REVOLVING PROMISSORY NOTE

$8,352,921.00 As of December 23, 2004

East Lyme Housing Ventures, LLC
c/o Wellsford Real Properties, Inc.
535 Madison Avenue
New York, New York 10022
(Hereinafter referred to as “Borrower”)

Wachovia Bank, National Association
300 Main Street
Stamford, Connecticut 06901
(Hereinafter referred to as “Bank”)

Borrower promises to pay to the order of Bank, in lawful money of the United
States of America, at its office indicated above or wherever else Bank may
specify, the sum of Eight Million Three Hundred Fifty-Two Thousand Nine Hundred
Twenty-One and No/100 Dollars ($8,352,921.00) or such sum as may be advanced and
outstanding from time to time, with interest on the unpaid principal balance at
the rate and on the terms provided in this Revolving Promissory Note (including
all renewals, extensions or modifications hereof, this “Note”).

LOAN AGREEMENT. This Note is subject to the provisions of that certain
Commercial Revolving and Construction Loan Agreement between Bank and Borrower
of even date herewith, as modified from time to time (the “Loan Agreement”) and
evidences the “Revolving Loan” as defined therein. Pursuant to the Loan
Agreement, the Revolving Loan is available to pay for certain budgeted
construction costs relating to the Project (as defined in the Loan Agreement).

COMMERCIAL REVOLVING CONSTRUCTION LOAN. Borrower may borrow, repay and reborrow,
and, upon the request of Borrower, Bank shall advance and readvance under this
Note from time to time until the maturity hereof (each an “Advance” and together
the “Advances”), so long as the total principal balance outstanding under this
Note at any one time does not exceed the principal amount stated on the face of
this Note, subject to the limitations described in the Loan Agreement. The
aggregate amount that may be advanced hereunder shall not exceed $28,652,847.00.
Bank’s obligation to make Advances under this Note shall terminate if Borrower
is in Default. As of the date of each proposed Advance, Borrower shall be deemed
to represent that each representation made in the Loan Documents is true as of
such date.

USE OF PROCEEDS. Borrower shall use the proceeds of the loan(s) evidenced by
this Note for the commercial purposes of Borrower, as follows: Commercial
Revolving Construction Loan.

INTEREST RATE. Interest shall accrue on the unpaid principal balance of this
Note from the date hereof at the LIBOR Market Index Rate plus 2.15%, as that
rate may change from day to day in accordance with changes in the LIBOR Market
Index Rate (“Interest Rate”). “LIBOR Market Index Rate”, for any day, means the
rate for 1 month U.S. dollar deposits as reported on Telerate page 3750 as of
11:00 a.m., London time, on such day, or if such day is not a London business
day, then the immediately preceding London business day (or if not so reported,
then as determined by Bank from another recognized source or interbank
quotation). Provided no Default (defined below) has occurred, upon the
conveyance of the forty-seventh (47th) residential home/unit (a “Unit”) at the
project known as The Orchards at East Lyme that has been mortgaged by Borrower
to Bank as security for this Note, the Interest Rate shall be reduced to the
LIBOR Market Index Rate plus 2.0%, as that rate may change from day to day in
accordance with changes in the LIBOR Market Index Rate.

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DEFAULT RATE. In addition to all other rights contained in this Note, if a
Default (as defined herein) occurs and as long as a Default continues, all
outstanding Obligations, other than Obligations under any swap agreements (as
defined in 11 U.S.C. § 101) between Borrower and Bank or its affiliates, shall
bear interest at the Interest Rate plus 4% (“Default Rate”). The Default Rate
shall also apply from acceleration until the Obligations or any judgment thereon
is paid in full.

INTEREST AND FEES COMPUTATION. Interest and fees, if any, shall be computed on
the basis of a 360-day year for the actual number of days in the applicable
period (“Actual/360 Computation”). The Actual/360 Computation determines the
annual effective interest yield by taking the stated (nominal) rate for a year’s
period and then dividing said rate by 360 to determine the daily periodic rate
to be applied for each day in the applicable period. Application of the
Actual/360 Computation produces an annualized effective rate exceeding the
nominal rate.

