacement ~~authorized~~personnel in 2017.

Dated: November 21, 2016	TALON REAL ESTATE HOLDING CORP.
	/s/ Keith Gruebele
	Keith Gruebele
	Chief Financial Officer (principal financial and accounting officer)

Professional fees increased $131,295, or 58.1%, to $357,140 for the three months ended March 31, 2017 compared to $225,845 for the same period of the prior year. The increase is primarily due to an increase in legal services related to our legal proceedings and refinancing of debt in the three months ended March 31, 2017.

37Property operating expenses decreased $6,391, or 0.5%, to $1,179,187 for the three months ended March 31, 2017 compared to $1,185,578 for the same period of the prior year. Property operating expenses have remained essentially unchanged due to a stable operating environment and the lack of unusual or infrequent expenditures.

~~EXHIBIT~~Real ~~INDEX~~estate taxes and insurance increased $14,902 or 3.4%, to $460,379 for the three months ended March 31, 2017 compared to $445,477 for the same period of the prior year. The three months ending March 31, 2017 are in line with the annual increase in real estate taxes across the portfolio as the composition of our real estate portfolio remained the same.

Exhibit Number		Description
3.1		Amended and Restated Articles of Incorporation (Incorporated by reference to the exhibit of the same number in our Form 8-K dated June 7, 2013, filed on June 7, 2013 (File No. 005-87490))
3.2		Amended and Restated Bylaws (Incorporated by reference to the exhibit of the same number in our Form 8-K dated June 7, 2013, filed on June 7, 2013 (File No. 005-87490))
31.1		Certification of Principal Executive Officer pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).
31.2		Certification of Principal Financial Officer pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).
32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101*		Interactive Data Files Pursuant to Rule 405 of Regulation S-T (filed herewith).

Depreciation and amortization expense decreased by $14,163, or 1.2%, to $1,218,242 for the three months ended March 31, 2017 compared to $1,232,405 for the same period of the prior year. The decrease is primarily attributable to certain intangible assets expiring in correlation with the applicable leases.

~~________________________~~ -39-

* Table ~~Pursuant to Rule 406T~~ of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are otherwise not subject to liability under those sections.Contents

38Interest expense increased by $796,389, or 107.1% to $2,024,427 for the three months ended March 31, 2017 compared to $1,228,038 for the same period of the prior year. The increase is primarily attributable to the refinancing of the 180 East 5th Street mortgage and other changes in outstanding debt. The weighted average interest rate increased to 11.77% as of March 31, 2017 compared to 6.49% as of March 31, 2016 and outstanding debt increased by $23,105,751. In addition, deferred financing cost amortization was accelerated on the refinanced debt and significant new deferred financing costs were incurred which have predominantly a one-year amortization period.

Funds from Operations and Non-GAAP Reconciliation

The National Association of Real Estate Investment Trusts, or NAREIT, defines funds from operations, or FFO, as net income (loss) available to common shareholders and operating partnership unit holders computed in accordance with GAAP, excluding gains or losses from sales of operating real estate assets and extraordinary items, plus depreciation and amortization of operating properties, and after adjustments for unconsolidated partnerships and joint ventures. We intend to calculate FFO in a manner consistent with the NAREIT definition.

Management intends to use FFO as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using GAAP net income alone as the primary measure of our operating performance. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Because real estate values instead have historically risen or fallen with market conditions, management believes that the presentation of operating results for real estate companies that use historical cost accounting is insufficient by itself. In addition, securities analysts, investors, and other interested parties use FFO as the primary metric for comparing the relative performance of equity REITs. There can be no assurance that FFO presented by us is comparable to similarly titled measures used by REITs.

FFO should not be considered as an alternative to net income or other measurements under GAAP as an indicator of our operating performance or to cash flows from operating, investing or financing activities as a measure of liquidity. FFO does not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness.

We define adjusted funds from operations, or AFFO, as FFO excluding the non-cash effects of straight-line rent and amortization of lease inducements and deferred financing costs, depreciation of non-real estate, and excluding the effects of non-cash compensation charges. U.S. GAAP requires rental revenues related to non-contingent leases that contain specified rental increases over the life of the lease to be recognized evenly over the life of the lease. This method may result in rental income in the early years of a lease that is higher than actual cash received, creating a deferred rent receivable asset or lower income than actual cash received, creating a deferred rent revenue liability included in our consolidated balance sheet. At some point during the lease, depending on its terms, cash rent payments may exceed or be lower than the straight-line rent which results in the deferred rent receivable asset or liability, respectively, decreasing to zero over the remainder of the lease term. By excluding the non-cash portion of straight-line rental revenue and amortization of lease inducement and deferred financing costs as well as non-cash compensation expense, investors, analysts and our management can compare AFFO between periods.

