The Company is a self-advised real estate investment trust (REIT) that, through its operating partnership, IRET Properties, is  engaged in acquiring, owning, and leasing multi-family and commercial real estate. IRET is listed on the Nasdaq Small Cap Market under the symbol "IRETS."

      We intend to use the proceeds of this offering to increase our capital for  real estate additions or acquisitions.

      The shares of beneficial interest being offered are the functional equivalent of common stock and hold the rights and preferences normally associated with common stock.
 
 

      After the payment of all fees and expenses associated with this offering and assuming all the shares are sold, IRET will receive approximately $4,787,000 or 91.18% of the sale proceeds.
 

Investing involves certain risks. See page 4.  Some, but not all of the risks to consider are:
 
 

       This summary may not contain all of the information that may be important to you.  You should read this prospectus summary and the accompanying prospectus and the documents incorporated and deemed to be incorporated by reference into the prospectus, including the financial data and the related notes, in their entirety before making an investment decision.  When used in this prospectus supplement, the terms "we," "our," "us" and "IRET" refer to Investors Real Estate Trust.

      Investors Real Estate Trust is a self-administered, self-managed equity real estate investment trust.  Our business consists of the ownership and operation of income-producing real properties.  We conduct our day-to-day business operations though our operating partnership IRET Properties, a North Dakota Limited Partnership.  We have a fundamental strategy of focusing our real estate investments in the upper Midwest consisting primarily of the states of Minnesota, North Dakota, South Dakota, Montana, and Nebraska, of seeking diversification by property type.  While we have historically focused most of our investments in the five states listed above, in order to maximize acquisition opportunities, we consider and undertake investments outside of our targeted region.  We own a diversified portfolio consisting of 62 multi-family communities, and 61 total commercial properties.

      We concentrate on increasing our income from operations per share and funds from operations per share to achieve our objective of paying increasing dividends to our shareholders.  Our dividends have increased every year for 31 consecutive years

      Our principal office is located at 12 South Main Street Suite 100 Minot, North Dakota 58701; our telephone number there is (701) 837-4738.
 
 

      If you purchase our shares offered pursuant to this offering you will be exposed to a number of risks that may result in a loss of all or a significant portion of your investment.  For a complete discussion of the risks please see pages 4 through 16 of the full prospectus which follows this summary.  A summary of the more significant risks that your investment with us may be exposed to are
 

      We have a fundamental strategy of focusing on the upper Midwest with a primary emphasis on the states of Minnesota, North Dakota, South Dakota, Montana, and Nebraska.  For the six months ended October 31, 2001, IRET's investments in these states account for 71% of IRET's total gross revenue of $44,445,900.  We also seek diversification by property type with approximately 60% being multi-family apartment communities and the remaining 40% being commercial buildings.  We attempt to concentrate our multi-family holdings in cities with populations from 35,000 to 500,000 in the 25-mile radius.  As it applies to commercial real estate, we seek to acquire properties that are fully leased to quality tenants and located in medium to large population centers containing from 50,000 to 1,000,000 people or more within a 25-mile radius.  Under certain circumstances, we seek to diversify our real estate portfolio by investing in assets located through out the United States and in smaller or larger metropolitan areas.

 Based upon our ability to raise equity capital and exchange limited partnership units in IRET Properties, we anticipate acquiring $50,000,000 to $150,000,000 of real estate assets on an annual basis going forward.
 

       IRET contracts with a locally based third party management company to handle all onsite management duties necessary for the proper operation of a particular property.  All management contracts may be terminated on 30 days written notice and provide for compensation ranging from 2.75% to no more than 5% of gross rent collections.  The use of local management companies allows us to enjoy the benefits of local knowledge of the applicable real estate market while avoiding the cost and difficulty associated with maintaining management personnel in every city in which we operate.  Based upon our ability to raise equity capital, we plan to acquire $100,000,000 of real estate assets on an annual basis going forward applying the investment focus outlined in the previous paragraph of approximately two-thirds apartments and one-third commercial primarily located in the upper Midwestern states of Minnesota, North Dakota, South Dakota, Montana, and Nebraska.