REPAYMENT TERMS. This Note shall be due and payable in consecutive monthly
payments of accrued interest only, commencing on January 1, 2005, and continuing
on the same day of each month thereafter until fully paid. In any event, all
principal and accrued interest shall be due and payable on December 11, 2007.
The term of this Note may be extended for one (1) year, to December 1, 2008, if
(1) there is no Default then occurring, (2) at least 42 Units have been conveyed
to third party purchasers, (3) an additional five (5) Qualifying Agreements (as
defined in the Loan Agreement) have been executed for Units, and (4) Borrower
pays Bank an extension fee equal to 0.15% of the outstanding principal balance
of the Loan plus any unadvanced principal. A second one (1) year extension, to
December 1, 2009, shall be granted if (i) there is no Default hereunder, (ii) at
least 70 Units have been sold to third party purchasers, and (iii) Borrower pays
Bank an extension fee equal to 0.25% of the outstanding principal balance of the
Loan plus any unadvanced principal.

PREPAYMENT. This Note may be prepaid in whole or in part at any time without
penalty.

APPLICATION OF PAYMENTS. Monies received by Bank from any source for application
toward payment of the Obligations shall be applied to accrued interest and then
to principal, subject to the allocation provisions (Partial Releases and Sales
Benchmarks) in the Loan Agreement relating to the sale of Units (as defined
therein); provided, however, that, except as otherwise directed by the payer of
such amounts, any such monies shall be applied to principal unless the funds in
the interest reserve are not sufficient to pay any interest that is due and
payable. If a Default occurs, monies may be applied to the Obligations in any
manner or order deemed appropriate by Bank.

If any payment received by Bank under this Note or other Loan Documents is
rescinded, avoided or for any reason returned by Bank because of any adverse
claim or threatened action, the returned payment shall remain payable as an
obligation of all persons liable under this Note or other Loan Documents as
though such payment had not been made.

DEFINITIONS. Loan Documents. The term “Loan Documents”, as used in this Note,
refers to all documents executed in connection with or related to the loan
evidenced by this Note and any prior notes which evidence all or any portion of
the loan evidenced by this Note, and any letters of credit issued pursuant to
any loan agreement to which this Note is subject, any applications for such
letters of credit and any other documents executed in connection therewith or
related thereto, and may include, without limitation, a commitment letter that
survives closing, a loan agreement, this Note, guaranty agreements, security
agreements, security instruments, financing statements, mortgage instruments,
any renewals or modifications, whenever any of the foregoing are executed, but
does not include swap agreements (as defined in 11 U.S.C. § 101). Obligations.
The term “Obligations”, as used in this Note, refers to any and all indebtedness
and other obligations under this Note, all other obligations under any other
Loan Document(s), and all obligations under any swap agreements (as defined in
11 U.S.C. § 101) between Borrower and Bank, or its affiliates, whenever
executed. Certain Other Terms. All terms that are used but not otherwise defined
in any of the Loan Documents shall have the definitions provided in the Uniform
Commercial Code in effect in the State of Connecticut.

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LATE CHARGE. If any payments are not timely made, Borrower shall also pay to
Bank a late charge equal to 5% of each payment past due for 10 or more days.

Acceptance by Bank of any late payment without an accompanying late charge shall
not be deemed a waiver of Bank’s right to collect such late charge or to collect
a late charge for any subsequent late payment received.

ATTORNEYS’ FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of Bank’s
reasonable expenses incurred to enforce or collect any of the Obligations
including, without limitation, reasonable arbitration, paralegals’, attorneys’
and experts’ fees and expenses, whether incurred without the commencement of a
suit, in any trial, arbitration, or administrative proceeding, or in any
appellate or bankruptcy proceeding.

USURY. If at any time the effective interest rate under this Note would, but for
this paragraph, exceed the maximum lawful rate, the effective interest rate
under this Note shall be the maximum lawful rate, and any amount received by
Bank in excess of such rate shall be applied to principal and then to fees and
expenses, or, if no such amounts are owing, returned to Borrower.

