PARAGON REAL ESTATE EQUITY AND INVESTMENT TRUST
PROXY STATEMENT

GENERAL INFORMATION

This Proxy Statement is furnished in connection with the solicitation of proxies by our Board of Trustees to be used at the 20042005 Annual Meeting of Shareholders to be held on Monday,Friday, June 14, 2004,3, 2005, and any postponements or adjournments of the meeting.

This Proxy Statement and the accompanying Chairman’s Letter, Notice and proxy card, together with our annual report on Form 10-KSB for the year ended December 31, 2003,2004, are being sent to our shareholders beginning on or about May 5, 2004.April 21, 2005.

QUESTIONS and ANSWERS

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PROPOSAL ONE
RE-ELECTION OF TRUSTEES

Proposal One

Our declaration of trust provides that our Board of Trustees will have between three and nine members divided into three classes serving for staggered three year terms. The Board of Trustees currently consists of six members. At this annual meeting, you are entitled to elect two trustees to hold office until the 20072008 annual meeting or until their successors are duly elected and qualified. Nominees for re-election this year are JohnDaryl J. DeeCarter and PaulMichael T. Lambert.Oliver. Each has consented to serve until the 20072008 annual meeting or until his successor is duly elected and qualified. Our other trustees are DarylJohn J. Carter, Michael T. Oliver,Dee, Daniel G. DeVos, Paul T. Lambert and James C. Mastandrea. Mr. CarterDeVos and Mr. OliverMastandrea will serve as trustees until the 20052006 annual meeting or until their successors are duly elected and qualified and Mr. DeVosDee and Mr. MastandreaLambert will serve until the 20062007 annual meeting or until their successors are duly elected and qualified. See pages 8 and 914-16 for more information.

If any trustee to be elected is unable to stand for re-election, the Board may, by resolution, provide for a lesser number of trustees or designate a substitute. In the latter event, shares represented by proxies may be voted for a substitute trustee. We need the affirmative vote of the holders of a plurality of our voting shares present or represented by proxy at the annual meeting to elect trustees. Abstentions and votes withheld for trustees will have the same effect as votes against.

The Board of Trustees recommends that you vote FOR Mr. DeeCarter and Mr. Lambert.Oliver.

Proposal Two

To authorize the board of Trustees, in its discretion, to amend
Paragon’s Declaration of Trust to effect a reverse share split of our
issued and outstanding common shares without further approval or
authorization of our shareholders

Background

We are requesting shareholder approval to grant the Board of Trustees the authority to effect a reverse share split at one of four ratios: 1-for-20; 1-for-30; 1-for-50; or 1-for-75. Accordingly, the Board of Trustees has unanimously adopted a resolution seeking shareholder approval to amend Paragon’s Declaration of Trust, as amended and supplemented, to effect a reverse share split of Paragon’s common shares. If the reverse share split is approved by our shareholders, the Board of Trustees may subsequently effect, in its sole discretion, a reverse share split based upon any of those four ratios. Approval of this proposal by our shareholders would give the Board of Trustees authority to implement the reverse share split at any time prior to our 2006 annual meeting of shareholders.

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PROPOSAL TWO
AMENDMENTS TO SHARE OPTION PLAN

General

On March 24, 2004,The Board believes that shareholder approval of these selected exchange ratios, rather than approval of a single ratio, or a different number of ratios, provides the Board with the necessary flexibility to consider relevant factors in making a decision as to whether, and at what ratio, to effect a reverse share split in order to achieve its intended purposes. Such determination will be based upon many factors, including existing and expected marketability and liquidity of our common shares, prevailing market trends and conditions and the likely effect of a reverse share split on the market price of the common shares. The Board of Trustees reserves the right, notwithstanding shareholder approval, and without further shareholder action, to abandon or delay the reverse share split, if at any time prior to implementation it determines, in its sole discretion, that a reverse share split would not be in the best interests of the company and our shareholders. However, if the Board does not implement a reverse share split before the next annual meeting of shareholders, further shareholder approval would be required prior to implementing any reverse share split.

The text of the form of the Articles of Amendment to the Declaration of Trust, which would be filed with the Department of Assessments and Taxation of the State of Maryland to effect a reverse share split should the Board of Trustees elect to go forward in accordance with one of the approved ratios, is set forth in Annex A to this proxy statement. The text of the form of the Articles of Amendment accompanying the proxy statement is, however, subject to amendment to reflect any changes that may be required by the State of Maryland or that the Board may determine to be necessary or advisable ultimately to comply with applicable law and to effect a reverse share split.

The Board believes that approval of the reverse share split is in the best interests of Paragon and our shareholders and has unanimously approved amendmentsrecommended that the proposed Articles of Amendment be presented to our 1998 Share Option Planshareholders for approval.