     We operate in a manner intended to enable us to qualify as a real estate investment trust under the Internal Revenue Code.  In accordance with the Code, a real estate investment trust which distributes its capital gains and at least 90% of its taxable income to its shareholders each year, and which meets certain other conditions, will not be taxed on that portion of its taxable income which is distributed to its shareholders.

      We generally use available cash or incur short-term floating rate debt in connection with the acquisition of real estate.  We replace the cash used or the floating rate debt with fixed-rate secured debt.  In appropriate circumstances, we also may acquire one or more properties in exchange for our equity securities or operating partnership units that are convertible into our shares.
 
 

            As of April 30, 2001, our real estate portfolio consisted of 61% multi-family apartment complexes and 39% commercial buildings based on the dollar amount of our original investment plus capital improvements to date.  The dollar amount and percentage of total real estate rental revenue by property group for the Fiscal years ending April 30, 2001, 2000 and 1999 was as follows:
 

      The occupancy for each property group for the last three fiscal years ending April 30 was as follows:
 

 During the past three fiscal years ending April 30, 2001, we acquired 31 apartment communities consisting of 2,686 units for a total cost of $176,679,134 and 39 commercial properties containing 1,805,669 square feet of space for a total cost of $184,103,411.  During the past three fiscal years ending April 30, 2001, we sold 16 properties realizing net gain of $4,303,285.  No single tenant accounted for more than 10% of revenues during any of the past three fiscal years.  As of April 30, 2001, our three largest commercial tenants as a percentage of total commercial rents were: Edgewood Vista 9.7%, HealthEast Medical 7.8%, Microsoft Corporation 7.7% and all other tenants combined 74.8%.

      The number of shares outstanding after the offering assumes that all 600,000 shares offered will be sold.  Since the offering is being handled on a best efforts basis there is no guarantee that any shares will be sold.

      We intend to offer the shares on a best efforts basis through broker/dealers who are licensed by the National Association of Securities Dealers (NASD).  Under a best efforts offering there is no guarantee that any share will be sold nor is there any requirement that a participating broker dealer actually sell any shares.  We will not sell any shares directly to the public.  All shares must be sold through a participating broker/dealer.  For any shares sold by a participating broker dealer and paid for by the investor, we will pay a commission of 8% to the selling broker/dealer.

      All shares will be sold on a first come first serve basis.  Each participating broker/dealer may sell all or any part of the offering assuming that sales by all participating broker/dealers does not exceed the 600,000 shares registered for sale.

      Only residents of Minnesota, Montana, North Dakota, South Dakota, and Washington may purchase shares available under this offering.  There is a minimum purchase of 100 shares.
 
 

     The offering will terminate one year from the date on the front of this prospectus or when all shares have been sold, whichever occurs first.
 
 

       We estimate that the net proceeds from the sale of the shares we are offering will be approximately $4,787,000.  "Net proceeds" is what we expect to receive after paying expenses of the offering, which we estimate will be approximately $463,000 or about 8.82% of the total offering.

     We plan to use the proceeds to increase our capital for other real estate additions or acquisitions.  The money raised by this offering will be used to purchase real estate which generally meets the following standards:
 
 

    As of the date of this prospectus, we have not identified any specific properties which satisfy the criteria listed above.  Even in the event we do not identify a particular property or do not raise enough money under this offering to buy any additional real estate, we will not return your money.

     The Board of Trustees will have broad discretion on how to invest the proceeds and may change the investment criteria at any time without notice to or approval of the shareholders.

     Pending any real estate purchases, the net proceeds will be invested in United States Treasury Bonds with terms of six (6) months or less.
 