DEFAULT. If any of the following occurs, a default (“Default”) under this Note
shall exist: Nonpayment; Nonperformance. The failure of timely payment or
performance of the Obligations or Default under this Note or any other Loan
Documents. False Warranty. A warranty or representation made or deemed made in
the Loan Documents or furnished Bank in connection with the loan evidenced by
this Note proves materially false, or if of a continuing nature, becomes
materially false. Cross Default. At Bank’s option, any default in payment or
performance of any obligation under any other loans, contracts or agreements of
Borrower with Bank or its affiliates. Cessation; Bankruptcy. The death of,
appointment of a guardian for, dissolution of, termination of existence of, loss
of good standing status by, appointment of a receiver for, assignment for the
benefit of creditors of, or commencement of any bankruptcy or insolvency
proceeding by or against Borrower or any guarantor of the Loan. Material
Business Alteration. Without prior written consent of Bank, unless the Loan is
repaid in full contemporaneously therewith, (i) a material alteration in the
kind or type of Borrower’s business; the sale of substantially all of the
business or assets of Borrower, other than (x) sales pursuant to any Qualifying
Agreement as defined in the Loan Agreement or (y) sales of additional membership
units (so long as sold at market value) in Borrower; (ii) the sale of a material
portion (10% or more) of Borrower’s business or assets if such a sale is outside
the ordinary course of business of Borrower, or the sale of more than 50% of the
outstanding membership interests in the Borrower in a single transaction or a
series of transactions; (iii) the acquisition of substantially all of Borrower’s
business or assets or the sale of more than 50% of the outstanding membership
interests in the Borrower; or (iv) should Borrower enter into any merger or
consolidation; provided, however, that nothing contained in the foregoing
clauses (i) through (iii) shall be construed as to restrict (a) a transfer of a
non-controlling interest in the Borrower and (b) a transfer of any of the stock
of the Managing Member of the Borrower so long as Jeffrey Lynford continues to
either be the Chief Executive Officer of the Managing Member or hold a senior
position in the Managing Member holding decision making authority with respect
to the Project, and no such transfer described in the foregoing clauses (a) or
(b) shall constitute a default hereunder. Notwithstanding any other provision of
this Note, any Default by Borrower of an obligation to make a payment under this
Note (a “Payment Default”) shall be subject to a ten (10) day cure period
(without requiring written notice), and any default of any other obligation of
Borrower shall be subject to a cure period of thirty (30) days after written
notice of such default. Furthermore, in the event that any Default that is not a
Payment Default cannot reasonably be cured within such thirty (30) day cure
period, such cure period shall be extended so long as (v) such default is bonded
over by Borrower, (w) Borrower has commenced such cure within the initial thirty
(30) day cure period, (x) Borrower diligently pursues such cure to completion,
(y) such default is resolved within ninety (90) days from the initial occurrence
thereof, and (z) such delay in the cure does not materially injure Bank.

REMEDIES UPON DEFAULT. If a Default occurs beyond applicable notice and grace or
cure periods under this Note or any Loan Documents, Bank may at any time
thereafter, take the following actions:  Bank Lien. Foreclose its security
interest or lien against Borrower’s accounts without notice.

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Acceleration Upon Default. Accelerate the maturity of this Note and, at Bank’s
option, any or all other Obligations, other than Obligations under any swap
agreements (as defined in 11 U.S.C. § 101) between Borrower and Bank, or Bank’s
affiliates, which shall be governed by the default and termination provisions of
said swap agreements; whereupon this Note and the accelerated Obligations shall
be immediately due and payable; provided, however, if the Default is based upon
a bankruptcy or insolvency proceeding commenced by or against Borrower or any
guarantor or endorser of this Note and such bankruptcy or insolvency proceeding
has not been dismissed within ninety (90) days from the commencement thereof,
all Obligations (other than Obligations under any swap agreement as referenced
above) shall automatically and immediately be due and payable. Cumulative.
Exercise any rights and remedies as provided under the Note and other Loan
Documents, or as provided by law or equity.

WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of this Note and
other Loan Documents shall be valid unless in writing and signed by an officer
of Bank and Borrower. No waiver by Bank of any Default shall operate as a waiver
of any other Default or the same Default on a future occasion. Neither the
failure nor any delay on the part of Bank in exercising any right, power, or
remedy under this Note and other Loan Documents shall operate as a waiver
thereof, nor shall a single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.

Each Borrower or any person liable under this Note waives presentment, protest,
notice of dishonor, demand for payment, notice of intention to accelerate
maturity, notice of acceleration of maturity, notice of sale and all other
notices of any kind, except to the extent any such notice is specifically
required hereunder. Further, each agrees that Bank may extend, modify or renew
this Note or make a novation of the loan evidenced by this Note for any period,
and grant any releases, compromises or indulgences with respect to any
collateral securing this Note, or with respect to any other Borrower or any
other person liable under this Note or other Loan Documents, all without notice
to or consent of each Borrower or each person who may be liable under this Note
or any other Loan Document and without affecting the liability of Borrower or
any person who may be liable under this Note or any other Loan Document.

MISCELLANEOUS PROVISIONS. Assignment. This Note and the other Loan Documents
shall inure to the benefit of and be binding upon the parties and their
respective heirs, legal representatives, successors and assigns. Bank’s
interests in and rights under this Note and the other Loan Documents are freely
assignable, in whole or in part, by Bank. In addition, nothing in this Note or
any of the other Loan Documents shall prohibit Bank from pledging or assigning
this Note or any of the other Loan Documents or any interest therein to any
Federal Reserve Bank. Borrower shall not assign its rights and interest
hereunder without the prior written consent of Bank, and any attempt by Borrower
to assign without Bank’s prior written consent is null and void. Any assignment
shall not release Borrower from the Obligations. Applicable Law; Conflict
Between Documents. This Note and, unless otherwise provided in any other Loan
Document, the other Loan Documents shall be governed by and construed under the
laws of the state named in Bank’s address on the first page hereof without
regard to that state’s conflict of laws principles. If the terms of this Note
should conflict with the terms of any loan agreement or any commitment letter
that survives closing, the terms of this Note shall control. Borrower’s
Accounts. Except as prohibited by law, Borrower grants Bank a security interest
in all of Borrower’s accounts with Bank and any of its affiliates. Jurisdiction.
Borrower irrevocably agrees to non-exclusive personal jurisdiction in the state
named in Bank’s address on the first page hereof. Severability. If any provision
of this Note or of the other Loan Documents shall be prohibited or invalid under
applicable law, such provision shall be ineffective but only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Note or other such document.
Notices. Any notices to Borrower shall be sufficiently given, if in writing and
mailed or delivered to the Borrower’s address shown above or such other address
as provided hereunder, and to Bank, if in writing and mailed or delivered to
Wachovia Bank, National Association, 300 Main Street, Stamford, Connecticut
06904, Attention: Real Estate Financial Services or such other address as Bank
may specify in writing from time to time. In the event that Borrower changes
Borrower’s address at any time prior to the date the Obligations are paid in
full, Borrower agrees to promptly give written notice of said change of address
by registered or certified mail, return receipt requested, all charges prepaid.
Plural; Captions. All references in the Loan Documents to Borrower, guarantor,
person, document or other nouns of reference

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mean both the singular and plural form, as the case may be, and the term
“person” shall mean any individual, person or entity. The captions contained in
the Loan Documents are inserted for convenience only and shall not affect the
meaning or interpretation of the Loan Documents. Advances. Bank may, in its sole
discretion, make other advances which shall be deemed to be advances under this
Note, even though the stated principal amount of this Note may be exceeded as a
result thereof. Posting of Payments. All payments received during normal banking
hours after 2:00 p.m. local time at the office of Bank first shown above shall
be deemed received at the opening of the next banking day. Joint and Several
Obligations. Each person who signs this Note as a Borrower (as defined herein)
is jointly and severally obligated. Fees and Taxes. Borrower shall promptly pay
all documentary, intangible recordation and/or similar taxes on this transaction
whether assessed at closing or arising from time to time.