Reasons For A Reverse Stock Split

As of April 5, 2005, Paragon’s total market value (based on the number of common shares outstanding and the market price for a common share at the close of business on that date) was approximately $6 million and the company had 30,630,850 common shares issued and outstanding. On that date, the closing price per share for our common shares on Amex was $0.18 and, during the 12 months prior, the price of our common shares fluctuated from a low of $0.06 to a high of $0.26 per share.

We believe that a reverse share split may benefit the company and our shareholders because the anticipated increased market price of our common shares will encourage investor interest and trading in, and enhance the marketability of, our common shares. We believe that many institutional investors view shares trading at low prices as unduly speculative in nature and, as a result, avoid investing in these shares, either as a matter of preference or pursuant to specific institutional policies. In addition, because brokers’ commissions on lower-priced shares generally represent a higher percentage of the share price than commissions on higher-priced shares, the current per share price of our common shares can result in individual shareholders paying transaction costs (commissions, markups or markdowns) that constitute a higher percentage of the total share value than if the share price of our common shares was substantially higher. This difference in transaction costs may also limit the willingness of institutional

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investors to purchase our common shares. Trading in our common shares also may be adversely affected by a variety of policies and practices of brokerage firms that discourage individual brokers within those firms from dealing in low priced shares, such as the payment of brokers’ commissions and other costly, time consuming procedures. Similarly, many brokerage firms are reluctant to recommend low priced shares to customers and analysts as many brokerage firms do not provide coverage of low priced shares. The Board also believes that the decrease in the number of common shares outstanding after a reverse share split, and the anticipated increase in the price of the common shares, could generate interest in the common shares and promote greater liquidity for our shareholders. However, the reverse share split could adversely affect shareholders’ liquidity by reducing the number of shares available in the marketplace. In addition, Paragon’s aggregate market capitalization could be reduced to the extent that any increase in the market price of our common shares resulting from a reverse share split is proportionately less than the decrease in the number of common shares outstanding.

We may require additional capital to implement our primary focus of acquiring, owning and operating multifamily residential real estate. The Board of Trustees believes that the low per share market price of our common shares has had a negative effect on the potential ability of the company to raise capital. The Board anticipates that a reverse share split will result in a higher trading price for grantour common shares and, therefore, may facilitate capital raising in the future.

The price per share of our common shares is a function of various factors, including Paragon’s financial performance, developments in our markets, economic factors and general market conditions. Accordingly, there can be no assurance that the market price of our common shares after a reverse share split would increase in an amount proportionate to makethe decrease in the number of issued and outstanding shares, or would increase at all, that any increase can be sustained for a prolonged period of time or that a reverse share split would enhance the liquidity of, or investor interest in, our common shares.

Effects of a Reverse Stock Split

“Public Company” Status

Our common shares are currently registered under Section 12(g) of the Securities Exchange Act of 1934, and we are subject to the “public company” periodic reporting and other revisionsrequirements of the Exchange Act. The proposed reverse share split would not affect our status as a public company or our registration under the Exchange Act, and the Board of Trustees does not intend for a reverse share split to be the first step in a “going private” transaction within the meaning of Rule 13e-3 of the Exchange Act.

Common Share Holdings

After the effective date of a reverse share split, each shareholder would own a reduced number of our common shares. However, a reverse share split would affect all of our shareholders uniformly and will not affect any shareholder’s percentage ownership, except to the extent that a reverse share split results in ownership of a fractional share as described below. WeFor example, a holder of 1% of the voting power of the outstanding common shares immediately prior to a reverse share split would continue to hold 1% of the voting power of the outstanding common

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shares after the reverse share split. Proportionate voting rights and other rights and preferences of holders of our common shares would not be affected by a reverse share split, other than as a result of the payment of cash in lieu of fractional shares. For example, shareholders are submittingnot currently entitled to cumulative voting rights and will not be entitled to these rights following a reverse share split. Further, the proposed amendmentsnumber of shareholders of record would not be affected by a reverse share split, except to the option planextent that any shareholder holding only a fractional share interest after completion of a reverse share split would receive cash for such interest, as discussed below.

You should be aware that it is not possible to accurately predict the effect of a reverse share split on the market price for our common shares, and the history of reverse share splits is varied. In particular, there is no assurance that the price per share after a reverse share split will be proportionate to the price per share immediately prior to the reverse share split. In addition, there can be no assurance that the market price of the common shares immediately after a reverse share split will be maintained for any period of time. Even if an increased share price can be maintained, a reverse share split may not achieve some or all of the other desired results. Further, because some investors may view a reverse share split negatively, there can be no assurance that the shareholders’ approval of the proposal or the actual implementation of a reverse share split by the Board of Trustees would not adversely affect the market price of our common shares.

Odd-Lot Transactions

It is likely that some of our shareholders for approvalwill own less than 100 shares following a reverse share split. A purchase or sale of less than 100 shares (an “odd lot” transaction) may result in incrementally higher trading costs through certain brokers, particularly full service brokers, and generally may be more difficult than a “round lot” sale. Therefore, shareholders who own less than 100 shares following a reverse share split may be required to comply with provisionspay somewhat higher transaction costs and may experience difficulties or delays selling common shares. The Board of Trustees believes, however, that these potential effects are outweighed by the benefits of the tax code pertainingreverse share split.