 

Summary Operating Data - Three Months and Six Months Ended October 31, 2001
     We have provided in the table below our summary financial and operating data.  In the opinion of the company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (of a normal recurring nature) necessary for a fair presentation of the financial statements.  The results of operations for the three months and six months ended October 31, 2001, are not necessarily indicative of operating results for the entire year.
 
 

Statement of Operations
For Three Months and Six Months Ended October 31, 2001 and 2000 (unaudited)

Summary Operating Data Last Three Fiscal Years
     We have provided in the table below our summary financial and operating data.  The financial information for each of the years in the three-year period ended April 30, has been derived from our audited financial statements.  You should read the following financial information in conjunction with our consolidated financial statements and the related notes that we have included in the accompanying prospectus on pages F-1 through F-57.

Selected Financial Data for IRET for the Three Years Ended April 30
 

Revenues
     Total IRET revenues for the second quarter of Fiscal 2002 ended October 31, 2001, were $23,175,041 compared to $18,404,260 received in the" second quarter of the prior fiscal year ended October 31, 2000.  This is an increase of $4,770,781 or 25.9%.

     Total revenues for the first six months of Fiscal 2002 ended October 31, 2001, were $44,955,135 compared to $35,835,904, an increase of 25.4% for the first six months of the prior fiscal year ended October 31, 2000.  These increases are primarily attributable to the addition of new properties to IRET's investment portfolio.

Funds From Operations
     IRET considers Funds From Operations ("FFO") a useful measure of performance for an equity REIT.  FFO is defined as net income available to shareholders determined in accordance with generally accepted accounting principles (GAAP), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation of real estate assets, and after adjustment for unconsolidated partnerships and joint ventures.  IRET uses the National Association of Real Estate Investment Trusts ("NAREIT") definition of FFO as amended by NAREIT to be effective January 1, 2000.  FFO for any period means the net income of the company for such period, excluding gains or losses from debt restructuring and sales of property, and plus depreciation and amortization of real estate assets in IRET's investment portfolio, and after adjustment for unconsolidated partnerships and joint ventures, all determined on a consistent basis in accordance with GAAP.

     FFO presented herein is not necessarily comparable to FFO presented by other real estate companies because not all real estate companies use the same definition.

     FFO should not be considered as an alternative to net income as determined in accordance with accounting principles generally accepted in the United States of America as a measure of IRET's liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of IRET's needs or its ability to service indebtedness or make distributions.

     Funds from Operations for IRET for the three months ended October 31, 2001, increased to $7,436,176 compared to $5,749,948 for the three months ended October 31, 2000, an increase of 29.4%.

     Funds from Operations for IRET for the six months ended October 31, 2001, increased to $14,335,235 compared to $10,971,288 for the six months ended Fiscal 2000, an increase of 30.7%.

Capital Gain Income
      IRET realized capital gain income of $16,398 during the second quarter of Fiscal 2002 ended October 31, 2001.  This resulted from the sale of the Lester Chiropractic building in Bismarck, North Dakota, at a gain of $85,279, and the sale of marketable securities available for sale at a loss of $68,881.

     Total capital gain income for the first six months of Fiscal 2002 ended October 31, 2001, was $324,332.  In addition to the two items listed in the previous paragraph, capital gain income for the first six months for Fiscal 2002 included a gain of $296,409 from the sale of the Sunchase Apartments, a 36-unit apartment complex in Fargo, North Dakota, and a gain of $11,525 from the sale of marketable securities held to maturity.  Both events occurred in the first quarter of Fiscal 2002.  No capital gain income was realized in the first six months of the prior fiscal year ended October 31, 2000.

Acquisition of Interlachen Corporate Center  - Edina, Minnesota
      On August 13, 2001, we acquired Interlachen Corporate Center a 105,084 square foot office building located in Edina, Minnesota for $16,500,000 in cash.

