Mercury Partners Expresses Serious Concern to Capital Properties Board of Directors

Mercury Partners Expresses Serious Concern to Capital Properties
Board of Directors 


GREENWICH, Conn., Aug. 18  /PRNewswire/ -- Mercury Special Situations Fund LP,
an affiliate of Mercury Partners LLC, a real estate investment management
company based in Greenwich, CT, made public today a letter sent to the
independent Board of Directors of Capital Properties, Inc. (AMEX:CPI).

                    Mercury Special Situations Fund LP
                           100 Field Point Road
                           Greenwich, CT 06830

                                                    August 17, 2004

   Capital Properties, Inc.
   100 Dexter Road
   East Providence, RI 02914

   Attn:  Mr. Harold J. Harris
          Mr. Harris N. Rosen
          Mr. Henry S. Woodbridge

  Gentlemen:



We are writing to you as the three independent members of the Board of
Directors of Capital Properties, Inc. (the "Company" or "CPI") to express our
outrage concerning a recent Company request of the American Stock Exchange (the
"AMEX"). As you are aware, and as described in the Company's Securities and
Exchange Commission Form 10-QSB filing dated August 12, 2004, CPI petitioned
the AMEX in July for consent to extend the outside date for the Company to make
a REIT election from March 31, 2005 to March 2011.

As dedicated real estate investors and significant shareholders in the Company,
we find this course of action both disgraceful and totally unacceptable for a
number of reasons. First, we (and undoubtedly other investors) invested in CPI
in direct reliance upon the Company's clear commitment to either elect REIT
status or not in early 2005. We also invested despite an intense dislike of the
Company's share ownership limitations. However, based on our evaluation of
CPI's financial statements and assets, we felt it was extremely unlikely that
the Board would elect REIT status for the Company by 2005. Thus, we assumed
that the Board would honor its unambiguous commitment if the REIT election were
not made: the Class B Common Stock would automatically be converted into a
single Class A Common Stock, which class would elect all Directors, and the
offensive 5% ownership limitation would "automatically lapse."

This unequivocal commitment to either elect REIT status by March 31, 2005 or
let the ownership limitations automatically lapse has been consistent and
steadfast since the Company's November 14, 2001 Information Statement to
shareholders. In that statement, the Company advised of this amendment to its
Articles of Incorporation, but also advised minority shareholders they had no
need to vote in this matter, as the change had already been approved by written
consent by the Chairman of the Board of Directors, Mr. Robert Eder, since he
owned 52.3% of the common shares. At that time, the Board of Directors also
unanimously approved the proposal to amend the Company's Articles of
Incorporation. Since November 2001, the Company has reiterated its commitment
to this position in both the Company's amended Articles of Incorporation and
ongoing public filings, all in identical language, as follows: "If the Company
does not make an election to be taxed as a REIT on or before March 31, 2005,
the restrictions on share ownership will automatically lapse and the Class B
Common Shares will automatically be converted into Class A common shares on a
one for one basis."

Given your repeated statements and the amended Articles of Incorporation, we
are flabbergasted that the Board has the mendacity to attempt to breach its
commitment to shareholders. Moreover, we are shocked that the Company would
attempt this shareholder pillaging in such an underhanded and clandestine
fashion. Given that you petitioned the AMEX for this shameful extension on July
7, 2004, the desired change was apparently intended to be portrayed to minority
shareholders as a fait accompli, much like the original amendment. Describing
this proposed reversal publicly in only one small paragraph buried on page 11
of the most recent CPI Form 10-Q makes this brazen attempt even more
duplicitous.

Second, as the Board virtually admits in the Information Statement, both the
dual class of stock and restrictive ownership limitations are meant to entrench
current ownership: ("The right of the holders of the Class B Common Stock to
elect approximately two-thirds of the Board allows the Eders to reduce the
ownership of Class A Common stock without disrupting the management of the
Company." Schedule 14C Information Statement, page 23 (italics ours)). Although
we would hate to inconvenience the Eders' plans, we would point out that the
role of management and the Board is to maximize shareholder value for all
shareholders, not just the largest shareholder. Unfortunately, we have also
come to believe that CPI is a Company where management has an obvious conflict
of interest and both deserves and apparently needs to be disrupted in order to
meet its fiduciary responsibilities to all of its shareholders.

Finally, the Board bases the need for these bogus ownership limitations on the
future possibility of electing REIT status in 2011. The Board readily admits
such election will not occur in the next several years and might well never
happen in the future. Given the Board's track record for honoring its
commitments, how should shareholders assess the possibility that CPI will again
seek an extension of its share limitations in 2010 for the year 2018, or 2025?
At any rate, the Board should be well aware that any company may elect REIT
status in any year and therefore this transparent strategy is merely
gamesmanship to entrench management and maximize its control over the Company
at the expense of the shareholder. Speculating that Mr. Eder, or the
unaffiliated Mr. Gad, will own shares in 2011 is simply not a credible or
responsible basis for having artificially restricted minority shareholder
ownership for the last four years and further restricting ownership for all
other shareholders over the next seven years.

If Mr. Eder wishes to make corporate decisions on a personally unfettered,
unilateral basis without meddling, troublesome minority shareholders, he should
take the Company private (at a fair price, of course). If, however, he wishes
for CPI to remain a public company, both he and the Board of Directors should
stop their attempts to unfairly disenfranchise minority shareholders. With the
passage of Sarbanes-Oxley and a new focus on corporate governance, one would
hope that management and the Board would at least make a superficial attempt to
deal fairly with its small shareholders.

We have already objected to this proposal with the AMEX, and intend to pursue
all other appropriate avenues to stop this unnecessary and offensive change
from happening. Our message to the Board is quite simple: you made the rules
about electing REIT status, now you must live by them. Either elect REIT status
by March 31, 2005 or, as you have repeatedly committed, let the repellent and
obnoxious ownership limitations and multiple classes of common shares structure
automatically lapse.  Retract your request from the AMEX and finally take the
high road for all your shareholders, to whom you owe a fiduciary
responsibility.

   Sincerely,

   David R. Jarvis                Malcolm F. MacLean IV
   General Partner                General Partner


DATASOURCE: Mercury Special Situations Fund LP



CONTACT:  Malcolm F. MacLean IV, [phone], for Mercury Special

Situations Fund LP

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