Record Holders

As of April 5, 2005, there were approximately 300 shareholders of record of our common shares. Upon shareholder approval, if the Board elects to incentive stockimplement a reverse share split, shareholders owning fewer shares than the split ratio number selected by the Board (20, 30, 50 or 75) prior to the effectiveness of the reverse share split would cease to be shareholders, as they would be entitled to receive a cash payment in lieu of fractional shares.

Authorized but Unissued Shares; Potential Anti-Takeover Effects

Our Declaration of Trust presently authorizes 100 million common shares. A reverse share split would not change the number of authorized common shares designated by our Declaration of Trust. Therefore, because the number of issued and outstanding common shares would decrease, the number of shares remaining available for issuance by the company would increase. These additional shares would be available for issuance from time to time for corporate purposes such as issuances of common shares in connection with capital raising transactions and acquisitions of

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properties or companies, as well as for issuance upon conversion or exercise of securities such as preferred shares, convertible debt, warrants or options convertible into or exercisable for common shares. We believe that the availability of additional common shares will provide us with the flexibility to meet business needs as described below,they arise, to take advantage of favorable opportunities and certainto respond effectively in a changing environment. For example, we may elect to issue common shares to raise equity capital, to make acquisitions through the issuance of shares, to establish strategic relationships with other companies, to adopt additional employee benefit plans or reserve additional shares for issuance under such plans, should the Board of Trustees determine it is advisable to do so, without the necessity of soliciting further shareholder approval, subject to applicable shareholder vote requirements under Maryland law and American Stock Exchange (Amex)(“Amex”) rules. If we issue additional shares for any of these purposes, the aggregate ownership interest of our current shareholders, and the interest of each existing shareholder, would be diluted, possibly substantially.

The additional common shares that would become available for issuance if a reverse share split is effected could also be used by Paragon’s management to oppose a hostile takeover attempt or delay or prevent changes in control or changes in or removal of management, including transactions that are favored by a majority of shareholders or in which shareholders might otherwise receive a premium for shares over then current market prices. For example, without further shareholder approval, our Board of Trustees could sell common shares in a private transaction to purchasers who would oppose a takeover or favor the current Board of Trustees. Although the proposal for a reverse share split has been prompted by business and financial considerations as discussed above, shareholders nevertheless should be aware that approval of the proposal could facilitate future efforts by company management to deter or prevent a change in control of the company. The Board of Trustees has no plans to use any of the additional common shares that would become available following a reverse share split for any such purposes. Further, the Board of Trustees does not currently contemplate entering into any arrangements or recommending the adoption of any other provisions, such as supermajority voting requirements, that may have material anti-takeover consequences. However, any such anti-takeover effect of a reverse share split would be in addition to existing anti-takeover provisions of our Declaration of Trust and Amended and Restated Bylaws, as amended, which include (a) staggered terms of Paragon’s Board so that two annual meetings are needed to replace a majority of our Trustees; (b) advance notice provisions in our Bylaws, which limit the business that may be brought at an annual meeting and place procedural restrictions on the ability of shareholders to nominate Trustees; (c) provisions that limit shareholders’ ability to call special meetings or act by written consent; and (d) provisions that authorize the company to issue preferred shares that can be created and issued by the Board without prior shareholder approval, with rights senior to those of common shares.

The table below illustrates the effect, as April 5, 2005, of a reverse share split at each of the proposed ratios, on our (i) common shares outstanding, (ii) authorized common shares reserved for issuance pursuant to options, warrants, conversion of our preferred shares or other arrangements, and (iii) our common shares which are neither outstanding nor reserved for issuance and are therefore available for issuance. The table does not take into account fractional shares.

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No fractional common shares will be issued in connection with a reverse share split. Any holder who would otherwise receive a fractional common share as a result of a reverse share split will receive cash in lieu of the fractional share as explained more fully below in the section titled “Fractional Shares.”

Options, Warrants, Preferred Shares and Other Securities

All options, warrants, preferred shares and other securities entitling holders to purchase or receive Paragon’s common shares outstanding immediately prior to a reverse share split would be adjusted as a result of the reverse share split, as required by the specific terms of the relevant security. In particular, the exchange ratio for each security would be reduced, and the exercise price per share, if applicable, would be increased, in accordance with the terms of the security, based on the ratio of the reverse share split. Also, the number of shares reserved for issuance under any existing share option plans, share option agreements and warrant agreements would be reduced proportionately, based on the ratio of the reverse share split. There currently are 3.5 million shares authorized for issuance under our 2004 Stock Option Plan, of which 630,000 are subject to currently outstanding options. In the event that the shareholders approve and the Board of Trustees implements a reverse share split, the shares authorized pursuant to the 2004 Share Option Plan would be reduced in proportion to the exchange ratio actually adopted by the Board in connection with the reverse share split.