      Interlachen Corporate Center is a four-story building containing four levels of office space and one level of underground parking containing 36 stalls located at 5050 Lincoln Drive Edina Minnesota.  The building was completed in April of 2001 and is currently 95% leased to five tenants.  The primary tenant occupying 75% of the space is Alliant Techsystems, Inc. (NYSE symbol ATK).  Alliant Techsystems is an aerospace and defense company with leading market positions in propulsion, composite structures, munitions, and precision capabilities.  The company, which is headquartered at the Interlachen Corporate Center, employs approximately 9,600 people worldwide and has two business segments: Aerospace and Defense.

      Alliant's lease commenced in May of 2001 and runs for a 7-year term.

Acquisition of Retail Strip Center Cottage Grove, Minnesota
      On July 6, 2001, we acquired the Cottage Grove Strip Center which is a 15,217 square foot retail strip center located in Cottage Grove, Minnesota for an agreed value of $1,100,000 which was paid partly in cash of $823,594.00 and the balance of $276,594 with 31,603.53 limited partnership units with a value of $8.752 per unit.

     The Cottage Grove Strip Center is a single story multi-tenant retail building built in 1986 and located at 7155 80th Street South Cottage Grove, Minnesota.  It is currently 100% leased to eight tenants with remaining lease terms ranging from 2 to 6 years.  All rents paid by the current tenants are at market rates.  No one tenant occupies more than 35% of the leasable space.

Acquisition of Bloomington Business Plaza - Bloomington, Minnesota
     On October 1, 2001, we acquired the Bloomington Business Plaza from a general partnership controlled by Steven B. Hoyt.  The property was acquired pursuant to the terms of a contract dated January 8, 2001, as amended by an agreement dated September 27, 2001.  At the time of acquisition, Mr. Hoyt was a member of the Board of Trustees for IRET.  At the time the original acquisition contract was signed, Mr. Hoyt was not a member of the Board of Trustees for IRET.

     The property was purchased for an agreed value of $7,201,680 of which $215,000 was paid in cash and the balance of $6,986,680 with 812,404.65 limited partnership units of IRET Properties with a value of $8.60 per unit.  In addition to the purchase price of $7,201,680, IRET incurred acquisition costs of $203,989 for commissions, loan costs and legal costs.

     The acquisition was approved by a majority of the Board of Trustees and based on an independent appraisal of the property which determined the value to be $6,975,000.

     Bloomington Business Plaza is a multi-tenant office/warehouse building constructed in 1985.  It consists of 121,063 square feet of leasable space and is currently 100% leased to 21 tenants with remaining lease terms ranging from five months to four years and 10 months.  All rents paid by the current tenants are at market rates.  No one tenant occupies more than 17.08% of the leasable space.

Acquisition of Canyon Lake Apartments - Rapid City, South Dakota
     On September 27, 2001, we acquired the Canyon Lake Plaza Apartments which is a 109-unit multi-family apartment complex located in Rapid City, South Dakota, for an agreed value of $4,270,607 which was paid for with 83,626.79 limited partnership units of IRET Properties with a value of $8.60 per unit.

     The Canyon Lake Plaza Apartments is a multi-building apartment complex consisting of four separate buildings.  The complex was built in 1972.  As of October 31, 2001, the property was 96.3% occupied.

Acquisition of Applewood on the Green Apartments - Omaha, Nebraska
     On November 1, 2001, we acquired the Applewood on the Green Apartments located in Omaha, Nebraska, for an agreed value of $10,364,745 which was paid partly in cash of $2,643,611 and the balance by assumption of an existing debt secured by the property with an unpaid balance of $7,721,134.  The assumed debt bears interest at a fixed rate of 6.55% and is payable in monthly installments  of $51,334 amortized over a remaining term of seven years with a balloon payment of all remaining principal and interest due on October 8, 2008.

     The Applewood Apartments is a multi-building apartment complex consisting of 13 individual buildings.  The complex was built in 1971.  As of October 31, 2001, the property was 70.5% occupied.