Below is the calculation of FFO and AFFO and the reconciliation to net income (loss), which we believe is the most comparable GAAP financial measure:

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Reconciliation of Net Income Attributable to Talon Real Estate Holding Corp. (“TREHC”) to Funds From Operations

	Three months ended March 31,
In thousands $ (except per share)	2017								2016
	Amount			Weighted Avg. Shares and Units ⁽¹⁾		Per Share and Unit ⁽²⁾			Amount			Weighted Avg. Shares and Units ⁽¹⁾		Per Share and Unit ⁽²⁾
Net loss attributable to TREHC	$	(2,236	)		18,945	$	(0.12	)	$	(1,303	)		16,789	$	(0.08	)

Adjustments:
Non-controlling interest Operating Partnership		(1,086	)		9,200					(703	)		9,200
Consolidated depreciation and amortization		1,218			—					1,232			—
adjust for non-real estate depreciation		—			—					(2	)		—
adjust for amortization of above and below-market rents		45			—					63			—
adjust for non-controlling real estate owned depreciation		(26	)		—					(31	)		—
Net adjustments		151								559
Funds from operations applicable to common shares	$	(2,085	)		28,1451	$	(0.07	)	$	(744	)		25,989	$	(0.03	)

	Three months ended March 31,
	2017								2016
Adjusted funds from operations	Amount			Weighted Avg. Shares and Units ⁽¹⁾		Per Share and Unit ⁽²⁾			Amount			Weighted Avg. Shares and Units ⁽¹⁾		Per Share and Unit ⁽²⁾
FFO available to common shares	$	(2,085	)		28,145	$	(0.07	)	$	(744	)		25,989	$	(0.03	)
Adjustments:
Straight-line rents in excess of, or less than, contract rents		(21	)		—					(102	)		—
Non-real estate depreciation		—			—					2			—
Amortization of deferred financing costs net of non-controlling real estate		807			—					203			—
Non-cash stock compensation charges		89			—					38			—
AFFO available to common shares	$	(1,210	)		28,145	$	(0.04	)	$	(603	)		25,989	$	(0.02	)

⁽¹⁾ Non-controlling Units of the Operating Partnership are exchangeable for cash, or at the Company's discretion, for common shares of stock on a one-for-one basis.

⁽²⁾ Net income is calculated on a per share basis. FFO and AFFO are calculated on a per share and unit basis.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including commitments to repay borrowings, fund and maintain our operations and assets, acquire properties, make distributions to our shareholders and other general business needs. We have incurred significant expenses related to operating as a public corporation, building and tenant improvements at our properties, and preparation for and execution of our acquisition strategy creating a cash shortfall from operations through March 31, 2017.

We currently do not have available cash and cash flows from current operations to provide us with adequate liquidity for the foreseeable future. Our current liabilities exceed our unrestricted cash and we have insufficient cash flow from current operations to pursue our strategy without further financing. As of March 31, 2017, we had unrestricted cash of approximately $88,596 and current liabilities including tenant improvement allowances, unsecured debt, accounts payable and accrued expenses substantially in excess of the available cash. We therefore will require additional capital and increased cash flow from future operations to fund our ongoing business. There is no guarantee that we will be able to raise any required additional capital or generate sufficient cash flow from our current and future operations to fund our ongoing business. If the amount of capital we are able to raise together with our income from operations is not sufficient to satisfy our capital needs, we may be required to cease our operations or alter our growth plans. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our consolidated financial statements, and it is likely that investors will lose all or a part of their investment.

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Our long-term liquidity requirements consist primarily of funds to pay for scheduled debt maturities, non-recurring capital expenditures that need to be made periodically and continued expansion of our business through acquisitions. Although we plan to aggressively pursue acquisitions to grow our business, there is no assurance that we will be able to acquire additional properties in the future.

Since our available cash and cash flows from current operations do not provide us with adequate cash to satisfy current liabilities and are not expected to provide us with adequate liquidity for the foreseeable future, we anticipate that we will undertake future debt or equity financings or asset sales during 2017. Additional financing or asset sales are necessary for our company to continue as a going concern.