Fractional Shares

You will not receive fractional common shares as a result of the proposed reverse share split. Instead, shareholders who otherwise would be entitled to receive fractional shares will receive cash in an amount equal to the product obtained by multiplying the number of shares of
pre-reverse split common shares resulting in such fraction by the average of the closing sale price of the common shares as reported by Amex on the five trading days prior to the date the Articles of Amendment are filed with the State of Maryland.

You should be aware that, under the escheat laws of the jurisdictions where you reside, where the company is domiciled and where funds to pay cash for factional shares would be deposited, sums due for fractional shares that are not timely claimed may be required to be paid to the designated agent for such jurisdiction. Thereafter, shareholders otherwise entitled to receive such funds may have to seek to obtain them directly from the jurisdiction to which they were paid.

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Implementation and Exchange of Stock Certificates; Abandonment

If our shareholders approve the proposal and our Board of Trustees decides to implement a reverse share split, we will file Articles of Amendment to our Declaration of Trust with the State of Maryland. The reverse share split will become effective upon filing, or the effective date.

As of the effective date, each certificate representing our common shares outstanding before the reverse share split will be deemed to evidence ownership of the reduced number of our common shares resulting from the reverse share split, except that holders of unexchanged certificates will not be entitled to receive any dividends or other distributions payable by the company after the effective date until the surrender of old share certificates for exchange. All shares underlying options, warrants and other securities exchangeable or exercisable for or convertible into common shares, including preferred shares convertible into common shares, also automatically will be adjusted on the effective date.

Paragon’s transfer agent, American Stock Transfer & Trust Company, will act as the exchange agent for purposes of exchanging share certificates and disbursing cash in lieu of fractional shares subsequent to any reverse share split. Shortly after the effective date, you will receive written instructions requesting that you complete and return a letter of transmittal and surrender your old share certificates for new share certificates reflecting the adjusted number of shares as a result of the reverse share split and for any cash in lieu of fractional shares. Certificates representing common shares issued in connection with the reverse share split will continue to bear the same restrictive legends by the surrendered certificates representing the common shares outstanding prior to the reverse share split. No new certificates will be issued and no cash in lieu of fractional shares will be paid until all outstanding certificates, together with the properly completed and executed letter of transmittal, have been given to the exchange agent. Until surrendered, each certificate representing shares outstanding before the reverse share split would continue to be valid and would represent the adjusted number of shares, based on the ratio of the reverse share split.

Any shareholder whose share certificates are lost, destroyed or stolen will be entitled to a new certificate or certificates representing post-reverse share split shares upon compliance with the requirements that the company and its transfer agent customarily apply in connection with lost, destroyed or stolen certificates. Instructions as to lost, destroyed or stolen certificates will be included in the letter of instructions from the exchange agent.

Upon a reverse share split, we intend to treat shareholders holding our common shares in “street name” through a bank, broker or other nominee in the same manner as shareholders whose shares are registered in their names. Banks, brokers and other nominees will be instructed to effect the reverse share split for their beneficial holders holding our common shares in “street name.” However, such banks, brokers and other nominees may have different procedures than registered shareholders for processing the reverse share split. If you hold your shares in “street name” with a bank, broker or other nominee, and if you have any questions in this regard, we encourage you to contact your bank, broker or nominee.

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YOU SHOULD NOT DESTROY YOUR SHARE CERTIFICATES AND YOU SHOULD NOT SEND THEM NOW. YOU SHOULD SEND YOUR SHARE CERTIFICATES ONLY AFTER YOU HAVE RECEIVED INSTRUCTIONS FROM THE EXCHANGE AGENT AND IN ACCORDANCE WITH THOSE INSTRUCTIONS.

No service charges, brokerage commissions or transfer taxes will be payable by any holder of any certificate that, prior to approval of the reverse share split, represented any common shares, except that, if any certificates for common shares are to be issued in a name other than that in which the certificates for common shares surrendered are registered, the shareholder requesting the reissuance will be required to pay to the company any transfer taxes or establish to the satisfaction of the company that such taxes have been paid or are not payable and, in addition,
(a) the transfer must comply with all applicable federal and state securities laws, and (b) the surrendered certificate must be properly endorsed and otherwise be in proper form for transfer.

Even if our shareholders approve the reverse share split proposal, our Board of Trustees reserves the right to abandon or to delay a reverse share split, if at any time prior to implementation it determines, in its sole discretion, that a reverse share split would not be in the best interests of the company and our shareholders. If the Board does not implement a reverse share split before the 2006 annual meeting of shareholders, the reverse share split proposal approved by the shareholders at the 2005 annual meeting would be deemed abandoned and without further effect and further shareholder approval would be required prior to implementing a reverse share split.

No Appraisal Rights

Under Maryland law, our shareholders are not entitled to dissenters’ rights or rights of appraisal in connection with the implementation of a reverse share split or the payment of cash in lieu of fractional shares, and we will not independently provide our shareholders with any such rights.