Price Range of Common Shares and Distributions

      On December 24, 2001, the last reported sale price of our common shares on the Nasdaq Small Cap Market was $9.35 per share.

      Pringle & Herigstad, P.C., Minot, North Dakota, our legal counsel, will issue opinions about the valid issuance of the shares offered by this prospectus and tax matters relating to the qualification of IRET as a real estate investment trust.

      The audited consolidated financial statements for Investors Real Estate Trust included in this prospectus have been audited by Brady, Martz & Associates, P.C. independent public accountants, as indicated in their report with respect thereto, and are included in this prospectus in reliance upon the authority of said firm as experts in accounting and auditing in giving said report.

Securities and Exchange Commission

PROSPECTUS

     Investors Real Estate Trust ("IRET") was organized under the laws of the State of North Dakota on July 31, 1970.  Since its formation, IRET has qualified and operates as a "real estate investment trust" under Sections 856-858 of the Internal Revenue Code.  IRET is a self-administered and self-managed company.  As of October 31, 2001, IRET owned and operated a portfolio of 59 apartment communities containing 8,248 apartment units and 62 commercial buildings containing 2,781,115 square feet of leasable space.

     IRET's investment strategy is to maintain its real estate investment portfolio at approximately 60% invested in multi-family apartment communities located primarily in the upper Midwest and the remaining 40% of real estate owned in commercial property warehouses, retirement homes, manufacturing plants, offices, and retail properties leased to single or multiple tenants, usually for seven years or longer, located throughout the upper Midwest.  IRET operates mainly within the states of North Dakota and Minnesota, although it has real estate investments in the states of Colorado, Georgia, Idaho, Iowa, Kansas, Michigan, Montana, Nebraska, South Dakota, Washington, and Texas.
 
       IRET seeks to leverage all property acquired so that the debt is approximately 70% of the property's value.
 

       IRET conducts all of its daily business operations through its operating partnership, IRET Properties, a North Dakota Limited Partnership.  IRET Properties is principally engaged in acquiring, owning, operating and leasing multi-family apartment buildings and commercial real estate.  The sole general partner of IRET Properties is IRET, Inc.  IRET owns 100% of IRET, Inc.

      As the general partner, IRET, Inc. owns a 76% interest as of April 30, 2001, in IRET Properties.  The remaining ownership of IRET Properties is held by individual limited partners, none of who own more than 10% of the outstanding limited partnership units of IRET Properties.

      IRET's principal source of operating revenue is rental income from real estate properties owned and operated by its operating partnership.  A minor amount of revenue is derived from interest on short-term investments in government securities and interest on savings deposits.  In addition to operating income, IRET has received capital gain income when real estate properties have been sold at a price in excess of the depreciated cost of said properties.

      IRET has its only office at 12 South Main, Suite 100, Minot, North Dakota 58701, (701) 837-4738.

Selected Financial Information For the Past Three Years
      IRET operates on a fiscal year ending April 30th. For the past three fiscal years, sources of operating revenue, total expenses, net real estate investment income, capital gain income, total income, and dividend distributions are as follows:
 

      Over the past three years IRET's investment in real estate, ownership, and sources of revenue by geographic location has been as follows:

Real Estate Investment by State for the Last Three Years Ended April 30 (1)
 

Commercial

Apartments

State

2001

2000

1999

2001

2000

1999

Commercial Square Footage for the Last Three Years Ended April 30
 

 Apartment Units Owned For the Last Three Years Ended April 30
 

Net Income from Real Estate Activities for the Last Three Years Ended April 30
 

      An investment in the shares involves various risks.  Before investing you should carefully consider the following risks:
 

Price of Shares May be Higher than Nasdaq Price
      The $8.75 price is higher than the price paid by most of the current holders of IRET's shares.  The $8.75 price may be higher than the price at which IRET shares trade on the Nasdaq Smallcap Market. As a result, before buying shares pursuant to this offer, you should check to determine whether you might be able to buy the same number of shares on the Nasdaq for a lower price.  See "Determination of Offering Price" on Page 18.
 