In the future, we anticipate using a number of different sources to finance our liquidity needs, including cash flows from operations, issuance of debt securities or equity securities (which might be common or preferred stock), private financings (such as additional bank credit facilities or cash advances, which may or may not be secured by our assets), asset sales (including sales of accounts receivable), seller financing, property-level mortgage debt, or any combination of these sources, to the extent available to us, or other sources that may become available from time to time. Any debt that we incur may be recourse or non-recourse and may be secured or unsecured. Although we have successfully raised equity capital in the past, we cannot be assured that we will be able to continue to be successful in raising capital through issuance of securities. Our ability to obtain needed financing may be impaired by such factors as the capital markets, our status as a new enterprise without significant assets or demonstrated operating history, and/or the loss of key management. There is no guarantee that we will be able to raise any required additional capital or generate sufficient cash flow from our current and proposed operations to fund our ongoing business. Ongoing litigation may also impact our liquidity, as cash flow may need to be used on legal and other litigation expenses.

Outstanding Indebtedness

5130 LLC, an entity in which our Operating Partnership owns a 49% interest and that owns an industrial complex located in the Minneapolis-St. Paul metropolitan area, is party to a loan agreement secured by such industrial complex. This percentage was be consolidated in December 2018. The loan agreement provides for two term loans, the A loan and the B loan. The term loans had a balloon payment due on April 8, 2017 and is past due. The Company expects to refinance this loan but as of the filing of this document has been unable to do so.

Talon First Trust, LLC, an entity through which our Operating Partnership acquired the property located at 180 E. Fifth Street St. Paul, MN on July 2, 2014, is party to a loan agreement secured by such property. The loan has an initial maturity date of January 26, 2018 with two 6-month options for the Company to extend upon satisfaction of certain conditions. If we are unable to satisfy the conditions to extend, we will need to seek alternative financing or possibly sell the property in order to satisfy the obligation.

TREHC has additional indebtedness related to various judgments and obligations arising in the normal course of financing our operations. These notes represent current obligations of the entity and continue to accrue interest while outstanding. We may need to seek alternative financing or sell certain assets in order to generate the necessary funds to satisfy these obligations.

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The following table summarizes the Company’s notes payable as of March 31, 2017 and December 31, 2016:

				Principal Balance At
Loan Description	Loan Type	Maturity Date	Interest Rate	March 31, 2017		December 31, 2016
Talon First Trust, LLC Mortgage	Secured floating rate interest only	July 5, 2017	6.04%	$	-	$	32,000,000
Talon First Trust, LLC Mortgage	Secured floating rate interest only	January 26, 2018	13.00%		51,600,000
Talon First Trust, LLC. – Promissory Note⁽¹⁾	Unsecured fixed rate interest only	July 24, 2017	10.00%		1,330,167		1,008,908
Talon First Trust, LLC. – Promissory Note	Unsecured fixed rate interest only	See below ⁽³⁾	10.00%		59,489		59,489
Talon First Trust, LLC. – Sale of Future Receivable ⁽⁴⁾	See below ⁽⁴⁾	See below ⁽⁴⁾	⁽⁴⁾		215,259		430,500
Talon Bren Road, LLC Mortgage 1⁽⁵⁾	Secured fixed rate	May 28, 2019	4.65%		10,788,414		10,858,648
Talon Bren Road, LLC Mortgage 2⁽⁵⁾	Secured fixed rate interest only	March 1, 2017	16.00%		2,550,000		2,000,000
Talon Bren Road, LLC HVAC loan	Unsecured fixed rate	June 1, 2019	8.00%		77,293		84,472
Talon Bren Road, LLC Roof loan	Unsecured fixed rate interest only	June 1, 2019	8.00%		225,000		225,000
5130 Industrial Street, LLC Mortgage 1	Secured fixed rate	April 8, 2017	6.05%		3,968,876		3,981,740
5130 Industrial Street, LLC Mortgage 2	Secured fixed rate	April 8, 2017	12.75%		292,609		292,941
Talon OP, L.P. – Promissory Note – Related Party⁽⁶⁾	Unsecured fixed rate interest only	June 30, 2016	26.00%		897,204		500,000
Talon OP, L.P. – Promissory Note	Unsecured fixed rate interest only	July 31,2017	3.00%		654,926		654,926
Talon OP, L.P. – Promissory Notes⁽²⁾	Unsecured fixed rate interest only	June 30, 2016	26.00%		1,476,498		1,000,000
Talon OP, L.P. – Promissory Note	Unsecured fixed rate	January 15,2018	15.00%		186,178		271,287
Other	Unsecured fixed rate interest only	June 30, 2016	24.00%		81,800		81,800
				$	74,403,713	$	53,449,711
Less: unamortized deferred financing costs					(2,745,286)		(496,063)
Notes payable, net				$	71,658,427	$	52,953,648

(1)

On January 25, 2017, the Company executed a $1,330,167 amended and restated promissory note, plus interest on the unpaid balance at 10%. The entire principal balance shall be due and payable on the earlier of July 24, 2017 or upon a time that the Company refinances or sells its property located at 10301 Bren Road. This note replaces the Amended and Restated promissory note dated June 30, 2016 in the amount of $953,908 ($1,008,908 as of December 31, 2016) given by Talon Real Estate Holding Corp. and Talon First Trust, LLC.

(2)

In 2015, the Company entered into two separate $500,000 unsecured promissory notes with the same unrelated party. The notes bore interest at rates from14% to 24% annually through June 30, 2016 after which time the notes accrued interest at 26%. On May 19, 2017, a judgment was entered against the Company in the amount of $1,476,498. As of the date of the judgment, the interest rate on the note changed to 10% under Minnesota Statutes.

(3)

The outstanding principal and applicable accrued interest is due in full upon sale or refinancing of the property at 180 E. Fifth Street in St. Paul.

(4)

During 2016 the Company received funds from four different sources. As of March 31, 2017, the total outstanding balance was $215,259 for the sale of future receivables at the property located at 180 E. Fifth Street. The agreements require payments totaling $644,039 over 120 days. Per FASB ASC 470-10-25, which provides guidance on funds received from sales of future receivables, this transaction has been classified as debt and included in notes payable. The agreements are guaranteed by a shareholder of the Company.

(5)

On June 21, 2017, we refinanced these mortgages with a new $15.1 million at 9.5% with an initial maturity date of June 1, 2018.

(6)

On August 2014, the Company entered into a $500,000 unsecured promissory note with a related party, one of its then current directors. The note had an original maturity date of February 8, 2015. The Company extended the maturity date of the note in 2015 and 2016. In October 2016, the former director filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the note. In April 2017, this matter went to trial and the plaintiff was awarded $897,695. As of the date of the judgment, the interest rate on the note changed to 10% under Minnesota Statutes. On May 31, 2017, the Court granted a Charging Order against the Company and Talon OP L.P. where the Company and Talon OP L.P are required to pay all profits and distributions to the plaintiff until the full amount of the judgment is paid and satisfied.

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Off Balance Sheet Arrangements

At March 31, 2017, we did not have any off-balance sheet arrangements.

Inflation

As of March 31, 2017, most of our leases required tenants to reimburse us for a share of our operating expenses. As result, we are able to pass on much of any increases to our property operating expenses that might occur due to inflation by correspondingly increasing our expense reimbursement revenues. During the three months ended March 31, 2017, inflation did not have a material impact on our revenues or net income.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity Risk

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market-sensitive instruments. In pursuing our business plan, we expect that interest rate risk will be the primary market risk to which we will be exposed. As of March 31, 2017, all but one of our outstanding loans had a fixed rate. Our interest rate risk may further increase if we increase our debt in the future or refinance our existing debt.

We may become exposed to the effects of interest rate changes as a result of floating rate debt used to maintain liquidity and fund expansion of our real estate investment portfolio and operations. Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings and cash flows and to manage overall borrowing.

Foreign Currency Exchange Risk

Our results of operations and cash flows are not materially affected by fluctuations in foreign currency exchange rates.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed 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 Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2017.

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The following control deficiencies were identified and were determined to be material weaknesses in our internal control over financial reporting as of March 31, 2017:

Internal Control Environment

Period end Financial Reporting Process

The material weaknesses occurred as a result of a significant turnover in the Company’s accounting personnel in the latter part of 2016, which, despite having established policies and procedures, the company lacked adequate controls regarding training in in the internal control environment. In addition, we did not maintain a sufficient complement of personnel with the appropriate accounting knowledge, experience and training, commensurate with our financial reporting requirements in order to execute a timely close, which resulted in incomplete disclosures, unreconciled accounts, incomplete accounting for certain events and transactions and inaccurate conclusions. This resulted in misstatements that were corrected by the Company prior to the issuance of the consolidated financial statements, and for which a reasonable possibility existed that a material misstatement in the Company’s consolidated financial statements would not be prevented or detected on a timely basis.

Management also identified multiple significant deficiencies in its review. These could also lead to potential misstatements in our financial statements or prevent the Company from timely completing its financial statement preparation.

Management Remediation Plan

Due to the material weaknesses reported as of March 31, 2017, management performed additional analysis and procedures to ensure that our consolidated financial statements and schedules included in this Quarterly Report were presented fairly in conformity with generally accepted accounting principles and fairly present in all material respects our financial position, results of operations and cash flows for the periods presented.