Certain Federal Income Tax Consequences

The following is a summary of certain United States federal income tax consequences of a reverse share split. It does not address any state, local or foreign income or other tax consequences, which may vary significantly depending upon the jurisdiction and the status of the shareholder/taxpayer. It applies to you only if you held pre-reverse share split common shares, and if you hold your post-reverse share split common shares, as capital assets for tax purposes. This discussion does not apply to you if you are a member of a class of holders subject to special rules, such as (a) a dealer in securities or currencies, (b) a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings, (c) a bank, (d) a life insurance company, (e) a tax-exempt organization, (f) a person that owns common shares that are a hedge, or that are hedged, against interest rate risks, (g) a person who owns common shares as part of a straddle or conversion transaction for tax purposes or (h) a person whose functional currency for tax purposes is not the U.S. dollar. The discussion is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing, temporary and proposed regulations under the Internal Revenue Code, published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis. We have not sought and will not seek an opinion of counsel or a ruling from the Internal Revenue Service regarding the federal income tax consequences of a reverse share split.

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PLEASE CONSULT YOUR OWN TAX ADVISOR CONCERNING THE CONSEQUENCES OF A REVERSE SHARE SPLIT IN YOUR PARTICULAR CIRCUMSTANCES UNDER THE INTERNAL REVENUE CODE AND THE LAWS OF ANY OTHER TAXING JURISDICTION.

Tax Consequences to United States Holders of Common Shares

A United States holder is a shareholder who or that is: (a) a citizen or resident of the United States, (b) a domestic corporation, (c) an estate whose income is subject to United States federal income tax regardless of its source, or (d) a Trust, if a United States court can exercise primary supervision over the Trust’s administration and one or more United States persons are authorized to control all substantial decisions of the Trust. This discussion applies only to United States holders.

Other than with respect to any cash payments received in lieu of fractional shares discussed below, no gain or loss should be recognized by a shareholder upon the shareholder’s exchange of pre-reverse share split shares for post-reverse share split shares pursuant to a reverse share split. The aggregate tax basis of the post-reverse share split shares received (including any fraction of a new share deemed to have been received) will be the same as the shareholder’s aggregate tax basis in the pre-reverse share split shares that are exchanged.

In general, shareholders who receive cash in exchange for fractional share interests in the post-reverse share split shares will be deemed for federal income tax purposes first to have received the fractional share interests and then to have had those interests redeemed for cash. This treatment of cash payments received in lieu of fractional share interests assumes that payments represent the fractions resulting from the exchange rather than separately bargained for consideration. The shareholder’s holding period for the post-reverse share split shares will include the period during which the shareholder held the pre-reverse share split shares surrendered. The receipt of cash instead of a fractional common share by a United States holder will generally result in a taxable gain or loss equal to the difference between the amount of cash received and the holder’s adjusted federal income tax basis in the fractional share. Gain or loss will generally constitute a capital gain or loss. Capital gain of a noncorporate United States holder is generally taxed at a maximum rate of 15% when property is held more than one year.

Tax Consequences to Paragon

We do not expect to recognize any gain or loss as a result of a reverse share split.

Accounting Consequences

The par value of our common shares would remain unchanged at $0.01 per share after a reverse share split. As a result, on the effective date of a reverse share split, the stated capital on Paragon’s balance sheet attributable to common shares will be reduced proportionately, based on the ratio of the reverse share split, from its present amount, and the additional paid-in capital account will be credited with the amount by which the stated capital is reduced (net of any amounts paid in lieu of fractional shares). The net income or loss and net book value per share of common shares will not be affected because prior year earnings per share will be retroactively restated.

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Vote Required And Recommendation

The affirmative vote of the holders of a majority of ourthe voting shares represented in person or by proxyoutstanding and entitled to vote at the annual meeting will be required to approve the adoption of the amendments to our option plan.

Certain aspects of this proposal are summarized below. Because this is a summary, it does not contain all the information that may be important to you. You should read the entire proxy statement and the revised text of the option plan attached as Annex A carefully before you decide how to vote.Proposal Two.

The Board of Trustees unanimously recommends that you vote FOR the proposed amendments“FOR” Proposal Two to the option plan.

Description of Option Plan

The option plan provides for the grant of “incentive stock options,” as defined under Section 422(b) of the tax code, options that are not qualified under the tax code (referred to in this proxy statement as “non-statutory options”), share appreciation rights (“SARs”) and restricted share grants and performance share awards and dividend equivalents. Our board of trustees has reserved 3,166,666 common shares for issuance under the plan, subject to adjustment for share splits, share dividends or similar transactions. If the proposed amendments are approved, the number of reserved shares will be increased to 3.5 million, subject to further increases if Paragon issues additional common shares. See “Proposed Amendments to the Plan” below for more information. In general, if any award granted under the plan expires, terminates, is forfeited or is cancelled for any reason, the shares allocable to that award may again be made subject to an award granted under the plan.