 

Price Exceeds Book Value
      The book value of IRET shares of beneficial interest is substantially less than the $8.75 purchase price. As of January 1, 2002, the book value of the 27,030,009 shares then outstanding was $5.24 per share. Assuming all of the shares registered under this offering are sold, the estimated resulting book value will be $5.30 per share. Thus, a purchasing shareholder paying $8.75 per share will incur an immediate book value dilution of $3.45 per share.

High Leverage on Individual Properties or the Overall Portfolio May Result in Losses
      IRET seeks to borrow approximately 70% of the cost of real estate purchased or constructed. The 70% per property borrowing limitation is a policy that has been established by management and approved by the Board of Trustees. Since it is a policy, the 70% limitation may be changed at anytime by IRET without notice to or the approval of the shareholders. For the past three years as of April 30th, the total mortgage indebtedness of IRET as it relates to the total real estate assets of IRET at book value has been as follows:
 
 

      In addition to the policy of not exceeding an overall 70% debt ratio on all real estate, the Declaration of Trust, Article 1, Section J provides that the total borrowings of IRET, secured and unsecured, shall be reasonable in relation to the total net assets of IRET, and shall be reviewed by the trustees at least quarterly. The maximum borrowings in relation to the net assets, in the absence of a satisfactory showing that a higher level of borrowing is appropriate, shall not exceed 300% of net assets in the aggregate.  Any borrowing in excess of the 300% limit shall be approved by a majority of the independent trustees and disclosed to shareholders in the next quarterly report of IRET along with justification for the excess. There is no limit on the amount of money IRET may borrow on an individual property.  For the past three years as of April 30, the total indebtedness of IRET as it relates to its total net assets has been as follows:
 
 

      This amount of leverage may expose IRET to cash flow problems in the event rental income decreases. Such a scenario may require IRET to sell properties at a loss, reduce or eliminate quarterly cash distributions to shareholders or default on the mortgage which would result in loss of the property through foreclosure.
 
 

Inability to Sell All the Shares May Prevent Acquisition of Additional Real estate
      The shares are being sold by the broker/dealers on a "best efforts" basis whereby the selling agent is only required to use its best efforts to locate purchasers for the shares, but is not obligated to ensure that a minimum number or that even any shares are sold. Therefore, no assurance is given as to the amount of proceeds that will be available for investment by IRET.  In the event fewer than all the shares are sold during the offering period which is the shorter of one year from the date on the front of the prospectus or when all shares have been sold, IRET would not have sufficient money to acquire additional real estate.  This could result in the fixed operating expenses of IRET, as a percentage of gross income, to be higher and consequently reduce the taxable income distributable to shareholders.

          In the event less than all the shares are sold, any net proceeds actually received by us will not be returned to you.
 

Geographic Concentration in North Dakota and Minnesota May Result in Losses
      A majority of IRET's assets are presently invested in real estate in North Dakota and Minnesota.
 

      For fiscal year 2001 IRET received 53% of its commercial gross revenue of $18,994,011 from commercial real estate from activities in Minnesota and 30% of its commercial gross revenue from North Dakota.  Minnesota accounts for 57% of IRET's commercial real estate portfolio by square footage while North Dakota accounts for 27%.
 

      For fiscal year 2001, IRET received 16% of its apartment gross revenue of $42,379,855 from activities in Minnesota and 34% of its apartment gross revenue from North Dakota.  IRET owns 1,163 apartment units in Minnesota or 16% of IRET's total number of apartment units and 39% of IRET's apartment units or 3,014 units are located in North Dakota.
 

      As a result of this concentration in two states, IRET may be subject to substantially greater risk than if its investments were more dispersed geographically.  Due to the high concentration in North Dakota and Minnesota changes in local conditions, such as building by competitors or a decrease in employment may adversely affect the performance of IRET's investments much more severely.
 

      While the Minnesota economic climate has been strong for past five years, it is dependent on the areas of service, manufacturing, high technology, and agriculture.  Since 75% of IRET's assets in Minnesota are commercial properties, an economic weakening in any of these areas would adversely affect the performance of IRET's real estate portfolio by decreasing demand for rental space.
 

           In contrast, the North Dakota economy is dependent on the areas of agriculture and mineral development.  Both of these industries were depressed for most of the past decade.  In the opinion of IRET there appears little prospect for improvement.  While the North Dakota unemployment rate is below 4%, the state experienced almost zero population growth during the last decade and currently has a high concentration of people over 65.  During the past decade, the population located in the rural areas declined significantly while that of the cities and towns over
 
 

15,000 increased on average by 5%.  This increase was due to the rural population moving to North Dakota's larger towns and cities of Fargo, Bismarck, Grand Forks, Minot, Jamestown, Dickinson, Williston, and Devils Lake.  Of IRET's assets in North Dakota, over 90% are located in the cities and towns previously listed. It is predicted that the rural population in North Dakota will continue to move to North Dakota's larger towns and cities over the coming decade and that the overall population will decline over the next decade.

   Unlike Minnesota, two-thirds of IRET's assets in North Dakota are multi-family apartment complexes, which are dependent on a stable or growing population.  If North Dakota's population declines, IRET will experience difficulty in renting its real estate located in North Dakota at acceptable rates of return.  This will result in a decrease in net income and a corresponding decline in the level of distributions to shareholders.
 

     IRET currently has no limitations or targets concerning the concentration of assets or geographic location of business activities.
 

Senior Securities will be Paid Before IRET Shares
     As of October 31, 2001, IRET has issued $25,875,441 of securities to other investors, which are senior to the shares offered for sale under this document.  As a result, in the event IRET ceases operations or liquidates and distributes all of its assets, the holders of the senior securities will be paid in full first before any money is distributed to shareholders.  This preference will result in shareholders receiving less money.  Currently, IRET is authorized to issue no more than $5,000,000 in senior securities.  However, this policy can be changed by the trustees at any time without advance notice to or a vote of the shareholders.
 

Current and Future Commercial Vacancy May Negatively Impact Earnings
  Over the next 12 months leases covering approximately 5.07% of the total commercial square footage owned by IRET will expire.  As of October 31, 2001, approximately 3.12% of the total commercial square footage owned by IRET was vacant.  Of that current vacancy, 80.28% is represented by the warehouse in Boise, Idaho, which has been vacant for the last 14 months.  As a result, in the event IRET is unable to rent or sell those properties affected by an expiring lease or that are already vacant, then 8.19% of IRET's total commercial portfolio per square foot will be vacant.  If not corrected, this vacancy will negatively impact IRET's earnings and result in lower distributions to shareholders and a possible decline in the value of IRET real estate portfolio.

      While it is difficult to clearly identify specific properties which may not produce sufficient returns, IRET currently has two commercial properties facing great risk of not producing rental income.  Those properties are the Boise warehouse which is currently vacant and producing no income.  IRET is still paying all expenses associated with the property, which are expected to be $500,000 over the next 12 months.

     The second building is the Carmike Cinema building in Grand Forks, North Dakota.  The tenant is currently in Chapter 11 bankruptcy.  All rent has been paid to date, and the tenant has affirmed the lease in the bankruptcy proceeding and may no longer reject the lease.  However, Carmike may not successfully complete its Chapter 11 re-organization and could default on its

obligations.  IRET currently receives $278,512 in rent annually for Carmike compared to fiscal year 2001 gross revenues of $74,774,464.  Annual rent from Carmike represents less than 1% of annual gross revenue.  However, should Carmike reject the lease, IRET would incur a decline in net income.
 

Mortgage Lending May Result in Losses