Management will implement changes to our internal control over financial reporting to remediate the control deficiencies that gave rise to the material weaknesses. We are undertaking the following remediation plans and actions:

Develop and deliver Internal Controls (“COSO”) training to Executives and finance/accounting resources. The training will include a review of management’s and individual roles and responsibilities related to internal controls;

hire accounting personnel with the appropriate level of knowledge to properly record transactions in the general ledger and prepare financial statements in accordance with generally accepted accounting principles;

augment our existing staff with external consultants with the requisite knowledge and expertise to supplement our accounting staff to ensure that transactions are recorded in accordance with generally accepted accounting principals and that are disclosures are accurate and complete; and

provide increased board level oversight to ensure established policies and procedures are adhered to.

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

Changes in Internal Control Over Financial Reporting

There were the following changes in the Company’s internal control over financial reporting that occurred during the three months ended March 31, 2017 which have the potential to have materially affected, or is reasonably likely to have materially affect, the Company’s internal control over financial reporting.

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PART II. – OTHER INFORMATION

Item 1.

Legal Proceedings

We are currently engaged in legal proceedings that may have a material impact on our financial statements. From time to time, we may be named as a defendant in legal actions or otherwise be subject to claims arising from our normal business activities. Any such actions, even those that lack merit, could result in the expenditure of significant financial and managerial resources.

The Company filed a complaint in the State of Minnesota on June 10, 2016 to enforce the NOI Payment Agreement and other documents issued in conjunction with the Contribution Agreement entered into on May 29, 2014 with Bren Road, L.L.C. The defendant has responded and filed a counterclaim and third-party complaint against Talon Bren Road, LLC and Talon OP, LP on July 7, 2016. On November 9, 2016 the matter came before the court on the Defendant’s motion for partial summary judgment. Subsequently, on February 27, 2017 the Hennepin County District Court issued a Findings of Fact and Order for Judgment on the counter claim against the Company in the amount of $719,365, plus post judgment interest which pursuant to our 10301 Bren Road and 180 E 5^th Street loan agreements, constitutes a non-financial event of default. The outstanding amount of the judgment was satisfied on June 23, 2017 as part of the refinancing of Talon Bren Road, LLC’s outstanding mortgages.

On January 25, 2017, in the matter of Swervo Management Division, LLC, as plaintiff, versus Talon Real Estate Holding Corp, Talon First Trust, LLC and Talon Bren Road, LLC, as defendant, the Company executed a $1,330,167 amended and restated promissory note, plus interest on the unpaid balance at 10%. The entire principal balance shall be due and payable on the earlier of July 24, 2017 or upon a time that the Company refinances or sells its property located at 10301 Bren Road. This note replaces the Amended and Restated promissory note dated June 30, 2016 in the amount of $953,908 ($1,008,908 as of December 31, 2016) given by Talon Real Estate Holding Corp. and Talon First Trust, LLC.

In April 2019, Talon has reached a settlement with the Upper Midwest Allied Gifts Association “UMAGA” and various tenants at Talon’s Bren Road property. The settlement includes a new 3.5 year Master Triple Net Lease for the entire property with UMAGA. Talon through the lease will obtain rights to certain parking areas at the property during the term of the lease. The settlement also includes the dismissal of all suits, and claims, between Talon, UMAGA and the tenants. The settlement was read into the court record, and is binding, as the final settlement and lease documents are now fully executed.

Item 1A.

Risk Factors

There have been no material changes in our risk factors from those disclosed under the heading “Risk Factors” in our Current Report on Form 10-K for the year ended December 31, 2016 as filed with the Securities and Exchange Commission on April 17, 2018.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Not Applicable

Item 3.

Defaults Upon Senior Securities

Not Applicable.

Item 4.

Mine Safety Disclosures

Not Applicable.

Item 5.

Other Information

Not Applicable.

Item 6.

Exhibits

The exhibits filed as part of this Quarterly Report on Form 10-Q are listed in the Exhibit Index immediately following the signatures to this report.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: June 7, 2019	TALON REAL ESTATE HOLDING CORP.

	/s/ Matthew G. Kaminski
	Matthew G. Kaminski
	Chief Executive Officer (principal financial and accounting officer)

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EXHIBIT INDEX

*Exhibit* *Number*		*Description*
3.1		Amended and Restated Articles of Incorporation (Incorporated by reference to the exhibit of the same number in our Form 8-K dated June 7, 2013, filed on June 7, 2013 (File No. 005-87490))
3.2		Amended and Restated Bylaws (Incorporated by reference to the exhibit of the same number in our Form 8-K dated June 7, 2013, filed on June 7, 2013 (File No. 005-87490))
31.1		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).
32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101*		Interactive Data Files Pursuant to Rule 405 of Regulation S-T (filed herewith).

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^* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are otherwise not subject to liability under those sections.

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2017 (remaining 9 months)

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