Administration. The option plan is administered by our management, organization and compensation committee of the Board. The committee presently consists of Mr. Carter, who serves as committee chairman, Mr. DeVos, Mr. Lambert and Mr. Oliver. The committee is appointed by the Board and must have at least two non-employee members. All of the current committee members satisfy the independence requirements of Amex and the Securities and Exchange Commission (SEC). The committee has the authority, subject to approval by our Board, to select the individuals to whom awards may be granted, to determine the terms of each award, to interpret the provisions of the plan and to make all other determinations for the administration of the plan.

Awards. Every grant under the plan is memorialized with an award agreement that specifies the type of award to be granted, the number of shares (if any) to which the award relates, the terms and conditions of the award and the date granted. In the case of an award of options, the award

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BOARD OF TRUSTEESBoard of Trustees and Executive Officers

The business experience, principal occupations and employment as well asduring the periods of service,last five years of each of our trustees, during at least the last five yearsexecutive officers and significant employees are set forth below.

James C. Mastandreahas served as President and Chairman of the Board of Trustees since March 4, 2003 and as Chief Executive Officer since April 7, 2003. In May 1998, Mr. Mastandrea returned as Chairman and Chief Executive Officer to MDC Realty Corporation, Chicago, Illinois, which he founded in 1978 and had used for the development of over $500 million of real estate projects until 1993. From July 1993 to December 1993, Mr. Mastandrea was President of First Union Real Estate Investments, a NYSE listed real estate investment trust headquartered in Cleveland, Ohio. From January 1994 until his departure in May 1998, he was Chairman of the Board of Trustees and Chief Executive Officer of First Union. During his tenure at First Union, Mr. Mastandrea and his management team substantially grew the assets of the company from $495 million at the beginning of 1994 to $934 million at the end of 1997, along with commensurate growth in net operating income and funds from operations. In 1999, Mr. Mastandrea formed Eagle’s Wings Aviation Corporation, where he served as Chief Executive Officer, to purchase a troubled aviation services business. At the time of the purchase, the business was in default on its debt obligations. Following the September 11, 2001 terrorist attacks, the business was further adversely affected. In March 2002, Eagle’s Wings filed for protection under Chapter 11 of the federal bankruptcy laws. Mr. Mastandrea has been the general partner of Hampton Court Associates, L.P. since its formation in 1983. Mr. Mastandrea is a director of Cleveland State University Foundation Board and Chairman of the nominating committee, and a director and a member of the real estate committee of University Circle Inc., Cleveland, Ohio.Ohio, and a member of Calvin College’s Business Alliance Board, Grand Rapids, Michigan. He is a member of National Association of Real Estate Investment Trusts (NAREIT), Pension Real Estate Association (PREA), and National Multifamily Housing Association (NMHA).

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John J. Deehas served as a trustee and Senior Vice President since March 4, 2003, and as Chief Financial Officer since April 7, 2003. Prior to Mr. Dee’s joining Paragon, from 2002 to 2003, he was Senior Vice President and Chief Financial Officer of MDC Realty Corporation, Cleveland, Ohio, an affiliate of MDC Realty Corporation, Chicago, Illinois. From 2000 to 2002, Mr. Dee was directorDirector of Finance and Administration for Frantz Ward, LLP, Cleveland, Ohio, a Cleveland-based law firm with approximately 100 employees. From 1978 to 2000, Mr. Dee held various management positions with First Union Real Estate Investments (NYSE), most recently

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estate development company, and is Chairman of the audit committee.investment trust. Mr. Carter is a member of the Pension Real Estate Association (PREA), a trusteeTrustee and Vice Chairman of the Urban Land Institute (ULI), a Board Member and a memberChair of the BoardFinance Committee of the National Multifamily Housing Association (NMHA)., and a member of the Commercial Board of Governors of the Mortgage Bankers Association.

Daniel G. DeVoshas served as a trustee since March 4, 2003. Mr. DeVos is Chairman of the Board and Chief Executive Officer of DP Fox Ventures, LLC, a diversified management enterprise with investments in real estate, transportation, entertainment and sports teams. In addition, Mr. DeVos is the majority owner of the Grand Rapids Rampage (AFL), Grand Rapids Griffins (AHL) and has ownership interests in the Orlando Magic (NBA). Mr. DeVos is a director of Alticor, Inc., the parent of Amway Corporation, located in Ada, Michigan, and the Orlando Magic (NBA), and Chairman of the audit committee of Genmar Industries, a privately held boat manufacturer in Minneapolis, Minnesota.. From 1994 to 1998, Mr. DeVos served as a trustee of First Union Real Estate Investments (NYSE).