LIMITATION ON LIABILITY; WAIVER OF PUNITIVE DAMAGES. EACH OF THE PARTIES HERETO,
INCLUDING BANK BY ACCEPTANCE HEREOF, AGREES THAT IN ANY JUDICIAL, MEDIATION OR
ARBITRATION PROCEEDING OR ANY CLAIM OR CONTROVERSY BETWEEN OR AMONG THEM THAT
MAY ARISE OUT OF OR BE IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE LOAN
DOCUMENTS OR ANY OTHER AGREEMENT OR DOCUMENT BETWEEN OR AMONG THEM OR THE
OBLIGATIONS EVIDENCED HEREBY OR RELATED HERETO, IN NO EVENT SHALL ANY PARTY HAVE
A REMEDY OF, OR BE LIABLE TO THE OTHER FOR, (1) INDIRECT, SPECIAL OR
CONSEQUENTIAL DAMAGES OR (2) PUNITIVE OR EXEMPLARY DAMAGES. EACH OF THE PARTIES
HEREBY EXPRESSLY WAIVES ANY RIGHT OR CLAIM TO PUNITIVE OR EXEMPLARY DAMAGES THEY
MAY HAVE OR WHICH MAY ARISE IN THE FUTURE IN CONNECTION WITH ANY SUCH
PROCEEDING, CLAIM OR CONTROVERSY, WHETHER THE SAME IS RESOLVED BY ARBITRATION,
MEDIATION, JUDICIALLY OR OTHERWISE. Patriot Act Notice. To help fight the
funding of terrorism and money laundering activities, Federal law requires all
financial institutions to obtain, verify, and record information that identifies
each person who opens an account. For purposes of this section, “account” shall
be understood to include loan accounts.

WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF
BORROWER BY EXECUTION HEREOF AND BANK BY ACCEPTANCE HEREOF, KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT EACH MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION
WITH THIS NOTE, THE LOAN DOCUMENTS OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED
IN CONNECTION WITH THIS NOTE, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY WITH RESPECT
HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT TO BANK TO ACCEPT THIS NOTE.
EACH OF THE PARTIES AGREES THAT THE TERMS HEREOF SHALL SUPERSEDE AND REPLACE ANY
PRIOR AGREEMENT RELATED TO ARBITRATION OF DISPUTES BETWEEN THE PARTIES CONTAINED
IN ANY LOAN DOCUMENT OR ANY OTHER DOCUMENT OR AGREEMENT HERETOFORE EXECUTED IN
CONNECTION WITH, RELATED TO OR BEING REPLACED, SUPPLEMENTED, EXTENDED OR
MODIFIED BY, THIS NOTE.

CONNECTICUT PREJUDGMENT REMEDY WAIVER. BORROWER ACKNOWLEDGES THAT THE
TRANSACTIONS REPRESENTED BY THIS NOTE ARE COMMERCIAL TRANSACTIONS AND HEREBY
VOLUNTARILY AND KNOWINGLY WAIVES ANY RIGHTS TO NOTICE OF AND HEARING ON
PREJUDGMENT REMEDIES UNDER CHAPTER 903A OF THE CONNECTICUT GENERAL STATUTES OR
OTHER STATUTES AFFECTING PREJUDGMENT REMEDIES, AND AUTHORIZES THE BANK’S
ATTORNEY TO ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER, PROVIDED
THE COMPLAINT SHALL SET FORTH A COPY OF THIS WAIVER.

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IN WITNESS WHEREOF, Borrower, on the day and year first above written, has
caused this Note to be executed under seal.

PLACE OF EXECUTION AND DELIVERY. Borrower hereby certifies that this Note and
the Loan Documents were executed in the State of Connecticut and delivered to
Bank in the State of Connecticut.

  EAST LYME HOUSING VENTURES, LLC

  By: Wellsford Real Properties, Inc.
Its Managing Member

    By: /s/ William H. Darrow II

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      Name:        William H. Darrow II
Title:          Vice President

Borrower's Taxpayer Identification Number: 20-0685100

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