Paul T. Lamberthas served as a trustee since November 1998. Mr. Lambert serves as the Chief Executive Officer of Lambert Capital Corporation. He served on the Board of Directors and was the Chief Operating Officer of First Industrial Realty Trust, Inc. (NYSE), Inc. from its initial public offering in October 1994 to the end of 1995. Mr. Lambert was one of the largest contributors to the formation of First Industrial and one of its founding shareholders. Prior to forming First Industrial, Mr. Lambert was managing partner for The Shidler Group, a national private real estate investment company. Prior to joining Shidler, Mr. Lambert was a commercial real estate developer with Dillingham Corporation and, prior to that, was a consultant with The Boston Consulting Group.

Michael T. Oliverhas served as a trustee since March 4, 2003. Mr. Oliver is the State Investment Officer of Real Estate and Private Equity Investments of the Alaska State Pension Board of the Alaska State Pension Fund, Juneau, Alaska, a position he has held since August 2000. Prior to joining the Alaska State Pension Board, Mr. Oliver was a consultant from March 1998 to July 2000 to MPAC Capital Markets, Seattle, Washington, and a consultant to theseveral Asian governmentgovernments concerning laws governing REITs. From April 1996 to March 1998,
Mr. Oliver was Chairman of RERC Capital Markets, LLC, Chicago, Illinois.

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the SEC.Securities Exchange Act of 1934 requires the our officers, trustees and persons who own more that 10% of our common shares to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, trustees and greater than 10% shareholders are required by regulation to furnish us with copies of all Section 16(a) forms they file.

Separate Form 4s filed by Mr. Mastandrea and Mr. Dee, each reporting a grant of restricted shares and share options, were not filed on a timely basis. Based solely on review of the copies of the forms furnished to us, or written representations that no Annual Statements of Beneficial Ownership of Securities on Form 5 were required to be filed, we believe that all other Section 16(a) filing requirements applicable to our officers, trustees and greater than 10% shareholders were complied with in 2004.

Attendance of the Trustees at Meetings

Our trustees held eight meetings and acted by written consent seven meetingstimes in 2003.2004. All members of the Board of Trustees participated in at least 75% of all Board and applicable committee meetings in 20032004 held while they served as trustees, except Mr. DeVos, who participated in 50% of all meetings and Mr. Lambert, who participated in 71% of all meetings due to conflicts of schedules.trustees. Trustees are also strongly encouraged to attend the annual meeting of shareholders, either in person or by teleconference. LastAll trustees attended last year’s annual meeting was delayed and two of our trustees were unable to attend at the rescheduled time; the other four members of the Board of Trustees were presenteither in person or by teleconference at last year’s annual meeting.teleconference.

Compensation of the Trustees

Effective May 15, 2002 and through October 28, 2003, each trustee who was not an officer of Paragon, except Duane Lund, our former Chief Executive Officer, as explained below, was to receive a retainer of $5,000 per year, $200 for each meeting attended in person, $100 for each meeting attended via teleconference and 50,000 options to purchase common shares which are to vest six months after issuance and to expire 90 days after the term of the trustee ends. Mr. Lund, who served in both capacities as a trustee and executive officer of Paragon during the period from May 15, 2002 until April 7, 2003, received compensation for serving as a trustee. Mr. Mastandrea and Mr. Dee, who served in both capacities as trustees and executive officers of Paragon beginning on March 3, 2003, did not receive any compensation for serving as trustees. Also, Mr. Carter, Mr. DeVos, and Mr. Oliver did not receive the 50,000 options to purchase common shares.

Effective October 28, 2003, each trustee who is not an officer of Paragon was to receivereceives a retainer of $5,000 per year,annually, $500 for each meeting attended in person, $200 for each meeting attended via teleconference, 25,000 common share options to purchase common shares which are to vest one year after issuance and to expire 90 days after the term of the trustee ends and 50,000 restricted common shares that will vest one year after their issuance. Effective October 28, 2003,June 15, 2004, 100,000 common share options at an exercise price of $0.22$0.18 per common share and 200,000 restricted common shares were issued.issued to our non-management trustees.

During the year ended December 31, 2003, trusteesTrustees were paid approximately $33,000$27,000 for retainers and as of December 31, 2003, Paragon has accrued $19,000 for related amounts due.meetings in 2004.

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auditors. The audit committee held four meetings in 2003.2004. See pages 13 and 14page 20 of this proxy statement for additional information regarding the audit committee.

Management, Organization and Compensation Committee

Our management, organization and compensation committee consists of Mr. Carter, who serves as Chairman, of this committee and Mr. DeVos, Mr. Lambert and Mr. Oliver. During 2003, this2004, the committee held three meetings.did not hold any meetings and acted by written consent four times. The committee makes recommendations and exercises all powers of the Board of Trustees in connection with certain compensation matters, including incentive compensation and benefit plans. The committee administers, and has authority to grant awards under, our 19982004 Share Option Plan.

Nominating Process

The Board of Trustees does not currently have a nominating committee. Instead, the Board believes it is in the best interests of the company to rely on the insight and expertise of all trustees in the nominating process. In accordance with Amex rules, the Board has adopted a resolution regarding Paragon’s nominating process relating to the election of trustees.

The Chairman of the Board generally recommends qualified candidates for trustee and candidates are approved by the entire Board of Trustees. Candidates are considered by the Chairman and the Board of Trustees according to their business and real estate experience, relationships, and knowledge that they can contribute to the company. Candidates must also possess a high degree of personal integrity and be willing to devote their time and efforts to Paragon. Candidates are considered without regard to age, race, color, sex, religion, disability or national origin. We do not use a third party to locate or evaluate potential candidates for trustee. In addition to the above process, as part of an agreement approved by shareholders on June 30, 2003, Mr. Mastandrea can appoint five trustees to the Board provided he remains as our Chairman orand Chief Executive Officer. Mr. Mastandrea has not exercised this right.

It is the policy of the Board of Trustees to consider nominees recommended by shareholders according to the same criteria. A shareholder desiring to nominate a trustee for election at our 2005 annual meeting of shareholders must deliver a notice, in accordance with the requirements of our bylaws, to our Chief Financial Officer at our principal executive office no earlier than

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and as to the shareholder giving the notice

•	•	the name and record address of the shareholder, and
•	•	the class and number of our shares beneficially owned by the shareholder.

We may require any proposed nominee to furnish additional information reasonably required by us to determine the eligibility of the proposed nominee to serve as our trustee.

Code of Ethics

On January 14, 2004, our Board of Trustees adopted a code of conduct and ethics that applies to all officers, trustees and employees of Paragon, including our principal executive officer, principal financial officer, principal accounting officer, and any person performing similar functions. The code was filed with our December 31, 2003 annual report on Form 10-KSB as Exhibit 14.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 requires Paragon’s officers, trustees and persons who own more that 10% of our shares to file reports of ownership and changes in ownership with the SEC. Officers, trustees and greater than 10% shareholders are required by regulation to furnish us with copies of all Section 16(a) forms they file.

Separate Form 4s filed by Mr. Carter, Mr. DeVos, Mr. Lambert and Mr. Oliver, each reporting one award of restricted shares and one grant of share options, were not filed on a timely basis. Based solely on review of the copies of the forms furnished to us, or written representations that no Annual Statements of Beneficial Ownership of Securities on Form 5 were required to be filed, we believe that for the fiscal year ended December 31, 2003, all other Section 16(a) filing requirements applicable to our officers, trustees and greater than 10% shareholders were complied with in 2003.

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AUDIT COMMITTEE REPORTAudit Committee Report

Our audit committee operates under a written charter setting forth the committee’s responsibilities and authority. This charter, attachedfiled with the SEC as Annex B,an appendix to our 2004 proxy statement, was amended and restated by Paragon on November 17, 2003 to fully comply with new SEC rules and Amex listing requirements adopted pursuant to the Sarbanes-Oxley Act of 2002. The charter is reviewed and assessed annually by the audit committee.

Our audit committee assists the Board in fulfilling its responsibility of overseeing the quality and integrity of our accounting, auditing and financial reporting practices. The audit committee is directly responsible for the engagement of Paragon’s independent auditor and reviews and approves all services performed for us by the independent auditor. The audit committee also reviews the independent auditor’s internal quality control procedures, reviews all relationships between the independent auditor and Paragon in order to assess the auditor’s independence, and monitors compliance with our policy regarding non-audit services, if any, rendered by the independent auditor. In addition, the audit committee ensures the regular rotation of the lead audit partner. The audit committee has also established procedures to receive and respond to complaints received by Paragon regarding accounting, internal accounting controls, or auditing matters and allows for the confidential, anonymous submission of concerns by employees.

In connection with our December 31, 2003,2004, audited financial statements, the audit committee reviewed and discussed the financial statements with management. The audit committee also discussed with our independent auditors, Boulay, Heutmaker, Zibell & Co., P.L.L.P., the matters required by Statement on Auditing Standards No. 61, “Communication with Audit Committees.”

In discharging its oversight responsibility as to the audit process, the audit committee obtained from our independent auditors a formal written statement describing all relationships between the independent auditor and us that might bear on the auditors’ independence consistent with Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” and discussed with the auditors any relationships that may impact their objectivity and independence. In considering the auditors’ independence, the audit committee also considered whether the non-audit services performed by the auditors on our behalf were compatible with maintaining the independence of the auditors.

Based on the audit committee’s review and discussions with management and our independent auditors, the audit committee recommended to the Board that our audited financial statements be included in our Annual Report on Form 10-KSB for the year ended December 31, 2003,2004, for filing with the SEC.

13Audit Committee
Michael T. Oliver
Daryl J. Carter
Daniel G. DeVos
Paul T. Lambert

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Principal Accounting Firm Fees and Services

The aggregate fees billed to the company by our principal independent registered public auditor,accountant, Boulay, Heutmaker, Zibell & Co., P.L.L.P., for the fiscal years ended December 31, 20032004 and 20022003 are as follows: